UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended May 31, ~~2020~~2021


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 1-12777

AZZ Inc.

(Exact name of registrant as specified in its charter)

Texas

75-0948250

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

One Museum Place, Suite 500

3100 West 7th Street

Fort Worth,

Texas

76107

(Address of principal executive offices)

(Zip Code)

(817) 810-0095

(Registrant’s telephone number, including area code)

NONE

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock

AZZ

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of June 30, ~~2020~~2021 the registrant had outstanding ~~26,195,048~~25,071,582 shares of common stock; $1.00 par value per share.

Table of Contents

AZZ INC.

INDEX


		PAGE NO.
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of ~~Income~~Operations	4
	Condensed Consolidated Statements of Comprehensive Income	5
	Condensed Consolidated Statements of Cash Flows	6
	Condensed Consolidated Statements of Shareholders’ Equity	7
	Notes to Condensed Consolidated Financial Statements	89
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations.~~Operations	1517
Item 3.	Quantitative and Qualitative Disclosures About Market ~~Risk.~~Risk	2022
Item 4.	Controls and ~~Procedures.~~Procedures	2022

PART II.	OTHER INFORMATION
Item 1.	Legal ~~Proceedings.~~Proceedings	2123
Item 1A.	Risk ~~Factors.~~Factors	2123
Item 2.	Unregistered Sales of Equity Securities and Use of ~~Proceeds.~~Proceeds	2123
Item 5	Other Information	23
Item 6.	~~Exhibits.~~Exhibits	2225

	SIGNATURES	2326

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

AZZ INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value)

(Unaudited)


		May 31, 2020		February 29, 2020			May 31, 2021		February 28, 2021
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	26,414	$	36,687	Cash and cash equivalents	$	12,403	$	14,837
Accounts receivable (net of allowance for doubtful accounts of $4,772 as of May 31, 2020 and $4,951 as of February 29, 2020)		130,047		139,214
Accounts receivable (net of allowance for credit losses of $5,362 as of May 31, 2021 and $5,713 as of February 28, 2021)						Accounts receivable (net of allowance for credit losses of $5,362 as of May 31, 2021 and $5,713 as of February 28, 2021)	134,531		128,127
Inventories:	Inventories:					Inventories:
Raw material	Raw material	90,092		88,837		Raw material	92,283		86,913
Work-in-process	Work-in-process	8,145		5,543		Work-in-process	6,214		4,453
Finished goods	Finished goods	5,746		5,461		Finished goods	1,453		1,546
Contract assets	Contract assets	65,044		70,093		Contract assets	71,185		58,056
Prepaid expenses and other	Prepaid expenses and other	9,541		8,727		Prepaid expenses and other	11,211		5,876
Assets held for sale						Assets held for sale	5,628		3,684
Total current assets	Total current assets	335,029		354,562		Total current assets	334,908		303,492
Property, plant and equipment, net	Property, plant and equipment, net	214,965		213,104		Property, plant and equipment, net	207,689		205,909
Operating lease right-of-use assets	Operating lease right-of-use assets	41,767		43,208		Operating lease right-of-use assets	48,698		37,801
Goodwill	Goodwill	355,808		356,225		Goodwill	354,839		353,881
Intangibles and other assets, net	Intangibles and other assets, net	103,204		106,732		Intangibles and other assets, net	93,105		95,359
Total assets	Total assets	$	1,050,773	$	1,073,831	Total assets	$	1,039,239	$	996,442
Liabilities and Shareholders’ Equity	Liabilities and Shareholders’ Equity					Liabilities and Shareholders’ Equity
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	45,895	$	61,987	Accounts payable	$	48,831	$	41,034
Income tax payable	Income tax payable	6,239		2,876		Income tax payable	4,778		0
Accrued salaries and wages	Accrued salaries and wages	12,376		38,882		Accrued salaries and wages	16,614		22,606
Other accrued liabilities	Other accrued liabilities	25,778		26,868		Other accrued liabilities	36,278		27,136
Customer deposits	Customer deposits	626		255		Customer deposits	421		348
Contract liabilities	Contract liabilities	17,365		18,418		Contract liabilities	17,098		16,138
Lease liability, short-term	Lease liability, short-term	6,338		6,327		Lease liability, short-term	7,174		6,588
Debt due within one year		125,000		125,000

Total current liabilities	Total current liabilities	239,617		280,613		Total current liabilities	131,194		113,850
Debt due after one year, net	Debt due after one year, net	93,911		77,878		Debt due after one year, net	185,435		178,419
Lease liability, long-term	Lease liability, long-term	38,290		38,114		Lease liability, long-term	40,702		32,629
Deferred income taxes						Deferred income taxes	38,467		39,283
Other long-term liabilities	Other long-term liabilities	7,604		4,934		Other long-term liabilities	6,030		8,969
Deferred income taxes		35,695		37,926
Total liabilities	Total liabilities	415,117		439,465		Total liabilities	401,828		373,150
Commitments and contingencies	Commitments and contingencies					Commitments and contingencies	0		0
Shareholders’ equity:	Shareholders’ equity:					Shareholders’ equity:
Common stock, $1 par, shares authorized 100,000; 26,195 shares issued and outstanding at May 31, 2020 and 26,148 shares issued and outstanding at February 29, 2020		26,195		26,148
Common stock, $1 par, shares authorized 100,000; 25,071 shares issued and outstanding at May 31, 2021 and 25,108 shares issued and outstanding at February 28, 2021						Common stock, $1 par, shares authorized 100,000; 25,071 shares issued and outstanding at May 31, 2021 and 25,108 shares issued and outstanding at February 28, 2021	25,071		25,108
Capital in excess of par value	Capital in excess of par value	67,883		66,703		Capital in excess of par value	75,600		75,979
Retained earnings	Retained earnings	573,530		572,414		Retained earnings	559,173		547,289
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(31,952)		(30,899)		Accumulated other comprehensive loss	(22,433)		(25,084)
Total shareholders’ equity	Total shareholders’ equity	635,656		634,366		Total shareholders’ equity	637,411		623,292
Total liabilities and shareholders' equity	Total liabilities and shareholders' equity	$	1,050,773	$	1,073,831	Total liabilities and shareholders' equity	$	1,039,239	$	996,442

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

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AZZ INC.

CONDENSED CONSOLIDATED STATEMENTS OF ~~INCOME~~OPERATIONS

(In thousands, except per share data)

(Unaudited)


		Three Months Ended May 31,							Three Months Ended May 31,
		2020		2019			2021		2020

Net sales		$	213,293	$	289,123
Sales						Sales	$	229,826	$	213,293
Cost of sales	Cost of sales	171,085		223,016		Cost of sales	171,899		171,085
Gross margin	Gross margin	42,208		66,107		Gross margin	57,927		42,208

Selling, general and administrative	Selling, general and administrative	27,890		35,133		Selling, general and administrative	27,215		27,890

Operating income	Operating income	14,318		30,974		Operating income	30,712		14,318

Interest expense	Interest expense	2,634		3,584		Interest expense	1,697		2,634

Other expense, net		1,456		424
Other (income) expense, net						Other (income) expense, net	(969)		1,456
Income before income taxes	Income before income taxes	10,228		26,966		Income before income taxes	29,984		10,228
Income tax expense	Income tax expense	4,687		5,682		Income tax expense	7,647		4,687
Net income	Net income	$	5,541	$	21,284	Net income	$	22,337	$	5,541
Earnings per common share	Earnings per common share					Earnings per common share
Basic earnings per share	Basic earnings per share	$	0.21	$	0.81	Basic earnings per share	$	0.89	$	0.21
Diluted earnings per share	Diluted earnings per share	$	0.21	$	0.81	Diluted earnings per share	$	0.88	$	0.21

Cash dividends declared per common share	Cash dividends declared per common share	$	0.17	$	0.17	Cash dividends declared per common share	$	0.17	$	0.17

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

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AZZ INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)


		Three Months Ended May 31,							Three Months Ended May 31,
		2020		2019			2021		2020

Net income	Net income	$	5,541	$	21,284	Net income	$	22,337	$	5,541
Other comprehensive income (loss):	Other comprehensive income (loss):					Other comprehensive income (loss):
Foreign currency translation adjustments, net of income tax of $0	Foreign currency translation adjustments, net of income tax of $0	(1,039)		(1,960)		Foreign currency translation adjustments, net of income tax of $0	2,581		(1,039)
Interest rate swap, net of income tax of $7 and $7, respectively.		(14)		(14)
Other comprehensive loss		(1,053)		(1,974)
Interest rate swap, net of income tax of $0 and $7, respectively						Interest rate swap, net of income tax of $0 and $7, respectively	0		(14)
Other comprehensive income (loss)						Other comprehensive income (loss)	2,581		(1,053)
Comprehensive income	Comprehensive income	$	4,488	$	19,310	Comprehensive income	$	24,918	$	4,488

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

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AZZ INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


