FinanceLooker

Excrept from filing document 2025-02-28

As of August 31 2024 the aggregate market value of the registrant s common stock held by non affiliates of the registrant was 2 433 487 830 based on the closing sale price as reported on the New York Stock Exchange As of April 15 2025 there were 29 913 085 shares of the registrant s common stock 1 00 par value outstanding
Portions of the registrant s Proxy Statement for its 2024 Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10 K are incorporated by reference into Part III Items 10 14 of this Annual Report on Form 10 K
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 could should expects plans will might would projects currently intends outlook forecasts targets 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 Forward looking statements speak only as of the date they are made and are subject to risks that could cause them to differ materially from actual results Certain factors could affect the outcome of the matters described herein This Annual Report on Form 10 K may contain forward looking statements that involve risks and uncertainties including but not limited to changes in customer demand for our manufactured solutions including demand by the construction markets the industrial markets and the metal coatings markets We could also experience additional increases in labor costs components and raw materials including zinc and natural gas which are used in our hot dip galvanizing process
ays in additional acquisition opportunities an increase in our debt leverage and or interest rates on our debt of which a significant portion is tied to variable interest rates availability of experienced management and employees to implement AZZ s growth strategy a downturn in market conditions in any industry relating to the manufactured solutions that we provide economic volatility including a prolonged economic downturn or macroeconomic conditions such as inflation or changes in the political stability in the United States and other foreign markets in which we operate tariffs acts of war or terrorism inside the United States or abroad and other changes in economic and financial conditions For further information on risks and uncertainties beyond those listed here see Item 1A Risk Factors herein as well as other risks that are described from time to time in our SEC reports as filed You are urged to consider these factors carefully when 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
AZZ Inc AZZ the Company our or we was established in 1956 and incorporated under the laws of the state of Texas We are a provider of hot dip galvanizing and coil coating solutions to a broad range of end markets in North America We have three distinct operating segments the AZZ Metal Coatings segment the AZZ Precoat Metals segment and the AZZ Infrastructure Solutions segment Our AZZ Metal Coatings segment is a leading provider of metal coating solutions for corrosion protection including hot dip galvanizing spin galvanizing powder coating anodizing and plating to the North American steel fabrication industry and other industries The AZZ Precoat Metals segment provides aesthetic and corrosion protective coatings and related value added services for steel and aluminum coil primarily serving the construction appliance heating ventilation and air conditioning HVAC container transportation and other end markets in North America The AZZ Infrastructure Solutions segment represents our 40 non controlling interest in AIS Investment Holdings LLC the AVAIL JV AIS Investment Holdings LLC is primarily 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
AZZ is North America s leading independent post fabrication hot dip galvanizing and coil coating solutions company with leading positions in markets we serve Our business segments provide sustainable unmatched metal coating solutions that reduce emissions extend the lifecycle and enhance the appearance of buildings products and infrastructure that are essential to everyday life We strive to provide high quality manufactured solutions to our customers while delivering long term value to our shareholders by
Our business is cyclical in nature as seasonal fluctuations affect volumes revenue and earnings Historically we experience increases in our business during the warmer months and slowdowns during the winter as the largest portion of our business is related to the construction industry Volumes operating costs and earnings can also be adversely affected by inclement weather especially the impact of severe winter weather in our fourth fiscal quarter
The AZZ Metal Coatings segment provides hot dip galvanizing spin galvanizing powder coating anodizing and plating and other metal coating applications to the steel fabrication industry and other industries through facilities located throughout North America Hot dip galvanizing is a metallurgical manufacturing process in which molten zinc reacts with steel which provides corrosion protection and extends the lifecycle of fabricated steel for several decades As of February 28 2025 we operated 41 galvanizing plants six surface technologies plants and one tubing plant located in various locations throughout the United States and Canada
Metal coating is a highly competitive business and we compete with other galvanizing companies captive galvanizing facilities operated by manufacturers and alternate forms of corrosion protection such as material selection stainless steel or aluminum or alternative barrier protections such as paint and weathering steel Our galvanizing markets are generally limited to areas within relatively close proximity to our metal coating plants
We typically serve fabricators or manufacturers that provide solutions to the transmission and distribution bridge and highway petrochemical and general industrial markets and numerous original equipment manufacturers We do not depend on any single customer for a significant amount of our sales and we do not believe the loss of any single customer would have a material adverse effect on our consolidated sales or net income
Zinc the principal raw material used in the galvanizing process is currently readily available but can be subject to volatile pricing We manage our exposure to changes in our cost of zinc by entering into agreements with our zinc suppliers and such agreements generally include fixed premiums We may or may not continue to use these or other strategies to manage commodity risk in the future
For additional information on the AZZ Metal Coatings segment s operating results see Item 7 Management s Discussion and Analysis Results of Operations For additional financial information by segment see Item 8 Financial Statements and Supplementary Data Note 18
AZZ Precoat Metals provides coil coating application of protective and decorative coatings and related value added downstream processing for steel and aluminum coils Primarily serving the construction appliance heating ventilation and air conditioning HVAC container transportation and other end markets the coil coating process emphasizes sustainability and enhanced product lifecycles It involves cleaning treating painting and curing metal coils as a flat material before they are cut formed and fabricated into finished products This highly efficient method optimizes waste through tight film control and improves final product performance by painting and curing the substrates under conditions unmatched by other application processes The acquisition of Precoat Metals in fiscal year 2023 finalized our goal of strategic transformation to position AZZ for the future as a focused metal coatings solutions company The AZZ Precoat Metals segment operates through 13 plants located in the United States with the newest facility in Washington Missouri which became operational in fiscal year 2026
AZZ Precoat Metals operates in a highly competitive industry where we compete with other toll coil coaters and integrated steel and aluminum mills We also face competition from alternative forms of coated metal such as powder coated metal or from other potential substrates such as wood plastics or concrete that could be used in place of painted metal
We primarily serve distributors fabricators and manufacturers that ultimately provide manufactured painted products to the construction appliance HVAC transportation container and general industrial markets as well as numerous original
equipment manufacturers We do not depend on any single customer for a significant amount of our sales and we do not believe the loss of any single customer would have a material adverse effect on our consolidated sales or net income
Paint and customer owned substrate availability are important for our toll coating process Although paint prices have risen in recent years we carry limited risk associated with paint cost as it is a pass through to our customer base There are currently no concerns regarding the availability of customer owned bare substrate as an input to our coil coating process
For additional information on the AZZ Precoat Metals segment s operating results see Item 7 Management s Discussion and Analysis Results of Operations For additional financial information by segment see Item 8 Financial Statements and Supplementary Data Note 18
AZZ s Infrastructure Solutions segment consists of the equity in earnings of our 40 investment in the AVAIL JV as well as other expenses directly related to AIS receivables and liabilities that were retained following the divestiture of the AIS business
The AVAIL JV is a leading provider of specialized products and services primarily designed to support industrial and electrical applications The segment s product offerings include custom switchgear electrical enclosures medium and high voltage bus ducts and explosion proof and hazardous duty lighting products which supports the delivery of safe and reliable transmission of power from generation sources to end customers In addition to our product offerings our AZZ Infrastructure Solutions segment also focuses on life cycle extension for the power generation refining and industrial infrastructure through providing automated weld overlay solutions for corrosion and erosion mitigation
On March 10 2025 AIS Investment Holdings LLC which operates under the name AVAIL Infrastructure Solutions entered into a definitive agreement to sell the electrical enclosures switchgear and bus systems businesses the Electrical Products Group of AVAIL to nVent Electric plc nVent for a purchase price of 975 million The transaction is expected to close in the first half of calendar year 2025 subject to customary closing conditions
At AZZ our culture is defined by trust respect accountability integrity teamwork and sustainability TRAITS We value our employees by continuously investing in a healthy work life balance offering competitive compensation and benefit packages and a team oriented environment centered on professional service and open communication among our employees We are dedicated to our employees by fully training and equipping them and providing a safe environment to grow personally and professionally We strive to build maintain and create a work environment that attracts and retains employees who are high contributors have outstanding skills are engaged in our culture and who embody our Company mission to create superior value in a culture where people can grow both professionally and personally and where TRAITS matter
Attracting developing and retaining the best talent in our industry is important to all aspects of AZZ s long term strategy and continued success We recognize that an engaged workforce directly contributes to our efforts to improve AZZ s sustainability and performance
As of February 28 2025 we employed approximately 3 684 people worldwide of which 3 358 were employed in the U S and 326 were employed in Canada Our total workforce consisted of approximately 83 hourly employees and 17 salaried employees Of our total employees as of February 28 2025 668 were covered by collective bargaining agreements
We embrace the diversity of our employees customers vendors suppliers stakeholders and consumers including their unique backgrounds experiences skills and talents Everyone is valued and appreciated for their distinct contributions to the growth and sustainability of our business
Equal Opportunity Employment is a fundamental principle of AZZ where employment and applications for employment are evaluated based upon a person s capabilities and qualifications without discrimination based on actual or perceived race color religion sex age national origin disability genetic information marital status veteran status sexual orientation or any other protected characteristic as established by applicable local state federal or international laws This principle is incorporated into each of our policies and procedures relating to recruitment hiring promotions compensation benefits discipline termination and all of our terms and conditions of employment We seek to continuously improve our hiring development advancement and retention of diverse talent and our overall diversity representation
We are committed to paying our employees competitive and fair compensation that is commensurate with their position and performance and is competitive in the markets in which they work We conduct regular surveys of the market rates for jobs to ensure that our compensation is competitive We offer annual merit based increases as well as annual short and long term incentive packages that are aligned with our vision and key business objectives and are intended to motivate strong performance
We believe our employees are critical to the success of our business and we structure our benefits package to attract and retain a highly talented and engaged workforce We are continuously evolving our programs to adapt to our employees and their family s needs and to provide comprehensive health wellness and quality of life coverage Our programs vary by location but most include the following benefits
We invest in and provide ongoing development and continuous learning opportunities for all of our employees AZZ supports enterprise wide professional development by offering a variety of instructor led and self paced learning programs ranging in audience from individual contributors to supervisors and executive leadership We also provide a variety of resources to help our employees grow professionally and personally and build new skills including i online development courses containing unlimited access to more than 4 500 learning modules ii continuing education credits and iii learning preferences such as in person seminars videos and webinars AZZ also provides tuition assistance for employees enrolled in higher education programs directed at improving their performance or helping them prepare for future leadership roles within the Company and emphasizes individual development training as part of our annual performance goal setting process
Periodically all employees have the opportunity and are encouraged to provide feedback on their employee experience through an anonymous employee survey The feedback received through this survey is used to drive actions to improve the overall experience for employees across the Company as well as to support continuous improvement in leader effectiveness and to enhance our corporate culture
Core to our corporate values AZZ emphasizes safeguarding our people and fostering a culture of safety awareness that promotes the wellbeing of our employees contractors and business partners We maintain a safety culture grounded on the premise of eliminating workplace incidents risks and hazards while operating and delivering our work responsibly and sustainably AZZ has created and implemented training and audit processes and incident learning communications to help mitigate safety events and to reduce the frequency and severity of accidents AZZ has safety teams and has a formal mentor training program that includes a diverse group of management and hourly employees that contribute to the overall safety culture of our facilities
We review and monitor safety performance closely Our goal is to achieve zero serious injuries through continued investments in core safety programs and injury reduction initiatives We utilize a mixture of leading and lagging indicators to assess the health and safety performance of our operations Lagging indicators include the Occupational Safety Health Administration i Total Recordable Incident Rate TRIR ii Lost Time or Lost Workday Incident Rate LTIR based upon the number of incidents per 100 employees or per 200 000 work hours and iii Days Away Restricted or Transferred rate DART Leading indicators include reporting of all near miss events as well as Environmental Health and Safety EHS coaching and engagement In fiscal year 2025 we continued to demonstrate excellence in safety across our 61 plants worldwide and incident rates as indicated below
Each executive officer was elected by the Board of Directors to hold office until the next annual meeting of shareholders or until their successor is elected No executive officer has any family relationships with any other executive officer of the Company
Our annual reports on Form 10 K quarterly reports on Form 10 Q current reports on Form 8 K and if applicable amendments to those reports filed or furnished pursuant to Section 13 a of the Securities Exchange Act of 1934 as amended are available free of charge on or through our web site www azz com investor relations as soon as reasonably practicable after we electronically file such material with or furnish it to the Securities and Exchange Commission SEC The SEC s website www sec gov contains reports proxy and information statements and other information regarding issuers including AZZ that file electronically with the SEC References to our website in this Annual Report on Form 10 K are provided as a convenience and the information on our website is not and shall not be deemed to be a part of this Annual Report on Form 10 K or incorporated into any other filings we make with the SEC
Our Company s Board of Directors the Board with the assistance of its Nominating and Corporate Governance Committee has adopted Corporate Governance Guidelines that set forth the Board s policies regarding corporate governance and its oversight of the Company s sustainability efforts In connection with the Board s responsibility to oversee our legal compliance and conduct business based upon a foundation of the highest business ethics and social responsibility the Board has adopted the following policies
The Board has adopted charters for each of its Audit Committee Compensation Committee and Nominating and Corporate Governance Committee You may review the Corporate Governance Guidelines Codes of Conduct or any of our sustainability or corporate social responsibility policies and our Committee charters under the heading Investor Relations subheadings Corporate Governance or Corporate Social Compliance on our website at
Our business is subject to a variety of risks including but not limited to the risks described below We believe the risks described below are the most significant risks and uncertainties facing our business Additional risks and uncertainties not known to us or not described below may also impair our business operations in the future If any of the following risks actually occur our business financial condition results of operations and future growth could be negatively or materially impacted Carefully consider the risks described below and all of the other information included in this Annual Report on Form 10 K when deciding whether to invest in our securities or when evaluating our business You should also refer to the explanation of the qualifications and limitations on forward looking statements contained here under the heading Forward Looking Statements
Competition is based on a number of factors including price Certain competitors in each of our segments may have lower cost structures or larger economies of scale on raw materials and therefore may be able to provide their manufactured solutions at lower prices than we are able to provide If our response to competitor pricing actions is not timely we could be impacted by loss of market share We cannot be certain that our competitors will not develop the expertise experience and resources to provide manufactured solutions that are superior to ours in price delivery time or quality in the future Similarly we cannot be certain that we will be able to maintain or enhance our competitive position within our industries maintain our customer base at current levels or increase our customer base
Our ability to maintain our productivity and profitability could be limited by an inability to employ train and retain skilled personnel necessary to meet our labor requirements A significant increase in the wages paid by competing employers could result in a shortage of skilled personnel increases in labor related costs or both It is necessary that we maintain a skilled labor force to operate efficiently and support our growth strategy Labor shortages or increased labor related costs could impair our ability to maintain our profit margins or impact our ability to sustain and grow our sales
The manufactured solutions we provide require evolving technologies for success in the markets we serve The competitive environments can be highly sensitive to technological innovation It is possible for our competitors or new market place entrants either foreign or domestic to develop new manufactured solution methods or technologies which could make our existing manufactured solutions and methods obsolete hasten their obsolescence or materially reduce our competitive advantage in the markets we serve
Our business often aligns with the economic environments that we operate within and is subject to seasonality within the annual operating cycle of the business Our customers may also delay or cancel new or previously planned projects If there is a downturn in the general economies in which we operate there could be a material adverse effect on price levels and the quantity of goods and services purchased by our customers which could adversely impact our sales consolidated results from operations and cash flows A number of factors including financing conditions and potential bankruptcies in the industries we serve could adversely affect our customers and their ability or willingness to fund their internal projects in the future and pay for services Certain economic conditions may also impact the financial condition of one or more of our key suppliers which could affect our ability to secure raw materials and components to meet our customers demand for our manufactured solutions in the future Other various factors impact demand for our manufactured solutions including the price of commodities such as zinc natural gas or other commodities paint economic forecasts and financial markets Uncertainty in the economy and financial markets could impact our customers and could in turn severely impact the demand for corporate infrastructure projects which could result in a reduction in orders for our manufactured solutions All of these factors combined together could materially impact our business financial condition cash flows and results of operations
A portion of the sales from our segments are from markets outside the U S The occurrence of any of the risks described below could have an adverse effect on our consolidated results of operations cash flows and financial condition
The occurrence of catastrophic events ranging from acts of war and terrorism severe weather events and other natural conditions such as earthquakes tsunamis hurricanes and other severe weather conditions or the outbreaks of epidemic pandemic or contagious diseases could potentially cause future disruption in our business At this time the ongoing armed conflicts in Ukraine Israel and the broader Middle East have not materially impacted our operations However any disruption of our customers or suppliers and their respective contract manufacturers from the ongoing conflicts or new conflicts could likely impact our future sales and operating results In addition the spread of contagious diseases could adversely affect the economies and financial markets of many countries and result in an economic downturn that could affect the demand for our manufactured solutions These situations are outside of the Company s control and any of these events could have a material adverse effect on our business financial condition results of operations or cash flows
