UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

AZZ INC.

(In thousands, except per share data)

(Unaudited)

 

(In thousands)

(Unaudited)

 

(In thousands)

(In thousands)

(Unaudited)

AZZ INC.

(Unaudited)

AZZ Inc. (“AZZ”, the “Company”, "our" or “we”) was established in 1956 and incorporated under the laws of the state of Texas. The Company is a global provider of metal coating services,solutions, welding solutions, specialty electrical equipment and highly engineered services to the power generation, transmission, distribution, refining and industrial markets. The Company has two distinct operating segments: the Energy segment and the Metal Coatings segment. AZZ Energy is dedicated to delivering safe and reliable transmission of power from generation sources to end customers, and automated weld overlay solutions for corrosion and erosion mitigation to critical infrastructure in the energy markets worldwide. AZZ Metal Coatings is a leading provider of metal finishing solutions for corrosion protection, including hot dip galvanizing to the North American steel fabrication industry.

Presentation

The accompanying condensed consolidated balance sheet as of February 28, 2018,2019, which was derived from audited financial statements, and the unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete consolidated financial statements. These financial statements should be read in conjunction with the audited financial statements and related notes for the fiscal year ended February 28, 2018,2019, included in the Company’s Annual Report on Form 10-K covering such period. 

Our fiscal year ends on the last day of February and is identified as the fiscal year for the calendar year in which it ends. For example, the fiscal year endedending February 28, 201929, 2020 is referred to as fiscal 2019.2020.

In the opinion of management, the accompanying unaudited consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, which are necessary to present fairly the financial position of the Company as of AugustMay 31, 2018,2019, the results of its operations for the three and six months ended AugustMay 31, 20182019 and 2017,2018, and cash flows for the sixthree months ended AugustMay 31, 20182019 and 2017.2018. These interim results are not necessarily indicative of results for a full year.

Earnings per share is based on the weighted average number of shares outstanding during each period, adjusted for the dilutive effect of stock awards.

The following table sets forth the computation of basic and diluted earnings per share (in thousands, expect per share data):

 

The Company has onetwo share-based compensation plan,plans, the 2014 Long Term Incentive Plan (the “Plan”"2014 Plan") and the Amended and Restated 2005 Long Term Incentive Plan (the “2005 Plan”).

The purpose2014 Plan provides for broad-based equity grants to employees, including executive officers, and members of the Plan is to promote the growth and prosperityboard of the Company by permitting the Company to grant to its employees, directors and advisors various typespermits the granting of restricted shares, restricted stock unitunits, performance awards, performance share units, stock options, and stock appreciation rights to purchase common stock of the Company.and other stock-based awards. The maximum number of shares that may be issued under the 2014 Plan is 1,500,000 shares. As1.5 million shares and, as of AugustMay 31, 2018,2019, the Company had approximately 1,248,7751.2 million shares availablereserved for future issuance under this plan.

The 2005 Plan permitted the granting of stock appreciation rights and other equity-based awards to certain employees. This plan was terminated upon the effective date of the 2014 Plan and no future grants may be made under the 2005 Plan. However, there were stock appreciation rights that were granted under the 2005 Plan prior to its termination that remain outstanding, and if exercised, such awards will be settled from the balance of shares available for issuance under the 2005 Plan. As of May 31, 2019, there were 0.1 million shares available for issuance under the 2005 Plan. The 2005 Plan will be formally retired when all remaining outstanding stock appreciation rights are exercised, forfeited or expire. All outstanding stock appreciation rights will expire on or before March 1, 2021.

Restricted Stock Unit Awards

Restricted stock unit awards are valued at the market price of our common stock on the grant date. Awards generally vest ratably over a period of three years but these awards may vest earlier in accordance with the Plan’s accelerated vesting provisions.