		Three Months Ended May 31,							Three Months Ended May 31,
		2020		2019			2021		2020
Cash Flows From Operating Activities	Cash Flows From Operating Activities					Cash Flows From Operating Activities
Net income	Net income	$	5,541	$	21,284	Net income	$	22,337	$	5,541
Adjustments to reconcile net income to net cash used in operating activities:
Provision for doubtful accounts		129		2,616
Adjustments to reconcile net income to net cash provided by (used in) operating activities:						Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Bad debt expense						Bad debt expense	(218)		129
Amortization and depreciation	Amortization and depreciation	11,668		12,326		Amortization and depreciation	11,084		11,668
Deferred income taxes	Deferred income taxes	(2,147)		668		Deferred income taxes	(892)		(2,147)

Net (gain) loss on sale of property, plant and equipment	Net (gain) loss on sale of property, plant and equipment	40		(200)		Net (gain) loss on sale of property, plant and equipment	(15)		40
Amortization of deferred borrowing costs	Amortization of deferred borrowing costs	135		136		Amortization of deferred borrowing costs	139		135
Share-based compensation expense	Share-based compensation expense	1,766		1,350		Share-based compensation expense	1,811		1,766
Effects of changes in assets and liabilities, net of acquisitions:
Effects of changes in assets and liabilities, net of acquisitions and dispositions:						Effects of changes in assets and liabilities, net of acquisitions and dispositions:
Accounts receivable	Accounts receivable	8,721		(14,228)		Accounts receivable	(7,966)		8,721
Inventories	Inventories	(4,449)		7,681		Inventories	(8,254)		(4,449)
Prepaid expenses and other	Prepaid expenses and other	(941)		(1,240)		Prepaid expenses and other	(5,419)		(941)
Other assets	Other assets	123		185		Other assets	(778)		123
Net change in contract assets and liabilities	Net change in contract assets and liabilities	3,168		(55,088)		Net change in contract assets and liabilities	(9,839)		3,168
Accounts payable	Accounts payable	(15,328)		7,068		Accounts payable	6,321		(15,328)
Other accrued liabilities and income taxes payable	Other accrued liabilities and income taxes payable	(19,610)		(454)		Other accrued liabilities and income taxes payable	2,749		(19,610)
Net cash used in operating activities		(11,184)		(17,896)
Net cash provided by (used in) operating activities						Net cash provided by (used in) operating activities	11,060		(11,184)
Cash Flows From Investing Activities	Cash Flows From Investing Activities					Cash Flows From Investing Activities
Proceeds from sale of property, plant and equipment	Proceeds from sale of property, plant and equipment	—		210		Proceeds from sale of property, plant and equipment	23		0
Purchase of property, plant and equipment	Purchase of property, plant and equipment	(10,847)		(4,686)		Purchase of property, plant and equipment	(7,489)		(10,847)
Acquisition of subsidiaries, net of cash acquired		—		(38,993)

Net cash used in investing activities	Net cash used in investing activities	(10,847)		(43,469)		Net cash used in investing activities	(7,466)		(10,847)
Cash Flows From Financing Activities	Cash Flows From Financing Activities					Cash Flows From Financing Activities

Payments for taxes related to net share settlement of equity awards	Payments for taxes related to net share settlement of equity awards	(539)		(691)		Payments for taxes related to net share settlement of equity awards	(2,101)		(539)
Proceeds from revolving loan	Proceeds from revolving loan	76,000		187,000		Proceeds from revolving loan	35,000		76,000
Payments on revolving loan	Payments on revolving loan	(60,000)		(131,000)		Payments on revolving loan	(28,000)		(60,000)

Repurchase and retirement of treasury stock						Repurchase and retirement of treasury stock	(6,264)		0
Payments of dividends	Payments of dividends	(4,425)		(4,440)		Payments of dividends	(4,245)		(4,425)
Net cash provided by financing activities		11,036		50,869
Net cash (used in) provided by financing activities						Net cash (used in) provided by financing activities	(5,610)		11,036
Effect of exchange rate changes on cash	Effect of exchange rate changes on cash	722		77		Effect of exchange rate changes on cash	(418)		722
Net decrease in cash and cash equivalents	Net decrease in cash and cash equivalents	(10,273)		(10,419)		Net decrease in cash and cash equivalents	(2,434)		(10,273)
Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period	36,687		24,005		Cash and cash equivalents at beginning of period	14,837		36,687
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	26,414	$	13,586	Cash and cash equivalents at end of period	$	12,403	$	26,414

Supplemental disclosures	Supplemental disclosures					Supplemental disclosures
Cash paid for interest	Cash paid for interest	$	869	$	1,600	Cash paid for interest	$	394	$	869
Cash paid for income taxes	Cash paid for income taxes	$	11	$	567	Cash paid for income taxes	$	1,322	$	11

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

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AZZ INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(In thousands)

(Unaudited)

Three Months Ended May 31, 2020
Capital in
Excess of
Par Value Retained
Earnings Accumulated
Other
Comprehensive
Loss Total
Common Stock
Shares Amount
Balance at February 29, 2020 26,148 $ 26,148 $ 66,703 $ 572,414 $ (30,899) $ 634,366
Share-based compensation — — 1,766 — — 1,766
Common stock issued from stock plans, net of shares withheld for employee taxes 47 47 (586) — — (539)
Cash dividends paid — — — (4,425) — (4,425)
Net income — — — 5,541 — 5,541
Foreign currency translation — — — — (1,039) (1,039)
Interest rate swap — — — — (14) (14)
Balance at May 31, 2020 26,195 $ 26,195 $ 67,883 $ 573,530 $ (31,952) $ 635,656


	Three Months Ended May 31, 2021
	Common Stock			Capital in Excess of Par Value		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total

	Shares	Amount
Balance at February 28,2021	25,108	$	25,108	$	75,979	$	547,289	$	(25,084)	$	623,292
Share-based compensation expense	—	—		1,811		—		—		1,811
Common stock issued under stock-based plans and related income tax expense	89	89		(2,190)		—		—		(2,101)


Repurchase and retirement of common stock	(126)	(126)		—		(6,138)		—		(6,264)
Cash dividends paid	—	—		—		(4,245)		—		(4,245)
Net income	—	—		—		22,337		—		22,337
Foreign currency translation	—	—		—		(70)		2,651		2,581

Balance at May 31, 2021	25,071	$	25,071	$	75,600	$	559,173	$	(22,433)	$	637,411

Three Months Ended May 31, 2019
Capital in
Excess of
Par Value Retained
Earnings Accumulated
Other
Comprehensive
Loss Total
Common Stock
Shares Amount
Balance at February 28, 2019 26,115 $ 26,115 $ 46,141 $ 560,224 $ (28,752) $ 603,728
Share-based compensation — — 1,350 — — 1,350
Common stock issued from stock plans, net of shares withheld for employee taxes 37 37 (728) — — (691)
Cash dividends paid — — — (4,440) — (4,440)
Net income — — — 21,284 — 21,284
Foreign currency translation — — — — (1,960) (1,960)
Interest rate swap — — — — (14) (14)
Balance at May 31, 2019 26,152 $ 26,152 $ 46,763 $ 577,068 $ (30,726) $ 619,257

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AZZ INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(In thousands)

(Unaudited)


	Three Months Ended May 31, 2020
	Common Stock			Capital in Excess of Par Value		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total

	Shares	Amount
Balance at February 28, 2020	26,148	$	26,148	$	66,703	$	572,414	$	(30,899)	$	634,366
Share-based compensation	—	—		1,766		—		—		1,766
Common stock issued under stock-based plans and related income tax expense	47	47		(586)		—		—		(539)



Cash dividends paid	—	—		—		(4,425)		—		(4,425)
Net income	—	—		—		5,541		—		5,541
Foreign currency translation	—	—		—		—		(1,039)		(1,039)
Interest rate swap	—	—		—		—		(14)		(14)
Balance at May 31, 2020	26,195	$	26,195	$	67,883	$	573,530	$	(31,952)	$	635,656

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

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AZZ INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.The Company and Basis of Presentation

AZZ Inc. (“AZZ”, the “Company”, "our" or “we”) was established in 1956 and incorporated under the laws of the state of Texas. The Company is a global provider of metal coating solutions, welding solutions, specialty electrical equipment and highly engineered services to the power generation, transmission, distribution, refining and industrial markets. The Company has ~~two~~2 distinct operating segments: the Metal Coatings segment and the ~~Energy~~Infrastructure Solutions segment. AZZ Metal Coatings provides hot dip galvanizing, spin galvanizing, powder coating, anodizing and plating, and other metal coating applications to the steel fabrication and other industries through facilities located throughout the United States and Canada. AZZ ~~Energy~~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 ~~the energy~~ markets worldwide.

Presentation

The accompanying condensed consolidated balance sheet as of February ~~29, 2020, which~~28, 2021 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 ~~29, 2020,~~28, 2021, included in the Company’s Annual Report on Form 10-K covering such period. Certain previously reported amounts have been reclassified to conform to current period presentation.

~~Our~~The Company's fiscal year ends on the last day of February and is identified as the fiscal year for the calendar year in which it ends. For example, the fiscal year ending February 28, ~~2021~~2022 is referred to as fiscal ~~2021.~~2022.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, which are necessary to present fairly the financial position of the Company as of May 31, ~~2020,~~2021, the results of its operations for the three months ended May 31, ~~2020~~2021 and ~~2019,~~2020, and cash flows for the three months ended May 31, ~~2020~~2021 and ~~2019. These~~2020. The interim results reported herein are not necessarily indicative of results for a full year. Certain previously reported amounts have been reclassified to conform to current period presentation.