Within our AZZ Metal Coatings segment zinc and natural gas costs represent a large portion of our cost of sales In our AZZ Precoat Metals segment paint and natural gas costs represent a large portion of our cost of sales
For both segments operating margins could be negatively impacted by supply chain disruptions and adverse price movements in the market for zinc and natural gas Unanticipated commodity price increases could significantly increase our operating costs if we cannot pass the costs to our customers and could potentially adversely affect profitability The following factors which are beyond our control affect the price of raw materials and energy for our segments
We seek to maintain our operating margins by increasing the price of our manufactured solutions in response to increased costs but we may not be successful in passing these increased costs of operation through to our customers Even if successful there is no guarantee the increased price would not negatively affect the volume of future orders While we are exposed to inflationary pressures for zinc and energy we evaluate market conditions and follow a general practice of locking in the fixed premiums associated with zinc on annual contracts unless market conditions dictate otherwise and we enter into energy contracts for gas and electricity normally for durations of six to twelve months to reduce risks associated with large fluctuations in these commodities
No other individual material input cost represents a significant portion of our cost of sales other than those previously discussed We believe for the remaining input costs any price increase would not be able to significantly affect margins even if the increased costs could not be passed on to our customers
A failure in our operational information systems or the occurrence of cyber incidents or cyber security attacks at any of our facilities or those of our third party suppliers and service providers may adversely affect our financial results Such incidents or cyber security attacks may also result in faulty business decisions operational inefficiencies damage to our reputation or our employee and business relationships and or subject us to costs fines or lawsuits
Our business is heavily supported by operational systems to process large amounts of data and support complex transactions If significant financial operational or other data processing systems fail experience actual or attempted cyber attacks or have other significant shortcomings our financial results could be adversely affected Our financial results could also be adversely affected if an employee causes our operational systems to fail either as a result of inadvertent error or by deliberately tampering with or manipulating our financial or operational systems Third parties may also attempt to fraudulently induce employees into disclosing sensitive information such as user names passwords or other information in order to gain access to customer or supplier data or our internal data including intellectual property financial and other confidential business information Due to increased technology advances we are more reliant on technologies to support our operations We use computer software and programs to run our financial and operational information and this may subject our business to increased risks Cyber attacks are an ever increasing risk to companies We rely on commercially available systems software tools third party service providers and monitoring to provide security for processing transmission and storage of confidential information and data While we have security measures in place our systems networks and third party service providers have been and will continue to be subject to ongoing threats We believe our mitigation measures reduce but cannot eliminate the risk of a cyber incident however there can be no assurance that our existing and planned precautions of backup systems regular data backups security protocols and other procedures will be adequate to prevent significant damage system failure or data loss and the same is true for our suppliers and other third parties on which we rely Because techniques used to obtain unauthorized access or sabotage systems change frequently and are typically not identified until they are launched against a target we may be unable to anticipate these techniques or to implement adequate preventative or mitigating measures We and our third party service providers have experienced and expect to continue to experience actual or attempted cyber attacks of our information systems or networks however none of these actual or attempted cyber attacks had a material impact on our operations or financial condition Any significant cyber security attacks that affect our facilities our customers our key suppliers or material financial data could have a material adverse effect on our business
In addition cyber attacks on our customers suppliers and employee data may result in a financial loss including potential fines for failure to safeguard data and could negatively impact our reputation Third party systems on which we rely could also suffer operational system failures or cyber attacks An unauthorized disclosure or use of information could cause interruptions in our operations and might require us to spend significant management time and other resources investigating the event and dealing with local and federal law enforcement
Occurrences of any of the events discussed above could disrupt our business result in potential liability or reputational damage or otherwise have an adverse effect on our business results of operations or financial condition
We possess intellectual property which is instrumental in our ability to compete and grow our business If our intellectual property rights are not adequately protected we could lose our competitive advantage We rely on a combination of copyrights trademarks trade secret protection and contractual rights to establish and protect our intellectual property In addition our competitors may develop proprietary information or manufacturing technologies that are equivalent or superior to our intellectual property Despite our safeguards and controls our intellectual property may be misappropriated by our employees our competitors or other third parties Failure of our copyrights trademarks and trade secret protection non
disclosure agreements and other measures to provide protection of our technologies and our intellectual property rights could enable our competitors to more effectively compete with us and could result in an adverse effect on our business financial condition or results of operations
Our business exposes us to potential liability risks that are inherent in the manufacture and sale of our solutions We provide assurance type warranties for our manufactured solutions Widespread manufacturing defects and quality system failures could result in significant losses due to the costs of containment the destruction of customer owned inventory and lost sales due to the unavailability of a solution for a period of time We may not be able to obtain indemnity or reimbursement from our suppliers or other third parties for the costs or liabilities associated with our suppliers products A significant warranty claim could also result in adverse publicity damage to our business reputation and a loss of consumer confidence in our solutions or offerings Each of these could have a material adverse effect on our business financial condition or results of operations
We intend to pursue continued growth through acquiring the assets of target companies that will enable us to i expand our product and service offerings and ii increase our geographic footprint We routinely review potential acquisitions However we may be unable to implement this growth strategy if we are not able to reach agreement on mutually acceptable terms to complete the acquisition Moreover our acquisition strategy involves certain risks including
Many of the factors affecting our ability to generate internal growth through our initiatives may be beyond our control and we cannot be certain that our strategies will be successful or that we will be able to generate cash flow sufficient to fund our operations and to support internal growth If we are unsuccessful we may not be able to achieve internal growth expand our operations or grow our business
We depend on the continued efforts of our executive officers and senior management team We cannot be certain that any individual will continue in such capacity for any particular period of time The future loss of key personnel or the inability to hire and retain qualified employees could negatively impact our ability to manage our business which could disrupt our operations or otherwise have a material adverse effect on our business
The Company could be named as a defendant in legal proceedings claiming damages from us in connection with the operation of our business Most actions filed against our Company typically arise out of the normal course of business related to commercial disputes regarding the manufactured solutions we provide We could potentially be a plaintiff in legal proceedings against our customers in which we seek to recover payments of contractual amounts we believe are due to us and indemnity claims for increased costs or damages incurred by our Company Under applicable accounting literature and when appropriate we establish financial provisions for certain legal exposures meeting the criteria of being both probable and reasonably estimable Where material we may adjust any such financial provisions depending on developments related to each case If our assumptions and estimates related to such exposures prove to be inadequate or incorrect or we have material adverse claims or lawsuits such events could harm our business reputation divert management resources away from operating our business and result in a material adverse effect on our business results of operations cash flow or financial condition
Changes to U S trade policy tariff and import export regulations and foreign government regulations could adversely affect our business operating results foreign operations sourcing of materials and financial condition
All of the above listed changes have the potential to adversely impact the economies in which we operate or certain sectors thereof our industry and the demand for our manufactured solutions and as a result could have a material adverse effect on our business operating results and financial condition
Our business is also subject to risks associated with U S and foreign legislation and regulations relating to imports including quotas duties tariffs or taxes and other charges or restrictions on imports which could adversely affect our operations and our ability to import or export manufactured solutions at current or increased levels We cannot predict whether additional U S and foreign customs quotas duties including antidumping or countervailing duties tariffs taxes or other charges or restrictions requirements as to where raw materials must be purchased reporting obligations pertaining to conflict minerals mined from certain countries additional workplace regulations or other restrictions on our imports will be imposed upon the importation or exportation of our manufactured solutions in the future or adversely modified or what effect such actions would have on our costs of operations Future quotas duties or tariffs may have a material adverse effect on our business financial condition and results of operations Future trade agreements could also provide our competitors with an advantage over us or increase our costs either of which could potentially have a material adverse effect on our business financial condition and results of operations
Pursuant to the Dodd Frank Act which established annual disclosure and reporting requirements for publicly traded companies that use tin tantalum tungsten or gold collectively conflict minerals mined from the Democratic Republic of Congo and adjoining countries in their manufactured solutions we are subject to certain annual disclosures and audit requirements There are costs associated with complying with these disclosure requirements including costs for due diligence to determine the source of any conflict minerals used in our manufactured solutions and other potential changes to manufactured solutions processes or sources of supply Despite our continued due diligence efforts in the future we may be unable to verify the origin of all conflict minerals used in our component products As a result we could potentially face reputational and other challenges with our customers that require that all of the components incorporated in our manufactured solutions be certified as conflict free
As of February 28 2025 668 or 18 1 of our full time employees were represented by unions under collective bargaining agreements Our U S based employees have the right at any time under the National Labor Relations Act to form
or affiliate with a union If a large portion of our U S workforce were to become unionized and the terms of the collective bargaining agreement were significantly different from our current compensation arrangements it could increase our operating costs and adversely impact our profitability Any changes in regulations the imposition of new regulations or the enactment of new legislation could have an adverse impact on our business to the extent it becomes easier for workers to obtain union representation
Various federal state and international labor and employment laws govern our relationship with employees and affect operating costs These laws include minimum wage requirements overtime unemployment tax rates workers compensation rates leaves of absence mandated health and other benefits and citizenship requirements Significant additional government imposed increases or new requirements in these areas could materially affect our business financial condition operating results or cash flows
Climate change could present risks to our future operations from severe weather events and other natural conditions such as hurricanes tornadoes earthquakes wildfires droughts or flooding Consequences of such extreme weather conditions could include physical risks to our facilities supply chain disruptions increased operational costs as well as the price and or availability of insurance coverage for Company assets We cannot predict the potential timing or impact from potential global warming winter storms and other severe weather events and other natural conditions We carry certain limits of insurance to mitigate the potential effects of events that could impact our business as well as disaster recovery plans related to any potential severe weather events and other natural conditions that might occur within regions in which we have operations or at any of the Company locations
Changes in environmental laws and regulations and heightened focus on corporate sustainability initiatives and practices are under increased scrutiny by both governmental and non governmental bodies which could cause a change in our business practices by increasing capital compliance operating and maintenance costs which could impact our future operating results
Over the past several years there has been a heightened focus by both governmental and non governmental bodies requesting disclosure of information relating to corporate sustainability practices as well as an increase in customers preference to source from suppliers who have implemented effective sustainability initiatives International agreements national and regional legislation and regulatory measures to further reduce greenhouse gas emissions and require companies to more efficiently use energy water and reduce waste are in various stages of discussion and or implementation across the globe These laws regulations and policies as well as other sustainability demands made by governmental and non governmental bodies may result in the need for future capital compliance operating and maintenance costs We cannot predict the level of expenditures or potential impact to the Company that may be required to comply with these evolving environmental and sustainability laws and regulations due to the uncertainties on the laws enacted in each jurisdiction in which we operate and our activities in each one of these jurisdictions
The financial impact of the heightened focus on sustainability practices for all companies to increase efficiencies in consumption of resources and regulations regarding greenhouse gas emissions will depend on a number of factors including but not limited to
the extent to which we would be entitled to receive emission allowance allocations or would need to invest in additional compliance equipment or compliance instruments either on the open market or through auctions
Various regulations have been implemented regarding emissions the environment and other sustainability matters We cannot predict future changes in the law and government regulations regarding emissions the environment and other
sustainability matters or what actions may be taken by our customers or other industry participants in response to any future legislation While the Company actively is engaged in enhancing our environmental social and governance programs changes in laws or governmental regulations could negatively impact our business or the demand for our manufactured solutions by customers other industry related participants or our investors and could result in a negative impact to our operations profitability or our ability to perform projects in the future
The Company s debt instruments consisting of a term loan and a revolving credit facility contain covenants which restrict or prohibit certain actions negative covenants These restrictions include but are not limited to the Company s ability to incur debt restrictions or limitations on certain liens capital spending limits the ability to engage in certain merger acquisition or divestiture actions or to increase dividends beyond a specific level The Company s debt instruments also contain covenants requiring the Company to among other things maintain specified financial ratios affirmative covenants Failure to comply with these negative covenants and affirmative covenants could result in an event of default that if not cured or waived could restrict the Company s liquidity and have a material adverse effect on the Company s business or prospects If the Company does not have enough cash to service its debt or fund other liquidity needs the Company may be required to take actions such as requesting a waiver from lenders reducing or delaying capital expenditures selling assets restructuring or refinancing all or part of the existing debt or seeking additional equity capital The Company cannot assure that any of these remedies can be effected on commercially reasonable terms or at all
Our indebtedness and restrictive debt covenants could materially adversely affect our financial condition our ability to raise additional capital to fund our operations our ability to operate our business our ability to react to changes in the economy or our industry our ability to meet our obligations under our outstanding indebtedness or could divert our cash flow from operations for debt payments
Our level of indebtedness could adversely affect us including by decreasing our business flexibility Our Credit Agreement contains a number of restrictive covenants that impose significant operating and financial restrictions on us These covenants may limit our ability to optimally operate our business In addition our Credit Agreement requires that we meet certain financial tests including a leverage ratio test Our increased indebtedness and these restrictive covenants could adversely affect our ability to
The covenant restrictions related to our indebtedness could impact our ability to expand our business which could have a material adverse effect on our business financial condition and results of operations As a result of these restrictions we could be limited as to how we conduct our business and we may be unable to raise additional debt or equity financing to compete effectively or take advantage of new business opportunities The terms of any future indebtedness we may incur could include more restrictive covenants We cannot provide assurance that we will be able to maintain compliance with these covenants in the future and if we fail to do so that we will be able to obtain waivers from the lenders and or amend the covenants Our failure to comply with the restrictive covenants described above and or the terms of any future indebtedness from time to time could result in an event of default which if not cured or waived could result in our being required to repay these borrowings before their due date and the termination of future funding commitments by our lenders Historically we have successfully refinanced our long term debt to lower interest rates however if we are forced to refinance these borrowings on less favorable terms or cannot refinance these borrowings in the future our results of operations and financial condition could be adversely affected The Credit Agreement contains cross default provisions that could result in the acceleration of all of our indebtedness A breach of the covenants under our Credit Agreement could result in an event of default under the applicable indebtedness Such a default may allow the creditors to accelerate the related indebtedness and may result in the acceleration of any other indebtedness to which cross acceleration or cross default provision applies In addition an event of default under the Credit Agreement would permit the lenders under the Credit Agreement to terminate all commitments to extend further credit under that facility Furthermore if we were unable to repay amounts due and payable under the Credit Agreement those lenders could proceed against the collateral granted to them to secure that indebtedness In the event our lenders accelerate the repayment of our borrowings we and our guarantors may not have sufficient assets to repay that indebtedness Additionally we may not be able to borrow money from other lenders to enable us to refinance our indebtedness
Our investment in the AVAIL Joint Venture could be materially and adversely affected by our lack of sole decision making authority over the majority of the strategic and operational decisions of the business corporate governance matters and our reliance on our AVAIL Joint Venture partner s financial condition
Our On September 30 2022 we completed a disposition of 60 of the equity of AIS Investment Holdings LLC a Delaware limited liability company the AVAIL JV which consists of our former AZZ Infrastructure Solutions Segment excluding AZZ Crowley Tubing the AIS Business with Fernweh AIS Acquisition LP a Delaware limited partnership Pursuant to the terms of the agreement AZZ no longer has a controlling interest in the AVAIL JV and therefore the AVAIL JV is operating and will continue to operate independently As the non controlling interest holder in the AVAIL JV our influence on all aspects of the AIS Business will continue to diminish Accordingly we might not be able to prevent the AVAIL JV from taking actions adverse to our interests in the AVAIL JV We cannot exercise sole decision making authority regarding the AIS Business including but not limited to hiring and retaining employees and executive officers management of and payments into its multiemployer pension plans governance issues entering into new markets or exiting existing markets making certain acquisitions or dispositions and other material strategic transactions Each of these cases could create the potential risk of creating operational issues and or impasses on decisions at the AVAIL JV level that are not in our best interest Additionally investments in joint ventures or partnerships such as the AVAIL JV may under certain circumstances involve risks not present when a third party is not involved including the possibility that joint venture partners may become bankrupt fail to fund their share of required capital contributions to various parties or otherwise struggle operationally or financially Disputes between AZZ Inc and our joint venture partner could result in litigation or arbitration that would increase our expense and distract our executive officers and directors from focusing their time and efforts on AZZ Inc s business and could result in subjecting the AIS Business to additional risk
