UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported):
March 26, 2018
AZZ INC.
(Exact name of Registrant as specified in its charter)
TEXAS (State or Other Jurisdiction of Incorporation or Organization) | 1-12777 Commission File No. | 75-0948250 (I.R.S. Employer Identification Number) |
One Museum Place, Suite 500 3100 West 7th Street Fort Worth, TX 76107 (Address of principal executive offices, including zip code) | ||
| Registrant’s Telephone Number, including Area Code: | (817) 810-0095 |
N/A
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
| ¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Indicate by check mark whether the registrant is an emerging growth company as defined in as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter). 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. ¨
Item 2.02 Results of Operations and Financial Condition.
On March 29, 2018, AZZ Inc. (the “Company”) issued a press release announcing its intent to restate certain previously issued annual and interim financial statements and the anticipated impacts to its consolidated financial statements for the Relevant Periods (as defined below). A copy of this press release is attached hereto as Exhibit 99.1 and is incorporated herein by reference.
Item 4.02 Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Review
On March 26, 2018, the management of the Company in conferring with the Company’s independent registered public accounting firm, BDO USA, LLP (“BDO”), concluded that the Company’s previously issued audited consolidated financial statements (and any related audit reports of BDO) contained in the Company's 2017 Annual Report on Form 10-K (which includes consolidated financial statements for years ending February 28, 2015, February 29, 2016 and February 28, 2017) and the unaudited consolidated financial statements contained in the Company's Quarterly Reports on Form 10-Q for the quarters ended May 31, 2017 and August 31, 2017 (collectively, the “Relevant Periods”) should no longer be relied upon due to an accounting error. The Company determined that it should have applied the percentage-of-completion method of accounting under the FASB’s Accounting Standards Codification No. 605-35, Construction-Type and Production-Type Contracts ("ASC 605-35"), for certain contracts of the Company as further described below. After conferring with the Company’s management and BDO, the Audit Committee of the Board of Directors of the Company concurred with the above conclusion of the Company’s management.
The Company will file amendments to its Annual Report on Form 10-K and Quarterly Reports on Form 10-Q for the Relevant Periods to restate the previously issued annual and interim financial statements. Although the Company cannot yet estimate when it will complete the restatements and file the amended annual and periodic reports, the Company is working diligently and expeditiously towards completion of the restatements and intends to file the amended annual and periodic reports as soon as reasonably practicable and prior to filing its Quarterly Report on Form 10-Q for the quarter ended November 30, 2017.
The table below sets forth the anticipated impacts to the consolidated statements of income (unaudited, in thousands, except per share data):
| Year Ended | ||||||||||||||||||||||||
| February 28, 2017 | February 29, 2016 | |||||||||||||||||||||||
As Reported | Correction | As Restated | As Reported | Correction | As Restated | |||||||||||||||||||
| Net Sales | $ | 858,930 | $ | 4,608 | $ | 863,538 | $ | 903,192 | $ | (13,792 | ) | $ | 889,400 | |||||||||||
| Cost of Sales | 654,146 | 4,790 | 658,936 | 673,081 | (11,799 | ) | 661,282 | |||||||||||||||||
| Gross Profit | 204,784 | (182 | ) | 204,602 | 230,111 | (1,993 | ) | 228,118 | ||||||||||||||||