Coronavirus (COVID-19)

In March 2020, the World Health Organization declared the viral strain of coronavirus ("COVID-19") a global pandemic and recommended containment and mitigation measures worldwide. The spread of COVID-19 and the resulting economic contraction has resulted in increased business uncertainty. The ~~consequences of a prolonged economic decline could include, but are not limited~~Company continues to ~~reduced revenues, increased instances of uncollectible~~be impacted by the inability for its Infrastructure Solutions Industrial platform to access certain customer ~~receivables,~~sites to perform services, temporary slow-downs in order placements in the Infrastructure Solutions Electrical platform, and increased ~~asset impairments in future periods. Accordingly,~~costs associated with maintaining safe operations across the entire business. The Company has been able to remain open during the entirety of the pandemic to service its customers. The Company cannot reasonably estimate the length or severity of this pandemic, or the extent to which the disruption may materially impact its consolidated balance sheet, statements of ~~income~~operations or statements of cash flows for fiscal year ~~2021.~~2022 or beyond.

Recently Adopted Accounting Pronouncements

In ~~June 2016,~~December 2019, the Financial Accounting Standards Board ~~("FASB"~~(“FASB”) ~~issued Accounting Standards Update ("ASU") No. 2016-13,~~ ~~Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instrument~~s (“ASU 2016-13”), which modifies the measurement of expected credit losses of certain financial instruments, including the Company's accounts receivable and contract assets. The Company adopted ASU 2016-13 in the first quarter of its fiscal 2021 utilizing the modified retrospective transition method. The adoption of ASU 2016-13 did not have a material impact on its consolidated financial statements.

~~In August 2018, the FASB issued ASU No. 2018-15,~~ ~~Intangibles—Goodwill and Other— Internal-Use Software (Subtopic 350-40) - Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract~~ ("ASU 2018-15"), which aligns the accounting for implementation costs incurred in a hosting arrangement that is a service contract with the accounting for implementation costs incurred to develop or obtain internal-use software, in order to determine the applicable costs to capitalize and the applicable costs to expense as incurred. The Company adopted ASU 2018-15 in the first quarter of its fiscal 2021 and the adoption did not have a material impact on its consolidated financial statements.

~~Table of Contents~~

~~Recently Issued Accounting Pronouncements~~

~~In December 2019, the FASB~~ issued ASU No. 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income ~~Taxes.~~Taxes ("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. The standard ~~will be~~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 ~~early~~the adoption ~~is permitted. The Company is currently evaluating the~~did not have a material impact ~~of adopting this new accounting guidance~~ on its consolidated financial statements.

Recently Issued Accounting Pronouncements

In March 2020 and as clarified in January 2021, the FASB issued Accounting Standards Update No. (“ASU”) 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial

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Reporting” (“ASU 2020-04”), which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by the discontinuation of the London Interbank Offered Rate (“LIBOR”) or by another reference rate expected to be discontinued. The amendments are effective immediately for all entities. An entity may elect to apply the amendments on a full retrospective basis as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or on a prospective basis to new modifications from any date between March 12, 2020 and December 31, 2022. The Company adopted ASU 2020-04 in the first quarter of fiscal 2022 and the adoption did not have a material impact on its financial condition, results of operations, and cash flows.

2.Earnings Per Share

~~Earnings~~Basic earnings per share is ~~based on~~computed by dividing net income by the weighted average number of common shares outstanding during ~~each period, adjusted for~~ the ~~dilutive~~period. Diluted earnings per share is calculated by giving effect ~~of Company~~to the potential dilution that could occur if stock ~~awards.~~awards vested and were converted into common shares during the period.

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


		Three Months Ended May 31,							Three Months Ended May 31,
		2020		2019			2021		2020
Numerator:	Numerator:					Numerator:
Net income for basic and diluted earnings per common share	Net income for basic and diluted earnings per common share	$	5,541	$	21,284	Net income for basic and diluted earnings per common share	$22,337		$5,541
Denominator:	Denominator:					Denominator:
Denominator for basic earnings per common share–weighted average shares	Denominator for basic earnings per common share–weighted average shares	26,157		26,124		Denominator for basic earnings per common share–weighted average shares	25,051		26,157
Effect of dilutive securities:	Effect of dilutive securities:					Effect of dilutive securities:
Employee and director equity awards	Employee and director equity awards	35		69		Employee and director equity awards	219		35
Denominator for diluted earnings per common share	Denominator for diluted earnings per common share	26,192		26,193		Denominator for diluted earnings per common share	25,270		26,192
Earnings per share basic and diluted:	Earnings per share basic and diluted:					Earnings per share basic and diluted:
Basic earnings per common share		$	0.21	$	0.81
Diluted earnings per common share		$	0.21	$	0.81
Basic income per common share						Basic income per common share	$	0.89	$	0.21
Diluted income per common share						Diluted income per common share	$	0.88	$	0.21

For the three months ended May 31, 2021, 154,259 shares were excluded from the calculation of diluted EPS because the effect would be antidilutive. These shares could be dilutive in future periods.

3.~~Revenues~~Sales

Disaggregated ~~Revenue~~Sales

The following table presents disaggregated ~~revenue~~sales by customer industry (in thousands):

Three Months Ended May 31,
2020 2019
Net sales:
Industrial - oil and gas, construction, and general $ 130,109 $ 164,800
Transmission and distribution 49,057 72,281
Power generation 34,127 52,042
Total net sales $ 213,293 $ 289,123


	Three Months Ended May 31,
	2021		2020
Sales:
Industrial	$	153,983	$	130,109
Transmission and distribution	43,667		49,057
Power generation	32,176		34,127
Total sales	$	229,826	$	213,293

See Note 4 for ~~revenue~~sales information by segment.

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Contract Liabilities

The following table shows the changes in contract liabilities for the three months ended May 31, ~~2020~~2021 and ~~2019,~~2020, respectively (in thousands):

May 31, 2020 May 31, 2019
Balance at beginning of period $ 18,418 $ 56,928
Contract liabilities added during the period 4,796 10,970
Revenue recognized during the period (5,849) (45,579)
Balance at end of period $ 17,365 $ 22,319


	2021		2020
Balance at February 28/29,	$	16,138	$	18,418
Contract liabilities added during the period	12,375		4,796
Sales recognized during the period	(11,415)		(5,849)
Balance at May 31,	$	17,098	$	17,365

The Company did not record any ~~revenues~~sales for the three months ended May 31, ~~2020~~2021 or ~~2019~~2020 related to performance obligations satisfied in prior periods. The increases or decreases in accounts receivable, contract assets, and contract liabilities during the three months ended May 31, ~~2020~~2021 and ~~2019~~2020 were due primarily to normal timing differences between the Company’s performance and customer ~~payments. The acquisitions described~~payments in ~~Note 10 had no impact on contract assets or liabilities as of the date of acquisitions.~~fiscal 2021.

The Company expects to recognize ~~revenues of approximately $10.3 million, $4.6 million, $2.3 million and $0.2 million in fiscal 2021, 2022, 2023 and 2024, respectively,~~sales, related to the ~~$17.4~~$17.1 million balance of contract liabilities as of May 31, ~~2020.~~

2021 of approximately $12.1 million, $4.7 million, $0.2 million and $0.1 million in fiscal 2022, 2023, 2024 and 2025, respectively.

4.Operating Segments

Segment Information

~~Net sales~~

The Company has 2 distinct operating segments: the Metal Coatings segment and the Infrastructure Solutions segment.

The Metal Coatings 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 to fabricated steel for extended periods of up to 50 years.

The Infrastructure Solutions segment 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.

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

Three Months Ended May 31,
2020 2019
Net sales:
Metal Coatings $ 118,991 $ 122,154
Energy 94,302 166,969
Total net sales $ 213,293 $ 289,123
Operating income (loss):
Metal Coatings $ 25,085 $ 29,392
Energy (1,048) 12,571
Corporate (9,719) (10,989)
Total operating income $ 14,318 $ 30,974


	Three Months Ended May 31,
	2021		2020
Sales:
Metal Coatings	$	127,735	$	118,991
Infrastructure Solutions	102,091		94,302
Total sales	$	229,826	$	213,293

Operating income:
Metal Coatings	$	31,576	$	25,085
Infrastructure Solutions	9,624		(1,048)
Corporate	(10,488)		(9,719)
Total operating income	$	30,712	$	14,318

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

May 31, 2020 February 29, 2020
Total assets:
Metal Coatings $ 497,742 $ 504,632
Energy 525,125 548,032
Corporate 27,906 21,167
Total $ 1,050,773 $ 1,073,831

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	May 31, 2021		February 28, 2021
Total assets:
Metal Coatings	$	490,326	$	480,778
Infrastructure Solutions	521,428		489,986
Corporate	27,485		25,678
Total	$	1,039,239	$	996,442

Financial Information About Geographical Areas

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


		Three Months Ended May 31,							Three Months Ended May 31,
		2020		2019			2021		2020
Net sales:
Sales:						Sales:
United States	United States	$	190,842	$	230,337	United States	$	191,116	$	190,842
International	International	22,451		58,786		International	38,710		22,451
Total	Total	$	213,293	$	289,123	Total	$	229,826	$	213,293

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


		May 31, 2020		February 29, 2020			May 31, 2021		February 28, 2021
Property, plant and equipment, net:	Property, plant and equipment, net:					Property, plant and equipment, net:
United States	United States	$	194,012	$	190,365	United States	$	180,004	$	180,718
Canada	Canada	15,647		16,385		Canada	14,953		15,007
Other countries	Other countries	5,306		6,354		Other countries	12,732		10,184
Total	Total	$	214,965	$	213,104	Total	$	207,689	$	205,909

5.Warranty Reserves

A reserve has been established to provide for the estimated future cost of warranties on ~~a portion of the Company’s~~certain delivered ~~products and~~products. The warranty accrual is ~~classified within other~~included in "Other accrued ~~liabilities~~liabilities" on the condensed consolidated balance sheets. Management ~~periodically reviews~~monitors established reserves and ~~makes adjustments~~adjusts warranty estimates based upon the progression of resolution activities with ~~our~~the Company's customers. Warranties typically cover non-conformance to customer specifications ~~and~~or defects in material and workmanship.