Any of the foregoing operational risks could materially reduce the expected return of our prior investment in the AVAIL JV and materially and adversely affect our business results of operations financial condition and the trading price of our securities
We have a defined benefit pension plan which is frozen with respect to benefits and the addition of participants The funded status and our ability to satisfy the future obligations of the plan is affected by among other things changes in interest rates returns from plan asset investments and actuarial assumptions including the life expectancies of the plan s participants As of February 28 2025 the plan was underfunded and we have a liability of 24 6 million on our consolidated balance sheet Our ability to adequately fund or meet our future obligations with respect to the plan could have a material adverse effect on our business results of operations financial condition or cash flows
As a normal course of business we extend credit to certain customers The amount of credit extended to customers is based upon the due diligence performed including but not limited to the review of the potential customer s financial statements and banking information The Company may perform various credit checks and evaluate the customer s previous payment history While we do not believe we have significant concentration of sales with any one customer we have certain larger customers and the extension of credit to these customers could result in a significant amount of credit exposure if there is a sudden or severe change in the customer s creditworthiness We monitor our outstanding receivables on a regular basis however if a customer with large credit exposure is unable to make payment on its outstanding receivables we could experience a significant write off of accounts receivable which could have a material adverse effect on our results of operations financial condition or cash flows
Goodwill represents the excess of cost over the fair market value of net assets acquired in business combinations Indefinite lived intangibles are comprised of certain trade names We test goodwill and intangible assets with an indefinite life for potential impairment annually in the fourth quarter and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of the goodwill below its carrying amount Factors that could indicate that our goodwill or indefinite lived intangible assets are impaired include a decline in our stock price and market capitalization lower than projected operating results and cash flows economic downturns or slower growth rates in our industry market downturns or major events such as a global pandemic Our stock price historically has shown volatility and
often fluctuates significantly in response to market and other factors Declines in our stock price lower operating results and any decline in industry conditions in the future could increase the risk of impairment The evaluation for impairment includes our estimates of future operating results and cash flows estimates of allocations of certain assets and cash flows among reporting segments estimates of future growth rates and our judgment regarding the applicable discount rates used on estimated operating results and cash flows
Intangible assets on the consolidated balance sheets are comprised of customer relationships non compete agreements trademarks technology and certifications Intangible assets are evaluated for impairment whenever events or changes in circumstances indicate that their carrying value may not be recoverable Recoverability is measured by a comparison of their carrying amount to the estimated undiscounted cash flows to be generated by those assets If the undiscounted cash flows are less than the carrying amount we record impairment losses for the excess of their carrying value over the estimated fair value
Should a review indicate impairment a write down of the carrying value of the goodwill or intangible asset would occur resulting in a non cash charge which could have a material adverse effect on our financial statements impact our credibility with our shareholders or impact our relationships with our customers suppliers or supporting banks
We are exposed to risks associated with exchange rate fluctuations related to our operations in Canada Because our financial statements are denominated in U S dollars fluctuations in currency exchange rates between the U S dollar and the Canadian dollar have had and will continue to have an impact on our earnings A decrease in the value of the
relative to the U S dollar could have a negative impact on our business financial condition results of operations or cash flows Should we continue to expand geographically we could experience economic loss and a negative impact on earnings or net assets solely as a result of foreign currency exchange rate fluctuations
The insurance we carry to mitigate many of these risks may not be adequate to cover future claims or losses In addition we are substantially self insured for workers compensation employer s liability property general liability and employee group health claims in view of the relatively high per incident deductibles we absorb under our insurance arrangements for these risks Further insurance covering the risks we expect to face or in the amounts we desire may not be available in the future or if available the premiums may not be commercially justifiable If we were to incur substantial liability and such damages were not covered by insurance or were in excess of policy limits our business financial condition and results of operations could be negatively impacted
overnmental entities in Canada From time to time various legislative or administrative initiatives may be proposed that could adversely affect our tax positions In addition U S federal state local and foreign tax laws and regulations are extremely complex and subject to varying interpretations Moreover economic and political pressures to increase tax revenue in various jurisdictions may make favorably resolving any future tax disputes more difficult There can be no assurance that our tax positions will not be challenged by relevant tax authorities or that we would be successful in any such challenge Changes to our tax positions resulting from future tax legislation administrative initiatives or challenges from taxing authorities could adversely affect our results of operations and financial condition
We maintain property business interruption casualty and cyber information security insurance but such insurance may not cover all of the risks associated with the hazards of our business and is subject to limitations including deductibles and maximum liabilities covered We may incur losses beyond the limits or outside the coverage of our insurance policies including liabilities for environmental remediation In the future the types of insurance we obtain and the level of coverage we maintain may be inadequate or we may be unable to continue to maintain our existing insurance or obtain comparable insurance at a reasonable cost
As of February 28 2025 we have 900 3 million of gross debt outstanding that bears interest at variable rates that reset periodically and are generally based on the Secured Overnight Financing Rate SOFR or Base Rate as defined in the Credit Agreement We utilize interest rate swaps to mitigate the interest rate risk and we have hedged approximately one half of our gross debt outstanding with an interest rate swap that expires on September 30 2025 Approximately one half of our gross debt outstanding is unhedged If interest rates increase so will our interest costs which could adversely affect cash flow and the ability to pay principal and interest on our debt and the ability to make distributions to shareholders In addition rising interest rates could limit our ability to refinance existing debt when it matures An increase in interest rates could also affect our ability to make new investments on favorable terms or at all
We may increase our debt or raise additional equity capital in the future subject to restrictions in our debt agreements whether in a private offering or pursuant to our effective shelf registration statement on Form S 3 which we filed on January 10 2024 If our cash flow from operations is less than we anticipate or if our cash requirements are more than we expect we may require more financing However debt or equity financing may not be available on terms acceptable to us if at all If we incur additional debt or raise equity through the issuance of additional shares of common stock or other equity linked securities the terms of the debt or any shares of common stock or other equity linked securities issued may give the holders rights preferences and privileges senior to those of holders of our common stock particularly in the event of liquidation The terms of any new debt may also impose additional and more stringent restrictions on our operations than we currently have If we raise funds through the issuance of additional equity our current shareholders ownership in the Company would be diluted If we are unable to raise additional capital when needed it could affect our financial flexibility which could negatively affect our shareholders
We recognize the critical importance of cybersecurity in today s digital landscape and acknowledge the inherent risks associated with cyber threats As such cybersecurity is an integral component of our overall risk management strategy and corporate governance framework
To meet business objectives we rely on both internal information technology systems and networks and those of third parties and their vendors to process and store sensitive data including confidential research business plans financial information intellectual property and personal data that may be subject to legal protection and to ensure the continuity of our supply chain
We maintain a cybersecurity risk management program designed to identify assess manage mitigate and respond to cybersecurity threats The underlying controls of this program are based on recognized best practices and standards for cybersecurity and information technology including those set forth in the National Institute of Standards and Technology NIST Cybersecurity Framework Among the key elements of our cybersecurity risk management program are the following
Network protection detection and monitoring technologies have been deployed on all external and internal network connections in order to segment different sections of the business from each other which strengthens key protection capabilities
We have implemented user authentication controls on the Company s systems devices data and applications In addition multi factor authentication is implemented for all personnel who remotely access or have privileged account access to systems and networks
EDR is an integrated layered approach to endpoint protection that uses continuous monitoring and data analytics We have partnered with a third party security operations center to provide critical support in monitoring identifying and assessing cyber threats such as malware ransomware breaches and denial of service attacks
In the event of a cybersecurity incident we have established an incident response plan which outlines clear protocols for incident detection containment investigation and resolution aiming to minimize the impact on our operations customers and stakeholders
We do not believe that any risks from cybersecurity threats including any as a result of prior cybersecurity incidents we have experienced have had a material adverse impact on our operations business or financial condition For more information regarding the risks we face from cybersecurity threats see Item 1A Risk Factors
Our approach to cybersecurity governance is embedded within the broader governance structure of the Company The Audit Committee of the Board of Directors is tasked with reviewing our policies and procedures related to cybersecurity risks including the Company s cybersecurity risk management program discussed above to ensure their alignment with industry best practices and regulatory standards The Audit Committee and the Board of Directors Board regularly engages with management to assess cybersecurity risks mitigation efforts and the overall effectiveness of our cybersecurity program
Our Director of Enterprise Applications leads a dedicated management committee responsible for overseeing cybersecurity matters The Information Security committee contributes decades of experience in technology cybersecurity architecture and incident response in both military and private sector with certifications including Certified Information Systems Security Professional CISSP Certified Ethical Hacker CEH CompTIA Secure Infrastructure Specialist CSIS and degrees in cybersecurity data science and computer science Collectively this team has served in various large publicly traded companies implementing and managing robust IT and cybersecurity programs developing tools and safeguarding internal networks business applications customer facing applications and payment systems This committee consists of members with diverse expertise including information technology legal risk management and finance who collaborate to provide strategic guidance evaluate potential risks and ensure the adequacy of our cybersecurity measures The committee regularly provides updates to senior leadership and the Audit Committee as well as the full Board which includes
Our headquarters and executive offices are in leased office spaces in Fort Worth Texas and St Louis Missouri We also lease office space in several locations related to our operations facilities As of February 28 2025 our office and manufacturing operations facilities were as follows
We believe that our current facilities are adequate to meet the requirements of our present and foreseeable future operations See Item 8 Financial Statements and Supplementary Data Note 10 for additional information about our lease obligations See Item 7 Management s Discussion and Analysis Capital Commitments Greenfield Aluminum Coil Coating Facility for information about a new facility under construction in our AZZ Precoat Metals segment
AZZ and its subsidiaries are named defendants and plaintiffs in various routine lawsuits incidental to our business These proceedings include labor and employment claims use of intellectual property worker s compensation environmental matters and various commercial disputes all arising in the normal course of business 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 However management after consultation with legal counsel believes it has strong defenses to all these matters and does not expect liabilities if any from these claims or proceedings either individually or in the aggregate to have a material effect on our financial position results of operations or cash flows See Item 8 Financial Statements and Supplementary Data Note 22 for further discussion
Our common stock 1 00 par value is traded on the New York Stock Exchange under the symbol AZZ As of April 15 2025 we had approximately 319 holders of record of our common stock not including those shares held in street or nominee name A substantially greater number of holders of our common stock are street name or beneficial holders whose shares are held of record by banks brokers and other financial institutions
The payment of dividends on our common stock is within the discretion of our Board of Directors Board and is dependent on our earnings capital requirements operating and financial condition and other factors We have a history of paying dividends on common shares on a quarterly basis We paid dividends on common shares of 19 5 million 17 0 million and 16 9 million for the fiscal years 2025 2024 and 2023 respectively Under our credit agreement we may make dividend payments in an aggregate amount per annum not to exceed 6 0 of market capitalization so long as no default or event of default shall have occurred and be continuing or would result therefrom We can make dividend payments under other provisions of the credit agreement as well subject to the tests and restrictions outlined therein Any future dividends payments will be reviewed each quarter and declared by the Board at its discretion
For information regarding securities authorized for issuance under our equity compensation plans see Part III Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
On November 10 2020 our Board of Directors authorized a 100 million share repurchase program pursuant to which we may repurchase our common stock the 2020 Authorization Repurchases under the 2020 Authorization will be made through open market or private transactions in accordance with applicable federal securities laws and could include repurchases pursuant to Rule 10b5 1 trading plans which allows stock repurchases when we might otherwise be precluded from doing so Currently share repurchases may not exceed 6 of our market capitalization per fiscal year
During fiscal 2025 2024 and 2023 to prioritize repayments of debt we did not repurchase shares of common stock under the 2020 Share Authorization We withhold common stock shares associated with net share settlements to cover employee tax withholding obligations upon the vesting of restricted stock unit awards under our employee equity incentive program As of February 28 2025 there was 53 2 million remaining to repurchase shares under the 2020 Authorization See Item 8 Financial Statements and Supplementary Data Note 17 for additional information regarding our equity incentive plans
The following graph illustrates the five year cumulative total return on investments in our common stock the S P 1500 Building Products Industry Index U S Companies and the Russell 2000 Index U S Companies Our common stock is listed on the New York Stock Exchange The shareholder return shown below is not necessarily indicative of future performance Total shareholder return as shown assumes 100 invested on February 28 2020 in shares of AZZ common stock and each index all with cash dividends reinvested The calculations exclude trading commissions and taxes
You should read the following discussion together with Item 8 Financial Statements and Supplementary Data This discussion contains forward looking statements regarding our business and operations see Forward Looking Statements at the beginning of this Annual Report on Form 10 K Our actual results may differ materially from those we currently anticipate as a result of the factors we describe under Item 1A Risk Factors and elsewhere in this Annual Report on Form 10 K
We are a provider of hot dip galvanizing and coil coating solutions to a broad range of end markets in North America We operate three distinct business segments the AZZ Metal Coatings segment the AZZ Precoat Metals segment and the AZZ Infrastructure Solutions segment which consists of the Company s 40 investment in a joint venture AIS Investment Holdings LLC the AVAIL JV Our discussion and analysis of financial condition and results of operations is presented for each of our segments along with corporate costs and other costs not specifically identifiable to a segment For a reconciliation of segment operating income loss from continuing operations to consolidated operating income see Item 8 Financial Statements and Supplementary Data Note 18 References herein to fiscal years are to the twelve month periods that end in February of the relevant calendar year For example the twelve month period ended February 28 2025 is referred to as fiscal 2025 fiscal year 2025 current year or current period and the twelve month period ended February 29 2024 is referred to as fiscal 2024 fiscal year 2024 prior year or prior year period
The demand for our manufactured solutions was the primary contributor to net income available to common shareholders of 52 4 million for the year ended February 28 2025 Our operating results for fiscal 2025 including operating results by segment are described in the summary on the following page and detailed descriptions can be found below under Results of Operations
Our operations generated 249 9 million of cash in fiscal 2025 The components of our liquidity and descriptions of our cash flows capital investments and other matters impacting our liquidity and capital resources can be found below under Liquidity and Capital Resources
While it is difficult to predict future North American economic activity and its impact on the demand for our galvanizing and coil coating solutions as well the impact that political or regulatory developments may have on us we have noted several factors below that have impacted or may impact our results of operations during the first quarter of fiscal 2026
Sales prices in our AZZ Precoat Metals segment are expected to remain consistent with current levels with expected seasonal fluctuations in mix due to an increase in construction business which may impact the average selling price
Infrastructure Solutions segment includes the equity in earnings from our investment in the AVAIL JV as well as other expenses related to receivables and liabilities that were retained following the sale of the AIS business Fiscal year 2025 and 2024 include 6 5 million and 5 8 million respectively related to legal matters
For fiscal year 2025 amortization expense for acquired intangible assets of 23 1 million is included in Corporate expenses in Selling general and administrative expense as these expenses are not allocated to the segments Fiscal year 2025 also includes an accrual related to a legal settlement and accrual related to a non operating entity of 3 5 million as well as retirement and other severance expenses of 3 7 million For fiscal year 2024 amortization expense for acquired intangible assets of 24 0 million is included in Corporate expenses in Selling general and administrative expense as these expenses are not allocated to the segments Fiscal year 2024 also includes an accrual related to a legal settlement of 5 8 million for the settlement of a litigation matter that was acquired as part of the Precoat Acquisition and relates to the business activities that were discontinued prior to our acquisition
For the fiscal year ended February 28 2025 we recorded sales of 1 577 7 million compared to prior year s sales of 1 537 6 million Of total sales for fiscal 2025 42 2 were generated from the AZZ Metal Coatings segment and 57 8 of sales were generated from the AZZ Precoat Metals segment Net income from continuing operations for fiscal 2025 was 128 8 million compared to 101 6 million for fiscal 2024 Net income from continuing operations as a percentage of sales was 8 2 for fiscal 2025 as compared to 6 6 for fiscal 2024 Diluted earnings per common share from continuing operations decreased by 48 3 to 1 79 per share for fiscal 2025 compared to 3 46 per share for fiscal 2024 The decrease was primarily due to the redemption of the Series A Preferred Stock See Liquidity and Capital Resources Series A Convertible Preferred Stock
Sales for the AZZ Metal Coatings segment increased 8 9 million or 1 4 to 665 1 million from the prior year s sales of 656 2 million The increase in sales was primarily due to a higher volume of steel processed which contributed 17 8 million partially offset by a decrease in selling price which decreased sales by 4 6 million In addition other sales decreased by 4 3 million
Sales for the AZZ Precoat Metals segment increased 31 2 million or 3 5 to 912 6 million from the prior year s sales of 881 4 million The increase in sales was due to an increase in volume of metal coated during fiscal 2025 compared to the prior year partially offset by a slight decrease in selling price due to product mix
Operating income for the AZZ Metal Coatings segment increased 13 7 million or 8 3 for fiscal 2025 to 178 5 million as compared to 164 7 million for the prior year The increase is due to net increase in sales as described above lower cost of sales and lower selling general and administrative expenses Cost of sales decreased 0 9 million primarily due to a decrease in zinc costs offset by higher labor and overhead costs The decrease in selling general and administrative expense was primarily due to a legal accrual and related expenses of 5 5 million recognized in the prior year
