FinanceLooker

Excrept from filing document 2024-05-31

As of August 31 2022 the aggregate market value of the registrant s common stock held by non affiliates of the registrant was 1 036 100 664 based on the closing sale price as reported on the New York Stock Exchange As of April 21 2023 there were 24 912 363 shares of the registrant s common stock 1 00 par value outstanding
Portions of the registrant s Proxy Statement for its 2023 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 products and services 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 supply chain vendor delays customer requested delays of our products or services delays in additional acquisition opportunities currency exchange rates 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 products we inventory or sell or the services 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 acts of war or terrorism inside the United States or abroad and other changes in economic and financial conditions You are urged to consider these factors carefully in evaluating the forward looking statements herein and are cautioned not to place undue reliance on such forward looking statements which are qualified in their entirety by this cautionary statement These statements are based on information as of the date hereof and AZZ assumes no obligation to update any forward looking statements whether as a result of new information future events or otherwise
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 predominantly in North America We have three distinct operating segments the AZZ Metal Coatings segment the AZZ Precoat Metals segment and the AZZ Infrastructure Solutions segment The Company s AZZ Metal Coatings segment is a leading provider of metal finishing solutions for corrosion protection including hot dip galvanizing spin galvanizing powder coating anodizing and plating to the North American steel fabrication and other industries The AZZ Precoat Metals segment provides aesthetic and corrosion protective coatings and related value added services for steel and aluminum coil primarily serving the construction appliance heating ventilation and air conditioning HVAC container transportation and other end markets in the United States The AZZ Infrastructure Solutions is dedicated to delivering safe and reliable transmission of power from generation sources to end customers and automated weld overlay solutions for corrosion and erosion mitigation to critical infrastructure in markets worldwide On September 30 2022 AZZ contributed its AZZ Infrastructure Solutions segment excluding AZZ Crowley Tubing AIS to a joint venture AIS Investment Holdings LLC the AIS JV and sold a 60 interest in the AIS JV to Fernweh Group LLC Fernweh The AZZ Infrastructure Solutions segment is reported as discontinued operations and financial data for the segment has been segregated and presented as discontinued operations for all periods presented
On May 13 2022 the Company 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 As a result of the Precoat Acquisition the Company changed its reportable segments and added AZZ Precoat Metals as a new reportable segment
We have a developed strategy and periodically review our performance opportunities market conditions and competitive threats During fiscal year 2023 we completed our comprehensive Board led review of our portfolio capital allocation plans and utilized leading independent financial legal and tax advisors in support of this review On May 13 2022 the Company completed the Precoat acquisition for approximately 1 3 billion The transaction is further described in AZZ
We believe the strategic actions we executed in fiscal 2023 will accelerate our strategy to become a predominantly metal coatings focused company which we believe will more rapidly enhance shareholder value
The AZZ Metal Coatings segment provides hot dip galvanizing spin galvanizing powder coating anodizing and plating and other surface coating applications to the steel fabrication and other industries through facilities located throughout the United States and Canada Hot dip galvanizing is a metallurgical process in which molten zinc reacts to steel The zinc alloying provides corrosion protection and extends the life cycle of fabricated steel for several decades As of February 28 2023 we operated 41 galvanizing plants six surface technologies plants and one tubing plant which are 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 as customers seek to minimize freight costs
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 commodity pricing of zinc by utilizing agreements with zinc suppliers that include fixed cost contracts to reduce the risk associated with escalating commodity prices When possible we also secure firm pricing for natural gas supplies with utilities We may or may not continue to use these or other strategies to manage commodity risk in the future
We typically serve fabricators or manufacturers that provide solutions to the electrical and telecommunications 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 don t believe the loss of any single customer would have a material adverse effect on our consolidated sales or net income
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 The acquisition supported our goal of continued geographic expansion as well as portfolio expansion of our metal coatings solutions
On December 31 2021 we completed the acquisition of the assets of Steel Creek Galvanizing Company LLC a privately held hot dip galvanizing company based in Blacksburg South Carolina The acquisition expanded our geographical reach in metal coating solutions and broadened our offerings in strategic markets
In January 2021 we completed the acquisition of the assets of Acme Galvanizing Inc a privately held hot dip galvanizing and zinc electroplating company based in Milwaukee Wisconsin The acquisition expanded our geographical reach in metal coating solutions and broadened our offerings in strategic markets
In fiscal 2021 we closed or disposed of certain AZZ Metal Coatings locations that were in under performing and lower growth geographies or had previously been idle through the consolidation of operations
In July 2020 we completed the sale of our Galvabar business which was included in the AZZ Metal Coatings segment We received net proceeds of 8 3 million and recognized a loss on the sale of 1 2 million While Galvabar would normally be considered a core business for AZZ we determined that this technology is better suited for a company with both rebar manufacturing and established rebar distribution capabilities In accordance with the sale agreement we may receive royalties associated with future sales for a three year period following the sale
For additional information on the AZZ Metal Coatings segment s operating results see Results of Operations within Item 7 For additional financial information by segment see Note 14 to the consolidated financial statements
On May 13 2022 the Company completed the Precoat acquisition for a net purchase price of approximately 1 3 billion The acquisition supported our goal of continued geographic expansion as well as portfolio expansion of our metal coatings solutions
The AZZ Precoat Metals segment provides advanced applications of protective and decorative coatings and related value added services for steel and aluminum coil primarily serving the construction appliance heating ventilation and air conditioning HVAC container transportation and other end markets AZZ Precoat Metals segment office is located in St Louis Missouri and operates through 13 plants located in the United States
AZZ Precoat Metals operates in a highly competitive industry as an independent toll coater where we compete with other independent toll coaters captive toll coaters completely captive coaters and integrated steel and aluminum mills Our customers and us as their toll processor also face competition from alternative forms of coated metal like powder coated metal or from other potential substrates such as wood plastics or concrete that could be used in place of painted metal
Paint and customer owned substrate availability are important for our toll coating process Paint lead times and pricing have recently stabilized following increases related to recent supply chain concerns we carry very limited risk associated with paint purchases 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 despite recent increases in substrate price and lead times
We primarily serve distributors fabricators or manufacturers that ultimately provide manufactured paint and coatings solutions to 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
AZZ s Infrastructure Solutions segment is a leading provider of specialized products and services primarily designed to support industrial and electrical applications On September 30 2022 we contributed our AZZ Infrastructure Solutions business excluding AZZ Crowley Tubing to a joint venture and sold a 60 interest in the joint venture to Fernweh AIS Acquisition LP Following the transaction on September 30 2022 we account for our retained investment in the AZZ Infrastructure Solutions segment as an equity method investment and the results of operations are included in continuing operations in Equity in earnings of unconsolidated subsidiaries in our consolidated statements of operations
The segment s product offerings included custom switchgear electrical enclosures medium and high voltage bus ducts explosion proof and hazardous duty lighting In addition to our product offerings our AZZ Infrastructure Solutions segment focuses on life cycle extension for the power generation refining and industrial infrastructure through providing automated weld overlay solutions for corrosion and erosion mitigation
The markets for our AZZ Infrastructure Solutions segment products are highly competitive and consist of large multi national companies along with numerous small independent companies Competition is based primarily on product quality range of product line price and service While some of the segment s competitors are much larger than us we believe our noncontrolling interest in AZZ Infrastructure Solutions segment offers some of the most technologically advanced solutions and engineering resources developed from a legacy of proven reliable product options allowing the segment to be well positioned to meet the most challenging application specific demands
Copper aluminum steel and nickel based alloys are the primary raw materials used by this segment We do not foresee any availability issues for these materials however have experienced commodity pricing escalations over the past year We do not contractually commit to minimum purchase volumes increases in price for these items are normally managed through escalation clauses in our contracts with customers which the customers may not always accept In addition we work to obtain firm pricing contracts from our suppliers for these materials at the time we receive orders from our customers in order to minimize price volatility risk We work to re price open quotations after 30 days to reduce inflationary risks on commodities utilized in our manufacturing processes
At AZZ our culture is defined by trust respect accountability integrity teamwork and sustainability T R A I T S 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 amongst 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 T R A I T S 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 2023 we employed approximately 3 837 people worldwide of which 3 594 were employed in the U S and 243 were employed in Canada After the Precoat Metals acquisition we welcomed approximately 1 119 Precoat employees to our workforce The Company s total workforce consisted of approximately 85 hourly employees and 15 salaried employees We believe our current relations with our workforce are strong
We embrace the diversity of our employees customers vendors suppliers stakeholders and consumers including their unique backgrounds experiences creative solutions 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 our Company 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 law or international laws This principle is incorporated into each of the Company s policies and procedures relating to recruitment hiring promotions compensation benefits discipline termination and all of AZZ s other 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 the Company s 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
Annually 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
The Company reviews and monitors safety performance closely Our ultimate goal is to achieve zero serious injuries through continued investments in core safety programs and injury reduction initiatives The Company utilizes 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 2023 we continued to demonstrate excellence in safety across our 61 plants worldwide and incident rates as indicated below
Senior Vice President Chief Financial OfficerVice President and Chief Accounting Officer Interim Chief Financial OfficerVice President Finance Audit Controls and Continuous Improvement Exterran Corporation
Each executive officer was elected by the Board of Directors to hold office until the next Annual Meeting 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 or the SEC The SEC s website www sec gov contains reports proxy and information statements and other information regarding issuers that file electronically with the SEC Our website and the information posted on our website is not a part of this Annual Report on Form 10 K
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
Code of Conduct which applies to the Company s officers directors and employees including our Chief Executive Officer Chief Financial Officer Principle Accounting Officer and Finance department members
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
www azz com We intend to disclose future amendments to or waivers from certain provisions of this Code of Conduct on our website Our website and the information posted on our website is not a part of this Annual Report on Form 10 K
Our business is subject to a variety of risks including but not limited to the risks described below which we believe 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 and results of operations and future growth could be negatively or materially impacted
Competition is based on a number of factors including price Certain competitors may have lower cost structures or larger economies of scale on raw materials and may therefore be able to provide their products and services 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 services or products that are superior 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 We cannot be certain that we will be able to maintain an adequately skilled labor force necessary to operate efficiently and to support our growth strategy or that our labor costs will not increase as a result of a shortage in the supply of skilled personnel 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 products and services we sell 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 both foreign and domestic to develop new products production methods or technology which could make existing products services or methods obsolete or at least hasten their obsolescence or materially reduce our competitive advantage in the markets that we serve