The following table shows the changes in the warranty reserves for the three months ended May 31, ~~2020 (in~~2021 (dollars in thousands):


~~Beginning of period~~Balance at February 28, 2021	$	~~3,702~~4,079
Warranty costs incurred	~~(509)~~(112)
Additions charged to income	~~327~~170

~~End of period~~Balance at May 31, 2021	$	~~3,520~~4,137

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6.Debt

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


		May 31, 2020		February 29, 2020			May 31, 2021		February 28, 2021
2017 Revolving Credit Facility	2017 Revolving Credit Facility	$	94,000	$	78,000	2017 Revolving Credit Facility	$	36,000	$	29,000

2011 Senior Notes		125,000		125,000

2020 Senior Notes						2020 Senior Notes	150,000		150,000
Total debt, gross	Total debt, gross	219,000		203,000		Total debt, gross	186,000		179,000
Unamortized debt issuance costs	Unamortized debt issuance costs	(89)		(122)		Unamortized debt issuance costs	(565)		(581)
Total debt, net	Total debt, net	218,911		202,878		Total debt, net	185,435		178,419
Less amount due within one year	Less amount due within one year	(125,000)		(125,000)		Less amount due within one year	0		0
Debt due after one year, net	Debt due after one year, net	$	93,911	$	77,878	Debt due after one year, net	$	185,435	$	178,419

~~Table~~The Company's debt agreements require the Company to maintain certain financial ratios, of ~~Contents~~

which the most restrictive is a debt to EBITDA leverage ratio of at least 3.25 to 1.00. As of May 31, 2021, the Company was in compliance with all covenants or other requirements set forth in the debt agreements.

7.Leases

The Company is a lessee under various operating leases for facilities and equipment. Supplemental information related to the Company's portfolio of operating leases was as follows ~~(in thousands, except years and percentages)~~(dollars in thousands):

Three Months Ended May 31,
2020 2019
Operating lease cost $ 4,474 $ 4,266
Operating cash flows from operating leases included in lease liabilities 2,119 2,275
ROU assets obtained in exchange for new operating lease liabilities 204 2,506


	Three Months Ended May 31,
	2021			2020
Operating cash flows from operating leases included in lease liabilities	$	2,299		$	2,119
Lease liabilities obtained from new ROU assets - operating	12,661			204
Weighted-average remaining lease term - operating leases (years)	8.4			7.6
Weighted-average discount rate - operating leases	4.6		%	5.0		%
Operating and financing cash flows from financing leases included in lease liabilities	18			—
Lease liabilities obtained from new ROU assets - financing	0			—
Weighted-average remaining lease term - financing leases (years)	4.3			—
Weighted-average discount rate - financing leases	4.3		%	—		%

May 31, 2020 February 29, 2020
Weighted-average remaining lease term - operating leases 7.59 years 7.94 years
Weighted-average discount rate - operating leases 4.95 % 4.89 %
The following table outlines the classification of lease expense in the statements of income (dollars in thousands):


	Three Months Ended May 31,
	2021		2020
Cost of sales	$	2,546	$	3,225
Selling, general and administrative	1,130		1,249
Total lease expense	$	3,676	$	4,474

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As of May 31, ~~2020,~~2021, maturities of the Company's lease liabilities were as follows ~~(in~~(dollars in thousands):


Fiscal year:	Fiscal year:			Fiscal year:	Operating Leases		Finance Leases		Total
2021 (remaining 9 months)		$	6,224
2022		8,037
2022 (remaining 9 months)				2022 (remaining 9 months)	$	6,896	$	53	$	6,949
2023	2023	7,553		2023	8,709		71		8,780
2024	2024	6,725		2024	7,818		71		7,889
2025	2025	5,776		2025	6,777		68		6,845
2026				2026	5,330		14		5,344
Thereafter	Thereafter	17,493		Thereafter	21,962		0		21,962
Total lease payments	Total lease payments	51,808		Total lease payments	57,492		277		57,769
Less imputed interest	Less imputed interest	(8,789)		Less imputed interest	(9,872)		(21)		(9,893)
Total	Total	$	43,019	Total	$	47,620	$	256	$	47,876

8.Income Taxes

~~In response to the COVID-19 pandemic, many governments have enacted or are contemplating measures to provide aid~~The Coronavirus Aid, Relief, and economic stimulus. These measures include deferring the due dates of tax payments and other changes to their income and non-income-based tax laws as well as providing direct government assistance through grants and forgivable loans. The CARESEconomic Security Act (the “CARES Act”), which was enacted on March 27, 2020 in the U.S., includes measures to assist companies, including temporary changes to income and non-income-based tax laws. With respect to the CARES Act, the Company ~~currently expects to benefit~~benefited from the deferral of certain payroll taxes through the end of calendar year 2020 and the technical correction with respect to qualified improvement property.

The provision for income taxes reflects an effective tax rate of ~~45.8%~~25.5% for the three months ended May 31, ~~2020~~2021, as compared to ~~21.1%~~45.8% for the respective prior year comparable period. The ~~increase~~decrease in the effective tax rate iswas primarily attributable to ~~losses~~the unfavorable impact of COVID-19 on book earnings in ~~foreign jurisdictions for~~the prior year quarter compared to the current quarter ended May 31, 2021. The Company recorded discrete items in the first quarter of the prior year and the current year; however, since book income was significantly lower in the prior year, the effective tax rate was impacted more significantly by the discrete items.

9. Equity

On November 10, 2020, the Company's Board of Directors authorized a $100 million share repurchase program pursuant to which the Company ~~does not anticipate being able~~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 ~~recognize~~Rule 10b5-1 trading plans, which allows stock repurchases when the ~~benefit~~ ~~and additional uncertain tax positions that were recorded~~Company might otherwise be precluded from doing so.

During the three months ended May 31, 2021, the Company repurchased 125,770 of its common shares in the ~~quarter related to research and development tax credits.~~amount of $6.3 million at an average purchase price of $49.80 under the 2020 Share Authorization.

9.
~~Share-based Compensation~~

~~The Company has 2 share-based compensation plans, the 2014 Long Term Incentive Plan (the "2014 Plan") and the Amended and Restated 2005 Long Term Incentive Plan (the “2005 Plan”).~~

The 2014 Plan provides for broad-based equity grants to employees, including executive officers, and members of the board of directors and permits the granting of restricted shares, restricted stock units, performance awards, stock appreciation rights and other stock-based awards. The maximum number of shares that may be issued under the 2014 Plan is 1.5 million shares and, as of May 31, 2020, the Company had approximately 1.2 million shares reserved for future issuance under this plan.

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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. There were stock appreciation rights 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 available10. Assets Held for issuance under the 2005 Plan. As of May 31, 2020, 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 ("RSU") 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 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 underlying awards vest.Sale

~~A summary~~The Company has been executing a plan to divest certain non-core businesses. The strategic decision to divest of these businesses reflects the Company's long-term strategy to become a more focused metal coatings company. The historical annual sales, operating profit and net assets of these businesses were not significant enough to qualify as discontinued operations.

Assets and liabilities allocated to the disposal group are as follows:


	As of May 31, 2021
Assets
Accounts receivable	$	4,715
Inventories	2,600
Contract assets	2,204
Other current assets	186
Property, plant and equipment	1,348
Other assets	43
Goodwill	1,693

Liabilities
Accounts payable	856
Contract liabilities	1,926
Other accrued liabilities	877
Lease liability – long term	12
Total carrying value	9,118
Less: Impairment of carrying value of remaining assets held for sale to estimated sales price	(3,490)
Fair value of disposal group	$	5,628

11. Commitments and Contingencies

Legal

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 ~~non-vested restricted stock unit award activity (including DERs)~~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 ~~three months ended May 31, 2020 is as follows:~~

Restricted
Stock Units Weighted Average
Grant Date Fair
Value Per Share
Outstanding at beginning of period 194,946 $ 44.34
Granted 125,770 28.61
Vested (63,292) 45.94
Forfeited (7,128) 42.98
Outstanding at end of period 250,296 $ 35.98

~~Performance Share Unit Awards~~

~~The Company grants performance share unit ("PSU") awards~~disputes prior to ~~certain employees, which also include DERs as described above. These PSU awards~~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 ~~three year performance cycle and will vest on the third anniversary of the grant date subject to various vesting conditions. Certain PSU awards have vesting conditions based~~material effect on the Company’s ~~degree~~financial position, results of ~~achievement~~operations or cash flows.