Operating income for the AZZ Precoat Metals segment increased 8 3 million or 5 9 for fiscal 2025 to 147 8 million as compared to 139 6 million for the prior year The increase is primarily due to the increase in sales as described above partially offset by an increase in cost of sales primarily driven by higher cost of labor and materials mainly due to higher volume Selling general and administrative expense increased due to higher employee related costs travel other indirect costs
Operating loss for the AZZ Infrastructure solutions segment increased 0 5 million or 7 9 for fiscal 2025 to 6 7 million as compared to 6 2 million for the prior year The increase is due to the recognition of 1 2 million in litigation fees and the write off of 5 2 million for a disputed receivable that was retained following the sale of the AIS business following an unfavorable resolution of the litigation matter For additional detail see Item 8 Financial Statements and Supplementary Data Note 22
Corporate expenses increased 6 7 million to 83 2 million for fiscal 2025 compared to 76 5 million for fiscal 2024 The increase is primarily due to an increase in salaries and wages due to retirement and other severance expense for certain executive management employees increased incentive expense due to improved performance of the Company an increase in expenses related to the Company s employee stock purchase plan due to the increase in AZZ s common stock price a legal
settlement and other legal expenses related to a non operating entity of 3 5 million and transition services agreement fees associated with the AVAIL JV which were received in the prior year with no comparable receipt in the current year
Interest expense for fiscal 2025 decreased 25 8 million to 81 3 million as compared to 107 1 million in fiscal 2024 The decrease is primarily attributable to a decrease of 110 3 million in our weighted average debt outstanding and a decrease in the weighted average interest rate of 121 basis points The decrease is also due to higher capitalized interest of 4 4 million in the current year period associated with the new facility under construction in Washington Missouri See Liquidity and Capital Resources Greenfield Aluminum Coil Coating Facility below for more information
Equity in earnings of unconsolidated subsidiaries for the current period increased 0 8 million to 16 2 million compared to 15 4 million in the prior year period The increase is due to higher earnings from the AVAIL JV primarily in their electrical business See Item 8 Financial Statements and Supplementary Data Note 19 for more information about the AVAIL JV
Other expense net was 0 6 million for fiscal 2025 compared to other income net of 0 2 million for fiscal 2024 The increase in expense is primarily due to foreign currency losses primarily attributed to our operations in Canada partially offset by interest income
The provision for income taxes from continuing operations was 24 5 for fiscal 2025 compared to 21 9 for fiscal 2024 The increase in the effective tax rate is primarily attributable to favorable adjustments for fiscal 2024 related to uncertain tax positions partially offset by higher tax deductions for stock compensation in fiscal 2025 The increase is also attributable to non deductible items such as compensation limited by IRC Sec 162 m and meals entertainment subject to the 50 limitation under IRC Sec 274 n The increase also relates to higher state tax expense net of federal benefit and lower R D tax credits following the divestiture of the AIS business
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 generally include cash dividend payments capital improvements debt repayment and acquisitions Based on our current financial condition and current operations 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 next twelve months and beyond
Net cash provided by operating activities of continuing operations for fiscal 2025 was 249 9 million driven primarily by net income from continuing operations of 128 8 million adjusted to exclude non cash charges net of non cash income of 96 5 million a decrease in cash from changes in other long term assets and long term liabilities of 13 1 million an increase in cash from deferred tax of 8 0 million an increase in cash resulting from a decrease in working capital of
17 1 million and cash distributions on the investment in the AVAIL JV of 12 6 million The decrease in working capital is primarily due to an increase in accounts payable accrued expenses and income taxes payable as well as a decrease in inventories other receivables and accounts receivable due to improved management of collections of trade and other receivables and due to improved management of inventory needs These decreases were offset by an increase in contract assets which increased working capital Net cash provided by operating activities was used to fund 115 9 million of capital expenditures make net payments on long term debt and finance leases liabilities of 111 0 million make dividend payments of 23 1 million and make payments for taxes related to net share settlement of equity awards of
5 2 million We also completed a secondary public offering of 4 6 million shares of our common stock which provided cash net of offering costs of 13 3 million which was used to redeem our 240 000 shares of Series A Preferred Stock for 308 9 million
Net cash provided by operating activities of continuing operations for fiscal 2024 was 244 5 million driven primarily by net income from continuing operations of 101 6 million adjusted to exclude non cash charges net of non cash income of
an increase in cash resulting from a reduction in working capital of 54 0 million and a cash distribution on the investment in the AVAIL JV of 3 1 million The reduction in working capital is due primarily to a reduction in accounts receivable other receivables and inventories due to improved management of collections of trade and other receivables and due to improved management of inventory needs Net cash provided by operating activities was used to fund 95 1 million of capital expenditures make net payments on long term debt and finance leases liabilities of 115 4 million
We have a credit agreement with a syndicate of financial institutions as lenders that was entered into on May 13 2022 and was subsequently amended on August 17 2023 December 20 2023 March 20 2024 September 24 2024 and February 27 2025 collectively referred to herein as the 2022 Credit Agreement
provides for a senior secured initial term loan in the aggregate principal amount of 1 3 billion the Term Loan B due May 13 2029 which is secured by substantially all of the assets of the Company as of February 28 2025 the outstanding balance of the Term Loan B was 870 3 million
borrowings under the Term Loan B bear an interest rate of Secured Overnight Financing Rate SOFR plus 2 50 following the repricings on March 20 2024 and September 24 2024 as described below and the Revolving Credit Facility bears a leverage based rate with various tiers between 1 75 and 2 75 following the repricing on February 27 2025 as described below the interest rate as of February 28 2025 was SOFR plus 2 25
includes customary affirmative and negative covenants and events of default including restrictions on the incurrence of non ordinary course debt investment and dividends subject to various exceptions and
On February 27 2025 we repriced the Revolving Credit Facility which has a leverage based rate with various tiers The repricing reduced the interest rate tiers from SOFR plus 2 75 to 3 50 to SOFR plus 1 75 to 2 75
As defined in the 2022 Credit Agreement quarterly prepayments were due against the outstanding principal of the Term Loan B and were payable on the last business day of each May August November and February beginning August 31 2022 in a quarterly aggregate principal amount of 3 25 million with the entire remaining principal amount due on May 13 2029 the maturity date Additional prepayments made against the Term Loan B contribute to these required quarterly payments Due to prepayments made against the Term Loan B since August 31 2022 the quarterly mandatory principal payment requirement has been met and the quarterly payments of 3 25 million are no longer required
The weighted average interest rate for our outstanding debt including the Revolving Credit Facility and the Term Loan B was 7 54 and 8 58 as of February 28 2025 and February 29 2024 respectively We are also obligated to pay a leverage based commitment fee with various tiers between 0 20 and 0 30 per year for unused amounts under the Revolving Credit Facility As of February 28 2025 the commitment fee rate was 0 225
Our 2022 Credit Agreement requires us to maintain a maximum Total Net Leverage Ratio as defined in the loan agreement no greater than 4 5 As of February 28 2025 we were in compliance with all covenants and other requirements set forth in the 2022 Credit Agreement
On April 30 2024 we completed a secondary public offering in which we sold 4 6 million shares of our common stock at 70 00 per share the April 2024 Secondary Public Offering We received gross proceeds of 322 0 million and paid offering expenses of 13 3 million for net proceeds of 308 7 million The proceeds from the April 2024 Offering were used to redeem the Series A Preferred Stock
On May 9 2024 we fully redeemed our 240 000 shares of 6 0 Series A Convertible Preferred Stock for 308 9 million The payment was calculated as the face value of the Series A Preferred Stock of 240 0 million multiplied by
the Return Factor as defined below of 1 4 less dividends paid to date of 27 1 million The redemption premium of 75 2 million which was calculated as the difference between the redemption amount and the book value of 233 7 million was recorded as a deemed dividend and reduces net income available to common shareholders The Series A Preferred Stock was redeemed using proceeds from the April 2024 Secondary Public Offering
The Series A Preferred Stock accumulated a 6 0 dividend per annum or 15 00 per share per quarter Dividends were payable in cash or in kind by accreting and increasing the Series A Base Amount PIK Dividends Dividends were payable on the sum of i the aggregate liquidation preference amount of 240 0 million plus ii any PIK Dividends Dividends were accrued daily and paid quarterly in arrears on March 31 June 30 September 30 and December 31 of each year Following the calendar quarter ending June 30 2027 we were not able to elect PIK Dividends and dividends on the Series A Preferred Stock were required to be paid in cash All dividends were paid in cash through May 9 2024 at which time the Series A Preferred Stock was redeemed The dividend would have increased annually by one percentage point beginning with the dividend payable for the calendar quarter ending September 30 2028 Dividends declared and paid for the fiscal years ended February 28 2025 and February 29 2024 were 3 6 million and 14 4 million respectively
As of February 28 2025 we had total outstanding letters of credit in the amount of 15 4 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 performance periods and insurance collateral
On September 27 2022 we entered into a fixed rate interest rate swap agreement which was subsequently amended on October 7 2022 the 2022 Swap with banks that are parties to the 2022 Credit Agreement to change the SOFR based component of the interest rate The 2022 Swap converts the SOFR portion to 4 277 On September 24 2024 we repriced our Term Loan B to SOFR plus 2 50 resulting in a total fixed rate of 6 777 The 2022 Swap had an initial notional amount of 550 0 million and a maturity date of September 30 2025 The notional amount of the interest rate swap decreases by a pro rata portion of any quarterly principal payments made on the Term Loan B and the notional amount is 536 3 million as of February 28 2025 The objective of the 2022 Swap is to eliminate the variability of cash flows in interest payments attributable to changes in benchmark one month SOFR interest rates The hedged risk is the interest rate risk exposure to changes in interest payments attributable to changes in benchmark one month SOFR interest rates over the interest rate swap term The changes in cash flows of the interest rate swap are expected to exactly offset changes in cash flows of the variable rate debt We designated the 2022 Swap as a cash flow hedge at inception Cash settlements in the form of cash payments or cash receipts of the 2022 Swap are recognized in interest expense
As of February 28 2025 we had 900 3 million of debt outstanding on the Revolving Credit Facility and the Term Loan B with varying maturities through fiscal 2029 We had approximately 354 6 million of additional credit available as of February 28 2025
We are expanding our coatings capabilities by constructing a new 25 acre aluminum coil coating facility in Washington Missouri that is expected to be operational in calendar year 2025 the Company s fiscal year 2026 The new greenfield facility will be included in the AZZ Precoat Metals segment and is supported by a take or pay contract for approximately 75 of the output from the new plant We expect to spend approximately 121 8 million in capital payments over the life of the project of which 60 8 million was paid prior to fiscal 2025 and 52 8 million was paid during fiscal 2025 The remaining balance of 8 2 million is on schedule to occur by the first quarter of fiscal 2026 of which we have capital commitments of 7 5 million The remaining payments through fiscal 2026 are expected to be funded through cash flows from operations
On November 10 2020 our Board of Directors authorized a 100 million share repurchase program pursuant to which we may repurchase our common stock the 2020 Authorization Repurchases under the 2020 Authorization will be made through open market or private transactions in accordance with applicable federal securities laws and could include repurchases pursuant to Rule 10b5 1 trading plans which allows stock repurchases when we might otherwise be precluded from doing so Currently share repurchases may not exceed 6 of our market capitalization per fiscal year
During fiscal 2025 to prioritize repayments of debt we did not repurchase shares of common stock under the 2020 Share Authorization As of February 28 2025 there was 53 2 million remaining to repurchase shares under the 2020 Authorization
We have exposure to commodity price increases in all three of our operating segments primarily zinc and natural gas in the AZZ Metal Coatings segment and natural gas as well as steel and aluminum scrap in the AZZ Precoat Metals segment We attempt to minimize these increases by entering into agreements with our zinc suppliers and such agreements generally include fixed premiums and by entering into agreements with our natural gas suppliers to fix a portion of our purchase cost 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 to match inflationary increases where competitively feasible We have indirect exposure to copper aluminum steel and nickel based alloys in the AZZ Infrastructure Solutions segment through our 40 investment in the AVAIL JV
As of February 28 2025 we 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 sales or expenses results of operations liquidity capital expenditures or capital resources of the Company
As of February 28 2025 we had non cancelable forward contracts to purchase approximately 98 7 million of zinc at various volumes and prices We also had non cancelable forward contracts to purchase approximately 6 7 million of natural gas at various volumes and prices All such contracts expire in fiscal 2026 We had no other contracted commitments for any other commodities including steel aluminum copper zinc nickel based alloys natural gas except for those entered into under the normal course of business
e had outstanding letters of credit in the amount of 15 4 million These letters of credit are issued for a number of reasons but are most commonly issued to support collateral requirements with insurance companies
As of February 28 2025 we have contractual commitments related to the construction of the coil coating facility in Washington Missouri of 7 5 million that are expected to be paid in the next 12 months See Greenfield Aluminum Coil Coating Facility section above See Item 8 Consolidated Financial Statements and Supplementary Data Note 22 for a discussion of our contractual commitments related to our leases
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 consolidated financial statements and the accompanying notes Actual results may differ from these estimates under different assumptions or conditions The SEC defines critical accounting estimates as those made in accordance with U S GAAP that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on a company s financial condition or results of operations We consider the following accounting estimates to meet this definition because they are dependent on our judgement and assumptions about matters that are inherently uncertain and represent our more critical estimates
Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in a business combination and is not amortized We test goodwill for potential impairment annually as of December 31 or more frequently if an event occurs or circumstances change that would more likely than not reduce the reporting unit s fair value below its carrying amount
If no impairment indicators are present we may first perform a qualitative assessment of goodwill to determine whether a quantitative assessment is necessary If we perform a quantitative assessment for the annual goodwill impairment test then we use the income approach The income approach uses Level 3 fair value inputs such as future cash flows and estimated terminal values for our reporting units that are discounted using a market participant perspective to determine the fair value of the reporting unit which is then compared to the carrying value of that reporting unit to determine if there is impairment The income approach includes assumptions about revenue growth rates operating margins and terminal growth rates discounted by an estimated weighted average cost of capital derived from other publicly traded companies that are similar but not identical from an operational and economic standpoint A significant change in events circumstances or any of these assumptions could result in an impairment of long lived assets including identifiable intangible assets Variables impacting future cash flows include but are not limited to the level of customer demand for and response to manufactured solutions we offer to the construction industrial consumer transportation electrical and utility markets changes in economic conditions of these various markets assumptions about future sales zinc and natural gas prices operating costs margins and the availability of experienced labor and management to implement our growth strategies
Long lived assets including property and equipment and intangible assets are evaluated for impairment whenever events or changes in circumstances indicate that their carrying value may not be recoverable Indefinite lived intangible assets are evaluated for impairment on an annual basis as of December 31 Impairment is measured by a comparison of the carrying amount to the estimated undiscounted cash flows to be generated by those assets If the undiscounted cash flows are less than the carrying amount we record impairment losses for the excess of their carrying value over the estimated fair value
We make estimates of projected cash flows when performing our impairment evaluation These estimates include but are not limited to assumptions about future sales zinc and natural gas prices operating costs margins the use or disposition of the asset the asset s estimated remaining useful life and future expenditures necessary to maintain the asset s existing service potential Due to the significant subjectivity of the assumptions used to test for recoverability changes in market conditions could result in significant impairment charges in the future which would impact our net income
We are subject to the possibility of various loss contingencies arising in the normal course of business The amounts we may record for estimated claims such as self insurance programs warranty environmental legal and other contingent liabilities requires us to make judgments regarding the amount of expenses that will ultimately be incurred We use past history and experience as well as other specific circumstances surrounding these claims in evaluating the amount of liability that should be recorded Due to the inherent limitations in estimating future events actual amounts paid or transferred may differ from those estimates
Assets acquired and liabilities assumed as part of a business acquisition are generally recorded at their fair value at the date of acquisition The excess of purchase price over the fair value of assets acquired and liabilities assumed is recorded as goodwill Determining fair value of identifiable assets particularly intangibles and liabilities acquired also requires management to utilize assumptions and estimates which are based upon available information that may be subject to further refinement over the purchase accounting period of one year
See Part II Item 8 Financial Statements and Supplementary Data Note 1 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
In addition to reporting financial results in accordance with Generally Accepted Accounting Principles in the United States GAAP we provide adjusted net income adjusted earnings per share and Adjusted EBITDA collectively the Adjusted Earnings Measures which are non GAAP measures Management believes that the presentation of these measures provides investors with greater transparency when comparing operating results across a broad spectrum of companies which provides a more complete understanding of our financial performance competitive position prospects for future capital investment and debt reduction Management also believes that investors regularly rely on non GAAP financial measures such as adjusted net income adjusted earnings per share and Adjusted EBITDA to assess operating performance and that such
Management defines adjusted net income and adjusted earnings per share to exclude intangible asset amortization certain legal settlements and accruals and certain expenses related to non recurring events from the reported GAAP measure Management defines Adjusted EBITDA as adjusted net income excluding depreciation amortization interest provision for income taxes and Series A Preferred Stock dividends Management believes Adjusted EBITDA is used by investors to analyze operating performance and evaluate the Company s ability to incur and service debt as well as its capacity for making capital expenditures in the future
Management provides non GAAP financial measures for informational purposes and to enhance understanding of the Company s GAAP consolidated financial statements Readers should consider these measures in addition to but not instead of or superior to the Company s financial statements prepared in accordance with GAAP and undue reliance should not be placed on these non GAAP financial measures Additionally these non GAAP financial measures may be determined or calculated differently by other companies limiting the usefulness of those measures for comparative purposes
The following tables provide a reconciliation for the years ended February 28 2025 and February 29 2024 between the non GAAP Adjusted Earnings Measures to the most comparable measures calculated in accordance with GAAP dollars in thousands except per share data
For the year ended February 28 2025 and February 29 2024 diluted earnings per share is based on weighted average shares outstanding of 29 344 and 25 209 respectively as the Series A Preferred Stock that was redeemed May 9 2024 is anti dilutive for these calculations The calculation of adjusted diluted earnings per share is based on weighted average shares outstanding of 30 134 and 29 326 respectively as the Series A Preferred Stock is dilutive to adjusted diluted earnings per share Adjusted net income for adjusted earnings per share also includes the addback of Series A Preferred Stock dividends for the periods noted above For further information regarding the calculation of earnings per share see Item 8 Financial Statements and Supplementary Data Note 15