A summary of the Company’s non-vested restricted stock unit award activity for the six month periodthree months ended AugustMay 31, 20182019 is as follows:

 

Performance Share Unit Awards

PerformanceThe Company also grants performance share unit ("PSU") awards are valued at the market price of our common stock on the grant date.to certain employees. These PSU awards have a three year performance cycle and will vest and become payable,issuable, if at all, on the third anniversary of the award date. The PSU awards are subject to the Company’s degree of achievement of a target annual average adjusted return on assets during these three-year periods.periods and, in certain circumstances, vesting is based on the relative performance of a predetermined group of peer companies. In addition, a multiplierthese PSU awards may be applied to the total awards grantedhave vesting conditions or certain vesting multipliers, which isare based on the Company’s total shareholder return during such three-year period in comparison to a defined specific industry peer group as set forth ingroup. The Company estimates the plan.fair value of PSU awards with performance and service conditions using the value of the Company's common stock on the date of grant. The Company estimates the fair value of PSU awards with market conditions using a Monte Carlo simulation model on the date of grant.

A summary of the Company’ non-vested performance share unit award activity for the six month periodthree months ended AugustMay 31, 20182019 is as follows:

Stock Appreciation Rights

Stock appreciation rights are granted with an exercise price equal to the market value of our common stock on the date of grant. These awards generally have a contractual term of 7 years and vest ratably over a period of three years although some may vest immediately on issuance. These awards are valued using the Black-Scholes option-pricing model.

A summary of the Company’s stock appreciation rightsright activity for the six month periodthree months ended AugustMay 31, 20182019 is as follows:

The average remaining contractual term for those stock appreciation rights outstanding and those stock appreciation rights that were exercisable as of AugustMay 31, 2018 is 2.332019 was 1.59 years, with an aggregate intrinsic value of $1.0 million. The average remaining contractual terms for those stock appreciation rights that are exercisable as of August 31, 2018 is 2.33 years, with an aggregate intrinsic value of $1.0approximately $0.1 million.

Employee Stock Purchase Plan

The Company also has an employee stock purchase plan,Employee Stock Purchase Plan ("ESPP"), which allows employees of the Company to purchase common stock of the Company through accumulated payroll deductions. Offerings under this plan have a duration of 24 months (the "offering period"). On the first day of an offering period (the “enrollment date”) the participant is granted the option to purchase shares on each exercise date at the lower of 85% of the market value of a share of ourthe Company's common stock on the enrollment date or the exercise date. The participant’s right to purchase common stock under the plan is restricted to no more than $25,000 per calendar year and the participant may not purchase more than 5,000 shares during any offering period. Participants may terminate their interest in a given offering or a given exercise period by withdrawing all of their accumulated payroll deductions at any time prior to the end of the offering period. The fair value of the estimated number of shares to be issued under each offering is determined using the Black-Scholes option-pricing model. ForNo ESPP shares were issued during the six month periodthree months ended AugustMay 31, 2018, the Company issued 37,224 shares under the Employee Stock Purchase Plan.2019.

Share-based Compensation Expense

Share-based compensation expense and related income tax benefits related to all the plans listed above were as follows (in thousands):

 

Unrecognized compensation cost related to restricted stock units, performance share unit awards, stock appreciation rights, and the employee stock purchase planCompany's Employee Stock Purchase Plan at AugustMay 31, 20182019 totals $8.8 million.$10.1 million and is expected to be recognized over a weighted-average period of 2.26 years.

The Company’s policy is to issue shares required under these plans from the Company’s authorized but unissued shares.

Net sales and operating income (loss) by segment for each period were as follows (in thousands):

 

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

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

A reserve has been established to provide for the estimated future cost of warranties on a portion of the Company’s delivered products and is classified within other accrued liabilities on the condensed consolidated balance sheets. Management periodically reviews the reserves and makes adjustments accordingly. Warranties cover such factors as non-conformance to specifications and defects in material and workmanship. 

The following table shows the changes in the warranty reserves for the six month periodthree months ended AugustMay 31, 20182019 (in thousands):

 

The Company's debt consisted of the following for each of the periods presented (in thousands):

On March 22, 2018,In April 2019, the Company purchased certaincompleted the acquisition of all the outstanding shares of K2 Partners, Inc. (“K2”) and Tennessee Galvanizing, Inc. ("Tennessee Galvanizing"), two privately held companies. K2 provides powder coating and electroplating solutions to customers in the Midwest and Southeast from locations in Texas and Florida. Tennessee Galvanizing provides galvanizing solutions to customers throughout the United States. These acquisitions expand the Company's geographical reach in metal coating solutions and broaden its offerings in strategic markets. The goodwill arising from these acquisitions was allocated to the Metal Coatings segment and is not deductible for income tax purposes.