12. Subsequent Event

On July 8, 2021, the Company refinanced its current un-secured revolving credit facility, which was scheduled to mature in March 2022, with a new five-year un-secured revolving credit facility under that certain credit agreement, dated July 8, 2021 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 matures in July 2026 and includes the following significant terms;

i.provides for a senior un-secured revolving credit facility with a principal amount of ~~a target annual average adjusted return~~up to $400.0 million revolving loan commitments, and includes an additional $200.0 million uncommitted incremental accordion facility,

ii.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 assets during these three year periods relative to the performance of a predetermined group of peer companies. In addition, these PSU awards may have vesting conditions or certain vesting multipliers, which are based on the Company’s total shareholder return during such three years in comparison to a defined specific industry peer group. The Company estimates the fair value of PSU awards using a Monte Carlo simulation model on the date of grant.

~~A summary~~leverage ratio of the ~~Company’ non-vested performance share unit award activity (including DERs)~~Company and its consolidated subsidiaries as a group,

iii.includes a letter of credit sub-facility up to $85.0 million for the ~~three months ended May 31, 2020 is as follows:~~

Performance
Stock Units Weighted Average
Grant Date Fair
Value Per Share
Outstanding at the beginning of the period 109,936 $ 47.75
Granted 69,955 33.22
Vested — —
Forfeited (32,111) 54.00
Outstanding at the end of the period 147,780 $ 39.35

~~The PSU awards in the table above are presented at the face value~~issuance of ~~the respective grants. However, the number~~standby and commercial letters of ~~PSU awards that may ultimately vest can vary in a range 0% to 250% of the face amount of such awards depending on the outcome of the performance or market vesting conditions.~~credit,

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~~Stock Appreciation Rights~~iv.includes a $50.0 million sublimit for swing line loans,

~~Stock appreciation rights ('SARs") were granted with~~v.includes 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

vi.includes a maximum leverage ratio financial covenant and an ~~exercise price equal~~interest coverage ratio financial covenant, each to be tested at quarter end.

The proceeds of the loans under the 2021 Credit Agreement will be used primarily to finance working capital needs, capital improvements, dividends, future acquisitions and general corporate purposes.

The foregoing summary of certain terms and provisions of the 2021 Credit Agreement does not purport to be complete and is qualified in its entirety by reference to the ~~market value~~2021 Credit Agreement, a copy of our common stock on the date of grant. These awards generally have a contractual term of 7 years and generally vest ratably over a period of three years from the date of grant although some may vest immediately on issuance. These awards are valued using the Black-Scholes option-pricing model.

~~A summary of the Company’s SARs activity for the three months ended May 31, 2020~~which is attached hereto as ~~follows:~~

SARs Weighted Average
Exercise Price
Outstanding at beginning of period 94,826 $ 44.58
Granted — —
Exercised — —
Forfeited (1,362) 45.36
Outstanding at end of the period 93,464 $ 44.57
Exercisable at the ending of the period 93,464 $ 44.57

~~The average remaining contractual term for SARs outstanding and SARs that were exercisable as of May 31, 2020 was 0.62 years and such awards had no intrinsic value.~~

~~Employee Stock Purchase Plan~~

~~The Company also has an Employee Stock Purchase Plan ("ESPP"), which allows employees of the Company~~Exhibit 10.3 to purchase common stock of the Company through accumulated payroll deductions. Offerings under the ESPP have a duration of 24 months (the "offering period") and commence on each January 1 and July 1, and ending on June 30 and December 31, respectively. On the first day of an offering period (the “enrollment date”) the participant is granted the option to purchase shares on each exercise date at the lower of 85% of the market value of a share of the Company's common stock on the enrollment date or the exercise date. The participant’s right to purchase common stock under the plan is restricted to no more than $25,000 per calendar year and the participant may not purchase more than 5,000 shares during any offering period. Participants may terminate their interest in a given offering or a given exercise period by withdrawing all of their accumulated payroll deductions at any time prior to the end of the offering period. The fair value of the estimated number of shares to be issued under each offering is determined using the Black-Scholes option-pricing model. The Company did not issue any shares from the ESPP during the three months ended May 31, 2020 and 2019, respectively.

~~Share-based Compensation Expense~~

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

Three Months Ended May 31,
2020 2019
Compensation expense $ 1,766 $ 1,350
Income tax benefits $ 390 $ 284

~~Unrecognized compensation cost related to the Company's employee equity grants at May 31, 2020 totals $13.4 million~~this Form 10-Q and is ~~expected to be recognized over a period of 2.25 years.~~incorporated herein by reference.

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

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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,”~~"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 ~~Annual~~Quarterly 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 ~~the~~our products and services, ~~offered by AZZ,~~ including demand by the metal coatings market, power generation markets, electrical transmission and distribution markets, and the industrial ~~markets,~~markets. In addition, within each of ~~which may~~the markets we serve, our customers and our operations could potentially be adversely impacted by the ongoing ~~COVID-19 pandemic where our ability to assess the future and full impact on the Company, our customers and our suppliers is limited.~~coronavirus ("COVID-19") pandemic. We could also experience fluctuations in prices and raw material cost, including zinc and natural gas, which are used in ~~our~~the hot dip galvanizing ~~process or other potential~~process; supply-chain ~~disruptions or~~vendor delays; customer requested delays of our products or services; ~~changes~~delays in ~~the political stability and economic conditions impacting our business in the domestic and foreign markets that we serve; customer requested delays of shipments;~~ additional acquisition opportunities; currency exchange rates; adequacy of financing; 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 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.~~abroad; 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 ~~29, 2020~~28, 2021 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 ~~29, 2020,~~28, 2021, and with the condensed consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q.

Results of Operations

Strategy

We have a developed strategy and periodically review our strategy against our performance, market conditions and competitive threats. During the third quarter of fiscal 2021, we publicly announced strategic and financial initiatives to enhance shareholder value. These initiatives include a comprehensive Board-led review of our portfolio and capital allocation and the engagement of leading independent financial, legal and tax advisors in support of this review. We have continued these initiatives in fiscal 2022. These actions will allow us to accelerate the strategy to become a more focused metal coatings company, which we believe will more rapidly enhance shareholder value.

Coronavirus (COVID-19)

~~In March 2020, the World Health Organization declared the viral strain of coronavirus ("COVID-19") a global pandemic and recommended containment and mitigation measures worldwide.~~

The ~~spread of~~continued uncertainty associated with COVID-19 ~~resulted in virtually all governments issuing restrictive orders, including “shelter in place” orders around the globe to assist in mitigating the spread of the virus.~~

Subsequently, in March 2020, the Department of Homeland Security’s Cybersecurity and Infrastructure Security Agency (CISA) department issued guidance clarifying that critical infrastructure industriesdid not have a ~~responsibility to maintain~~material adverse effect on our results of operations ~~while these restrictive measures are in place. The Company, based on input from~~for the ~~government and our customers, continued to operate under the CISA guidelines in an effort to support critical infrastructure in the areas where we are either required to do so, or where we are able.~~

three months ended May 31, 2021. While we continue to support our customers, there remains uncertainties regarding the duration ~~recurrence~~ and, to what extent, if any, that the COVID-19 pandemic, or newly identified variants, will ultimately have on the demand for our products and services or with our supply chain. We continue to monitor the situation as information becomes readily available and continue to take actions to provide for the safety of our personnel, and to support the requirements under the Department of Homeland Security’s Cybersecurity and Infrastructure Security Agency ("CISA").

~~As described above~~

Our operations remain open globally and the ~~spread~~impact to our personnel and operations has been limited by the effects of COVID-19. The most significant impact to us has been our ability to serve customers at their business locations.We have experienced limited customer order deferrals, but there have been few outright customer order cancellations. During the first

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quarter of fiscal 2022, we continued to see improvement in sales and operating income in both of our operating segments. While governments have taken actions, including the approval of vaccines to limit the impacts of COVID-19, and the resulting economic contraction has resulted in increased business uncertainty. The consequences of a prolonged economic decline could include, but are not limited to, reduced revenues, increased instances of uncollectible customer receivables, and increased asset impairments in future periods. Accordingly, we cannot reasonably estimate the length or severity of this pandemic, or the extent to which the disruption may materially impact our consolidated balance sheet, statements of income or statements of cash flows for fiscal year ~~2021.~~2022.

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In ~~addition, in~~ March 2020, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which among other things, provides employer payroll tax credits for wages paid to employees who are unable to work during the COVID-19 pandemic and options to defer payroll tax payments. Based on ~~a preliminary~~an evaluation of the CARES Act, we ~~qualify~~qualified for the deferral of payroll and other tax ~~payments and we are continuing to evaluate certain employer payroll tax credits.~~payments.

Overview

We have two distinct operating segments, the Metal Coatings segment and the ~~Energy segment, as defined in our Annual Report on Form 10-K for the fiscal year ended February 29, 2020.~~Infrastructure Solutions segment. Management believes that the most meaningful analysis of our results of operations is to analyze our performance by segment. We use ~~revenue~~sales 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 4 to our ~~quarterly condensed~~ consolidated financial statements included in this Quarterly Report on Form 10-Q.