For the year ended February 28 2025 consists of a 3 5 million legal settlement and accrual related to a non operating entity and is classified as Corporate in our operating segment disclosure and 6 5 million for the write off of receivable and related legal fees due to the unfavorable resolution of a litigation matter related to the AIS segment that was retained following the sale of the AIS business For the year ended February 29 2024 consists of the 5 5 million accrual for the Metal Coatings segment 5 75 million for the settlement of a litigation matter related to the AIS segment that was retained following the sale of the AIS business and 5 8 million for the settlement of a litigation matter that was acquired as part of the Precoat Acquisition and relates to the business activities that were discontinued prior to the acquisition See Item 8 Financial Statements and Supplementary Data Note 22
We are exposed to market risk from changes in commodity prices interest rates and foreign currency exchange rates We use derivative instruments principally to reduce our exposure to market risks from changes in commodity prices and interest rates We do not enter into or hold derivative instruments for speculative or trading purposes
We have exposure to commodity price increases in all three of our operating segments primarily zinc and natural gas in the AZZ Metal Coatings segment and natural gas as well as steel and aluminum scrap in the AZZ Precoat Metals segment We attempt to minimize these increases by entering into agreements with our zinc suppliers and such agreements generally include fixed premiums and by entering into agreements with our natural gas suppliers to fix a portion of our purchase cost 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 to match inflationary increases where competitively feasible We believe these agreements ensure adequate supplies and partially offset exposure to commodity price escalation We have indirect exposure to copper aluminum steel and nickel based alloys in the AZZ Infrastructure Solutions segment through our 40 investment in the AVAIL JV
We had 900 3 million of gross variable rate debt outstanding as of February 28 2025 under our revolving credit facility and Term Loan B We manage our exposure to fluctuations in interest rates on our floating rate debt by entering into interest rate swap agreements to convert a portion of our variable rate debt to a fixed rate Our interest rate swap eliminates the variability of cash flows in interest payments attributable to changes in benchmark one month SOFR interest rates and is designated as a cash flow hedge We are subject to future interest rate fluctuations for the unhedged portion of our borrowings which could potentially have a negative impact on our results of operations financial position or cash flows
The Company s foreign exchange exposures result primarily from intercompany balances sale of manufactured solutions in foreign currencies foreign currency denominated purchases employee related and other costs of running operations in foreign countries As of February 28 2025 the Company had exposure to foreign currency exchange rates related to our operations in Canada
The weighted average balance of variable interest debt outstanding less the portion that is fixed through our interest rate swap agreement was 370 6 million and 483 3 million as of February 28 2025 and February 29 2024 respectively We estimate that a hypothetical 10 increase in interest rates from their current level would have increased interest expense by 2 9 million and 4 2 million during fiscal 2025 and 2024 respectively We do not believe that a hypothetical change of 10 of the currency exchange rate that are currently in effect or a change of 10 of commodity prices would have a significant adverse effect on our results of operations financial position or cash flows if we are able to pass along the increases in commodity prices to our customers However there can be no assurance that either interest rates foreign exchange rates or commodity prices will not change in excess of the 10 hypothetical amount or that we would be able to pass along rising costs of commodity prices to our customers and such hypothetical change if it occurred could have an adverse effect on our results of operations financial position and cash flows
We have audited the accompanying consolidated balance sheets of AZZ Inc a Texas corporation and subsidiaries the Company as of February 28 2025 and February 29 2024 the related consolidated statements of operations comprehensive income loss changes in shareholders equity and cash flows for each of the three years in the period ended February 28 2025 and the related notes collectively referred to as the consolidated financial statements In our opinion the consolidated financial statements present fairly in all material respects the financial position of the Company as of February 28 2025 and February 29 2024 and the results of its operations and its cash flows for each of the three years in the period ended February 28 2025 in conformity with accounting principles generally accepted in the United States of America
We also have audited in accordance with the standards of the Public Company Accounting Oversight Board United States PCAOB the Company s internal control over financial reporting as of February 28 2025 based on criteria established in the 2013 Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission COSO and our report dated April 21 2025 expressed an unqualified opinion
These consolidated financial statements are the responsibility of the Company s management Our responsibility is to express an opinion on the Company s consolidated financial statements based on our audits We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U S federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB
We conducted our audits in accordance with the standards of the PCAOB Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement whether due to error or fraud Our audits included performing procedures to assess the risks of material misstatement of the financial statements whether due to error or fraud and performing procedures that respond to those risks Such procedures included examining on a test basis evidence regarding the amounts and disclosures in the financial statements Our audits also included evaluating the accounting principles used and significant estimates made by management as well as evaluating the overall presentation of the financial statements We believe that our audits provide a reasonable basis for our opinion
Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that 1 relate to accounts or disclosures that are material to the financial statements and 2 involved our especially challenging subjective or complex judgments We determined that there are no critical audit matters
We have audited the internal control over financial reporting of AZZ Inc a Texas corporation and subsidiaries the Company as of February 28 2025 based on criteria established in the 2013 Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission COSO In our opinion the Company maintained in all material respects effective internal control over financial reporting as of February 28 2025 based on criteria established in the 2013 Internal Control Integrated Framework issued by COSO
We also have audited in accordance with the standards of the Public Company Accounting Oversight Board United States PCAOB the consolidated financial statements of the Company as of and for the year ended February 28 2025 and our report dated April 21 2025 expressed an unqualified opinion on those financial statements
The Company s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management s Report on Internal Controls Over Financial Reporting Our responsibility is to express an opinion on the Company s internal control over financial reporting based on our audit We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U S federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB
We conducted our audit in accordance with the standards of the PCAOB Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects Our audit included obtaining an understanding of internal control over financial reporting assessing the risk that a material weakness exists testing and evaluating the design and operating effectiveness of internal control based on the assessed risk and performing such other procedures as we considered necessary in the circumstances We believe that our audit provides a reasonable basis for our opinion
A company s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles A company s internal control over financial reporting includes those policies and procedures that 1 pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company 2 provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company and 3 provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition use or disposition of the company s assets that could have a material effect on the financial statements
Because of its inherent limitations internal control over financial reporting may not prevent or detect misstatements Also projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate
Unrealized translation gain loss for unconsolidated subsidiary is related to the Company s unconsolidated investment in the AVAIL JV and represents the Company s 40 interest in this amount Net of tax expense benefit of 610 and 491 for 2025 and 2024 respectively
Unrealized gain loss on interest rate swap net of tax for unconsolidated subsidiary is related to the Company s unconsolidated investment in the AVAIL JV and represents the Company s 40 interest in this amount Net of tax expense benefit of 7 and 12 for 2025 and 2024 respectively
AZZ Inc the Company AZZ or we operates in the United States of America and Canada We have three operating segments AZZ Metal Coatings AZZ Precoat Metals and AZZ Infrastructure Solutions The AZZ Infrastructure Solutions segment represents our 40 non controlling interest in AIS Investment Holdings LLC the AVAIL JV AIS Investment Holdings LLC is primarily 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 Through September 30 2022 the Company also had operations in Brazil China the Netherlands Poland Singapore and India through its AZZ Infrastructure Solutions segment AIS On September 30 2022 the Company contributed AIS to AIS Investment Holdings LLC the AVAIL JV and sold a 60 interest in the AIS JV to Fernweh See Note 9 for further discussion of the divestiture See Note 18 for information about the Company s operations by segment
On May 13 2022 we completed the acquisition of the Precoat Metals business division Precoat Metals of Sequa Corporation Sequa a portfolio company owned by Carlyle a global private equity firm the Precoat Acquisition See Notes 7 and 16 for further discussion about Precoat Metals As a result of the Precoat Acquisition we changed our operating segments and added AZZ Precoat Metals as a new operating segment
The consolidated financial statements were prepared in accordance with the accounting principles generally accepted in the United States of America and include the accounts of AZZ and its wholly owned subsidiaries All material inter company accounts and transactions have been eliminated in consolidation Certain previously reported amounts have been reclassified to conform to current period presentation See Note 9 for more information about results of operations reported in discontinued operations in the consolidated balance sheet statement of operations and statement of cash flows for the year ended February 28 2023
The preparation of the financial statements in conformity with generally accepted accounting principles in the United States of America GAAP requires management to make estimates and assumptions that affect the amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period Actual results could differ from those estimates
Financial instruments that potentially subject AZZ to significant concentrations of credit risk consist principally of cash and cash equivalents as well as trade accounts receivable As of February 28 2025 we had cash in banks of 12 4 million in excess of the Federal Deposit Insurance Corporation FDIC limits which includes 11 1 million of outstanding checks
We maintain cash and cash equivalents with various financial institutions Our policy is designed to limit exposure to any one institution We perform periodic evaluations of the relative credit standing of those financial institutions that are considered in our banking relationships and have not experienced any losses in such accounts We believe we are not exposed to any significant credit risk related to cash and cash equivalents
We have limited concentrations of credit risk with respect to trade accounts receivable due to its multiple operating segments large and diversified customer base and geographic diversification We perform ongoing evaluations of our customers financial condition Collateral is usually not required from customers as a condition of sale
Accounts receivable are stated amounts due from customers We maintain an allowance for credit losses for estimated losses resulting from the inability of customers to make required payments We treat trade accounts receivable as one portfolio and record an allowance based on a combination of management s knowledge of its customer base historical losses current
economic conditions and customer specific events The allowance is adjusted based on specific information in connection with aged receivables Accounts receivable are considered to be past due when payment is not received in accordance with the customer s credit terms Accounts are written off when management determines the account is uncollectible Recoveries are recorded against the allowance in the period received
For fiscal 2025 and 2024 Other includes the write off of 1 7 million and 3 7 million of reserves respectively following the settlement of a litigation matter The reserves related to the AZZ Infrastructure Solutions segment and were retained following the AIS divestiture
For fiscal 2024 and 2023 the allowance for credit losses includes 1 7 million and 5 4 million respectively related to the AZZ Infrastructure Solutions segment that were retained following the AIS divestiture
Revenue is recognized when control of the promised goods or services is transferred to our customers in an amount that reflects the consideration that it expects to be entitled to in exchange for those goods or services
AZZ s Metal Coatings segment is a provider of hot dip galvanizing powder coating anodizing and plating and other metal coating applications to the steel fabrication and other industries Within this segment the contract is typically governed by a customer purchase order or work order The contract generally specifies the delivery of what constitutes a single performance obligation consisting of metal coating services We recognize sales over time as the metal coating is applied to customer provided material as the process enhances a customer controlled asset Contract modifications are rare within this segment and most contracts are on a fixed price basis with no variable consideration
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
Within this segment the contract is typically governed by a customer purchase order The contract generally specifies the delivery of a performance obligation consisting of coating services and may also include secondary services such as slitting embossing or cut to length We recognize sales over time as the coil coating is applied to customer provided material as the process enhances a customer controlled asset Contract modifications are rare within this segment In certain cases we may offer volume discounts which are recorded as a reduction to sales and recognized over time in the same manner as the related revenue
The timing of revenue recognition billings and cash collections results in accounts receivable contract assets unbilled receivables and contract liabilities customer advances and deposits on the consolidated balance sheets Our contract assets
and contract liabilities are primarily related to the AZZ Precoat Metals segment Customer billing can occur subsequent to revenue recognition resulting in contract assets In addition we can receive advances from our customers before revenue is recognized resulting in contract liabilities These assets and liabilities are reported on the consolidated balance sheets on a contract by contract basis at the end of each reporting period
The increases or decreases in contract assets and contract liabilities from continuing operations during fiscal year 2025 were primarily due to normal timing differences between AZZ s performance and customer payments Contract liabilities of 0 5 million 1 0 million and 1 3 million as of February 28 2025 February 29 2024 and February 28 2023 respectively are included in Other accrued liabilities in the consolidated balance sheets The balance of contract assets was 106 5 million 79 3 million and 79 3 million as of February 28 2025 February 29 2024 and February 28 2023 respectively The balance of contract assets is primarily related to the AZZ Precoat Metals segment We recognized 1 0 million of revenue for amounts that were included in contract liabilities as of February 29 2024
No general rights of return exist for customers however we provide assurance type warranties and a provision for estimated warranties has been established AZZ generally does not sell extended warranties Revenue is recognized net of applicable sales and other taxes We do not adjust the contract price for the effects of a significant financing component if we expect at contract inception that the period between when we transfer a good or service to a customer and when the customer pays for that good or service will be one year or less which is generally the case Shipping and handling is treated as a fulfillment obligation instead of a separate performance obligation and such costs are expensed as incurred
Sales by segment and geography is disclosed in Note 18 In addition the following table presents disaggregated sales from continuing operations by customer industry for fiscal years 2025 2024 and 2023 in thousands
Inventories are stated at the lower of cost or market value Cost is determined principally using the first in first out FIFO method for the AZZ Metal Coatings segment and the specific identification cost method for the Precoat Metals segment A reserve for excess quantities and obsolescence is based on forecasted demand within specific time horizons technological obsolescence and an assessment of any inventory that is not in sellable condition which we record as a charge to reduce inventory to its net realizable value
Property and equipment are stated at cost less accumulated depreciation Costs for improvements that extend the useful life of our property and equipment are capitalized as additions The improvements are depreciated over the estimated useful lives and assets that are replaced are disposed of at the net book value In addition we capitalize interest on borrowings during the active construction period of capital projects Capitalized interest is added to the cost of the assets and depreciated over the estimated useful lives of the assets Depreciation is computed using the straight line method over the following estimated useful lives
Intangible assets on the consolidated balance sheets are comprised of customer relationships non compete agreements trademarks technology and certifications Such intangible assets excluding indefinite lived intangible assets are amortized on a straight line basis over the estimated useful lives of the assets ranging from three to 30 years Long lived assets such as property and equipment and intangible assets are evaluated for impairment whenever events or changes in circumstances indicate that their carrying value may not be recoverable Recoverability is measured by a comparison of their carrying amount to the estimated undiscounted cash flows to be generated by those assets If the undiscounted cash flows are less than the carrying amount we record impairment losses for the excess of their carrying value over the estimated fair value We did not recognize any impairment charges for fiscal years 2025 2024 or 2023 since there were no changes in events or circumstances that would suggest these assets were impaired
Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in a business combination Other indefinite lived intangible assets consist of certain tradenames that were obtained through acquisitions We test goodwill and other indefinite lived intangibles for potential impairment annually as of December 31 or more frequently if events or circumstances change that would more likely than not reduce the reporting unit s fair value below its carrying amount If no impairment indicators are present we may first perform a qualitative assessment of goodwill to determine whether a quantitative assessment is necessary If we perform a quantitative assessment for the annual goodwill impairment test then we use the income approach The income approach uses Level 3 fair value inputs such as future cash flows and estimated terminal values for our reporting units that are discounted using a market participant perspective to determine the fair value of the reporting unit which is then compared to the carrying value of that reporting unit to determine if there is impairment The income approach includes assumptions about revenue growth rates operating margins and terminal growth rates discounted by an estimated weighted average cost of capital derived from other publicly traded companies that are similar but not identical from an operational and economic standpoint A significant change in events circumstances or any of these assumptions could result in an impairment of long lived assets including identifiable intangible assets Variables impacting future cash flows include but are not limited to the level of customer demand for and response to manufactured solutions we offer to the construction industrial consumer transportation electrical and utility markets changes in economic conditions of these various markets assumptions about future sales zinc and natural gas prices operating costs margins and the availability of experienced labor and management to implement our growth strategies For fiscal year 2025 we elected to perform a qualitative analysis and determined that no conditions existed that would make it more likely than not that the goodwill or indefinite lived intangible assets were impaired Therefore no further quantitative testing was required For fiscal years 2025 2024 and 2023 no impairment losses were recognized for goodwill or indefinite lived intangible assets
We account for the investment in our joint venture under the equity method of accounting as we exercise significant influence over but do not control the joint venture Investments in unconsolidated joint ventures are initially recorded at fair
value and subsequently increased or decreased for allocations of net income and changes in cumulative translation adjustments Equity in net income loss from the AVAIL JV is allocated based on our 40 economic interest We record our interest in the joint venture on a one month lag to allow sufficient time to review and assess the joint venture s effect on our reported results We assess our investment in the unconsolidated joint venture for recoverability when events and circumstances are present that suggest there has been a decline in value and if it is determined that a loss in value of the investment is other than temporary the investment is written down to its fair value We do not believe that the value of our equity investment was impaired as of February 28 2025
Debt issuance costs that are incurred in connection with the issuance of debt are amortized to interest expense using the straight line method which approximates the effective interest rate method over the term of the debt Costs related to our revolving credit facility are included in Other assets on the consolidated balance sheets Costs related to our long term debt instruments are presented as a reduction to long term debt on the consolidated balance sheets