Our business often aligns with the economic environments that we operate within and especially in our Precoat Metals segment is subject to seasonality within the annual operating cycle of the business Our customers may 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 or equipment 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 products in the future Other various factors impact demand for our products and services including the price of commodities such as zinc natural gas or other commodities paint economic forecasts and financial markets Uncertainty in the global economy and financial markets could impact our customers and could in turn severely impact the demand for corporate infrastructure projects that would result in a reduction in orders for our products and services All of these factors combined together could materially impact our business financial condition cash flows and results of operations and potentially impact the trading price of our common stock
A portion of the sales from our AZZ Metal Coatings and AZZ Infrastructure Solutions 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 natural disasters such as earthquakes tsunamis hurricanes or the outbreaks of epidemic pandemic or contagious diseases could potentially cause future disruption in our business At this time the ongoing war between Russia and Ukraine has not materially impacted our operations Any disruption of our customers or suppliers and their respective contract manufacturers 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 products and services These
Within our AZZ Metal Coatings segment zinc and natural gas represent a large portion of our cost of sales In our AZZ Precoat Metals segment natural gas represents a large portion of our cost of sales The prices of zinc and natural gas are subject to volatility and we have experienced commodity price escalation over the past year Unanticipated commodity price increases could significantly increase production costs and potentially adversely affect profitability The following factors which are beyond our control affect the price of natural gas for the AZZ Metal Coatings segment
We seek to maintain our operating margins by increasing the price of our products and services in response to increased costs but may not be successful in passing these increased costs of operation through to our customers
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 are attacked by intruders 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 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
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 may negatively impact our reputation Third party systems on which we rely could also suffer operational system failure Any of these occurrences could disrupt our business result in potential liability or reputational damage or otherwise have an adverse effect on our financial results
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 There can be no assurance that our patent applications will result in patents being issued or that current or additional patents will afford protection against competitors We rely on a combination of patents copyrights trademarks and trade secret protection and contractual rights to establish and protect our intellectual property Failure of our patents copyrights trademarks and trade secret protection non disclosure agreements and other measures to provide protection of our technology 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 and results of operations In addition our trade secrets and proprietary know how may otherwise become known or be independently discovered by others No guarantee can be given that others will not independently develop substantially equivalent proprietary information or manufacturing and service know how and techniques or otherwise gain access to our proprietary technology
Our business exposes us to potential product liability risks that are inherent in the design manufacture and sale of our products and the products of third party vendors which we use or resell Widespread product recalls could result in significant losses due to the costs of a recall the destruction of product inventory penalties and lost sales due to the unavailability of a product for a period of time We may also be liable if the use of any of our products causes harm and could suffer losses from a significant product liability judgment against us in excess of its insurance limits We may not be able to obtain indemnity or reimbursement from our suppliers or other third parties for the warranty costs or liabilities associated with our supplier products A significant product recall warranty claim or product liability case could also result in adverse publicity damage to our business reputation and a loss of consumer confidence in our products
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 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
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 equipment we manufacture or services 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 from time to time 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 they 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
Various regulations have been implemented regarding emissions the global environment and other sustainability matters We cannot predict future changes in the law and government regulations regarding emissions the global 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 building our environmental social and governance programs changes in laws or governmental regulations could negatively impact our business or the demand for our products and services 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
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 and financial condition
where we currently manufacture distribute and or sell our products or conduct our business as well as any negative sentiment toward the U S as a result of such changes could adversely affect our business New tariffs changes in existing tariffs and other changes in U S trade policy have the potential to adversely impact the economies in which we operate or certain sectors thereof our industry and the global demand for our products and as a result could have a material adverse effect on our business operating results and financial condition In addition we cannot predict the full impact trade policy changes that have been asserted by the U S presidential administration and Congress including anticipated changes to current trade policies will be maintained or modified or whether the entry into new bilateral or multilateral trade agreements will occur nor can we accurately predict the effects that any changes will have on our future business
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 products at current or increased levels and substantially all of our import operations are subject to customs duties on imported products imposed by the governments where our production facilities are located including raw materials 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 products 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 products 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 products and other potential changes to products 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 products be certified as conflict free
As of February 28 2023 approximately 668 of our full time employees were represented by unions 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 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 changes could result in an adverse impact on our operations particularly in hurricane prone or low lying areas near the ocean or heavy snowfall and ice regions We cannot predict the potential timing or impact from potential global warming winter storms and other natural disasters We carry certain limits of insurance to mitigate the potential effects of events that could impact our businesses as well as disaster recovery plans related to any potential natural disasters 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 year there has been a heightened focus by both governmental and non governmental bodies requesting disclosure of information relating to our corporate sustainable practices as well as customers are increasingly preferring to source from suppliers who have implemented effective sustainability initiatives International agreements and national or 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 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 future 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
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 including but not limited to the Company s ability to incur debt restrict or limit certain liens capital spending limits engage in certain merger acquisition or divestiture actions or 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 access to 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
Our substantial 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 he economy or our industry our ability to meet our obligations under our outstanding indebtedness and could divert our cash flow from operations for debt payments
Our consolidated indebtedness increased substantially following the completion of the Precoat Acquisition This increased 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 to take advantage of new business opportunities The terms of any future indebtedness we may incur could include more restrictive covenants We cannot assure you 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 If we are forced to refinance these borrowings on less favorable terms or cannot refinance these borrowings 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 across 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 Increased levels of indebtedness could also create competitive disadvantages for us relative to other companies with lower debt levels
Our investment in the AIS 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 AIS Joint Venture partner s financial condition
On September 30 2022 we completed a disposition of 60 of the equity of AIS Investment Holdings LLC a Delaware limited liability company the AIS 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 AIS JV and therefore the AIS JV is operating and will continue to operate independently As the non controlling interest holder in the AIS JV our influence on all aspects of the AIS Business will continue to diminish Accordingly we might not be able to prevent the AIS JV from taking actions adverse to our interests in the AIS 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 which in each case could create the potential risk of creating operational issues and or impasses on decisions or decisions at the AIS JV level not in our best interest Additionally investments in joint ventures or partnerships such as the AIS 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
Any of the foregoing operational risks could materially reduce the expected return of our prior investment in the AIS 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 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 and financial condition
As a normal course of business we extend credit to certain of our 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 which 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
As of February 28 2023 we had goodwill totaling 702 5 million and indefinite lived intangible assets totaling 1 5 million on our consolidated balance sheet 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 tradenames 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 Company 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 and economic downturns or slower growth rates in our industry market downturns or major events like 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
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 creditability with our shareholders or impact our relationships with our customers suppliers or supporting banks
We operate in the United States and Canada and anticipate that there will be instances in which sales and costs will not be exactly matched with respect to foreign currency denomination Gains and losses from the remeasurement of assets and liabilities that are receivable or payable in currencies other than our subsidiaries functional currency are included in our consolidated statements of income In addition currency fluctuations cause the U S dollar value of our
relative to the U S dollar could have a negative impact on our business financial condition results of operations or cash flows As 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 In the future we may utilize derivative instruments to manage the risk of fluctuations in foreign currency exchange rates that could potentially impact our future earnings and forecasted cash flows However the markets in which we operate could restrict the removal or conversion of the local or foreign currency resulting in our inability to hedge against some or all of these risks or increase our cost of conversion of local currency to U S dollar
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
overnments 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 resolving any future tax disputes favorably 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 and administrative initiatives or challenges from taxing authorities could adversely affect our results of operations and financial condition
We currently have 1 13 billion 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 However approximately one half of our gross debt outstanding is unhedged If interest rates increase so will the 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 capital in the future subject to restrictions in our debt agreements 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 preferred stock the terms of the debt or preferred stock 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 the 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 shareholders ownership in us would be diluted If we are unable to raise additional capital when needed it could affect our financial health which could negatively affect our shareholders
These broad market and industry factors may materially reduce the market price of our common stock regardless of our operating performance In addition price volatility may be greater if the public float and trading volume of our common stock is low
The Company s headquarters and executive offices are located in leased office space in Fort Worth Texas We also lease office space in several locations related to our operations facilities As of February 28 2023 our office and manufacturing operations facilities were as follows
The Company believes that its current facilities are adequate to meet the requirements of its present and foreseeable future operations See Note 7 to the consolidated financial statements included in Item 8 of this Form 10 K for additional information regarding the Company s lease obligations
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 use of the Company s 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 of 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 the Company s financial position results of operations or cash flows