During the three months ended May 31, 2021, we continue to execute a plan to divest certain non-core businesses, which was approved by the board of directors in fiscal 2021. As of May 31, 2021, one business in our Infrastructure Solutions segment is classified as held for sale. In addition, one non-operating location in our Metal Coatings segment is classified as held for sale. The assets and liabilities of these locations are expected to be disposed of within the next twelve months, and are included in "Assets held for sale" in the accompanying consolidated balance sheet.

Orders and Backlog

Our ~~entire~~ backlog ~~which is inclusive of~~relates entirely to our Infrastructure Solutions segment and excludes transaction taxes for certain foreign ~~subsidiaries, relates to our Energy segment and was $205.4 million as~~subsidiaries. As of May 31, ~~2020, a decrease of $38.4~~2021, backlog remained flat to February 28, 2021, at $186.1 million. Our backlog decreased $19.3 million, or ~~15.8%~~9.4%, as compared to ~~$243.8~~$205.4 million ~~as of February 29, 2020. Our backlog decreased $94.7 million, or 31.6%, as compared to~~for the same period in the prior fiscal year. The decrease in backlog is primarily due to the continued impact of COVID-19, which resulted in a decrease in bookings and sales over the past 12 months, and, to a lesser extent, divestitures that occurred in fiscal 2021. For the three months ended May 31, ~~2020,~~2021, backlog was favorably impacted by an increase in our incoming net ~~orders decreased by $81.5~~bookings of $54.9 million, or ~~31.8% when~~31.4%, compared to same period of fiscal ~~2020 and~~2021, due to a decrease in some COVID-19 related restrictions during the quarter. The decrease in restrictions also favorably impacted our ~~book-to-revenue~~book-to-sales ratio, ~~decreased~~which increased to ~~0.82 to 1~~1.00, from ~~0.89 to 1.~~0.82. The ~~reductions~~decrease in backlog ~~were primarily attributable~~was also due to an increase in sales recognized in the current quarter compared to the ~~impacts on customer activities given COVID-19. Customers have been slower~~prior quarter, primarily related to ~~release orders on project-related electrical platform work and orders~~sales recognized in the current quarter for certain large international projects for which bookings were ~~delayed~~recorded in ~~our industrial platform.~~prior years.

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


		Period Ended			Period Ended				Period Ended			Period Ended
Backlog	Backlog	2/29/2020	$	243,799	2/28/2019	$	332,894	Backlog	2/28/2021	$	186,119	2/28/2020	$	243,799
Net bookings	Net bookings		174,865			256,344		Net bookings		229,805			174,865

Revenues recognized			(213,293)			(289,123)
Sales recognized								Sales recognized		(229,826)			(213,293)
Backlog	Backlog	5/31/2020	205,371		5/31/2019	300,115		Backlog	5/31/2021	$	186,098	5/31/2020	$	205,371
Book to revenue ratio			0.82			0.89
Book to sales ratio								Book to sales ratio		1.00			0.82

Segment ~~Revenues~~Sales

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


	Three Months Ended May 31,
	2021		2020
Sales:
Metal Coatings	$	127,735	$	118,991
Infrastructure Solutions	102,091		94,302
Total sales	$	229,826	$	213,293

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For the three months ended May 31, ~~2020,~~2021, consolidated ~~revenues decreased $75.8~~sales increased $16.5 million, or ~~26.2%~~ 7.8%, as compared to the same period in fiscal ~~2020.~~

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

Three Months Ended May 31,
2020 2019
Net sales:
Metal Coatings $ 118,991 $ 122,154
Energy 94,302 166,969
Total net sales $ 213,293 $ 289,123

~~Revenues~~2021. Sales for the Metal Coatings segment ~~decreased $3.2~~increased $8.7 million, or ~~2.6%~~7.3%, for the three months ended May 31, ~~2020~~2021, as compared to the same period in fiscal 2021. The increase was primarily due to improved price realization for our superior quality and service, the acquisition of a metal coatings facility in the fourth quarter of fiscal 2021 and the improved performance of our surface technology offerings. The volume of steel processed remained steady in the current quarter, compared to the prior year quarter. Sales for the Infrastructure Solutions segment increased $7.8 million, or 8.3%, for the three months ended May 31, 2021 as compared to the same period in fiscal 2020. The ~~slight decrease~~increase was primarily related to ~~lower volumes and selling prices, which were due primarily to the slowdown~~an improvement in the ~~economy as a result of COVID-19,~~spring turnaround season in the Industrial platform (as the prior year was significantly impacted by COVID-19), partially offset by ~~higher revenues in our surface technologies platform from the acquisitions~~a decrease related to a divestiture in the ~~prior~~third quarter of fiscal ~~year.~~

~~Revenues for~~2021. In the ~~Energy segment~~Electrical platform, sales decreased ~~$72.7 million or 43.5% for the three months ended May 31, 2020 as~~ compared to the same period in fiscal 2020. This decrease was related to less overall demand for our electrical products and industrial solutions, which was due primarily to the slowdown in the economy as a result of COVID-19 and softness in the oil and gas markets. In addition, the prior year, ~~period included significantly higher electrical product revenues related~~primarily due to ~~a large international project.~~

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lower sales in China as projects near completion, partially offset by an increase in backlog and sales for switchgear and enclosure products in our domestic operations.

Segment Operating Income

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

Three Months Ended May 31,
2020 2019
Operating income (loss):
Metal Coatings $ 25,085 $ 29,392
Energy (1,048) 12,571
Corporate (9,719) (10,989)
Total operating income $ 14,318 $ 30,974


	Three Months Ended May 31, 2021								Three Months Ended May 31, 2020
	Metal Coatings		Infra- structure Solutions		Corporate		Total		Metal Coatings		Infra- structure Solutions		Corporate		Total
Operating income (loss):
Sales	$	127,735	$	102,091	$	—	$	229,826	$	118,991	$	94,302	$	—	$	213,293
Cost of sales	92,078		79,821		—		171,899		89,339		81,746		—		171,085
Gross margin	35,657		22,270		—		57,927		29,652		12,556		—		42,208
Selling, general and administrative	4,081		12,646		10,488		27,215		4,567		13,604		9,719		27,890

Total operating income	$	31,576	$	9,624	$	(10,488)	$	30,712	$	25,085	$	(1,048)	$	(9,719)	$	14,318

Operating income for the Metal Coatings segment ~~decreased $4.3~~increased $6.5 million, or ~~14.7%~~25.9%, for the three months ended May 31, ~~2020~~2021, as compared to the same period in fiscal ~~2020.~~2021. The increase was primarily due to the increase in sales described above, a decrease in the cost of zinc in the kettles and the achievement of operational efficiencies in our surface technologies platform. Operating ~~margins were 21.1% and 24.1%~~income for the Infrastructure Solutions segment increased by $10.7 million, or 1,018.3%, for the three months ended May 31, ~~2020 and 2019, respectively. These declines were related primarily to the lower volumes and selling prices noted above, which were partially offset by lower zinc costs.~~

~~Operating income for the Energy segment decreased by $13.6 million or 108.3% for the three months ended May 31, 2020~~2021 as compared to the same ~~periods~~period in fiscal ~~2020. Operating margins were (1.1)%~~2021. The increase was primarily related to the increase in sales as noted above and ~~7.5%~~cost controls implemented in fiscal 2021 across the platform to mitigate disrupted markets.

Corporate expenses increased $0.8 million, or 7.9%, for the three months ended May 31, ~~2020 and 2019, respectively. These declines were related primarily to the lower revenues noted above.~~

~~Corporate Expenses~~

~~Corporate expenses decreased by $1.3 million or 11.6%, for the three months ended May 31, 2020~~2021, as compared to the same period in fiscal ~~2020.~~2021. The ~~decrease was related~~increase is primarily due to ~~lower employee compensation~~increases in administrative costs ~~and reduced outside services.~~associated with the previously announced strategic review.

Other (income) expense, net

Other ~~expense, net~~income was $1.0 million for the three months ended May 31, ~~2020 was $1.5 million~~2021, as compared to ~~$0.4~~other expense of $1.4 million ~~for~~ the ~~prior year comparable period. This decrease~~same period in fiscal 2020. The increase was primarily ~~attributable~~due to favorable foreign ~~currency losses as~~exchange transaction adjustments in the ~~dollar strengthened against currencies in Brazil and China.~~current year.

Interest Expense

Interest expense for the three months ended May 31, ~~2020 was $2.6~~2021 decreased $0.9 million, or 35.6%, to $1.7 million, as compared to ~~$3.6~~$2.6 million for the respective prior ~~year comparable~~ period. ~~This~~The decrease was primarily attributable to ~~lower average outstanding debt balances~~Company's 2020 Senior Notes, which were funded in late fiscal 2021, and carry lower interest rates ~~on variable rate debt. Our gross debt to equity ratio was 0.34 to 1 as of May 31, 2020, compared to 0.48 to 1 as of May 31, 2019.~~

than the Company's previous senior notes.