Following the close of the AVAIL JV we entered into a transition services agreement with AIS Investment Holdings LLC which is considered a related party In conjunction with the transition services agreement TSA we recognized 3 5 million and 3 4 million of TSA fees for fiscal years 2024 and 2023 respectively which are included as a reduction to Selling general and administrative expense in the consolidated statements of operations As of February 28 2025 we did not have any related party receivables or payables outstanding
We account for income taxes under the asset and liability method which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements Under this method deferred tax assets and liabilities are determined based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date
We recognize a valuation allowance against net deferred tax assets to the extent that we believe those net assets are not more likely than not to be realized In making such a determination we consider all available positive and negative evidence including future reversals of existing taxable temporary differences projected future taxable income tax planning strategies and results of recent operations If we determine that we would be able to realize its deferred tax assets in the future in excess of their net recorded amount we make an adjustment to the deferred tax asset valuation allowance which would reduce the provision for income taxes
As applicable we record Uncertain Tax Positions UTPs on the basis of a two step process whereby 1 we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and 2 for those tax positions that meet the more likely than not recognition threshold we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority
We are subject to taxation in the U S and various state provincial local and foreign jurisdictions With few exceptions as of February 28 2025 we are no longer subject to U S federal or state examinations by tax authorities for years before fiscal 2021
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants In accordance with Accounting Standards Codification ASC 820
The local currency is the functional currency for our foreign operations Related assets and liabilities are translated into United States dollars at exchange rates existing at the balance sheet date with revenues and expenses translated at weighted average exchange rates The foreign currency translation adjustment is recorded as a separate component of shareholders equity and is included in Accumulated other comprehensive income loss Gains or losses arising from the translation of intercompany balances of our foreign entities are included in earnings because the intercompany balances are denominated in a currency other than the functional currency of the foreign entity
We are subject to the possibility of various loss contingencies arising in the normal course of business The amounts we may record for estimated claims such as self insurance programs warranty environmental legal and other contingent liabilities requires us to make judgments regarding the amount of expenses that will ultimately be incurred We use past history and experience as well as other specific circumstances surrounding these claims in evaluating the amount of liability that should be recorded Due to the inherent limitations in estimating future events actual amounts paid or transferred may differ from those estimates
We are a lessee under various leases for facilities and equipment For leases with terms over one year we recognize a right of use ROU asset and lease liability on the consolidated balance sheet based on the present value of the future minimum lease payments An ROU asset represents our right to use an underlying asset during the lease term and a lease liability represents the Company s obligation to make lease payments For short term leases with an initial term of twelve months or less that do not contain a likely to be exercised purchase option we do not record ROU assets or lease liabilities on the consolidated balance sheet
We use our incremental borrowing rate to determine the present value of future payments unless the implicit rate in the lease is readily determinable The incremental borrowing rate is calculated based on what we would pay to borrow on a collateralized basis over a similar term based on information available at lease commencement In determining the future minimum lease payments we incorporate options to extend or terminate the lease when it is reasonably certain that such options will be exercised The ROU asset includes any initial direct costs incurred and is recorded net of any lease incentives received Leasehold improvements are capitalized and depreciated over the term of the lease including any options for which are reasonably certain will be exercised with a maximum of 10 years
Lease expense for minimum lease payments is recognized on a straight line basis over the lease term as the ROU asset is amortized and the lease liability is accreted For facility leases we account for lease and non lease components on a combined basis For our equipment leases lease and non lease components are accounted for separately
In addition to fixed lease payments some lease agreements contain provisions for variable lease payments Certain vehicle and equipment leases provide for variable lease payments based on among other things inflation adjustments a specified index rate adjustment or usage Our lease agreements do not contain any material residual value guarantees or material restrictive covenants
In the AZZ Precoat Metals segment certain current and past employees participate in a defined benefit pension plan sponsored and administered by AZZ The pension plan calls for benefits to be paid to eligible employees at retirement based primarily upon years of service and compensation rates near retirement The plan was frozen prior to acquisition of Precoat Metals and new employees are not eligible to participate
We incur expenses in connection with the defined benefit pension plan We use various assumptions to measure expense and the related benefit obligation including discount rates used to value the obligation expected return on plan assets used to fund these expenses and estimated future inflation rates These assumptions are based on historical experience as well as current facts and circumstances An actuarial analysis is used to measure the expense and liability associated with pension benefits We recognize the overfunded or underfunded status of defined benefit pension as an asset or liability in the consolidated balance sheets Changes in the funded status are recognized in Accumulated other comprehensive income loss in the year in which the changes occur See Note 16 for further information
Through May 9 2024 we held 240 000 shares of 6 Series A Convertible Preferred Stock Series A Preferred Stock We initially recorded the Series A Preferred Stock issued in connection with the Precoat Acquisition at its fair value less issuance costs The Series A Preferred Stock is classified as mezzanine equity in the consolidated balance sheet as of February 29 2024 In accordance with ASC 480 10 S99 because the shares of Series A Preferred Stock were redeemable at the holder s option upon the occurrence of an event that is not solely within our control the carrying value of the Series A Preferred Stock was required to be classified as mezzanine equity On May 9 2024 we fully redeemed our 240 000 shares of Series A for 308 9 million
ASU 2023 07 which expands disclosures about a public entity s reportable segments and requires more enhanced information about a reportable segment s expenses interim segment profit or loss and how a public entity s chief operating decision maker uses reported segment profit or loss information in assessing segment performance and allocating resources ASU 2023 07 is effective for fiscal years beginning after December 15 2023 and interim periods within fiscal years beginning after December 15 2024
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 AZZ adopted ASU 2021 08 in fiscal 2023 and the adoption did not have a material impact on our financial condition results of operations or cash flows
ASU 2024 03 which expands disclosures about a public entity s expenses including inventory employee compensation depreciation intangible asset amortization selling expenses and other expense categories In January 2025 the FASB issued ASU No 2025 01
ASU 2025 01 which clarifies the effective date of ASU 2024 03 for companies with a non calendar year end ASU 2024 03 is effective for fiscal years beginning after December 15 2026 and interim periods within fiscal years beginning after December 15 2027 We do not expect the adoption of ASU 2024 03 or ASU 2025 01 to affect our financial position or our results of operations but ASU 2024 03 will result in additional disclosures for our annual reporting period ending February 29 2028 and interim reporting periods beginning in fiscal 2029
ASU 2023 09 which expands disclosures in an entity s income tax rate reconciliation table and regarding cash taxes paid both in the U S and foreign jurisdictions ASU 2023 09 update will be effective for annual periods beginning after December 15 2024 We expect to adopt ASU 2023 09 for the annual period ending February 28 2026 and the adoption will not affect our financial position or our results of operations but will result in additional disclosures
Goodwill and indefinite lived intangible assets are not amortized but are subject to annual impairment tests Other intangible assets are amortized on a straight line basis over the estimated useful lives
In addition to its amortizable intangible assets we have recorded indefinite lived intangible assets of 1 5 million on the consolidated balance sheets as of February 28 2025 and February 29 2024 related to certain tradenames acquired as part of prior business acquisitions
Our inventory reserves were 3 9 million and 4 5 million as of February 28 2025 and February 29 2024 respectively Inventory cost is determined principally using the first in first out FIFO method for the AZZ Metal Coatings segment and the specific identification method for the Precoat Metals segment
On May 13 2022 we acquired Precoat Metals for a purchase price of approximately 1 3 billion the Precoat Acquisition AZZ Precoat Metals is the leading independent provider of metal coil coating solutions in North America The acquisition represented the continued transition of AZZ to a focused provider of coating and galvanizing services for critical applications
We completed the final purchase accounting valuation during the first quarter of fiscal year 2024 We accounted for the Precoat Acquisition as a business combination under the acquisition method of accounting Goodwill from the acquisition of 527 8 million represents the excess purchase price over the estimated value of net tangible and intangible assets and liabilities assumed and is expected to be deductible for income tax purposes 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
When determining the fair values of assets acquired and liabilities assumed management made significant estimates judgments and assumptions We engaged third party valuation experts to assist in determination of fair value of property and equipment intangible assets pension benefit obligation and certain other assets and liabilities Management believes that the current information provides a reasonable basis for the fair values of assets acquired and liabilities assumed During the first quarter of fiscal 2024 we made purchase price allocation adjustments that impacted goodwill contract assets and accrued expenses
Intangible assets include customer relationships tradenames and technology Other long term liabilities include the pension obligation and certain environmental liabilities See Notes 16 and 22 for more information about these long term liabilities
On February 28 2022 we 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 our geographical coverage in the Northwest and enhanced the scope of metal coatings solutions offered in Canada The business is included in the AZZ Metal Coatings segment The goodwill arising from this acquisition was allocated to the AZZ Metal Coatings segment and approximately 50 of the goodwill amount was deductible for income tax purposes
We engaged third party valuation experts to assist with the purchase price allocation the recorded valuation of property plant and equipment intangible assets and certain other assets and liabilities Estimates from third party experts along with the analysis and expertise of management have formed the basis for the allocation During the third quarter of fiscal 2023 the purchase price allocation was finalized We settled the working capital adjustment and received cash of 0 7 million during fiscal 2023 and adjusted other acquired assets and liabilities which resulted in net decrease in the purchase price
The following unaudited pro forma financial information for fiscal 2023 combines the historical results of AZZ and the acquisition of Precoat Metals assuming that the companies were combined as of March 1 2021 The pro forma financial information includes business combination accounting effects from the Precoat Acquisition including amortization expense from acquired intangible assets depreciation expense from acquired property plant and equipment interest expense from financing transactions which occurred to fund the Precoat Acquisition acquisition related transaction costs and tax related effects The pro forma information as presented below is for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition of Precoat Metals had taken place on March 1 2021 or of future operating performance
During fiscal 2025 and 2024 we had non cash investing activities related to asset retirements of 4 2 million and 9 5 million respectively See Note 10 for supplemental disclosures of non cash investing and financing activities related to our leases
On September 30 2022 AZZ contributed its AZZ Infrastructure Solutions AIS segment excluding AZZ Crowley Tubing to a joint venture AIS Investment Holdings LLC the AVAIL JV and sold a 60 interest in the AVAIL JV to Fernweh Group LLC Fernweh On September 30 2022 the AVAIL JV was deconsolidated Beginning October 1 2022 the Company began accounting for its 40 interest in the AVAIL JV under the equity method of accounting The AVAIL JV is included in the AZZ Infrastructure Solutions segment
The divestiture of the AZZ Infrastructure Solutions segment represents an intentional strategic shift in our operations and allowed AZZ to become a focused provider of coating and galvanizing solutions for critical applications As a result the results of the AIS segment were classified as discontinued operations in our consolidated statements of operations and excluded from both continuing operations and segment results for the fiscal year ended February 28 2023
As part of recognizing the business as held for sale in accordance with GAAP we were required to measure AIS at the lower of its carrying amount or fair value less cost to sell As a result of this analysis during fiscal 2023 we recognized a non cash pre tax loss on disposal of 159 9 million The loss is included in Loss on disposal of discontinued operations in the consolidated statements of operations The loss was determined by comparing the fair value of the consideration received for the sale of a 60 interest in the AVAIL JV and the fair value of our retained 40 investment in the AVAIL JV with the net assets of the AVAIL JV immediately prior to the transaction
The results of operations from discontinued operations for fiscal year 2023 have been reflected as discontinued operations in the consolidated statements of operations and consist of the following in thousands
As of February 28 2025 we were the lessee for 146 operating leases and 74 finance leases with terms of 12 months or more These leases are reflected in Right of use assets Lease liability short term and Lease liability long term in our consolidated balance sheets
Our leases are primarily for i operating facilities ii vehicles and equipment used in operations iii facilities used for back office functions iv equipment used for back office functions and v temporary storage The majority of our vehicle and equipment leases have both a fixed and variable component
Leases with an initial term of 12 months or less are not recorded on the consolidated balance sheets and we recognize lease expense for these leases on a straight line basis over the lease term We have a significant number of short term leases including month to month agreements Our short term lease agreements include expenses incurred hourly daily monthly and for other durations of time of one year or less Our future lease commitments as of February 28 2025 do not reflect all of our short term lease commitments
We sublease multiple buildings in Columbia South Carolina to multiple subtenants The Columbia sublease agreements are by and between AZZ Precoat Metals and multiple subtenants Sublease income is recognized over the term of the sublease on a straight line basis and is reported in the consolidated statement of operations as a reduction to Cost of sales
We have a credit agreement with a syndicate of financial institutions as lenders that was entered into on May 13 2022 and was subsequently amended on August 17 2023 December 20 2023 March 20 2024 September 24 2024 and February 27 2025 collectively referred to herein as the 2022 Credit Agreement
provides for a senior secured initial term loan in the aggregate principal amount of 1 3 billion the Term Loan B due May 13 2029 which is secured by substantially all of the assets of the Company as of February 28 2025 the outstanding balance of the Term Loan B was 870 3 million
borrowings under the Term Loan B bear an interest rate of Secured Overnight Financing Rate SOFR plus 2 50 following the repricings on March 20 2024 and September 24 2024 as described below and the Revolving Credit Facility bears a leverage based rate with various tiers between 1 75 and 2 75 following the repricing on February 27 2025 as described below the interest rate as of February 28 2025 was SOFR plus 2 25
includes customary affirmative and negative covenants and events of default including restrictions on the incurrence of non ordinary course debt investment and dividends subject to various exceptions and
On February 27 2025 we repriced the Revolving Credit Facility which has a leverage based rate with various tiers The repricing reduced the interest rate tiers from SOFR plus 2 75 to 3 50 to SOFR plus 1 75 to 2 75
As defined in the 2022 Credit Agreement quarterly prepayments were due against the outstanding principal of the Term Loan B and were payable on the last business day of each May August November and February beginning August 31 2022 in a quarterly aggregate principal amount of 3 25 million with the entire remaining principal amount due on May 13 2029 the maturity date Additional prepayments made against the Term Loan B contribute to these required quarterly payments Due to prepayments made against the Term Loan B since August 31 2022 the quarterly mandatory principal payment requirement has been met and the quarterly payments of 3 25 million are no longer required
The weighted average interest rate for our outstanding debt including the Revolving Credit Facility and the Term Loan B was 7 54 and 8 58 at February 28 2025 and February 29 2024 respectively We are also obligated to pay a leverage based commitment fee with various tiers between 0 20 and 0 30 per year for unused amounts under the Revolving Credit Facility As of February 28 2025 the commitment fee rate was 0 225
Our 2022 Credit Agreement requires us to maintain a maximum Total Net Leverage Ratio as defined in the loan agreement no greater than 4 5 As of February 28 2025 we were in compliance with all covenants and other requirements set forth in the 2022 Credit Agreement
As of February 28 2025 we had 900 3 million of debt outstanding on the Revolving Credit Facility and the Term Loan B with varying maturities through fiscal 2029 We had approximately 354 6 million of additional credit available as of February 28 2025
As of February 28 2025 we had total outstanding letters of credit in the amount of 15 4 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 performance periods and insurance collateral
Capitalized interest relates to interest cost on the construction of the greenfield aluminum coil coating facility in Washington Missouri The increase for fiscal 2025 compared to the prior years was due to the higher average construction work in process
The provision for income taxes from continuing operations was 24 5 for fiscal 2025 compared to 21 9 for fiscal 2024 The increase in the effective tax rate is primarily attributable to favorable adjustments for fiscal 2024 related to uncertain tax positions partially offset by higher tax deductions for stock compensation in fiscal 2025 The increase is also attributable to non deductible items such as compensation limited by IRC Sec 162 m and meals entertainment subject to the 50 limitation under IRC Sec 274 n The increase also relates to higher state tax expense net of federal benefit and lower R D tax credits following the divestiture of the AIS business
Deferred federal and state income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial accounting purposes and the amounts used for income tax purposes Significant components of the Company s net deferred income tax liability are as follows for fiscal year 2025 and 2024 in thousands
The increase in net deferred tax liability is primarily related to an increase in book over tax basis related to goodwill additional interest expense that was previously capitalized which is now deductible additional payments to the pension plan partially offset by an increase in state net operating losses a decrease in book over tax basis related to fixed assets and an increase in tax basis over book related to the Company s investment in the AVAIL JV
As of February 28 2025 and February 29 2024 a portion of the Company s deferred tax assets were the result of state and foreign jurisdiction NOL carry forwards and state credit carry forwards We believe that it is more likely than not that the benefit from certain foreign NOL carry forwards and state credit carry forwards will be realized Therefore we have not provided a valuation allowance as of February 28 2025
The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in a multitude of jurisdictions across our operations U S GAAP states that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination including resolutions of any related appeals or litigation processes based on the technical merits We may 1 record unrecognized tax benefits as liabilities in accordance with U S GAAP and 2 adjust these liabilities when our judgment changes because of the evaluation of new information not previously available Because of the complexity of some of these uncertainties the ultimate resolution may result in a payment that is materially different from our current estimate of the unrecognized tax benefit liabilities These differences will be reflected as increases or decreases to income tax expense in the period in which new information becomes available
A reconciliation of the beginning and ending balance of total unrecognized tax benefits which is included in Other long term liabilities in the consolidated balance sheets for the years ended February 28 2025 and February 29 2024 is as follows in thousands
We recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense Penalties and interest recorded to tax expense benefit for fiscal 2025 and 2024 were 0 3 million and 0 5 million respectively
We have prior year tax returns currently being examined in two states and do not have any other returns currently being examined by taxing authorities We believe that we have provided adequate reserves for our income tax uncertainties in all open tax years As the outcome of any tax audits cannot be predicted with certainty if any issues addressed in our tax audits are resolved in a manner inconsistent with management s expectations we could adjust our provision for income taxes in the future