Our common stock 1 00 par value is traded on the New York Stock Exchange under the symbol AZZ As of April 21 2023 we had approximately 334 holders of record of our common stock not including those shares held in street or nominee name Item 11 of this Annual Report on Form 10 K contains certain information related to our equity compensation plans
The payment of dividends on common shares is within the discretion of our Board and is dependent on our earnings capital requirements operating and financial condition and other factors The Company has a history of paying dividends on common shares on a quarterly basis Dividends paid totaled 16 9 million 16 9 million and 17 6 million during fiscal 2023 2022 and 2021 respectively Under the Company s credit agreement the Company 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 The Company has the ability to 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 of Directors 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 the Company 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 the Company might otherwise be precluded from doing so Currently share repurchases may not exceed 6 of the Company s market capitalization per fiscal year
During fiscal 2023 to prioritize repayments of debt including debt incurred to finance the Precoat Acquisition the Company did not repurchase shares of common stock under the 2020 Share Authorization During fiscal 2022 the Company repurchased 601 822 shares of common stock for 30 8 million or 51 20 per share
We also 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 See Note 13 to the consolidated financial statements included in Item 8 of this Form 10 K 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 Index U S Companies and the S P Small Cap 600 Index U S Companies These indices are prepared by Alliance Advisors The Company s common stock is listed on the New York Stock Exchange and AZZ operates in two industry segments The shareholder return shown below is not necessarily indicative of future performance Total return as shown assumes 100 invested on February 28 2018 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 our consolidated financial statements and the related notes included elsewhere in this Annual Report on Form 10 K This discussion contains forward looking statements regarding our business and operations Our actual results may differ materially from those we currently anticipate as a result of the factors we describe under Risk Factors and elsewhere in this Annual Report on Form 10 K
A discussion regarding our financial condition and results of operations as well as our liquidity and capital resources for fiscal year 2022 compared to fiscal year 2021 can be found under Item 7 in our Annual Report on Form 10 K for the fiscal year ended February 28 2022 which is available on the SEC s website at www sec gov and our Investor Relations website at www azz com investor relations
We are a provider of hot dip galvanizing and coil coating solutions to a broad range of end markets predominantly 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 is now reported as discontinued operations and financial data for this segment has been segregated and presented as discontinued operations for all periods presented Our discussion and analysis of financial condition and results of operations is divided by each of our segments along with corporate costs and other costs not specifically identifiable to a segment For a reconciliation of segment operating income to consolidated operating income see Note 14 to the consolidated financial statements 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 2023 is referred to as fiscal 2023 fiscal year 2023 current year or current period and the period ended February 28 2022 is referred to as fiscal 2022 fiscal year 2022 prior year or prior period
For the fiscal year ended February 28 2023 we recorded sales of 1 323 6 million compared to prior year s sales of 525 6 million Of total sales for fiscal 2023 approximately 48 1 were generated from the AZZ Metal Coatings segment and approximately 51 9 of sales were generated from the AZZ Precoat Metals segment Net income loss for fiscal 2023 was 61 2 million compared to 84 0 million for fiscal 2022 Net income loss as a percentage of sales was 4 6 for fiscal 2023 as compared to 16 0 for fiscal 2022 Diluted earnings loss per share from continuing operations increased by 17 1 to 2 33 per share for fiscal 2023 compared to 1 99 per share for fiscal 2022
Sales for the AZZ Metal Coatings segment increased 111 4 million or 21 2 to 637 0 million from the prior year s sales of 525 6 million The increase in sales was primarily due to improved price realization for our superior quality and service The volume of steel processed also increased in the current period compared to the prior year period
Operating income for the AZZ Metal Coatings segment increased 27 2 million or 21 1 for fiscal 2023 to 156 0 million as compared to 128 8 million for the prior year Operating margins remained flat at 24 5 for fiscal 2023 as compared to fiscal 2022
Corporate expenses increased 12 3 million to 61 8 million for fiscal 2023 compared to 49 5 million for fiscal 2022 The increase is primarily due to increases in acquisition costs related to the Precoat Acquisition costs related to the AIS joint venture and increased payroll and employee related compensation costs related to both of these transactions partially offset by income earned from a transition services agreement related to the AIS joint venture See also Note 5 in Item 8
Interest expense for fiscal 2023 increased 82 4 million to 88 8 million as compared to 6 4 million in fiscal 2022 The significant increase in interest expense is primarily attributable to the additional debt that was obtained in conjunction with the Precoat Acquisition including the Term Loan B of 1 3 billion and the Convertible Notes of 240 0 million The Convertible Notes transitioned from subordinated debt e g interest to Preferred Equity e g dividends on August 5 2022 As of February 28 2023 we had gross outstanding debt of 1 125 3 million compared to 227 0 million at the end of fiscal 2022 AZZ s debt to equity ratio was 1 24 to 1 at the end of fiscal 2023 compared to 0 34 to 1 at the end of fiscal 2022 For additional information on outstanding debt see Note 8 in Item 8
For fiscal 2023 other income net increased 1 0 million to 1 2 million for fiscal 2023 compared to 0 2 million for fiscal 2022 The activity for fiscal 2023 consisted primarily of sublease income earned through the Company s sublease agreements in the Precoat Metals segment as well as foreign currency losses resulting from unfavorable movements in exchange rates
The provision for income taxes from continuing operations was 25 2 for fiscal 2023 compared to 31 8 for fiscal 2022 The decrease in the effective tax rate is the result of higher unfavorable adjustments related to management fees recorded as a result of continuing operations versus discontinued operations reporting in the prior year comparable period
Following the AIS JV agreement with Fernweh the results of our AZZ Infrastructure Solutions segment were classified as discontinued operations in our condensed consolidated statements of operations and excluded from continuing operations for all periods presented The results of operations from discontinued operations for fiscal 2023 and 2022 consist of the following in thousands
Sales for the AZZ Infrastructure Solutions segment decreased 120 8 million or 32 0 to 256 2 million for fiscal 2023 compared to 377 1 million for fiscal 2022 The decrease is primarily due to the divestiture of our AZZ Infrastructure Solutions segment on September 30 2022 resulting in the inclusion of seven months of sales for the current year period compared to a full year for the prior year period
Operating income loss for the AZZ Infrastructure Solutions segment decreased 166 7 million or 488 6 to a loss of 132 6 million as compared to income of 34 1 million for the prior year During fiscal 2023 the Company recognized a pre tax non cash loss on disposal of approximately 159 9 million which included the derecognition of the cumulative translation adjustment related to its investment in foreign entities within the AIS segment and is included in Loss on disposal of discontinued operations above
The provision for income taxes from discontinued operations reflects an effective tax rate of 14 1 for fiscal year 2023 compared to 2 7 for fiscal year 2022 The increase is mainly attributable to a book loss with a tax benefit in the current year compared to book income with a research and development credit in the prior year which more than offset the prior year tax expense The current year effective tax rate also includes the impact of recognizing deferred taxes on the outside basis difference of foreign subsidiaries involved in the divestiture
We have historically met our cash needs through a combination of cash flows from operating activities along with bank and bond market debt Our cash requirements are generally for operating activities cash dividend payments capital improvements debt repayment and acquisitions We believe that our cash position cash flows from operating activities and our expectation of continuing availability to draw upon our credit facilities are sufficient to meet our cash flow needs for the foreseeable future
Net cash provided by operating activities of continuing operations for fiscal 2023 was 91 4 million compared to 60 6 million for fiscal 2022 The increase in cash provided by operating activities for fiscal 2023 is primarily attributable to increases in net income from continuing operations and non cash expenses including depreciation and amortization and amortization of debt financing costs partially offset by the impact of decreases in working capital primarily due to changes in accounts payable accounts receivable prepaid expenses contract assets and liabilities and other accrued liabilities Net cash used in operating activities of discontinued operations for fiscal 2023 was 21 3 million compared to cash provided by operating activities of 25 4 million for fiscal 2022
Net cash used in investing activities of continuing operations for fiscal 2023 was 1 228 9 million compared to 82 1 million for fiscal 2022 The increase in cash used during fiscal 2023 was primarily attributable to the Precoat Acquisition completed in the first quarter of fiscal 2023 Net cash used in investing activities of discontinued operations for fiscal 2023 was 1 3 million compared to 4 7 million for fiscal 2022
Net cash provided by financing activities of continuing operations for fiscal 2023 was 1 027 3 million compared to 0 9 million for fiscal 2022 The increase in cash provided by financing activities during fiscal 2023 was primarily attributable to an increase in proceeds from long term debt as well as a decrease in repurchases of Company common stock partially offset by an increase in net payments for long term debt and payments of debt financing costs Net cash provided by financing activities of discontinued operations for fiscal 2023 was 120 0 million compared to zero for fiscal 2022
On July 8 2021 the Company entered into a five year unsecured revolving credit facility under a credit agreement by and among the Company borrower Citibank N A as administrative agent and the other agents and lender parties thereto the 2021 Credit Agreement The 2021 Credit Agreement was scheduled to mature in July 2026 and included the following significant terms
provided for a senior unsecured revolving credit facility with a principal amount of up to 400 0 million revolving loan commitments and included an additional 200 0 million uncommitted incremental accordion facility
interest rate margin ranges from 87 5 bps to 175 bps for Eurodollar Rate loans and from 0 0 bps to 75 bps for Base Rate loans depending on leverage ratio of the Company and its consolidated subsidiaries as a group
included customary representations and warranties affirmative covenants and negative covenants and events of default including restrictions on incurrence of non ordinary course debt investment and dividends subject to various exceptions carve outs and baskets and
On October 9 2020 the Company completed a private placement transaction and entered into a Note Purchase Agreement whereby the Company agreed to borrow 150 0 million of senior unsecured notes the 2020 Senior Notes consisting of two separate tranches
The 80 0 million tranche was funded on December 17 2020 The 70 0 million tranche was funded in January 2021 The Company used the proceeds to repay the existing 125 0 million 5 42 Senior Notes that matured on January 20 2021 as well as for general corporate purposes Interest on the 2020 Senior Notes was paid semi annually In connection with the 2020 Senior Notes the Company incurred debt issuance costs of approximately 0 6 million These costs were allocated between the two tranches and were amortized over periods of seven and 12 years
On May 13 2022 the Company replaced the 2021 Credit Agreement with a new Credit Agreement the 2022 Credit Agreement by and among the Company borrower Citibank N A as administrative and collateral agent and the other agents and lender parties thereto the 2022 Credit Agreement The 2022 Credit Agreement includes the following significant terms
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
The Company utilizes proceeds from the Revolving Credit Facility primarily to finance working capital needs capital improvements dividends acquisitions and for general corporate purposes The proceeds of the Term Loan B were used to finance a portion of the Precoat Acquisition pay transaction related costs owed under the Securities Purchase Agreement defined below and refinance certain prior indebtedness including the repayment of outstanding borrowings under the 2021 Credit Agreement The proceeds were also utilized to redeem 100 of the Company s 2020 Senior Notes on June 6 2022
As defined in the credit agreement quarterly prepayments will be made against the outstanding principal of the Term Loan B and are 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 On September 30 2022 240 0 million was applied to the Term Loan B in connection with the sale of AIS As a result of this
The Company s credit agreement requires the Company to maintain a maximum Total Net Leverage Ratio as defined in the loan agreement no greater than 6 25 through November 2022 For each subsequent quarter the maximum ratio decreases by 25 basis points through May 31 2024 when the maximum Total Net Leverage Ratio reaches 4 5 The leverage ratio as of February 28 2023 was 5 75
On May 13 2022 the Company completed the issuance of 240 0 million aggregate principal amount of 6 00 convertible subordinated notes due June 30 2030 the Convertible Notes pursuant to the Securities Purchase Agreement the Securities Purchase Agreement with BTO Pegasus Holdings DE L P a Delaware limited partnership together with its assignees Blackstone an investment vehicle of funds affiliated with Blackstone Inc Interest on the Convertible Notes was payable on June 30 and December 31 The Convertible Notes were exchanged for 240 000 shares of the Company s 6 0 Series A Convertible Preferred Stock on August 5 2022 following the receipt of shareholder approval for the issuance of preferred shares See Note 10 for a description of the Series A Convertible Preferred Stock