Income Taxes

The provision for income taxes reflects an effective tax rate of ~~45.8%~~25.5% for the three months ended May 31, ~~2020~~2021, as compared to ~~21.1%~~45.8% for the respective prior year comparable period. The ~~increase~~decrease in the effective tax rate was primarily attributable to ~~losses in foreign jurisdictions for which we do not anticipate being able to recognize~~ the ~~benefitand additional uncertain tax positions that were recorded~~unfavorable impact of COVID-19 on book earnings in the prior year quarter ~~related~~compared to ~~research~~the current quarter ended May 31, 2021. The Company recorded discrete items in the first quarter of the prior year and ~~development~~the current year; however, since book income was significantly lower in the prior year, the effective tax ~~credits.~~

rate was impacted more significantly by the discrete items.

1719

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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,~~include 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~~(dollars in thousands):

Three Months Ended May 31,
2020 2019
Net cash used in operating activities $ (11,184) $ (17,896)
Net cash used in investing activities (10,847) (43,469)
Net cash provided by financing activities 11,036 50,869


	Three Months Ended May 31,
	2021		2020
Net cash provided by (used in) operating activities	$	11,060	$	(11,184)
Net cash used in investing activities	(7,466)		(10,847)
Net cash (used in) provided by financing activities	(5,610)		11,036

~~For the three months ended May 31, 2020, net cash used in operating activities was $11.2 million, net cash used in investing activities was $10.8 million, net~~Net cash provided by financing activities was $11.0 million, and a decrease of $0.7 million from the net effect of exchange rate changes on cash resulting in a net decrease in cash and cash equivalents of $10.3 million. In comparison to the comparable period in fiscal 2020, the results in the statement of cash flows for operating activities for the three months ended May 31, ~~2020, are~~2021 was $11.1 million, compared to net cash used in operating activities of $11.2 million for the prior year quarter. The increase in cash provided by operating activities for the current quarter is primarily attributable to ~~less negative impacts of changes in working capital, partially offset by lower~~increased net income. ~~The Company's use of~~

Net cash ~~for~~used in investing activities ~~was lower due to decreased spending on acquisitions, partially offset by higher capital expenditures. Net cash provided by financing activities was lower during~~for the three months ended May 31, ~~2020 as~~2021 was $7.5 million, compared to $10.8 million for the prior year ~~comparable period due~~quarter. The decrease in cash used for investing activities for the current quarter was primarily attributable to decreased capital expenditures.

Net cash used in financing activities for the three months ended May 31, 2021 was $5.6 million, compared to $11.0 million of cash provided by investing activities for the prior year quarter. The increase in cash used for financing activities during the current quarter was primarily attributable to an increase in net ~~borrowings.~~payments on the revolver, and repurchases of shares of Company common stock. See “Share Repurchases” sections below for additional information.

Our working capital was ~~$95.4~~$203.7 million as of May 31, ~~2020,~~2021, as compared to ~~$73.9~~$189.6 million atas of February ~~29, 2020.~~28, 2021.

Financing and Capital

On October 9, 2020, we completed a private placement transaction and entered into a Note Purchase Agreement, whereby we agreed to borrow $150.0 million of senior unsecured notes (the “2020 SeniorNotes”), consisting of two separate tranches:

•7-year borrowing: $70.0 million priced at 2.77% coupon, and

•12-year borrowing: $80.0 million priced at 3.17% coupon.

The proceeds of the $80.0 million tranche was funded on December 17, 2020. The $70.0 million tranche was funded in January 2021. The proceeds were used to repay the existing $125.0 million 5.42% Senior Notes maturing on January 20, 2021, as well as for general corporate purposes. Interest on the outstanding 2020 Senior Notes is paid semi-annually, in January and July.

As of May 31, ~~2020, the Company~~2021, we had ~~$219.0~~$186.0 million of ~~floating~~floating- and ~~fixed rate~~fixed-rate notes outstanding with varying maturities through fiscal ~~2023~~2032 and ~~the Company was~~we were in compliance with all of the covenants related to these outstanding borrowings. As of May 31, ~~2020, the Company~~2021, we had approximately ~~$342.3~~$404.0 million of additional credit available for future draws or letters of credit.

~~For~~

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i.provides for a senior un-secured revolving credit facility with a principal amount of up to $400.0 million revolving loan commitments, and includes an additional ~~information~~$200.0 million uncommitted incremental accordion facility,

ii.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's outstanding borrowings see Note 6~~Company and its consolidated subsidiaries as a group,

iii.includes a letter of credit sub-facility up to $85.0 million for the issuance of standby and commercial letters of credit,

iv.includes a $50.0 million sublimit for swing line loans,

v.includes 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

vi.includes a maximum leverage ratio financial covenant and an interest coverage ratio financial covenant, each to be tested at quarter end.

The proceeds of the loans under the 2021 Credit Agreement will be used primarily to finance working capital needs, capital improvements, dividends, future acquisitions and general corporate purposes.

The foregoing summary of certain terms and provisions of the 2021 Credit Agreement does not purport to be complete and is qualified in its entirety by reference to the ~~condensed consolidated financial statements~~2021 Credit Agreement, a copy of which is attached hereto as Exhibit 10.3 to this Form 10-Q and ~~further below under Contractual Obligations.~~is incorporated herein by reference.

Share Repurchase Program

~~In January~~On November 10, 2020, the Company's Board of ~~2012, our Board~~Directors authorized ~~the repurchase of up to ten percent of the then outstanding shares of our Common Stock. The~~a $100 million share repurchase ~~authorization does not have an expiration date, and~~program pursuant to which the ~~amount and prices paid for any future share purchases~~Company may repurchase its Common Stock (the “2020 Share Authorization”). Repurchases under the ~~authorization~~2020 Share 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~~ and/or private transactions, in accordance with applicable federal securities laws, ~~including~~and could include repurchases pursuant to Rule ~~10b-18 under~~10b5-1 trading plans, which allows stock repurchases when the ~~Exchange Act. The~~ Company ~~did not make any repurchases of its common shares during~~might otherwise be precluded from doing so.

During the three months ended May 31, ~~2020.~~2021, the Company repurchased 125,770 of its common shares in the amount of $6.3 million at an average purchase price of $49.80 under the 2020 Share Authorization. For additional information regarding our share repurchases during the current year-to-date period, see Part II, “Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.”

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~~Infrastructure Solutions 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.

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Off Balance Sheet Arrangements and Contractual Obligations

As of May 31, ~~2020, the Company~~2021, we did not have any off-balance sheet arrangements as defined under SEC rules. Specifically, there were no off-balance sheet transactions, arrangements, obligations (including contingent obligations), or other relationships with unconsolidated entities or other persons that have, or may have, a material effect on the financial condition, changes in financial condition, ~~revenues~~sales or expenses, results of operations, liquidity, capital expenditures or capital resources of the Company.

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

Operating
Leases
Purchase Commitments ⁽¹⁾
Long-Term
Debt
Interest ⁽²⁾
Total
Fiscal:
2021 $ 6,224 $ 22,499 $ 125,000 $ 8,381 $ 162,104
2022 8,037 — — 2,141 10,178
2023 7,553 — 94,000 313 101,866
2024 6,725 — — 6,725
2025 5,776 — — — 5,776
Thereafter 17,493 — — — 17,493
Total $ 51,808 $ 22,499 $ 219,000 $ 10,835 $ 304,142

~~(1) Purchase commitments consist of non-cancelable forward contracts to purchase zinc at various volumes and prices. All such contracts expire in fiscal 2021.~~

~~(2) For variable rate debt, interest payments are calculated using current interest rates.~~

As of May 31, ~~2020,~~2021, we had outstanding letters of credit in the amount of ~~$43.3~~$25.5 million. These letters of credit are issued for a number of reasons, but are most commonly issued in lieu of customer retention withholding payments covering warranty or performance periods.

Critical Accounting Policies and Estimates

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

During the three months ended May 31, ~~2020,~~2021, 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

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and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the year ended February ~~29, 2020.~~28, 2021.

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.

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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 ~~nine~~three months of fiscal ~~2020.~~2022. 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 ~~29, 2020.~~28, 2021.

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 weaknesses 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 (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s ~~rules~~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~~(ii) accumulated and communicated to our management, including our principal executive and financial officers, as appropriate to allow timely discussions regarding required disclosure.

Changes in Internal Controls Over Financial Reporting

As of August 31, 2019, the Company identified multiple control deficiencies that constituted a material weakness in its internal control over financial reporting related to the Company’s accounting for income taxes. Specifically, management identified financial statement errors related to income tax accounting and deficiencies in the Company's tax compliance and reporting program. The financial statement errors impacted current and deferred income tax expense, deferred tax assets and liabilities, financial statement recognition and disclosure of uncertain tax positions, and current income taxes payable. These financial statement errors, which were not detected timely by management, were the result of ineffective design and operation of controls pertaining to the preparation of the Company's income tax provision. While these errors were not material to any prior period, and the cumulative effect of correcting additional errors is not material to the current period, the deficiencies identified represent a material weakness in the Company’s internal control over financial reporting.

Management is actively engaged in the implementation of remediation efforts to address the control deficiencies identified above. The remediation plan includes i) new controls over the preparation of the Company’s income tax provision and related disclosures including enhanced management review controls and oversight regarding key aspects of the income tax provision work papers and the Company’s income tax compliance program, and ii) additional training for impacted employees. The establishment of new controls may be supported by a combination of additional internal resources, the use of third party advisors or additional technology.