As of February 28 2025 we have operations and taxable presence in the U S and Canada The tax positions of the Company and its subsidiaries are subject to income tax audits by multiple tax jurisdictions We currently consider U S federal and state and Canada to be significant tax jurisdictions Our U S federal and state tax returns since February 28 2022 remain open to examination Our Canada tax returns since February 28 2021 remain open to examination The statute of limitations for fiscal year 2022 for U S and fiscal year 2021 for Canada will expire in December 2025 We anticipate it is reasonably possible that a decrease of unrecognized tax benefits related to various federal foreign and state positions of 0 2 million may be resolved in the next 12 months
Prior to enactment of H R 1 formerly known as the Tax Cuts and Jobs Act of 2017 the Tax Act we asserted that all unremitted earnings of our foreign subsidiaries were considered indefinitely reinvested As a result of the Tax Act we reported and paid U S tax on most of our previously unremitted foreign earnings As of February 28 2025 we continue to be indefinitely reinvested with respect to investments in its foreign subsidiaries Additionally we have not recorded deferred tax liabilities associated with the remaining unremitted earnings that are considered indefinitely reinvested It is impracticable for us to determine the amount of unrecognized deferred tax liabilities on these indefinitely reinvested earnings due to the complexities associated with the hypothetical calculation
On May 9 2024 we fully redeemed our 240 000 shares of 6 0 Series A Convertible Preferred Stock for 308 9 million The payment was calculated as the face value of the Series A Preferred Stock of 240 0 million multiplied by the Return Factor as defined below of 1 4 less dividends paid to date of 27 1 million The redemption premium of 75 2 million which was calculated as the difference between the redemption amount and the book value of 233 7 million was recorded as a deemed dividend and reduces net income available to common shareholders The Series A Preferred Stock was redeemed using proceeds from the April 2024 Secondary Public Offering See Note 14
On August 5 2022 we exchanged our 240 0 million 6 00 convertible subordinated notes due June 30 2030 for 240 000 shares of Series A Preferred Stock following the receipt of shareholder approval for the issuance of Series A Preferred Stock The Series A Preferred Stock had a 1 00 par value per share and ranked senior to the common stock of the Company including with respect to both income and capital but junior to our indebtedness The Series A Preferred Stock is classified as Mezzanine equity in the consolidated balance sheets and as noted above was fully redeemed on May 9 2024
If we undergo a change of control bankruptcy insolvency liquidation or de listing of AZZ s common stock a Fundamental Change Event holders of Series A Preferred Stock may have elected to i receive the as converted value of AZZ s common stock at the then current Conversion Price ii require us to redeem the Series A Preferred Stock in cash for the Redemption Amount as defined below or iii retain their shares of Series A Preferred Stock if the Fundamental Change Event is a non cash change of control
The Series A Preferred Stock had a liquidation preference as defined by U S GAAP equal to the Redemption Amount Under U S GAAP the liquidation preference is defined as the amount that would be required to be paid to the shareholders upon liquidation or dissolution of the Company As of February 29 2024 the holders of the shares of Series A Preferred Stock were entitled to a liquidation preference of approximately 312 5 million in the event of any liquidation dissolution or winding up of the Company as of such year end
The Series A Preferred Stock accumulated a 6 0 dividend per annum or 15 00 per share per quarter Dividends were payable in cash or in kind by accreting and increasing the Series A Base Amount PIK Dividends Dividends were payable on the sum of i the aggregate liquidation preference amount of 240 0 million plus ii any PIK Dividends Dividends were accrued daily and paid quarterly in arrears on March 31 June 30 September 30 and December 31 of each year Following the calendar quarter ending June 30 2027 we were not able to elect PIK Dividends and dividends on the Series A Preferred Stock were required to be paid in cash All dividends were paid in cash through May 9 2024 at which time the Series A Preferred Stock was redeemed The dividend would have increased annually by one percentage point beginning with the dividend payable for the calendar quarter ending September 30 2028 Dividends declared and paid for the fiscal years ended 2025 2024 and 2023 were 3 6 million 14 4 million and 5 8 million respectively
Subject to a minimum conversion threshold of 1 000 shares of Series A Preferred Stock per conversion and customary anti dilution and dividend adjustments the Series A Preferred Stock was convertible by the holder at any time into shares of AZZ s common stock for 58 30 per common share the Conversion Price In addition after May 13 2024 we were entitled to provide holders of Series A Preferred Stock with notice of a mandatory conversion of a portion of the Series A Preferred Stock which may not have exceeded 25 of the amount of Series A Preferred Stock issued in any single quarter at the Conversion Price if the closing price of our common stock exceeded 185 of the Conversion Price for 20 consecutive trading days prior to the date of such notice and so long as the shelf registration statement filed November 4 2022 to cover resales of the converted common stock remained effective and available for use
Holders of Series A Preferred Stock participated equally and ratably with the holders of AZZ s common stock in any dividends paid on AZZ s common stock in excess of our current 0 17 quarterly dividend when as and if declared by the Board as if such shares of Series A Preferred Stock had been converted to shares of common stock immediately prior to the record date for the payment of such dividend
AZZ had the right to redeem the Series A Preferred Stock at a price equal to the greater of i the Series A Base Amount plus accrued but unpaid dividends ii the initial Series A Base Amount excluding any prior PIK dividends multiplied by the Return Factor less all dividends paid through the redemption date or iii the amount the holder of such share of convertible preferred stock would have received had such holder immediately prior to such redemption date converted such shares of convertible preferred stock into common shares such greater amount the Redemption Amount
The redemption price under option ii contained a Return Factor which was equal to 1 4 until May 13 2024 and a in each of the three years thereafter would have increased by 0 15 b would have increased by an additional 0 15 after May 13 2024 the second anniversary of the issuance date of the Series A Preferred Stock if i our ratio of net debt to earnings before interest taxes depreciation and amortization EBITDA as defined in the 2022 Credit Agreement on the second anniversary of the issuance date of the Series A Preferred Stock was greater than 3 5 to 1 and ii prior to May 13 2024 we had not consummated dispositions of assets that in the aggregate resulted in proceeds in excess of 200 0 million and c would
The redemption price under option iii was subject to provisions of the Certificate of Designation that limited our right to redeem to the period following the two year anniversary of the initial issuance limited the quarterly conversion to up to 25 of the number of shares of convertible preferred stock outstanding and required our market price per share of common stock to exceed 185 of the conversion price
Holders of Series A Preferred Stock were entitled to a number of votes on all matters presented to holders of voting capital stock of AZZ equal to the number of shares of the AZZ s common stock then issuable upon conversion of such holders Series A Preferred Stock The vote or consent of the holders of at least a majority of the outstanding shares of Series A Preferred Stock would have been required for certain actions including
incurrence of any additional indebtedness including refinancings of existing indebtedness by the Company unless our ratio of net debt to EBITDA as defined in the 2022 Credit Agreement did not exceed 5 5x
any acquisition investment sale disposition or similar transaction whether of an entity business equity interests or assets that has total consideration including assumption of liabilities of at least 250 0 million or when our market capitalization is 2 0 billion or greater has total consideration including assumption of liabilities of at least 500 0 million
The holders of Series A Preferred Stock also had customary information and preemptive rights and the Series A Preferred Stock was subject to customary anti dilution provisions The Series A Preferred Stock and all shares of common stock issuable upon conversion of the Series A Preferred Stock had customary demand and piggyback registration rights pursuant to the registration rights agreement which was entered into on May 13 2022 with BTO Pegasus Holdings DE L P a Delaware limited partnership together with its assignees Blackstone Holders of Series A Preferred Stock were prohibited from transferring shares of Series A Preferred Stock to any competitor of AZZ or activist investors subject to certain exceptions
On April 30 2024 we completed a secondary public offering in which we sold 4 6 million shares of our common stock at 70 00 per share the April 2024 Secondary Public Offering We received gross proceeds of 322 0 million and paid offering expenses of 13 3 million for net proceeds of 308 7 million The proceeds from the April 2024 Offering were used to redeem the Series A Preferred Stock See Note 13
On November 10 2020 our Board of Directors authorized a 100 million share repurchase program pursuant to which we may repurchase AZZ common stock the 2020 Share Authorization Repurchases under the 2020 Share Authorization will be made through open market and or private transactions in accordance with applicable federal securities laws and could include repurchases pursuant to Rule 10b5 1 trading plans which allows stock repurchases when we might otherwise be precluded from doing so
Basic earnings per share is based on the weighted average number of common shares outstanding during each period Diluted earnings per share is calculated by giving effect to the potential dilution that could occur if securities or other contracts to issue common shares were exercised and converted into common shares during the period
common shares The weighted average number of shares for the period outstanding for the year ended February 28 2025 are included in weighted average shares outstanding for basic earnings per share See Note 14 As of February 28 2025 there were
For fiscal 2025 2024 and 2023 approximately 0 1 million 0 1 million and 0 1 million employee equity awards were excluded from the computation of diluted earnings per share as their effect would have been anti dilutive For fiscal years 2025 2024 and 2023 all shares related to the Series A Convertible Preferred Stock were excluded from the computation of diluted earnings per share as their effect would be anti dilutive
We have 401 k retirement plans covering substantially all of our employees Company contributions to the 401 k retirement plans were 6 2 million 6 3 million and 5 6 million for fiscal 2025 2024 and 2023 respectively
As of February 28 2025 we have a defined benefit pension plan for certain employees employed by Precoat Metals as of May 13 2022 the Plan Prior to the Precoat Acquisition benefit accruals were frozen for all participants After the freeze participants did not accrue any future benefits under the Plan and any new hires are not eligible to participate in the Plan We fund the pension plan as required by local regulations
Our investment strategy is to build an efficient well diversified portfolio based on a long term strategic outlook of the investment markets The investment markets outlook utilizes both the historical based and forward looking return forecasts to
establish future return expectations for various asset classes These return expectations are used to develop a core asset allocation based on the specific needs of the Plan The core asset allocation utilizes investment portfolios of various asset classes and investment managers in order to maximize the Plan s return while providing layers of diversification to mitigate risk Plan assets of 100 3 million as of February 28 2025 consisted of 4 1 cash 46 8 equity securities 10 1 collective investment trusts and 39 0 corporate and government debt Net periodic benefit costs related to the plan were 0 9 million 1 1 million and 0 6 million for fiscal 2025 2024 and 2023 respectively
The components of net benefit cost other than the employer service cost are included in Selling general and administrative expense The components of net benefit cost related to the Plan were as follows in thousands
The expected long term rate of return on plan assets is based on a forward looking expected asset return model This model derives an expected rate of return based on the target asset allocation of the Plan s assets The model reflects the positive effect of periodic rebalancing among diversified asset classes We select an expected asset return that is supported by this model
The following table presents the fair values of the assets of our pension plans as of February 28 2025 and February 29 2024 by level of the fair value hierarchy Assets categorized in Level 1 of the hierarchy are measured at fair value using a market approach based on unadjusted quoted prices from national securities exchanges No assets were categorized in Level 2 or Level 3 of the hierarchy as of February 28 2025 and February 29 2024 Certain investments that are measured at fair value using the net asset value per share practical expedient have not been categorized in the fair value hierarchy and are being presented in the tables to permit a reconciliation to total plan assets We do not fund or fully fund U S nonqualified and certain foreign pension plans that are not subject to funding requirements
AZZ has two share based compensation plans the 2014 Long Term Incentive Plan as amended the 2014 Plan and the 2023 Long Term Incentive Plan the 2023 Plan and together with the 2014 Plan the LTI Plans The 2023 Plan was approved by our shareholders on July 11 2023 at which time the 2014 Plan was terminated other than with respect to then outstanding awards under the 2014 Plan No future grants may be made under the 2014 Plan The LTI Plans provide our directors officers and certain key employees with stock options restricted stock units performance share units stock appreciation rights and other stock based awards
The maximum number of shares that may be issued under the 2023 Plan is 1 45 million shares and as of February 28 2025 we have approximately 1 29 million shares reserved for future issuance under the 2023 Plan
Restricted stock unit RSU awards are valued at the market price of AZZ s 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 RSU awards have dividend equivalent rights DERs which entitle holders of RSUs to the same dividend value per share as holders of common stock DERs are subject to the same vesting and other terms and conditions as the corresponding unvested RSUs DERs are accumulated and paid when the awards vest and shares are issued
AZZ grants performance share unit PSU awards to certain employees which also include DERs as described above These PSU awards have a three year performance cycle and will vest and become issuable if at all on the third anniversary from the award date The fiscal year 2025 PSU awards are based on an average of AZZ s return on invested capital ROIC and total shareholder return TSR during the three year period The TSR metric is compared to a defined specific industry peer group The awards include certain vesting multipliers The fiscal year 2024 and 2023 PSU awards are based on AZZ s TSR during the three year period in comparison to a defined specific industry peer group and include certain vesting multipliers The fair value of PSU awards with performance and service conditions is estimated using the value of AZZ s common stock on the date of grant The fair value of PSU awards with market conditions is estimated using a Monte Carlo simulation model on the date of grant
The PSU awards in the table above are presented at the face value of the respective grants However the number of PSU awards that may ultimately vest can vary in a range 0 to 200 of the face amount of such awards depending on the outcome of the performance or market vesting conditions as applicable
AZZ granted each of its independent directors a total of 1 666 2 682 and 2 619 shares of its common stock during fiscal years 2025 2024 and 2023 respectively These common stock grants were valued at 74 99 42 87 and 40 09 per share for fiscal years 2025 2024 and 2023 respectively which was the market price of AZZ s common stock on the respective grant dates
AZZ has an employee stock purchase plan ESPP which is available to all employees The ESPP allows employees to purchase AZZ s common stock semi annually 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 our 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 An aggregate of 1 5 million shares of common stock are authorized for issuance under the ESPP Of this amount 1 0 million shares were available for issuance as of February 28 2025 We issue new shares upon purchase through the ESPP
Our Chief Executive Officer who is the chief operating decision maker CODM reviews financial information presented on an operating segment basis for purposes of making operating decisions and assessing financial performance Sales and operating income are the primary measures used by the CODM to evaluate segment operating performance and to allocate resources to the AZZ Metal Coatings and the AZZ Precoat Metals segments The CODM uses net income as the primary measure to evaluate performance and allocate resources to the AZZ Infrastructure Solutions segment The CODM assesses these metrics and compares actuals to budgeted and forecasted values to evaluate segment operating performance and allocate resources to the operating segments Expenses related to certain centralized administration or executive functions that are not specifically related to an operating segment are included in Corporate The AVAIL JV operating results for the period prior to deconsolidation are included within discontinued operations except for AZZ Crowley Tubing which was retained and merged into the AZZ Metal Coatings segment See Note 9 for the results of operations related to the AZZ Infrastructure Solutions segment that is reported as discontinued operations
provides hot dip galvanizing spin galvanizing powder coating anodizing and plating and other metal coating applications to the steel fabrication industry and other industries through facilities located throughout North America Hot dip galvanizing is a metallurgical manufacturing process in which molten zinc reacts with steel which provides corrosion protection and extends the lifecycle of fabricated steel for several decades
provides coil coating application of protective and decorative coatings and related value added downstream processing for steel and aluminum coils Primarily serving the construction appliance heating ventilation and air conditioning HVAC container transportation and other end markets the coil coating process emphasizes sustainability and enhanced product lifecycles It involves cleaning treating painting and curing metal coils as a flat material before they are cut formed and fabricated into finished products This highly efficient method optimizes waste through tight film control and improves final product performance by painting and curing the substrates under conditions unmatched by other application processes
consists of the equity in earnings of our 40 investment in the AVAIL JV as well as other expenses directly related to AIS receivables and liabilities that were retained following the divestiture of the AIS business The AVAIL JV is a global provider of application critical equipment highly engineered technologies and specialized services to the power generation transmission distribution oil and gas and industrial markets
For the fiscal year 2023 AZZ Precoat Metals segment includes results from May 13 2022 February 28 2023 For fiscal year 2023 amortization expense for acquired intangible assets of 15 5 million is included in AZZ Precoat Metals expenses in Selling general and administrative
Infrastructure Solutions segment includes the equity in earnings from our investment in the AVAIL JV as well as other expenses related to receivables and liabilities that were retained following the sale of the AIS business Fiscal year 2025 and 2024 include 6 5 million and 5 8 million respectively related to legal matters
For fiscal year 2025 amortization expense for acquired intangible assets of 23 1 million is included in Corporate expenses in Selling general and administrative expense as these expenses are not allocated to the segments Fiscal year 2025 also includes an accrual related to a legal settlement and accrual related to a non operating entity of 3 5 million as well as retirement and other severance expenses of 3 7 million For fiscal year 2024 amortization expense for acquired intangible assets of 24 0 million is included in Corporate expenses in Selling general and administrative expense as these expenses are not allocated to the segments Fiscal year 2024 also includes an accrual related to a legal settlement of 5 8 million for the settlement of a litigation matter that was acquired as part of the Precoat Acquisition and relates to the business activities that were discontinued prior to our acquisition
Financial information about geographical areas for the periods presented was as follows for fiscal years 2025 2024 and 2023 in thousands The geographic area is based on the location of the operating facility and no customer accounted for 10 or more of consolidated sales
We account for our 40 interest in the AVAIL JV under the equity method of accounting and include our equity in earnings as part of the AZZ Infrastructure Solutions segment We record our equity in earnings in the AVAIL JV on a one month lag and we recorded 16 2 million 15 4 million and 2 6 million in equity in earnings for fiscal years 2025 2024 and 2023 respectively As of February 28 2025 our investment in the AVAIL JV was 99 4 million which includes an excess of 10 2 million over the underlying value of the net assets of the AVAIL JV The excess is accounted for as equity method goodwill
We report our equity in earnings on a one month lag basis therefore amounts in the summarized financials above are as of and for the year ended January 31 2025 and 2024 Amounts in the table above exclude certain adjustments made by us to record equity in earnings of the AVAIL JV under U S GAAP for public companies primarily to reverse the amortization of goodwill
As a policy we do not hold issue or trade derivative instruments for speculative purposes We periodically enter into forward sale contracts to purchase a specified volume of zinc and natural gas at fixed prices These contracts are not accounted for as derivatives because they meet the criteria for the normal purchases and normal sales scope exception in ASC 815
We manage our exposure to fluctuations in interest rates on our floating rate debt by entering into interest rate swap agreements to convert a portion of our variable rate debt to a fixed rate On September 27 2022 we entered into a fixed rate interest rate swap agreement which was subsequently amended on October 7 2022 the 2022 Swap with banks that are parties to the 2022 Credit Agreement to change the SOFR based component of the interest rate The 2022 Swap converts the SOFR portion to 4 277 On September 24 2024 we repriced our Term Loan B to SOFR plus 2 50 resulting in a total fixed rate of 6 777 The 2022 Swap had an initial notional amount of 550 0 million and a maturity date of September 30 2025 The notional amount of the interest rate swap decreases by a pro rata portion of any quarterly principal payments made on the Term Loan B and the notional amount is 536 3 million as of February 28 2025 The objective of the 2022 Swap is to eliminate the variability of cash flows in interest payments attributable to changes in benchmark one month SOFR interest rates The hedged risk is the interest rate risk exposure to changes in interest payments attributable to changes in benchmark one month SOFR interest rates over the interest rate swap term The changes in cash flows of the interest rate swap are expected to exactly offset changes in cash flows of the variable rate debt We designated the 2022 Swap as a cash flow hedge at inception Cash settlements in the form of cash payments or cash receipts of the 2022 Swap are recognized in interest expense