e had total outstanding letters of credit in the amount of 16 7 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
We manage our exposure to fluctuations in interest rates using a mix of fixed and variable rate debt We utilize fixed rate interest rate swap agreements to change the variable interest rate to a fixed rate on a portion of our variable rate debt
On September 27 2022 the Company entered into a fixed rate interest rate swap agreement with banks that are parties to the 2022 Credit Agreement On October 7 2022 the agreement was amended to change the SOFR based component of the interest rate on a portion of our variable rate debt to a fixed rate of 4 277 resulting in a total fixed rate of 8 627 the 2022 Swap 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 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 for approximately one half of the total amount of our variable rate debt 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
On September 30 2022 the Company completed the joint venture between the Company and Fernweh Group LLC Fernweh Under the agreement with Fernweh AZZ contributed its AZZ Infrastructure Solutions segment AIS to AIS Investment Holdings LLC the AIS JV and sold a 60 interest in the AIS JV to Fernweh at an implied enterprise value of AIS of 300 0 million The AIS JV operates under the name Avail Infrastructure Solutions AVAIL The Company received proceeds from the sale of approximately 108 0 million as well as 120 0 million that was funded by committed debt financing taken on by the AVAIL joint venture immediately prior to the closing of the divestiture of AZZ s controlling interest As a result of the transaction AIS is deconsolidated and the Company s retained 40 interest in the AVAIL joint venture is accounted for under the equity method of accounting See Note 6 of Item 8 for further information about the AIS segment The Company used the cash received from the transaction to repay 210 0 million on the Term Loan B 15 0 million on the Revolving Credit Facility and 3 0 million for working capital purposes
As of February 28 2023 we had 1 125 3 million of floating and fixed rate notes outstanding with varying maturities through fiscal 2029 and we were in compliance with all of the covenants related to these outstanding borrowings As of February 28 2023 we had approximately 288 5 million of additional credit available for future draws or letters of credit
During the year ended February 28 2023 the Company utilized a significant portion of the cash received from the AIS JV to reduce the Term Loan B and utilized the remaining cash received to reduce the Revolving Credit Facility and for general corporate purposes
The Company s debt agreements require the Company to maintain certain financial ratios As of February 28 2023 the Company was in compliance with all covenants or other requirements set forth in the debt agreements
On November 10 2020 our Board of Directors authorized a 100 million share repurchase program pursuant to which the Company 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 the Company might otherwise be precluded from doing so Currently share repurchases may not exceed 6 of the Company s market capitalization per fiscal year
During fiscal 2023 to prioritize repayments of debt including debt incurred to finance the Precoat Acquisition the Company did not repurchase shares of common stock under the 2020 Share Authorization During fiscal 2022 the Company repurchased 601 822 shares of common stock for 30 8 million or 51 20 per share
We have exposure to commodity price increases in our operating segments primarily zinc natural gas in the AZZ Metal Coatings segment and natural gas steel and aluminum in the AZZ Precoat Metals segment We attempt to minimize these increases through fixed cost contract purchases on zinc and natural gas In addition to these measures we attempt to recover other cost increases through improvements to our manufacturing process supply chain management and through increases in prices where competitively feasible We have indirect exposure to copper aluminum steel and nickel based alloys in the AZZ Infrastructure Solutions segment through our 40 investment in the AIS JV
As of February 28 2023 the Company did not have any off balance sheet arrangements as defined under SEC rules Specifically there were no off balance sheet transactions arrangements obligations including contingent obligations or other relationships with unconsolidated entities or other persons that have or may have a material effect on the financial condition changes in financial condition sales or expenses results of operations liquidity capital expenditures or capital resources of the Company
As of February 28 2023 the Company had non cancelable forward contracts to purchase approximately 115 0 million of zinc at various volumes and prices All such contracts expire in fiscal 2024 The Company had no other contracted commitments for any other commodities including steel aluminum natural gas copper zinc nickel based alloys except for those entered into under the normal course of business
The preparation of the consolidated financial statements requires us to make estimates that affect the reported value of assets liabilities sales and expenses Our estimates are based on historical experience and various other factors that we believe are reasonable under the circumstances and form the basis for our conclusions We continually evaluate the information used to make these estimates Actual results may differ from these estimates under different assumptions or conditions The following accounting policies involve critical accounting estimates because they are dependent on our judgement and assumptions about matters that are inherently uncertain
The carrying value of our accounts receivable is periodically evaluated based on the likelihood of collection An allowance is maintained for estimated credit losses resulting from our customers inability to make contracted payments The allowance is determined by historical experience of uncollected accounts the level of past due accounts overall level of outstanding accounts receivable information about specific customers with respect to their inability to make payments and future expectations of conditions that might impact the collectability of accounts receivable If the financial condition of our
Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in each business combination and is not amortized We test goodwill and intangible assets with an indefinite life for potential impairment annually during 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 reporting unit below its carrying amount which would result in impairment
An entity may first assess qualitative factors to determine if a quantitative impairment test is necessary Further testing is only required if the entity determines based on the qualitative assessment that it is more likely than not that goodwill s fair value is less than the 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 our annual goodwill impairment test then we use the income approach The income approach uses 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 products and services we offer to the power generation market the electrical transmission and distribution markets the general industrial market and the hot dip galvanizing market changes in economic conditions of these various markets changes in costs of raw material and natural gas and the availability of experienced labor and management to implement our growth strategies
On September 30 2022 the Company completed the joint venture between the Company and Fernweh Group LLC Fernweh Under the agreement with Fernweh AZZ contributed its AZZ Infrastructure Solutions segment AIS to AIS Investment Holdings LLC the AIS JV and sold a 60 interest in the AIS JV to Fernweh at an implied enterprise value of AIS of 300 0 million Following the classification of the AIS segment as held for sale the Company measured the AIS segment at the lower of its carrying amount or fair value As a result the Company recorded a loss on the sale of the AIS segment The loss was determined by comparing the fair value of the consideration received for the sale of a 60 interest in the AIS JV and the fair value of the Company s retained 40 investment in the AIS JV with the net assets of the AIS JV immediately prior to the transaction The fair value of the Company s retained investment in the AIS JV was determined in a manner consistent with the transaction price received for the sale of the 60 interest in the AIS JV The determination of the estimated fair value of the Company s 40 interest in the AIS JV required significant judgement including the utilization of assumptions and estimates which were based on available information at the time of the assessment
The Company accounts for its investment in a 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 AIS JV is allocated based on our current 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 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 we write down the investment to its fair value
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
The Company is exposed to interest rate risk on its floating rate debt On September 27 2022 the Company entered into an interest rate swap agreement to effectively convert a portion of its floating rate debt to a fixed rate basis The principal objective of this contract is to reduce the variability of the cash flows in interest payments associated with the Company s floating rate debt thus reducing the impact of interest rate changes on future interest payment cash flows The Company has elected to apply the hedge accounting rules in accordance with authoritative guidance for certain of these contracts Changes in the fair value of interest rate swap agreements designated as cash flow hedges are recorded as a component of accumulated other comprehensive income loss within stockholders equity and are amortized to interest expense over the term of the related debt
See Part II Item 8 Consolidated Financial Statements and Supplementary Data Note 1 Summary of Significant Account Policies of the Notes to the consolidated financial statements of this Annual Report on Form 10 K 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 provided adjusted earnings and adjusted earnings per share 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 and prospects for future capital investment and debt reduction Management also believes that investors regularly rely on non GAAP financial measures such as adjusted earnings and adjusted earnings per share to assess operating performance and that such measures may highlight trends in our business that may not otherwise be apparent when relying on financial measures calculated in accordance with GAAP
Management also provides Adjusted EBITDA which is a non GAAP measure Management defines Adjusted EBITDA as earnings excluding depreciation amortization interest provision for income taxes and acquisition and transaction related expenses Management believes Adjusted EBITDA is used by investors to analyze operating performance and evaluate the Company s ability to incur and service debt and its capacity for making capital expenditures in the future Adjusted EBITDA is also useful to investors to help assess the Company s estimated enterprise value In addition management believes that the adjustments shown below are useful to investors in order to allow them to compare the Company s financial results during the periods shown without the effect of each of these adjustments
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 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 provides a reconciliation for the years ended February 28 2023 and February 28 2022 between the various measures calculated in accordance with GAAP to the Adjusted Earnings Measures dollars in thousands except per share data
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 foreign currency exchange rates and interest rates We do not enter into or hold derivative instruments for speculative or trading purposes
In our AZZ Metal Coatings segment we have exposure to commodity price changes for zinc and natural gas which are the primary inputs in the metal coatings process In our Precoat Metals segment we have exposure to commodity price changes for natural gas We manage our exposure to changes in the price of zinc by entering into agreements with our zinc suppliers and such agreements generally include protective caps or other fixed prices We also secure firm pricing for natural gas supplies with individual utilities when possible We believe these agreements ensure adequate supplies and partially offset exposure to commodity price escalation
We had 1 125 billion of gross variable rate debt outstanding at February 28 2023 under our revolving credit facility and Term Loan B We manage our exposure to fluctuations in interest rates using a mix of fixed and variable rate debt We utilize fixed rate interest rate swap agreements to change the variable interest rate to a fixed rate on a portion of our variable rate debt We have entered into an interest rate swap to eliminate the variability of cash flows in interest payments attributable to changes in benchmark one month SOFR interest rates for approximately one half of the total amount of our variable rate debt The interest rate swap 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 products in foreign currencies foreign currency denominated purchases employee related and other costs of running operations in foreign countries As of February 28 2023 the Company had exposure to foreign currency exchange rates related to our operations in Canada
The Company had 578 0 million of borrowings under a variable interest rate at the end of February 28 2023 We estimate that a hypothetical increase of 1 in interest rates would have increased interest expense by 5 8 million during fiscal 2023 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 as long as we are able to pass along the increases in commodity prices to our customers
However there can be no assurance that either interest rates 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 2023 and 2022 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 2023 and the related notes collectively referred to as the financial statements In our opinion the financial statements present fairly in all material respects the financial position of the Company as of February 28 2023 and 2022 and the results of its operations and its cash flows for each of the three years in the period ended February 28 2023 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 December 31 2022 based on criteria established in the 2013
These financial statements are the responsibility of the Company s management Our responsibility is to express an opinion on the Company s 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
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that 1 relates to accounts or disclosures that are material to the financial statements and 2 involved our especially challenging subjective or complex judgments The communication of critical audit matters does not alter in any way our opinion on the financial statements taken as a whole and we are not by communicating the critical audit matter below providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates
As described further in Note 5 to the consolidated financial statements on May 13 2022 the Company completed its acquisition of the Precoat Metals business division Precoat Metals The assets acquired and liabilities assumed in the business combination were measured at estimated fair values on the acquisition date A total of 446 0 million was recorded for the fair value of acquired customer relationships tradename and technology collectively intangible assets Determining the fair value of acquired intangible assets requires management to make judgments regarding what valuation models are appropriate in the circumstance and what inputs and assumptions to use in those valuation models to determine an estimate of the fair value of acquired intangible assets Changes in key inputs and assumptions could materially affect the determination of the fair value of the acquired intangible assets The Company utilized a third party valuation firm to assist management in estimating the fair value of acquired intangible assets for the purpose of recording the business combination
The principal considerations for our determination that the valuation of acquired intangible assets is a critical audit matter is the degree of judgment necessary to determine if certain key inputs to valuation models used by management to estimate the fair value of acquired intangible assets were reasonable in the circumstance Specifically those key inputs and assumptions which we determined require especially challenging subjective or complex judgments included 1 forecasted cash flows attributable to acquired intangible assets and 2 the discount rate applied to those net cash flows to measure the estimated fair values of the acquired intangible assets Performing audit procedures to evaluate management s assumptions required the need to involve valuation specialists
We tested the design and operating effectiveness of relevant controls relating to management s preparation and review of the forecasted cash flows and the discount rate applied and review of the methodologies applied by third party valuation specialists engaged by the Company
With the assistance of a valuation specialist we evaluated the appropriateness of the valuation models used to estimate the value of acquired intangible assets and the reasonableness of the discount rates used in the models
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 2023 based on criteria established in the 2013
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 2023 and our report dated April 25 2023 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 Management s Report 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
Our audit of and opinion on the Company s internal control over financial reporting does not include the internal control over financial reporting of the Precoat Metals business division Precoat Metals whose financial statements reflect total assets and revenues constituting 67 0 and 51 9 percent respectively of the related consolidated financial statement amounts as of and for the year ended February 28 2023 As indicated in Management s Report Precoat Metals was acquired during 2022 Management s assertion on the effectiveness of the Company s internal control over financial reporting excluded internal control over financial reporting of Precoat Metals
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
AZZ Inc the Company AZZ or we operates primarily in the United States of America and Canada The Company has three operating segments AZZ Metal Coatings AZZ Precoat Metals and AZZ Infrastructure Solutions 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 AIS JV and sold a 60 interest in the AIS JV to Fernweh See Note 6 for further discussion of the divestiture See Note 14 for information about the Company s operations by segment
On May 13 2022 the Company 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 See Notes 5 and 12 for further discussion about Precoat As a result of the Precoat Acquisition the Company changed its 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 the Company 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 6 for more information about results of operations reported in discontinued operations in the consolidated balance sheets statements of operations and statements of cash flows as of February 28 2022 and as of and for the year ended February 28 2022 and 2021
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 the Company to significant concentrations of credit risk consist principally of cash and cash equivalents and trade accounts receivable As of February 28 2023 the Company had 9 3 million in excess of the Federal Deposit Insurance Corporation FDIC limits
The Company maintains cash and cash equivalents with various financial institutions The Company s policy is designed to limit exposure to any one institution The Company performs periodic evaluations of the relative credit standing of those financial institutions that are considered in the Company s banking relationships and has not experienced any losses in such accounts We believe we are not exposed to any significant credit risk related to cash and cash equivalents
The Company has limited concentrations of credit risk with respect to trade accounts receivable due to its multiple operating segments large and diversified customer base and its geographic diversification The Company performs ongoing evaluations of its customers financial condition Collateral is usually not required from customers as a condition of sale
Accounts receivable are stated amounts due from customers The Company maintains an allowance for credit losses for estimated losses resulting from the inability of customers to make required payments The Company treats trade accounts receivable as one portfolio and records an allowance based on a combination of management s knowledge of its customer base historical losses current economic conditions and customer specific events The Company adjusts this allowance 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 unless material are recorded against the allowance in the period received
Revenue is recognized when control of the promised goods or services is transferred to the Company s 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 The Company recognizes 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 The Company recognizes 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 the Company 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 primarily related to the Company s Precoat Metals segment Billing can occur subsequent to revenue recognition resulting in contract assets In addition the Company can receive advances or deposits from its customers before revenue is recognized resulting in contract liabilities These assets and liabilities are reported on the consolidated balance sheets on a contract by contract basis at the end of each reporting period
The increases or decreases in accounts receivable contract assets and contract liabilities from continuing operations during fiscal year 2023 were primarily due to the Precoat acquisition as well as normal timing differences between the Company s performance and customer payments Contract liabilities of 1 3 million as of February 28 2023 are included in Other accrued liabilities in the consolidated balance sheets There were no contract liabilities as of February 28 2022 As of February 28 2023 the balance for contract assets was 79 3 million primarily related to the AZZ Precoat Metals segment and 2 9 million as of February 28 2022
No general rights of return exist for customers however the Company provides assurance type warranties and has established a provision for estimated warranties The Company generally does not sell extended warranties Revenue is recognized net of applicable sales and other taxes The Company does not adjust the contract price for the effects of a significant financing component if the Company expects at contract inception that the period between when the Company transfers 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
Revenue by segment and geography is disclosed in Note 14 In addition the following table presents disaggregated revenue from continuing operations by customer industry for fiscal years 2023 2022 and 2021 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 and Precoat Metals segments The Company determines the reserves for excess quantities and obsolescence based on forecasted demand within specific time horizons technological obsolescence and an assessment of any inventory that is not in sellable condition and records a charge to reduce inventory to its net realizable value The Company s inventory reserve was 7 3 million and 1 1 million as of February 28 2023 and February 28 2022 respectively
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 the Company records impairment losses for the excess of their carrying value over the estimated fair value The Company did not recognize any impairment charges for fiscal year 2023 or 2022 since there were no changes in events or circumstances that would suggest amounts were not recoverable For fiscal year 2021 the Company recorded charges of 9 6 million to write down certain property plant and equipment and other intangible assets that were held for sale or abandoned in the Metal Coatings segment See Note 6 for additional information about these impairment charges
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 The Company tests 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 fair value of the reporting unit below its carrying amount If no impairment indicators are present the Company may first perform a qualitative assessment of goodwill to determine whether a quantitative assessment is necessary If the Company performs a quantitative assessment for its annual goodwill impairment test then the Company uses the income approach and market approach The income approach and market approach use Level 3 fair value inputs as described in fair value measurements below Based on the results of its analysis the Company determines whether an impairment may exist A significant change in projected cash flows or cost of capital for future years could result in an impairment of goodwill in future years Variables impacting future cash flows include but are not limited to the level of customer demand for and response to products and services we offer in the markets in which we operate changes in economic conditions of these markets raw material and natural gas costs and availability of experienced labor and management to implement our growth strategies For fiscal year 2023 the Company 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 2023 2022 and 2021 no impairment losses were recognized for goodwill or indefinite lived intangible assets
The Company accounts for its investment in a 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 AIS JV is allocated based on our current 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 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 we write down the investment to its fair value The company does not believe that the value of its equity investment was impaired as of February 28 2023
Debt issuance costs that are incurred by the Company in connection with the issuance of debt are amortized to interest expense using the effective interest rate method over the term of the debt Costs related to the Company s revolving credit facility are included in Intangibles and other assets net on the consolidated balance sheets Costs related to the Company s senior notes are presented as a reduction to long term debt on the consolidated balance sheets
Following the close of the AIS JV the Company 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 the Company recognized 3 4 million of TSA fees for fiscal year 2023 which are included as a reduction to Selling general and administrative expense in the consolidated statements of operations In addition as of February 28 2023 the Company has recorded related party receivables and payables of 8 4 million and 6 3 million which are included in Accounts receivable and Other accrued liabilities respectively in the consolidated balance sheets
The Company accounts 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 on the basis of 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
The Company recognizes a valuation allowance against net deferred tax assets to the extent that the Company believes those net assets are not more likely than not to be realized In making such a determination the Company considers 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 the Company determines that it would be able to realize its deferred tax assets in the future in excess of their net recorded amount the Company would make an adjustment to the deferred tax asset valuation allowance which would reduce the provision for income taxes
As applicable the Company records uncertain tax positions on the basis of a two step process whereby 1 the Company determines 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 the Company recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority
The Company is subject to taxation in the U S and various state provincial local and foreign jurisdictions With few exceptions as of February 28 2023 the Company is no longer subject to U S federal or state examinations by tax authorities for years before fiscal 2019
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 ASC 820 Fair Value Measurements and Disclosures ASC 820 certain of the Company s assets and liabilities which are carried at fair value are classified in one of the following three categories
The local currency is the functional currency for the Company s foreign operations Related assets and liabilities are translated into United States dollars at exchange rates existing at the balance sheet date and revenues and expenses are 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
The Company is subject to the possibility of various loss contingencies arising in the normal course of business The amounts the Company may record for estimated claims such as self insurance programs warranty environmental legal and other contingent liabilities requires the Company to make judgments regarding the amount of expenses that will ultimately be incurred The Company uses past history and experience and 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
The Company is a lessee under various leases for facilities and equipment For such leases the Company recognizes a right of use ROU asset and lease liability on the consolidated balance sheet as of the lease commencement date based on the present value of the future minimum lease payments An ROU asset represents the Company s right to use an underlying asset during the lease term and a lease liability represents the Company s obligation to make lease payments However for short term leases with an initial term of twelve months or less that do not contain an option to purchase that is likely to be exercised the Company does not record ROU assets or lease liabilities on the consolidated balance sheet
The Company uses its 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 the Company 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 the Company incorporates 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 the Company is 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 its facility leases the Company accounts for lease and non lease components on a combined basis and for its equipment leases lease and non lease components are accounted for separately