The fair values of the net assets through a bankruptcy sales processacquired, including property, plant and equipment, intangibles and goodwill may be subject to change as additional information is received and finalized. Accordingly, the provisional measurements of fair value for these items are subject to change. The Company expects to finalize the valuation as soon as practicable, but not later than one year from Lectrus Corporation, a privately-held corporation basedthe acquisition dates.

The Company paid approximately $39.0 million for these acquisitions, net of cash acquired. These acquisitions were not significant individually or in Chattanooga, Tennessee. Lectrus designs and manufactures custom metal enclosures and provides electrical and mechanical integration. The acquisition will complement AZZ's current metal enclosure and switchgear businesses.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward Looking Statements

Certain statements herein about our expectations of future events or results constitute forward-looking statements for purposes of the safe harbor provisions of The Private Securities Litigation Reform Act of 1995. You can identify forward-looking statements by terminology such as “may,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue,” or the negative of these terms or other comparable terminology. Such forward-looking statements are based on currently available competitive, financial and economic data and management’s views and assumptions regarding future events. Such forward-looking statements are inherently uncertain, and investors must recognize that actual results may differ from those expressed or implied in the forward-looking statements. In addition, certain factors could affect the outcome of the matters described herein. This Quarterly Report on Form 10-Q may contain forward-looking statements that involve risks and uncertainties including, but not limited to, changes in customer demand and response to products and services offered by AZZ, including demand by the power generation markets, electrical transmission and distribution markets, the industrial markets, and the hot dip galvanizing markets; prices and raw material cost, including zinc and natural gas which are used in the hot dip galvanizing process; changes in the political stability and economic conditions of the various markets that AZZ serves, foreign and domestic, customer requested delays of shipments, acquisition opportunities, currency exchange rates, adequacy of financing, and availability of experienced management and employees to implement AZZ’s continued growth strategy; a downturn in market conditions in any industry relating to the products we inventory or sell or the services that we provide; the continuing economic volatility in the U.S. and other markets in which we operate; acts of war or terrorism inside the United States or abroad; natural disasters in the countries in which we operate; and other changes in economic and financial conditions. AZZ has provided additional information regarding risks associated with the business in AZZ’s Annual Report on Form 10-K for the fiscal year ended February 28, 20182019 and other filings with the SEC, available for viewing on AZZ’s website at www.azz.com and on the SEC’s website at www.sec.gov.

You are urged to consider these factors carefully in evaluating the forward-looking statements herein and are cautioned not to place undue reliance on such forward-looking statements, which are qualified in their entirety by this cautionary statement. These statements are based on information as of the date hereof and AZZ assumes no obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise.

The following discussion should be read in conjunction with management’s discussion and analysis contained in our Annual Report on Form 10-K for the fiscal year ended February 28, 2018,2019, and with the condensed consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q.

Results of Operations

We have two distinct operating segments, the Energy segment and the Metal Coatings segment, as defined in our Annual Report on Form 10-K for the fiscal year ended February 28, 2018.2019. Management believes that the most meaningful analysis of our results of operations is to analyze our performance by segment. We use revenue and operating income by segment to evaluate our segments. Segment operating income consists of net sales less cost of sales and selling, general and administrative expenses that are specifically identifiable to a segment. For a reconciliation of segment operating income to consolidated operating income, see Note 5 to our quarterly condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

Our entire backlog, which is inclusive of transaction taxes for certain foreign subsidiaries, relates to our Energy Segmentsegment and was $336.0$300.1 million as of AugustMay 31, 2018, an increase2019, a decrease of $70.6$32.8 million, or 26.6%9.9%, as compared to $265.4$332.9 million as of February 28, 2018.2019. Our backlog increased $35.9decreased $4.8 million, or 12.0%1.6%, as compared to the same period in the prior fiscal year. Both of these increases were primarily the result of several large international orders, higher overall activity within the Energy Segment and incremental business generated from our acquisitions completed during the previous twelve months. For the three months ended AugustMay 31, 2018,2019, our book-to-revenue ratio increased to 1.14 to 1 from 0.97 to 1incoming net orders decreased by $39.4 million, or 13.3% when compared to same period of fiscal 20182019 and our incomingbook-to-revenue ratio decreased to 0.89 to 1 from 1.13 to 1. These decreases were primarily attributable to softness in net orders increased by $63.8 million, or 33.6%.bookings due to lower overall international project bookings. The decreases in backlog were also due to higher overall revenues for the three months ended May 31, 2019 related primarily to certain large international projects that were booked in the prior year and commenced revenue recognition in the first quarter of fiscal 2020 upon satisfying the revenue recognition criteria.