At February 28 2025 changes in fair value attributable to the effective portion of the 2022 Swap were included on the consolidated balance sheets in Accumulated other comprehensive income For derivative instruments that qualify for hedge
accounting treatment the fair value is recognized on our consolidated balance sheets as derivative assets or liabilities with offsetting changes in fair value to the extent effective recognized in accumulated other comprehensive income until reclassified into earnings when the interest expense on the underlying debt is reflected in earnings The portion of a cash flow hedge that does not offset the change in the fair value of the transaction being hedged which is commonly referred to as the ineffective portion is immediately recognized in earnings During fiscal 2025 we reclassified 4 0 million before income tax or 3 0 million net of tax from other comprehensive income to earnings
The carrying amount of our financial instruments cash and cash equivalents accounts receivable accounts payable and accrued liabilities approximates the fair value of these instruments based upon either their short term nature or their variable market rate of interest We have not made an option to elect fair value accounting for any of our financial instruments
Our derivative instrument consists of the 2022 Swap which is considered a Level 2 of the fair value hierarchy and included in Other accrued liabilities in the consolidated balance sheets as of February 28 2025 and in Other assets as of February 29 2024 The valuation of the 2022 Swap is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of the derivative This analysis reflects the contractual terms of the derivatives including the period to maturity and uses observable market based inputs including swap rates spread and or index levels and interest rate curves See Note 20 for more information about the 2022 Swap
The fair value of our investment in the unconsolidated AVAIL JV was determined using the income approach at the date on which we entered into the joint venture The income approach uses discounted cash flow models that require various observable and non observable inputs such as operating margins revenues product costs operating expenses capital
We assess our investment in the unconsolidated AVAIL JV for recoverability when events and circumstances are present that suggest there has been a decline in value and if it is determined that a loss in value of the investment is other than temporary the investment is written down to its fair value
The fair values of our long term debt instruments are estimated based on market values for debt issued with similar characteristics or rates currently available for debt with similar terms These valuations are Level 2 non recurring fair value measurements
The principal amount of our outstanding debt was 900 3 million and 1 010 3 million at February 28 2025 and February 29 2024 The estimated fair value of our outstanding debt was 904 8 million and 1 010 3 million at February 28 2025 and February 29 2024 excluding unamortized debt issuance costs The estimated fair values of our outstanding debt were determined based on the present value of future cash flows using model derived valuations that use observable inputs such as interest rates and credit spreads
The Company and its subsidiaries are named defendants and plaintiffs in various routine lawsuits incidental to our business These proceedings include labor and employment claims various commercial disputes worker s compensation and environmental matters all arising in the normal course of business As discovery progresses on all outstanding legal matters the Company continuously evaluates opportunities to either mediate the cases or settle the disputes for nuisance value or the cost of litigation as a way to resolve the disputes prior to trial As the pending cases progress through additional discovery and potential mediation our assessment of the likelihood of a favorable or an unfavorable outcome on the pending lawsuits may change Although the actual outcome of these lawsuits or other proceedings cannot be predicted with any 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 believes it has strong claims or defenses to all of its legal matters and 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
Our prior owned affiliate The Calvert Company entered into a series of commercial contracts in 2011 and 2015 to provide equipment and services to a power plant in Georgia The general contractor on the project WECTEC a subsidiary of Westinghouse filed bankruptcy in New York in March of 2017 Our affiliate continued to perform work on the project for the owners licensee under an interim bridge contract We believe the affiliate was eventually terminated for convenience on the project and the affiliate filed an adversary proceeding in bankruptcy court against WECTEC and the owners to collect all unpaid amounts The owners of the Georgia power plant filed a countersuit in April of 2018 In connection with AZZ selling the majority interest in the AIS business to Fernweh Group on September 30 2022 we agreed to retain this lawsuit After a long and protracted discovery process and motion practice we determined in the quarter ended August 30 2023 that the most favorable outcome to the Company to resolve the dispute may be a negotiated settlement This decision was made in consideration of the expenses of a lengthy jury trial and potentially protracted appeal process the resources necessary to continue the prosecution and defense of the case given the size of the discovery and the number of issues involved the risk factors typically associated with jury verdicts in light of all of the political circumstances currently present in Georgia regarding the power plant and the benefit of resolving a dispute whose genesis arose more than twelve years ago based solely upon risk avoidance and not upon the merits of the case During the third quarter of fiscal 2024 all of the parties entered into a confidential settlement agreement with no parties admitting any guilt or negligence and AZZ agreed to pay the owners licensee 5 8 million on or around January 15 2024 to resolve all outstanding matters related to the dispute In addition the agreement included the forgiveness of AZZ s receivable from WECTEC of 3 7 million which was fully reserved by AZZ This settlement of 5 8 million was accrued during the second quarter of fiscal year 2024 and is included in Selling general and administrative expense in the consolidated statement of operations for the year ended February 28 2025 The settlement was included in the AZZ Infrastructure Solutions segment and the settlement payment was made in the fourth quarter of fiscal 2024
In 2017 Southeast Texas Industries Inc STI filed a breach of contract lawsuit against the Company in the 1st District Court of Jasper County Texas the Court In 2020 we filed a counter suit against STI for amounts due to AZZ for
work performed The parties unsuccessfully mediated the case in November 2021 On October 16 2023 the case went to trial and on October 27 2023 the jury rendered a verdict in favor of STI and against AZZ Beaumont in the amount of 5 5 million in damages for breach of contract and breach of express warranty After a final judgment amount is entered with the Court we expect to pursue all available appellate options as we believe we have strong grounds for appeal which may take up to two years As of February 28 2025 we have recorded a legal accrual of 5 5 million which is included in Other accrued liabilities on our consolidated balance sheets reflecting our best estimate of the probable loss It is reasonably possible that our estimate of the probable loss may change throughout the appellate process A supersedeas bond was purchased to cover the final judgment amount throughout the duration of the appellate process
In 2019 Tampa Electric Company TECO entered into a contract to provide services in Florida TECO terminated our affiliate from the project alleging failure to comply with safety guidelines We believe the affiliate was terminated for convenience on the project and our affiliate was not given its contractual right of notice and 47 hours to deliver a corrective action plan In 2020 we filed a lawsuit against TECO for breach of contract and unjust enrichment in the Thirteenth Judicial Circuit Court in and for Hillsborough County Florida In connection with AZZ selling the majority interest in the AIS business to Fernweh Group on September 30 2022 we agreed to retain this lawsuit The parties unsuccessfully mediated the case in June 2023 The case went to trial on January 13 2025 On February 10 2025 the jury rendered a verdict in favor of TECO against our affiliate in the amount of 5 2 million which represented the receivable due from the TECO net of allowance We recognized expense of 6 5 million in the fourth quarter of fiscal 2025 consisting of 5 2 million for the derecognition of the net receivable from TECO and 1 3 million for estimated legal fees
Prior to AZZ s acquisition of Precoat Metals on May 13 2022 Precoat Metals sold its Armorel Arkansas facility to Nucor Coatings Corporation Nucor via a purchase agreement dated October 27 2020 2020 Agreement Nucor subsequently filed a lawsuit against Precoat Metals for indemnification for breach of environmental representations and warranties made in the 2020 Agreement In the lawsuit Nucor asserted that it has sustained certain damages resulting from Precoat Metal s breach of its indemnification obligations that were set forth in the 2020 Agreement The parties attended a mediation on March 18 2024 and although the Company believed Nucor s case was deficient and it had very strong defenses to the allegations asserted by Nucor management determined that it was still in the best interest of the Company to settle all matters for the estimated cost of defense to retain commercial relationships with Nucor who is both a customer and supplier to the Company The parties mutually agreed to resolve disputed matters for 5 25 million The parties are currently preparing a definitive settlement agreement which will resolve all outstanding matters related to the dispute The 5 25 million settlement amount and additional legal expense of 0 5 million was recognized during the fourth quarter of fiscal year 2024 and is included in Selling general and administrative expense in the consolidated statement of operations for the year ended February 29 2024 The settlement amount was paid by the Company to Nucor on September 9 2024
On July 29 2024 Gainesville Associates LLC Gainesville Associates filed a complaint the Complaint in the Circuit Court of Prince William County Virginia against AZZ Atlantic Research LLC ARC Precoat Metals Corporation and Chromalloy Corporation collectively Defendants asserting claims for breach of contract against ARC and unjust enrichment against all Defendants The Complaint arose out of a lease dated January 1 1976 between Gainesville Associates as landlord and ARC as tenant as subsequently amended in 1982 2012 2013 and 2017 the Lease for property in Gainesville Virginia the Property ARC ceased using the property in 2005 after which point ARC remained in the Lease to complete its obligations on the property pursuant to a consent decree entered into between the U S Environmental Protection Agency EPA and ARC in 1992 ARC satisfied its obligations under the consent decree in 2018 other than ongoing well water monitoring and testing and terminated the Lease in 2019 In its Complaint Gainesville Associates alleged that ARC breached certain provisions of the Lease On September 3 2024 Defendants removed the action to the United States District Court of the Eastern District of Virginia On September 24 2024 Defendants filed a motion to dismiss the Complaint On October 30 2024 the claim was denied and the court ordered the parties to mediate The parties attended the court ordered mediation on December 3 2024 and although the Company believed the Gainesville Associates case was deficient and it had very strong defenses to the allegations asserted by Gainesville Associates management determined that it was still in the best financial interest of the Company to settle all matters for the estimated cost of defense The parties mutually agreed to resolve all disputed matters for 6 0 million of which our portion was 1 9 million For the year ended February 28 2025 we recognized 1 6 million for legal expenses and 1 9 million for our portion of the settlement amount The settlement payment was paid on January 10 2025
As of February 28 2025 the reserve balance for our environmental liabilities was 18 9 million of which 2 4 million is classified as current Environmental remediation liabilities include costs directly associated with site investigation and clean up such as materials external contractor costs legal and consulting expenses and incremental internal costs directly related to ongoing remediation plans Estimates used to record environmental remediation liabilities are based on the Company s best estimate of probable future costs based on site specific facts and circumstances known at the time of the estimate and these estimates are updated on a quarterly basis Estimates of the cost for the potential or ongoing remediation plans are developed using internal resources and third party environmental engineers and consultants
We accrue the anticipated cost of environmental remediation when the obligation is probable and the amount can be reasonably estimated If a range of amounts can be reasonably estimated and no amount within the range is a better estimate than any other amount then the minimum of the range is accrued While any revisions to our environmental remediation liabilities could be material to the operating results of any fiscal quarter or fiscal year we do not expect such additional remediation expenses to have an adverse material effect on its financial position results of operations or cash flows
As of February 28 2025 we had non cancelable forward contracts to purchase approximately 98 7 million of zinc at various volumes and prices We also had non cancelable forward contracts to purchase approximately 6 7 million of natural gas at various volumes and prices All such contracts expire in fiscal 2026 We had no other contracted commitments for any other commodities including steel aluminum copper zinc nickel based alloys natural gas except for those entered into under the normal course of business
As of February 28 2025 we had total outstanding letters of credit in the amount of 15 4 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 performance periods and insurance collateral In addition as of February 28 2025 a warranty reserve in the amount of 5 4 million was established to offset any future warranty claims
We are expanding our coatings capabilities by constructing a new 25 acre aluminum coil coating facility in Washington Missouri that is expected to be operational in calendar year 2025 the Company s fiscal year 2026 The new greenfield facility will be included in the AZZ Precoat Metals segment and is supported by a take or pay contract for approximately 75 of the output from the new plant We expect to spend approximately 121 8 million in capital payments over the life of the project of which 60 8 million was paid prior to fiscal 2025 and 52 8 million was paid during the year ended February 28 2025 The remaining balance of 8 2 million is on schedule to occur by the first quarter of fiscal 2026 of which we have capital commitments of 7 5 million
On March 10 2025 AIS Investment Holdings LLC which operates under the name AVAIL Infrastructure Solutions entered into a definitive agreement to sell the electrical enclosures switchgear and bus systems businesses the Electrical Products Group of AVAIL to nVent Electric plc nVent for a purchase price of 975 million The transaction is expected to close in the first half of calendar year 2025 subject to customary closing conditions
The Company s management with the participation of its principal executive officer and principal financial officer have evaluated as required by Rule 13a 15 e under the Securities Exchange Act of 1934 the Exchange Act the effectiveness of the Company s disclosure controls and procedures Based on that evaluation the principal executive officer and principal financial officer concluded that the Company s disclosure controls and procedures were effective as of the end of the period covered by this Form 10 K to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded processed summarized and reported within the time periods specified in the SEC s rules and forms and were effective as of the end of the period covered by this Form 10 K to provide reasonable assurance that such information is accumulated and communicated to the Company s management including the principal executive officer and principal financial officer to allow timely decisions regarding required disclosure
The Company s management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a 15 f of the Exchange Act Because of its inherent limitations internal control over financial reporting may not prevent or detect all misstatements or fraud Any control system no matter how well designed and operated is based upon certain assumptions and can provide only reasonable not absolute assurance that its objectives will be met Management with the participation of its principal executive officer and principal financial officer assessed the effectiveness of the Company s internal control over financial reporting based on the criteria for effective internal control over financial reporting established in Internal Control Integrated Framework 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission Based upon its assessment management concluded that the Company maintained effective internal control over financial reporting as of February 28 2025
The Company s independent registered public accounting firm Grant Thornton LLP has issued an audit report on the Company s internal control over financial reporting which is included in Item 8 Financial Statements and Supplementary Data of this Form 10 K
There have been no changes in the Company s internal control over financial reporting during our fiscal quarter ended February 28 2025 that have materially affected or are reasonably likely to materially affect the Company s internal control over financial reporting
During the fiscal quarter ended February 28 2025 none of our officers or directors adopted or terminated any contract instruction or written plan for the purchase or sale of our securities that was intended to satisfy the affirmative defense conditions of Rule 10b5 1 c or any non Rule 10b5 1 trading arrangement
Effective April 18 2025 the Compensation Committee of the Board of Directors the Compensation Committee adopted the Executive Retiree LTI Program the ERP to continue the vesting of annual equity awards to certain executive officers and other senior members of the management team as designated by the Compensation Committee including the Company s named executive officers a Covered Executive or collectively the Covered Executives upon qualified Retirement as such term is defined in the Company s 2023 Long Term Incentive Plan The ERP is applicable to both annual restricted share unit awards and annual performance share unit awards granted to the Covered Executives pursuant to newly adopted Restricted Share Unit RSU Award Agreements and Performance Share Unit PSU Award Agreements for the Covered Executives collectively the Award Agreements containing such provisions for the fiscal year
2026 long term incentive equity awards To be eligible for continued vesting of these annual equity awards upon a qualified Retirement the ERP requires that Covered Executives i be at least 65 years of age or 55 years of age and have at least 10 years of service with AZZ ii not receive any severance payments or be subject to any severance or employment agreements containing other retirement provisions iii provide sufficient advance notice of their intent to retire prior to the planned retirement date iv ensure adequate succession or continuity planning is in place for such Covered Executive s position v be compliant with
AZZ s executive stock ownership requirements on their respective retirement date and vi execute and deliver a waiver and release agreement Additionally a period of one year must have elapsed between the grant date of the applicable awards and the Covered Executive s retirement date The ERP also provides that fiscal year 2023 fiscal year 2024 and fiscal year 2025 RSU and PSU award agreements will be amended for the Covered Executives to allow vesting subsequent to a qualified Retirement at the Compensation Committee s discretion
The foregoing description of the ERP and respective Award Agreements are qualified in their entirety by reference to the text of the ERP and respective Award Agreements and the 2023 Long Term Incentive Plan copies of which are filed as Exhibits 10 16
Other information required in response to this Item 10 is set forth in our definitive Proxy Statement for the 2025 Annual Meeting of Shareholders the Proxy Statement as noted below and is incorporated by reference
information about our Audit Committee including members of the committee and our designated audit committee financial experts is set forth under Matters Relating to Corporate Governance and Board Structure Board Committees Audit Committee
Information required in response to this Item 11 is set forth under Director Compensation Executive Compensation Executive Compensation Tables and Compensation Recovery Analysis Under the Company s Clawback Policies in our Proxy Statement and is incorporated by reference
Certain information required in response to this Item 12 is set forth under Security Ownership of Management and Directors and Security Ownership of Certain Beneficial Owners in our Proxy Statement and is incorporated by reference
Consists of the 2023 Long Term Incentive Plan the 2023 Plan the 2014 Long Term Incentive Plan the 2014 Plan and the 2018 Employee Stock Purchase Plan the 2018 ESPP See Item 8 Financial Statements and Supplementary Data Note 17 for further information
Consists of i outstanding awards under the 2014 Plan including 87 104 RSUs and 116 278 PSUs at the target amount and ii outstanding awards under the 2023 Plan including 98 321 RSUs and 44 836 PSUs at the target amount
Consists of i 1 286 873 shares available for future issuance under the 2023 Plan ii and 1 008 240 shares remaining available for issuance under the 2018 ESPP No shares are available for future issuance under the 2014 Plan
Information required in response to this Item 13 is set forth under Matters Relating to Corporate Governance and Board Structure Certain Relationships and Related Party Transactions Matters Relating to Corporate Governance and Board Structure Director Independence and Matters Relating to Corporate Governance and Board Structure Board Committees in our Proxy Statement and is incorporated by reference
First Amended and Restated Limited Liability Company Agreement of AIS Investment Holdings dated as of September 30 2022 by and between AZZ Inc Fernweh AIS Acquisition LP and Atkinson Holding Company LLC
Schedules and exhibits have been omitted as allowed pursuant to SEC rules and regulations The Company hereby undertakes to furnish supplemental copies of any of the omitted schedules and exhibits upon request by the SEC The Company may request confidential treatment for any schedules and exhibits so furnished
Pursuant to the requirements of Section 13 or 15 d 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

Company Name	AZZ INC Vist SEC web-site
Category	COATING, ENGRAVING & ALLIED SERVICES
Trading Symbol	AZZ