Some of the Company s lease agreements may include rental payments that adjust periodically for inflation or are based on an index rate which are included as variable lease payments The Company s lease agreements do not contain any material residual value guarantees or material restrictive covenants
The Company subleases multiple buildings in Columbia South Carolina to multiple subtenants The sublease agreements are by and between 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 in Other income expense The Company recognized 0 8 million of income from subleases during fiscal year 2023
In the Company s Precoat Metals segment certain current and past employees participate in a defined benefit pension plan sponsored and administered by the Company 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
The Company incurs expenses in connection with the defined benefit pension plan The Company uses 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 The Company recognizes 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 in the year in which the changes occur As of February 28 2023 the Company recognized underfunded status of the plan of 31 3 million in other long term liabilities in the accompanying consolidated balance sheet
ASU 2020 04 which provides optional expedients and exceptions for applying GAAP to contracts hedging relationships and other transactions affected by the discontinuation of the London Interbank Offered Rate LIBOR or by another reference rate expected to be discontinued In January 2021 the FASB issued ASU 2021 01
ASU 2022 06 which defers the sunset date of the reference rate reform guidance to December 31 2024 The amendments in these ASUs were effective upon issuance As the Company no longer has any LIBOR based contracts these ASUs did not have a material effect on the Company s current financial position results of operations or cash flows as of February 28 2023
ASU 2019 12 This standard is intended to simplify the accounting and disclosure requirements for income taxes by eliminating various exceptions in accounting for income taxes as well as clarifying and amending existing guidance to improve consistency in the application of ASC 740 ASU 2019 12 was effective for the Company in the first quarter of its fiscal 2022 The Company adopted ASU 2019 12 in the first quarter of fiscal 2022 and the adoption did not have a material impact on its consolidated financial statements
ASC 606 at the acquisition date as if the acquirer had originated the contracts rather than adjust them to fair value The standard is effective for fiscal years beginning after December 15 2022 including interim periods within those fiscal years The Company adopted ASU 2021 08 in fiscal 2023 and the adoption did not have a material impact on the Company s financial condition results of operations or cash flows
In addition to its amortizable intangible assets the Company has recorded indefinite lived intangible assets of 1 5 million on the consolidated balance sheets as of February 28 2023 and February 28 2022 related to certain tradenames acquired as part of prior business acquisitions
On May 13 2022 the Company acquired Precoat Metals for a purchase price of approximately 1 3 billion the Precoat Acquisition Based in St Louis Missouri Precoat is the leading independent provider of metal coil coating solutions in North America Precoat engages in the advanced application of protective and decorative coatings and related value added services for steel and aluminum coil primarily serving the construction appliance heating ventilation and air conditioning HVAC container transportation and other end markets The acquisition represents a continued transition of the Company to a focused provider of coating and galvanizing services for critical applications
The Precoat Acquisition was funded primarily with proceeds from a term loan and convertible debt See Note 8 for a description of these debt instruments The Company incurred acquisition costs of 13 2 million for fiscal year 2023 which are included in Selling general and administrative expense in the accompanying condensed consolidated statements of operations AZZ Precoat Metals contributed revenue of 686 7 million and operating income of 79 5 million to the Company s condensed consolidated statements of operations from May 13 2022 through February 28 2023
The Company accounted for the Precoat Acquisition as a business combination under the acquisition method of accounting Goodwill from the acquisition of 524 8 million represents the excess purchase price over the estimated value of net tangible and intangible assets and liabilities assumed and is expected to be deductible for income tax purposes The Company s chief operating decision maker assesses performance and allocates resources to Precoat separately from the AZZ Metal Coatings segment therefore Precoat is accounted for as a separate segment the AZZ Precoat Metals segment See Note 14 for more information about the Company s operating segments Goodwill from the acquisition was allocated to the AZZ Precoat Metals segment Assets acquired and liabilities assumed in the Precoat Acquisition were recorded at their estimated fair values as of the acquisition date See Note 18 for additional information regarding certain environmental liabilities assumed as part of the Precoat Acquisition
The Company has not finalized these estimates as of the date of this report therefore the fair value estimates set forth below are subject to adjustment during the measurement period following the acquisition date The final allocation of purchase consideration could include changes in the estimated fair value of property plant and equipment and other long term liabilities Adjustments in the purchase price allocation may require a change in the amount allocated to goodwill during the period in which the adjustments are determined
When determining the fair values of assets acquired and liabilities assumed management made significant estimates judgments and assumptions The Company has engaged third party valuation experts to assist in determination of fair value of property and equipment intangible assets pension benefit obligation and certain other assets and liabilities Preliminary estimates from third party experts along with the analysis and expertise of management have formed the basis for the preliminary allocation Detailed analysis and review of the condition existence and utility of assets acquired and assumptions inherent in the estimation of fair value of intangible assets and pension obligation is currently ongoing Management believes that the current information provides a reasonable basis for estimating fair values of assets acquired and liabilities assumed These estimates judgments and assumptions are subject to change and should be treated as preliminary values as there could be significant changes upon final valuation The Company expects to complete the final valuations during the first quarter of fiscal 2024
On February 28 2022 the Company entered into an agreement to acquire all the outstanding shares of DAAM Galvanizing Co Ltd DAAM a privately held hot dip galvanizing company based in Edmonton Alberta Canada for approximately 35 5 million DAAM currently operates two galvanizing facilities in Canada one located in Edmonton Alberta and a second in Saskatoon Saskatchewan as well as a service depot in Calgary Alberta The addition of DAAM expanded the Company s geographical coverage in the Northwest and enhanced the scope of metal coatings solutions offered in Canada The business is included in the Company s AZZ Metal Coatings segment The goodwill arising from this acquisition was allocated to the AZZ Metal Coatings segment and the Company estimates that approximately 50 of the goodwill amount is expected to be deductible for income tax purposes
The Company 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 The Company 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 and 2022 combines the historical results of the Company and the acquisitions of Precoat Metals and DAAM assuming that the companies were combined as of March 1 2021 and include business combination accounting effects from the Precoat Acquisition including amortization charges from acquired intangible assets depreciation expense on acquired property plant and equipment interest expense on the financing transactions used to fund the Precoat Acquisition acquisition related transaction costs and tax related effects The pro forma information as presented below is for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisitions of Precoat Metals and DAAM had taken place on March 1 2021 the beginning of fiscal year 2022 or of future operating performance
In January 2022 the Company completed the acquisition of all the assets of Steel Creek Galvanizing Company LLC Steel Creek a privately held hot dip galvanizing company based in Blacksburg South Carolina for approximately 25 0 million The acquisition expanded the Company s geographical reach in metal coatings solutions and extends its ability to support customers in the Southeast region of the United States The business is included in the Company s AZZ Metal Coatings segment The goodwill arising from this acquisition was allocated to the AZZ Metal Coatings segment and is expected to be deductible for income tax purposes
The purchase price allocation was finalized during fiscal 2023 The following table summarizes the fair values of the allocation of assets acquired and liabilities assumed in aggregate related to the Steel Creek acquisition as of the date of the acquisition in thousands
In addition to the initial cash payment upon closing contingent consideration of up to 2 8 million is payable based on the achievement of specified operating results over the three year period following completion of the acquisition
In fiscal 2023 the Company continued to execute its plan to divest of non core businesses On September 30 2022 AZZ contributed its AZZ Infrastructure Solutions segment excluding AZZ Crowley Tubing AIS to a joint venture AIS Investment Holdings LLC the AIS JV and sold a 60 interest in the AIS JV to Fernweh Group LLC Fernweh at an implied enterprise value of AIS of 300 0 million
Management previously committed to a plan to divest substantially all of the AIS segment As part of recognizing the business as held for sale in accordance with GAAP the Company was required to measure AIS at the lower of its carrying amount or fair value less cost to sell As a result of this analysis during fiscal 2023 the Company recognized an estimated non cash pre tax loss on disposal of 159 9 million which is included in Loss on disposal of discontinued operations in the consolidated statements of operations The loss was determined by comparing the fair value of the consideration received for the sale of a 60 interest in the AIS JV and the fair value of the Company s retained 40 investment in the AIS JV with the net assets of the AIS JV immediately prior to the transaction and includes 27 8 million from the derecognition of the cumulative translation adjustment related to its investment in foreign entities within the AIS segment
On September 30 2022 when the AIS JV transaction closed the joint venture was deconsolidated The Company retained a 40 interest in the joint venture which is now accounted for under the equity method of accounting The proceeds from the sale consisted of approximately 108 0 million as well as 120 0 million that was funded by committed debt financing taken on by the AIS JV immediately prior to the closing of the sale The debt financing of the AIS JV did not impact the Company s existing credit facility The Company used the cash received from the AIS JV to repay a portion of the Term Loan B the Revolving Credit Facility and for general corporate purposes See Note 8
The divestiture of the AZZ Infrastructure Solutions segment represents an intentional strategic shift in our operations and will allow the Company to become a focused provider of coating and galvanizing solutions for critical applications As a result the results of the AIS segment were classified as discontinued operations in our condensed statements of operations and excluded from both continuing operations and segment results for all periods presented
We have separately reported the assets and liabilities of the discontinued operations in the consolidated balance sheets The assets and liabilities have been reflected as discontinued operations in the consolidated balance sheets as of February 28 2022 and consist of the following in thousands
The results of operations from discontinued operations for the fiscal years 2023 2022 and 2021 have been reflected as discontinued operations in the consolidated statements of operations and consist of the following in thousands
We have included the net cash provided by discontinued operations in the consolidated statements of cash flows The depreciation amortization capital expenditures and significant operating and investing non cash items of the discontinued operation for the following fiscal years 2023 2022 and 2021 consists of the following in thousands
The Company closed on the sale of its Galvabar business and its AZZ SMS LLC SMS business The Company recorded net proceeds of 8 3 million and a loss on the sale of the Galvabar business which is included in the AZZ Metal Coatings segment of 1 2 million During fiscal 2021 the Company completed the sale of SMS which is included in the AZZ Infrastructure Solutions segment for net proceeds of 4 1 million The Company recognized impairment charges of 0 9 million for SMS during the second quarter and an additional loss on sale of 1 9 million during the third quarter of fiscal 2021 The loss of the sale of these businesses are included in Restructuring and impairment charges in the consolidated statements of income
As of February 28 2023 the Company was the lessee for 153 operating leases with terms of 12 months or more and 14 finance leases Many of the operating leases either have renewal options of between one and five years or convert to month to month agreements at the end of the specified lease term
The Company s operating leases are primarily for i operating facilities ii vehicles and equipment used in operations iii facilities used for back office functions and iv equipment used for back office functions and v temporary storage The majority of the Company s long term lease expenses 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 the Company recognizes lease expense for these leases on a straight line basis over the lease term The Company has a significant number of short term leases including month to month agreements The Company s short term lease agreements include expenses incurred hourly daily monthly and for other durations of time of one year or less
The Company subleases multiple buildings in Columbia South Carolina to multiple subtenants The sublease agreements are by and between 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 in Other income expense The Company recognized 0 8 million of income from subleases during fiscal year 2023