Management believes the measures described above and others that may be implemented will remediate the material weakness that we have previously identified. As management continues to evaluate and improve internal control over financial reporting, we may decide to take additional measures to address control deficiencies or, in appropriate circumstances, make revisions to our remediation plan.

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~~its internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

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. 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 legal 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,~~condition, results of operations or cash flows.

Item 1A. Risk Factors

There are numerous factors that affect our business, financial condition, results of operations and cash flows, many of which are beyond our control.In addition to other information set forth in this Quarterly Report, careful consideration should be given to “Item 1A. Risk Factors” in Part I and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II of our Annual Report, which contain descriptions of significant factors that might cause the actual results of operations in future periods to differ materially from those currently projected in the forward-looking statements contained therein.

There have been no material changes from risk factors previously disclosed in the Company’s most recent Annual Report on Form 10-K.See the discussion of the Company’s risk factors ~~disclosed~~ under Part I, Item ~~1A of our~~1A. in the Company’s Annual Report on Form 10-K for the fiscal year ended February ~~29, 2020.~~28, 2021.

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

~~In January~~On November 10, 2020, the Company's Board of ~~2012, our Board~~Directors authorized ~~the repurchase of up to ten percent of the then outstanding shares of our Common Stock. The~~a $100 million share repurchase ~~authorization does not have an expiration date, and~~program pursuant to which the ~~amount and prices paid for any future share purchases~~Company may repurchase its Common Stock (the “2020 Share Authorization”). Repurchases under the ~~authorization~~2020 Share 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~~ and/or private transactions, in accordance with applicable federal securities laws, ~~including~~and could include repurchases pursuant to Rule ~~10b-18 under~~10b5-1 trading plans, which allows stock repurchases when the ~~Exchange Act.~~ Company might otherwise be precluded from doing so.

The following table provides information with respect to purchases of common stock of the Company ~~did not make any repurchases of its common shares~~made during the three months ended May 31, ~~2020.~~2021, by the Company or any "affiliated purchaser" as defined in Rule 10b-18(a)(3) under the Exchange act:


Period	Total Number of Share Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publically Announced Plans or Programs	Approximate Dollar Value that May Yet Be Used Under the Plans or Programs
Beginning balance, February 29, 2021					$	84,002,349
March 1 through March 31	60,649	$	49.47	60,649	83,941,700
April 1 through April 30	56,043	49.82		56,043	83,885,657
May 1 through May 31	9,078	51.92		9,078	83,876,579






Total	125,770	$	49.80	125,770	$	83,876,579

Item 5.Other Information.

Change in Control Agreement

The Company’s Compensation Committee of the Board of Directors, in consultation with its independent compensation advisor, Meridian Compensation Partners, LLC (“Meridian”), conducted a review of the existing change in control severance benefits being provided to the Company’s executive officers (the “Executive Officers”). Based upon the review and advice

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provided to the Compensation Committee by Meridian, the Company’s Board of Directors approved certain modifications to its existing change in control severance benefits to ensure uniformity of terms and conditions among its Executive Officers and to align severance benefits with the market practices of the Company’s industry peer companies. Effective July 8, 2021, the Company entered into a standardized change in control form agreement (the “CIC Agreement”) with its Executive Officers, including our named executive officers (except for the Chief Executive Officer), whom will retain his existing change in control agreement. The material terms of the standardized form CIC Agreement states that if an Executive Officer is terminated (i) during the Change in Control Period, (ii) without Cause, or (iii) such Executive Officer resigns for Good Reason (all capitalized terms are defined in the form CIC Agreement which is attached as Exhibit 10.7, and is incorporated herein), the Executive Officers will be entitled to (i) any accrued but unpaid Annual Base Salary for the fiscal year in which employment ends (plus accrued and unpaid expenses reimbursable in accordance with Company polices; (ii) 24 months of Annual Cash Compensation (defined as Annual Base Salary and Target Cash Bonus) paid on a regular payroll cycle over a 24 month period; (iii) accelerated vesting of all outstanding time-based equity awards; and (iv) 24 months of medical, dental and vision insurance coverage (100% paid by the Company) substantially comparable to the coverage maintained by the Company for the Executive Officer immediately prior to the date of such termination.

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Item 6. Exhibits


3.1						Amended and Restated Certificate of Formation of AZZ Inc. (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed by the Registrant on July 14, 2015)

3.2						Amended and Restated Bylaws of AZZ Inc. (incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K filed by the Registrant on January 23, 2017)

10.1*						AZZ Inc. 2018 Employee Stock Purchase Plan (incorporated by reference to Appendix A to the Registrant's Definitive Proxy Statement on Form DEFA filed on May 25, 2018.).

10.2						Note Purchase Agreement, dated as of January 20, 2011, by and among AZZ incorporated and the purchasers identified therein (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by the Registrant on January 21, 2011).

10.3						~~Amended and Restated~~ Credit Agreement by and between AZZ Inc. as borrower, ~~Bank of America~~CitiBank,CitiBank, N.A. as Administrative Agent, Swing Line Lender and L/C Issuer, and the other Lender's party ~~thereto~~hereto. ~~(incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by the Registrant on March 24, 2017).~~Filed Herewith.

10.4*						AZZ incorporated 2014 Long Term Incentive Plan (incorporated by reference to Appendix A to the Registrant’s Definitive Proxy Statement on Form DEFA filed May 29, 2014).

10.5*						First Amendment to AZZ Inc. 2014 Long Term Incentive Plan (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed by the Registrant on January 21, 2016.
10.6						Note Purchase Agreement, dated as of October 9, 2020, by and among AZZ Inc. and the purchasers identified therein (incorporated by reference to Exhibit 10.6 to the Quarterly Report on Form 10-Q filed by the Registrant on October 13, 2020).
10.7*						Form of Change in Control Agreement by and between AZZ Inc. and certain Executive Officers thereof. Filed Herewith.
31.1						Certification of Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed Herewith.

31.2						Certification of Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed Herewith.

32.1						Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Filed Herewith.

32.2						Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Filed Herewith.

101.INS						XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH						XBRL Taxonomy Extension Schema Document

101.CAL						XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF						XBRL Taxonomy Extension Definition Linkbase Document

101.LAB						XBRL Taxonomy Extension Label Linkbase Document

101.PRE						XBRL Taxonomy Extension Presentation Linkbase Document

* Management contract, compensatory plan or arrangement

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

AZZ Inc.

(Registrant)

Date:

July 9, ~~2020~~2021

By:

/s/ Philip A. Schlom

Philip A. Schlom
Chief Accounting Officer and Interim
Chief Financial Officer

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	Three Months Ended May 31, 2019
						Capital in Excess of Par Value		Retained Earnings		Accumulated Other Comprehensive Loss		Total
	Common Stock
	Shares	Amount
Balance at February 28, 2019	26,115	$	26,115	$	46,141	$	560,224	$	(28,752)	$	603,728
Share-based compensation	—	—		1,350		—		—		1,350
Common stock issued from stock plans, net of shares withheld for employee taxes	37	37		(728)		—		—		(691)



Cash dividends paid	—	—		—		(4,440)		—		(4,440)
Net income	—	—		—		21,284		—		21,284
Foreign currency translation	—	—		—		—		(1,960)		(1,960)
Interest rate swap	—	—		—		—		(14)		(14)
Balance at May 31, 2019	26,152	$	26,152	$	46,763	$	577,068	$	(30,726)	$	619,257


	May 31, 2020		May 31, 2019
Balance at beginning of period	$	18,418	$	56,928
Contract liabilities added during the period	4,796		10,970
Revenue recognized during the period	(5,849)		(45,579)
Balance at end of period	$	17,365	$	22,319


	Restricted Stock Units	Weighted Average Grant Date Fair Value Per Share
Outstanding at beginning of period	194,946	$	44.34
Granted	125,770	28.61
Vested	(63,292)	45.94
Forfeited	(7,128)	42.98
Outstanding at end of period	250,296	$	35.98


	Performance Stock Units	Weighted Average Grant Date Fair Value Per Share
Outstanding at the beginning of the period	109,936	$	47.75
Granted	69,955	33.22
Vested	—	—
Forfeited	(32,111)	54.00
Outstanding at the end of the period	147,780	$	39.35


	SARs	Weighted Average Exercise Price
Outstanding at beginning of period	94,826	$	44.58
Granted	—	—
Exercised	—	—
Forfeited	(1,362)	45.36
Outstanding at end of the period	93,464	$	44.57
Exercisable at the ending of the period	93,464	$	44.57


	Operating Leases		Purchase Commitments ⁽¹⁾		Long-Term Debt		Interest ⁽²⁾		Total
Fiscal:
2021	$	6,224	$	22,499	$	125,000	$	8,381	$	162,104
2022	8,037		—		—		2,141		10,178
2023	7,553		—		94,000		313		101,866
2024	6,725		—		—				6,725
2025	5,776		—		—		—		5,776
Thereafter	17,493		—		—		—		17,493
Total	$	51,808	$	22,499	$	219,000	$	10,835	$	304,142