The table below includes the progression of the backlog (in thousands):

 

Segment Revenues

For the three and six months ended AugustMay 31, 2018,2019, consolidated revenues increased $26.5$26.9 million, or 13.5%, and $83.4 million or 20.8%, respectively,10.3% as compared to the same periods in fiscal 2018.2019.

The following table reflects the breakdown of revenue by segment (in thousands):

 

Revenues for the Energy segment increased $9.2$20.0 million or 9.5%, and $43.0 million or 20.4%, respectively,13.6% for the three and six months ended AugustMay 31, 20182019 as compared to the same periodsperiod in fiscal 2018.2019. This increase was primarily attributable to a general uptick in the sales of our electrical products, the satisfaction of the revenue recognition criteria for certain large international electrical projects that were booked in the prior year and the Westinghouse settlement noted further below. These increases in revenues were caused by several positive factors including improved turnarounds in the U.S. refinery market, increased international projects and an uptick in our electrical business. These increases were also attributable to incremental revenues from our acquisitions completed during the past twelve months and were partially offset by continued softnessa decline in revenues for our industrial solutions, which was driven by lower international revenues resulting from a large refining project recorded in the nuclear market, which is due in part to the Westinghouse Bankruptcy discussed below.prior year comparable period.

Revenues for the Metal Coatings segment increased $17.2$6.9 million or 17.4%, and $40.4 million or 21.1%, respectively,6.0% for the three and six months ended AugustMay 31, 20182019 as compared to the same periodsperiod in fiscal 2018. These increases were a2019. This increase was the result of slightly higher selling prices and slightly higher volumes of steel processed due primarily to our acquisition of Tennessee Galvanizing, Inc. during the periods driven primarily by improvements in various markets. These increases were alsofirst quarter of fiscal 2020. In addition, the increase was attributable to increased volumes from the solar and telecommunications markets and incremental revenues from our acquisitions completedacquisition of K2 Partners, Inc., also during the past twelve months.

Segment Operating Income

The following table reflects the breakdown of operating income (loss) by segment (in thousands):

Operating income for the Energy segment increased by $1.9$2.6 million or 80.8%, and $5.2 million or 56.8%, respectively, for the three and six months ended August 31, 2018 as compared to the same periods in fiscal 2018. Operating margins were 4.0% and 2.4%26.1%, for the three months ended AugustMay 31, 20182019 as compared to the same period in fiscal 2019. Operating margins were 7.5% and 2017, respectively, and 5.6% and 4.3%6.8%, for the sixthree months ended AugustMay 31, 20182019 and 2017,2018, respectively. These increases were primarily attributable to the positive factors noted above and improvements in project margins.margins for our electrical products. These increases were partially offset by lower revenues for our industrial solutions.

Operating income for the Metal Coatings segment decreasedincreased by $1.3$4.2 million or 5.7% and increased $2.6 million or 5.8%, respectively,16.7% for the three and six months ended AugustMay 31, 20182019 as compared to the same periodsperiod in fiscal 2018.2019. In addition, operating margins improved to 24.1% for the three months ended May 31, 2019 as compared to 21.9%, for the prior year comparable period. These changesincreases were primarily attributable to the favorable trends inincreased volumes and selling prices but were negatively impacted by higher zinc costsnoted above and a one-time charge of $1.3decline in zinc costs.

Corporate expenses decreased by $0.5 million during the three months ended August 31, 2018 for asset impairments, employee severance and other disposal costs related to the consolidation of two galvanizing facilities in the Gulf Coast region of the United States. Operating margins were 19.0% and 23.6%or 4.4%, for the three months ended AugustMay 31, 2018 and 2017, respectively and 20.4% and 23.4% for the six months ended August 31, 2018 and 2017, respectively. The declines were attributable to higher zinc costs, which were not fully offset by increased selling prices, and the one-time charge for the consolidation of facilities.