On July 8 2021 the Company entered into a five year unsecured revolving credit facility under a credit agreement by and among the Company borrower Citibank N A as administrative agent and the other agents and lender parties thereto the 2021 Credit Agreement The 2021 Credit Agreement was scheduled to mature in July 2026 and included the following significant terms
provided for a senior unsecured revolving credit facility with a principal amount of up to 400 0 million revolving loan commitments and included an additional 200 0 million uncommitted incremental accordion facility
interest rate margin ranges from 87 5 bps to 175 bps for Eurodollar Rate loans and from 0 0 bps to 75 bps for Base Rate loans depending on leverage ratio of the Company and its consolidated subsidiaries as a group
included customary representations and warranties affirmative covenants and negative covenants and events of default including restrictions on incurrence of non ordinary course debt investment and dividends subject to various exceptions carve outs and baskets and
On October 9 2020 the Company completed a private placement transaction and entered into a Note Purchase Agreement whereby the Company agreed to borrow 150 0 million of senior unsecured notes the 2020 Senior Notes consisting of two separate tranches
The 80 0 million tranche was funded on December 17 2020 The 70 0 million tranche was funded in January 2021 The Company used the proceeds to repay the existing 125 0 million 5 42 Senior Notes that matured on January 20 2021 as well as for general corporate purposes Interest on the 2020 Senior Notes was paid semi annually In connection with the 2020 Senior Notes the Company incurred debt issuance costs of approximately 0 6 million These costs were allocated between the two tranches and were amortized over periods of seven and 12 years
On May 13 2022 the Company replaced the 2021 Credit Agreement with a new Credit Agreement the 2022 Credit Agreement by and among the Company borrower Citibank N A as administrative and collateral agent and the other agents and lender parties thereto the 2022 Credit Agreement The 2022 Credit Agreement includes the following significant terms
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
The Company utilizes proceeds from the Revolving Credit Facility primarily to finance working capital needs capital improvements dividends acquisitions and for general corporate purposes The proceeds of the Term Loan B were used to finance a portion of the Precoat Acquisition pay transaction related costs owed under the Securities Purchase Agreement defined below and refinance certain prior indebtedness including the repayment of outstanding borrowings under the 2021 Credit Agreement The proceeds were also utilized to redeem 100 of the Company s 2020 Senior Notes on June 6 2022
As defined in the credit agreement quarterly prepayments will be made against the outstanding principal of the Term Loan B and are 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 On September 30 2022 240 0 million was applied to the Term Loan B in connection with the sale of AIS As a result of this prepayment the quarterly mandatory principal payment requirement has been met and the quarterly payments of 3 25 million are no longer required
The Company s credit agreement requires the Company to maintain a maximum Total Net Leverage Ratio as defined in the loan agreement no greater than 6 25 through November 2022 For each subsequent quarter the maximum ratio decreases by 25 basis points through May 31 2024 when the maximum Total Net Leverage Ratio reaches 4 5 The leverage ratio as of February 28 2023 was 5 75
On May 13 2022 the Company completed the issuance of 240 0 million aggregate principal amount of 6 00 convertible subordinated notes due June 30 2030 the Convertible Notes pursuant to the Securities Purchase Agreement the Securities Purchase Agreement with BTO Pegasus Holdings DE L P a Delaware limited partnership together with its assignees Blackstone an investment vehicle of funds affiliated with Blackstone Inc Interest on the Convertible Notes was payable on June 30 and December 31 The Convertible Notes were exchanged for 240 000 shares of the Company s 6 0 Series A Convertible Preferred Stock on August 5 2022 following the receipt of shareholder approval for the issuance of preferred shares See Note 10 for a description of the Series A Convertible Preferred Stock
As of February 28 2023 we had 1 125 3 million of floating and fixed rate notes outstanding with varying maturities through fiscal 2029 and we were in compliance with all of the covenants related to these outstanding borrowings As of February 28 2023 we had approximately 288 5 million of additional credit available for future draws or letters of credit
During the year ended February 28 2023 the Company utilized a significant portion of the cash received from the AIS JV to reduce the Term Loan B and utilized the remaining cash received to reduce the Revolving Credit Facility and for general corporate purposes
The Company s debt agreements require the Company to maintain certain financial ratios As of February 28 2023 the Company was in compliance with all covenants or other requirements set forth in the debt agreements
e had total outstanding letters of credit in the amount of 16 7 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
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 for continuing operations are as follows for fiscal year 2023 and 2022 in thousands
The decrease in the net deferred tax liability is primarily related to the impact of increases in certain deferred tax assets related to the current deductibility of interest additional capitalized research and development expenditures due to recently effective tax legislation and increased limitations on the current deductibility of certain employee related costs partially offset by overall net increases in deferred tax liabilities principally associated with property plant and equipment As of
As of fiscal year end 2023 and 2022 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 The Company believes 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 the Company has not provided a valuation allowance for fiscal year 2023
The calculation of the Company s tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in a multitude of jurisdictions across the Company s operations Generally accepted accounting principles in the United States of America 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 on the basis of the technical merits The Company may 1 record unrecognized tax benefits as liabilities in accordance with GAAP and 2 adjust these liabilities when the Company s judgment changes as a result 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 the Company s 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 2023 and 2022 is as follows in thousands
Current year increases to our Uncertain Tax Positions UTPs primarily relate to matters related to research and development credits and filing positions in certain jurisdictions Current year decreases primarily relate to the lapse of the statute of limitations in certain jurisdictions and settlements with taxing authorities
The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense Penalties and interest credited for fiscal 2023 and 2022 were 0 1 million and 0 2 million respectively
The Company has prior year tax returns currently being examined in one state and does not have any other returns currently being examined by taxing authorities The Company believes that it has provided adequate reserves for its 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 the Company s tax audits are resolved in a manner inconsistent with management s expectations the Company could adjust its provision for income taxes in the future
As of February 28 2023 the Company has 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 The Company currently considers U S federal and state and Canada to be significant tax jurisdictions The Company s U S federal and state tax returns since February 28 2020 remain open to examination The Company s Canada tax returns since February 28 2019 remain open to examination The statute of limitations for fiscal year 2020 for US and fiscal year 2019 for Canada will expire in December 2023 The Company anticipates it is reasonably possible that a decrease of unrecognized tax benefits related to various federal foreign and state positions of 3 1 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 the Company asserted that all unremitted earnings of its foreign subsidiaries were considered indefinitely reinvested As a result of the Tax Act the Company reported and paid U S tax on the majority of its previously unremitted foreign earnings As of February 28 2023 the Company continues to be indefinitely reinvested with respect to investments in its foreign subsidiaries Additionally the Company has not recorded deferred tax liabilities associated with the remaining unremitted earnings that are considered indefinitely reinvested It is impracticable for the Company to determine the amount of unrecognized deferred tax liabilities on these indefinitely reinvested earnings due to the complexities associated with the hypothetical calculation
On January 19 2012 the Company s Board of Directors authorized the repurchase of up to ten percent of the then outstanding shares of the Company s common stock the 2012 Authorization The 2012 Authorization did not have an expiration date and the amount and prices paid for any future share purchases under the authorization were to be based on market conditions and other factors at the time of the purchase Repurchases under the 2012 Authorization were made through open market purchases or private transactions
On November 10 2020 the Company s Board of Directors authorized a 100 million share repurchase program pursuant to which the Company may repurchase its 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 the Company might otherwise be precluded from doing so
During fiscal 2023 to prioritize repayments of debt including debt incurred to finance the Precoat Acquisition the Company did not repurchase shares of common stock under the 2020 Share Authorization During fiscal 2022 the Company repurchased 601 822 shares of common stock for 30 8 million or 51 20 per share During fiscal 2021 the Company repurchased 330 829 shares of common stock for 16 0 million or 48 36 per share under the 2020 Share Authorization and repurchased 882 916 shares of common stock for 32 3 million or 36 60 per share under the Company s previous share authorization from 2012
On August 5 2022 the Company exchanged the Convertible Notes for 240 000 shares of 6 0 Series A Convertible Preferred Stock following the receipt of shareholder approval for the issuance of preferred stock The Series A Convertible Preferred Stock is convertible by the holder at any time into shares of the Company s common stock at a conversion price of 58 30 per common share The preferred stock accumulates a 6 0 dividend per annum Dividends are payable quarterly on March 31 June 30 September 30 and December 31 of each year In addition the preferred shares are subject to a minimum conversion threshold of 1 000 shares per conversion and customary anti dilution and dividend adjustments The preferred shares have full voting rights as if converted and have a fully participating liquidation preference
As of February 28 2023 the 240 000 shares of outstanding Series A Convertible Preferred Stock had accrued dividends of 2 4 million and could be converted into 4 1 million shares of common stock at the option of the holder
Basic earnings per share is based on the weighted average number of common shares outstanding during each year Diluted earnings per share is calculated by giving effect to the potential dilution that could occur if securities or other contracts to issue common shares were exercised and converted into common shares during the year
For fiscal 2023 2022 and 2021 approximately 0 1 million 0 1 million and 0 2 million employee equity awards were excluded from the computation of diluted earnings per share as their effect would have been anti dilutive All shares related to the Series A Convertible Preferred Stock 2 3 million weighted average shares were excluded from the computation of diluted earnings per share as their effect would be anti dilutive These shares could be dilutive in future periods
The Company has a 401 k retirement plan covering substantially all of its employees Company contributions to the 401 k retirement plan were 5 6 million 3 1 million and 2 8 million for fiscal 2023 2022 and 2021 respectively
As of February 28 2023 the Company has a defined benefit pension plan for certain employees employed by Precoat Metals as of May 13 2022 the Plan Prior to acquisition benefit accruals were frozen for all participants After the freeze participants did not accrue any benefits under the Plan and any new hires are not eligible to participate in the Plan The fair value of Plan assets projected benefit obligation and funding status of the Plan as of the date of acquisitions was 112 4 million 144 9 million and 32 5 million respectively As of February 28 2023 the fair value of Plan assets projected benefit obligation and funding status of the Plan was 100 5 million 131 8 million and 31 3 million respectively Changes in funding status since May 13 2022 consisted of interest cost of 5 3 million expected return on plan assets of 4 7 million actuarial gain of 0 2 million and employer contributions of 1 6 million Assumptions used to determine benefit obligations as of May 13 2022 and February 28 2023 included weighted average discount rates of 4 76 and 5 59 respectively
The Company s 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 minimize risk Plan assets of 100 5 million as of February 28 2023 consisted of 2 2 cash 34 8 equity and 63 0 fixed income and debt
Net periodic benefit costs related to plan was 0 6 million for fiscal 2023 Weighted average assumptions used to determine net periodic benefit cost included discount rate and expected long term return on plan assets of 4 76 and 5 50 respectively
In fiscal 2024 the Company expects to contribute 1 1 million to the Plan Future benefit payments are expected to be 12 2 million 11 7 million 11 6 million 11 4 million 11 2 million and 51 0 million in fiscal years 2024 2025 2026 2027 2028 and fiscal years 2029 through 2033 respectively
The Company has one share based compensation plan the 2014 Long Term Incentive Plan the 2014 Plan The Company terminated its previous plan the Amended and Restated 2005 Long Term Incentive Plan the 2005 Plan upon the effective date of the 2014 Plan and no future grants may be made under the 2005 Plan The 2005 Plan permitted the granting of stock appreciation rights and other equity based awards to certain employees
The 2014 Plan provides for broad based equity grants to employees including executive officers and members of the board of directors and permits the granting of restricted shares restricted stock units performance awards stock appreciation rights and other stock based awards The maximum number of shares that may be issued under the 2014 Plan is 1 5 million shares and as of February 28 2023 the Company had approximately 0 4 million shares reserved for future issuance under this plan There were stock appreciation rights granted under the 2005 Plan prior to its termination All outstanding stock appreciation rights were exercised during fiscal year 2022