Interest Expense

Interest expense for the three and six months ended AugustMay 31, 20182019 was $4.0$3.6 million and $7.8 million, respectively, as compared to $3.4 million and $6.8$3.8 million for the prior year comparable periods. These increases were the result of higherperiod. The decrease was primarily attributable to lower average outstanding debt balances and was partially offset by higher interest rates on variable rate debt. Our gross debt to equity ratio was 0.510.48 to 1 as of AugustMay 31, 2018,2019, compared to 0.550.56 to 1 as of AugustMay 31, 2017.

Income Taxes

The provision for income taxes reflects an effective tax rate of 19.6%21.1% and 21.0%, respectively,22.0% for the three and six months ended AugustMay 31, 2019 and 2018, as compared to 28.7%respectively, and 28.5% for the respective prior year comparable periods. The decreases in the effective rate ischange was primarily attributable to the Tax Cuts and Jobs Act of 2017.

Westinghouse Electric Company Bankruptcy Case

Liquidity and Capital Resources

We have historically met our cash needs through a combination of cash flows from operating activities along with bank and bond market debt. Our cash requirements are generally for operating activities, cash dividend payments, capital improvements, debt repayment, acquisitions and share repurchases. We believe that our cash position, cash flows from operating activities and our expectation of continuing availability to draw upon our credit facilities are sufficient to meet our cash flow needs for the foreseeable future.

Cash Flows

The following table summarizes our cash flows by category for the periods presented (in thousands):

For the six month periodthree months ended AugustMay 31, 2018,2019, net cash provided byused in operating activities was $17.5$18.6 million, net cash used in investing activities was $14.8$43.5 million, net cash used inprovided by financing activities was $14.1$51.6 million, and a decrease of $0.1 million from the net effect of exchange rate changes on cash resulting in a net decrease in cash and cash equivalents of $11.6$10.4 million. In comparison to the comparable period in fiscal 2018,2019, the results in the statement of cash flows for operating activities for the six month periodthree months ended AugustMay 31, 2018,2019, are primarily attributable to the increase in net income and moreless favorable impacts of changes in working capital.capital that were partially offset by the increase in net income. The Company's use of cash for investing activities was lowerhigher due to decreasedincreased spending on acquisitions and capital expenditures and lower spending for acquisitions.expenditures. Net cash used inprovided by financing activities was higher during the six monththree months ended May 31, 2019 as compared to the prior year comparable period ended August 31, 2018 due primarily to increased net payments made on outstanding borrowings.

Our working capital was $240.2$258.2 million as of AugustMay 31, 2018,2019, as compared to $197.4$213.8 million at February 28, 2018.2019.

Financing and Capital

As of AugustMay 31, 2018,2019, the Company had $296.0$297.0 million of floating and fixed rate notes outstanding with varying maturities through fiscal 2023 and the Company was in compliance with all of the covenants related to these outstanding borrowings. During the first quarter of fiscal 2019, the Company repaid $14.3 million of outstanding principal related to its outstanding notes on the scheduled maturity date. As of AugustMay 31, 2018,2019, the Company had approximately $259.8$259.3 million of additional credit available for future draws or letters of credit.

For additional information on the Company's outstanding borrowings see Note 7 to the condensed consolidated financial statements and further below under Contractual Commitments.Obligations.

Share Repurchase Program

In January of 2012, our Board authorized the repurchase of up to ten percent of the outstanding shares of our Common Stock. The share repurchase authorization does not have an expiration date, and the amount and prices paid for any future share purchases under the authorization will be based on market conditions and other factors at the time of the purchase. Repurchases under this share repurchase authorization would be made through open market purchases or private transactions in accordance with applicable federal securities laws, including Rule 10b-18 under the Exchange Act. The Company did not make any repurchases of its common shares during the sixthree months ended AugustMay 31, 2018.

Other Exposures

We have exposure to commodity price increases in both segments of our business, primarily copper, aluminum, steel and nickel based alloys in the Energy segment and zinc and natural gas in the Metal Coatings segment. We attempt to minimize these increases through escalation clauses in customer contracts for copper, aluminum, steel and nickel based alloys, when market conditions allow and through fixed cost contract purchases on zinc. In addition to these measures, we attempt to recover other cost increases through improvements to our manufacturing process, supply chain management, and through increases in prices where competitively feasible.