Restricted stock unit RSU awards are valued at the market price of the Company 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
The Company 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 PSU awards are based on the Company s total shareholder return during the three year period in comparison to a defined specific industry peer group and include certain vesting multipliers The Company estimates the fair value of PSU awards with performance and service conditions using the value of the Company s common stock on the date of grant The Company estimates the fair value of PSU awards with market conditions using a Monte Carlo simulation model on the date of grant
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
Stock appreciation rights SARs are granted with an exercise price equal to the market value of the Company s common stock on the date of grant These awards generally have a contractual term of seven years and vested ratably over a period of three years although some vested immediately on issuance These awards were valued using the Black Scholes option pricing model The Company did not grant any SARs in fiscal year 2023 2022 or 2021 As of February 28 2023 there were no SARs outstanding
The Company granted each of its independent directors a total of 2 619 1 976 and 3 174 shares of its common stock during fiscal years 2023 2022 and 2021 respectively These common stock grants were valued at 40 09 53 13 and 33 08 per share for fiscal years 2023 2022 and 2021 respectively which was the market price of the Company s common stock on the respective grant dates
The Company has an employee stock purchase plan ESPP which is open to all employees The ESPP allows employees of the Company to purchase common stock of the Company through accumulated payroll deductions Offerings under this plan have a duration of 24 months the Offering Period On the first day of an Offering Period the Enrollment Date the participant is granted the option to purchase shares on each exercise date at the lower of 85 of the market value of a share of 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 1 million shares were available for issuance as of February 28 2023 The Company issues new shares upon purchase through the ESPP
The Company s policy is to issue shares under these plans from the Company s authorized but unissued shares The Company has no formal or informal plan to repurchase shares on the open market to satisfy these requirements
The Company s Chief Executive Officer who is the chief operating decision maker CODM reviews financial information presented on an operating segment basis for purposes of making operating decisions and assessing financial performance Sales and operating income loss are the primary measures used by the CODM to evaluate segment operating performance and to allocate resources to segments Expenses related to certain centralized administration or executive functions that are not specifically related to an operating segment are included in Corporate As presented in Note 6 the AIS joint venture operating results for the period prior to deconsolidation are included within discontinued operations with the exception of AZZ Crowley Tubing which was retained by the Company and merged into the AZZ Metal Coatings segment See Note 6 for the results of operations related to the AZZ Infrastructure Solutions segment
provides hot dip galvanizing spin galvanizing powder coating anodizing and plating and other metal coating applications to the steel fabrication and other industries through facilities located throughout the United States and Canada Hot dip galvanizing is a metallurgical process in which molten zinc reacts to steel The zinc alloying provides corrosion protection and extends the life cycle of fabricated steel for several decades
engages in the advanced application of protective and decorative coatings and related value added services for steel and aluminum coil primarily serving the construction appliance heating ventilation and air conditioning HVAC container transportation and other end markets
provides specialized products and services designed to support primarily industrial and electrical applications The product offerings include custom switchgear electrical enclosures medium and high voltage bus ducts explosion proof and hazardous duty lighting and tubular products The 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 Fiscal 2021 includes eight months of financial results from AZZ SMS through October 26 2020 when it was divested
Following the sale of its 60 controlling interest in the AIS JV to Fernweh AIS is deconsolidated and the Company s retained 40 interest in the AIS JV is accounted for under the equity method of accounting As a change of control occurred with the transaction a new basis of accounting will occur at the AIS JV when AVAIL completes its business combination accounting for the transaction AZZ has not presented summarized financial statements as those statements are incomplete at this time and do not include adjustments to asset values depreciation or amortization that may be required once AVAIL completes its business combination accounting 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 Our investment in the AIS JV is 84 8 million which includes an excess of 12 8 million over the underlying value of the net assets of the AIS JV The difference will be amortized through equity in earnings of unconsolidated subsidiaries for a period of seven years The excess basis amount may change once AVAIL completes its business combination accounting Since the transaction closed on September 30 2022 we recorded 2 6 million of equity in earnings during fiscal 2023 Once AVAIL completes the business combination accounting the reported results will reflect the effects of the business combination accounting as though such values were recorded at the time the transaction closed
As a policy the Company does not hold issue or trade derivative instruments for speculative purposes The Company may periodically enter into forward sale contracts to purchase a specified volume of zinc 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 using a mix of fixed and variable rate debt We utilize fixed rate interest rate swap agreements to change the variable interest rate to a fixed rate on a portion of our variable rate debt
On September 27 2022 the Company entered into a fixed rate interest rate swap agreement with banks that are parties to the 2022 Credit Agreement On October 7 2022 the agreement was amended to change the SOFR based component of the interest rate on a portion of our variable rate debt to a fixed rate of 4 277 resulting in a total fixed rate of 8 627 the 2022 Swap 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 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 for approximately one half of the total amount of our variable rate debt 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 2023 changes in fair value attributable to the effective portion of the 2022 Swap were included on the condensed consolidated balance sheets in accumulated other comprehensive income For derivative instruments that qualify for hedge accounting treatment the fair value is recognized on our condensed 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 2023 we reclassified 0 2 million from other comprehensive income to earnings
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 ASC 820 Fair Value Measurements and Disclosures ASC 820 certain of the Company s assets and liabilities which are carried at fair value are classified in one of the following three categories
The carrying amount of the Company s financial instruments cash equivalents accounts receivable accounts payable accrued liabilities and the revolving credit facility approximates the fair value of these instruments based upon either their short term nature or their variable market rate of interest
The Company s derivative instrument consists of an interest rate swap contract which is a Level 2 of the fair value hierarchy and included in Intangibles and other assets net in the condensed consolidated balance sheet as of February 28 2023 See Note 16 for more information
The fair value of the investment in joint venture that is accounted for under the equity method was determined using the income approach 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 expenditures terminal year values and risk adjusted discount rates These valuations resulted in Level 3 nonrecurring fair value measurements The carrying value of our investment in joint venture which approximates the fair value was 84 8 million at February 28 2023
The fair values of the Company s long term debt instruments are estimated based on market values for debt issues with similar characteristics or rates currently available for debt with similar terms These valuations are Level 2 fair value measurements
The principal amount of our outstanding debt was 1 125 3 million and 227 0 million at February 28 2023 and February 28 2022 The estimated fair value of our outstanding debt was 1 133 2 million and 227 0 million at February 28 2023 and February 28 2022 excluding unamortized 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 These valuations resulted in Level 2 nonrecurring fair value measurements
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 use of the Company s intellectual property worker s compensation environmental matters and various commercial disputes all arising in the normal course of business As discovery progresses on all outstanding legal matters the Company will continue to evaluate opportunities to either settle the disputes for nuisance value or potentially enter into mediation 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 an unfavorable outcome on the pending lawsuits may change Although the outcome of these lawsuits or other proceedings cannot be predicted with certainty and the amount of any potential liability that could arise with respect to such lawsuits or other matters cannot be predicted at this time management after consultation with legal counsel believes it has strong defenses to all of 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 the Company s financial position results of operations or cash flows
he reserve balance for environmental liabilities was 23 5 million of which 3 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
The Company accrues 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 the Company s environmental remediation liabilities could be material to the operating results of any fiscal quarter or fiscal year the Company does 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 2023 the Company had non cancelable forward contracts to purchase approximately 115 0 million of zinc at various volumes and prices All such contracts expire in fiscal 2024 The Company had no other contracted commitments for any other commodities including steel aluminum natural gas copper zinc nickel based alloys except for those entered into under the normal course of business
As of February 28 2023 the Company had total outstanding letters of credit in the amount of 16 7 million These letters of credit are issued for a number of reasons but are most commonly issued in lieu of customer retention withholding payments covering warranty or performance periods In addition as of February 28 2023 a warranty reserve in the amount of 2 9 million was established to offset any future warranty claims
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 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 2023 On May 13 2022 the Company 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 The scope of the assessment of the effectiveness of our disclosure controls and procedures did not include internal control over financial reporting of Precoat Metals The assets and revenues for Precoat Metals represented approximately 67 0 of the Company s total assets and 51 9 of its total revenues from continuing operations as of and for the fiscal year ended February 28 2023
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
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 of this Form 10 K
There have been no changes in the Company s internal control over financial reporting during the three months ended February 28 2023 that have materially affected or are reasonably likely to materially affect the Company s internal control over financial reporting
Effective as of April 6 2023 in connection with a periodic review of the Company s Bylaws the Company s Board of Directors reviewed the Bylaws as previously amended and restated on October 8 2021 the Bylaws and adopted certain amendments to the Bylaws as amended the Amended Bylaws to update certain provisions related to the Company s advance notice provision to include additional requirements regarding the information shareholders must submit and representations shareholders must make in connection with providing advance notice of shareholder meeting proposals and director nominations require any shareholder submitting a proposal or a nomination to represent whether such shareholder intends to solicit proxies in support of director nominations or other business reserve use of the white proxy card to the Company s Board of Directors and make certain administrative modernizing clarifying and conforming changes The foregoing description of the Amended Bylaws does not purport to be complete and is qualified in its entirety by reference to the full text of the Amended Bylaws a copy of which is filed as Exhibit 3 1 to this Annual Report on Form 10 K
For a discussion of changes to procedures for shareholders to recommend nominees to our Board of Directors see discussion of our Amended Bylaws in Item 9B Other Information of this Annual Report on Form 10 K
Other information required in response to this Item 10 is set forth in our definitive Proxy Statement for the 2023 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 and
under Investor Relations We intend to disclose future amendments to or waivers from certain provisions of this Code of Conduct on our website The information on our website is not part of this Annual Report on Form 10 K
Information required in response to this Item 11 is set forth under Director Compensation Executive Compensation and Executive Compensation Tables 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 2014 Long Term Incentive Plan 2014 Plan and the 2018 Employee Stock Purchase Plan 2018 ESPP See Note 13 to the consolidated financial statements included in Part II Item 8 of this Annual Report on Form 10 K for further information
Information required in response to this Item 13 is set forth under Certain Relationships and Related Party Transactions and Matters Relating to Corporate Governance and Board Structure Director Independence 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 pursuant to Item 601 b 2 of Regulation S K The Company hereby undertakes to furnish supplemental copies of any of the omitted schedules and exhibits upon request by the Securities and Exchange Commission The Company may request confidential treatment pursuant to Rule 24b 2 of the Securities Exchange Act of 1934 as amended 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