Off Balance Sheet Arrangements and Contractual Obligations

As of AugustMay 31, 2018,2019, the Company did not have any off-balance sheet arrangements as defined under SEC rules. Specifically, there were no off-balance sheet transactions, arrangements, obligations (including contingent obligations), or other relationships with unconsolidated entities or other persons that have, or may have, a material effect on the financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources of the Company.

The following summarizes our operating lease obligations, purchase commitments, debt principal payments, and interest payments (based on current interest rates for variable rate debt) for the remainder of the next five fiscal years and beyond (in thousands):

 

Critical Accounting Policies and Estimates

The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires us to make judgments, assumptions, and estimates that affect the amounts reported in the condensed consolidated financial statements and the accompanying notes. On an ongoing basis, we evaluate our estimates and assumptions. These estimates and assumptions are based on current facts, historical experience, and various other factors that we believe are reasonable under the circumstances to determine reported amounts of assets, liabilities, revenue and expenses that are not readily apparent from other sources.

During the six month periodthree months ended AugustMay 31, 2018, with the exception of the adoption of ASC 606,2019, there were no significant changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates disclosed in Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the year ended February 28, 2018. See Note 2 to the condensed consolidated financial statements included herein for our updated critical accounting policy and estimates related to revenue recognition upon the adoption of ASC 606.

Recent Accounting Pronouncements

See Note 1 to the condensed consolidated financial statements, included herein, for a full description of recent accounting pronouncements, including the actual and expected dates of adoption and estimated effects on our consolidated results of operations and financial condition, which is incorporated herein by reference.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes to the Company’s market risk disclosures during the first sixthree months of fiscal 2019.2020. For a discussion of the Company’s exposure to market risk, refer to the Company’s market risk disclosures set forth in Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risk, of our Annual Report on Form 10-K for the year ended February 28, 2018.2019.  

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of the Company's Chief Executive Officer and Chief Financial Officer, management of the Company has evaluated the effectiveness of the design and operation of the Company's disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that, due to the material weakness described below, the Company's disclosure controls and procedures were not effective as of the end of the period covered by this Form 10-Q to provide reasonable assurance that information required to be disclosed by us in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and were not effective as of the end of the period covered by this Form 10-Q to provide reasonable assurance that such information is accumulated and communicated to our management, including our principal executive and financial officers, as appropriate to allow timely discussions regarding required disclosure.

Changes in Internal Controls Over Financial Reporting

Subject to these remediation efforts, there have been no significant changes in the Company's internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

On January 11, 2018, Logan Mullins, acting on behalf of himself and a putative class of persons who purchased or otherwise acquired the Company's securities between April 22, 2015 and January 8, 2018, filed a class action complaint in the U.S. District Court for the Northern District of Texas against the Company and two of its executive officers, Thomas E. Ferguson and Paul W. Fehlman. Logan Mullins v. AZZ, Inc., et al., Case No. 4:18-cv-00025-Y. The complaint alleges, among other things, that the Company's SEC filings contained statements that were rendered materially false and misleading by the Company's alleged failure to properly recognize revenue related to certain contracts in its Energy Segment in purported violation of (1) Section 10(b) of the Exchange Act and Rule 10b-5 and (2) Section 20(a) of the Exchange Act. The plaintiffs seek an award of compensatory and punitive damages, interests, attorneys' fees and costs. The Company denies the allegations and believes it has strong defenses to vigorously contest them. The Company cannot predict the outcome of this action nor when it will be resolved. If the plaintiffs were to prevail in this matter, the Company could be liable for damages, which could potentially be material and could adversely affect its financial condition or results of operations.

Item 1A. Risk Factors

There have been no material changes in the risk factors disclosed under Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended February 28, 2018.2019.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

In January of 2012, our Board authorized the repurchase of up to ten percent of the outstanding shares of our Common Stock. The share repurchase authorization does not have an expiration date, and the amount and prices paid for any future share purchases under the authorization will be based on market conditions and other factors at the time of the purchase. Repurchases under this share repurchase authorization would be made through open market purchases or private transactions in accordance with applicable federal securities laws, including Rule 10b-18 under the Exchange Act. The Company did not make any repurchases of its common shares during the three months ended AugustMay 31, 2018.

Item 6. Exhibits

* Management contract, compensatory plan or arrangement