| Operating Income | 98,360 | (182 | ) | 98,178 | 122,288 | (1,993 | ) | 120,295 | ||||||||||||||||
| Income Before Income Taxes | 84,749 | (182 | ) | 84,567 | 104,368 | (1,993 | ) | 102,375 | ||||||||||||||||
| Income Tax Expense | 23,828 | (68 | ) | 23,760 | 27,578 | (747 | ) | 26,831 | ||||||||||||||||
| Net Income | $ | 60,921 | $ | (114 | ) | $ | 60,807 | $ | 76,790 | $ | (1,246 | ) | $ | 75,544 | ||||||||||
| Earnings Per Common Share | ||||||||||||||||||||||||
| Basic Earnings Per Share | $ | 2.35 | $ | (0.01 | ) | $ | 2.34 | $ | 2.98 | $ | (0.05 | ) | $ | 2.93 | ||||||||||
| Diluted Earnings Per Share | $ | 2.33 | $ | — | $ | 2.33 | $ | 2.96 | $ | (0.05 | ) | $ | 2.91 | |||||||||||
| Weighted Average Shares Outstanding | ||||||||||||||||||||||||
| Basic | 25,965 | 25,965 | 25,800 | 25,800 | ||||||||||||||||||||
| Diluted | 26,097 | 26,097 | 25,937 | 25,937 | ||||||||||||||||||||
| Year Ended | ||||||||||||
| February 28, 2015 | ||||||||||||
As Reported | Correction | As Restated | ||||||||||
| Net Sales | $ | 816,687 | $ | 3,005 | $ | 819,692 | ||||||
| Cost of Sales | 610,991 | 1,928 | 612,919 | |||||||||
| Gross Profit | 205,696 | 1,077 | 206,773 | |||||||||
| Operating Income | 106,825 | 1,077 | 107,902 | |||||||||
| Income Before Income Taxes | 90,130 | 1,077 | 91,207 | |||||||||
| Income Tax Expense | 25,187 | 404 | 25,591 | |||||||||
| Net Income | $ | 64,943 | $ | 673 | $ | 65,616 | ||||||
| Earnings Per Common Share | ||||||||||||
| Basic Earnings Per Share | $ | 2.53 | $ | 0.03 | $ | 2.56 | ||||||
| Diluted Earnings Per Share | $ | 2.52 | $ | 0.03 | $ | 2.55 | ||||||
| Weighted Average Shares Outstanding | ||||||||||||
| Basic | 25,676 | 25,676 | ||||||||||
| Diluted | 25,778 | 25,778 | ||||||||||
| Three Months Ended | ||||||||||||||||||||||||
| May 31, 2017 | August 31, 2017 | |||||||||||||||||||||||
As Reported | Correction | As Restated | As Reported | Correction | As Restated | |||||||||||||||||||
| Net Sales | $ | 208,551 | $ | (834 | ) | $ | 207,717 | $ | 190,407 | $ | 7,195 | $ | 197,602 | |||||||||||
| Cost of Sales | 159,285 | 883 | 160,168 | 148,938 | 5,609 | 154,547 | ||||||||||||||||||
| Gross Profit | 49,266 | (1,717 | ) | 47,549 | 41,469 | 1,586 | 43,055 | |||||||||||||||||
| Operating Income | 21,907 | (1,717 | ) | 20,190 | 15,056 | 1,586 | 16,642 | |||||||||||||||||
| Income Before Income Taxes | 18,732 | (1,717 | ) | 17,015 | 11,396 | 1,586 | 12,982 | |||||||||||||||||
| Income Tax Expense | 5,492 | (644 | ) | 4,848 | 3,067 | 595 | 3,662 | |||||||||||||||||
| Net Income | $ | 13,240 | $ | (1,073 | ) | $ | 12,167 | $ | 8,329 | $ | 991 | $ | 9,320 | |||||||||||
| Earnings Per Common Share | ||||||||||||||||||||||||
| Basic Earnings Per Share | $ | 0.51 | $ | (0.04 | ) | $ | 0.47 | $ | 0.32 | $ | 0.04 | $ | 0.36 | |||||||||||
| Diluted Earnings Per Share | $ | 0.51 | $ | (0.04 | ) | $ | 0.47 | $ | 0.32 | $ | 0.04 | $ | 0.36 | |||||||||||
| Weighted Average Shares Outstanding | ||||||||||||||||||||||||
| Basic | 26,012 | 26,012 | 25,970 | 25,970 | ||||||||||||||||||||
| Diluted | 26,093 | 26,093 | 26,036 | 26,036 | ||||||||||||||||||||
| Six Months Ended | ||||||||||||
| August 31, 2017 | ||||||||||||
As Reported | Correction | As Restated | ||||||||||
| Net Sales | $ | 398,958 | $ | 6,361 | $ | 405,319 | ||||||
| Cost of Sales | 308,223 | 6,492 | 314,715 | |||||||||
| Gross Profit | 90,735 | (131 | ) | 90,604 | ||||||||
| Operating Income | 36,963 | (131 | ) | 36,832 | ||||||||
| Income Before Income Taxes | 30,128 | (131 | ) | 29,997 | ||||||||
| Income Tax Expense | 8,559 | (49 | ) | 8,510 | ||||||||
| Net Income | $ | 21,569 | $ | (82 | ) | $ | 21,487 | |||||
| Earnings Per Common Share | ||||||||||||
| Basic Earnings Per Share | $ | 0.83 | $ | — | $ | 0.83 | ||||||
| Diluted Earnings Per Share | $ | 0.83 | $ | (0.01 | ) | $ | 0.82 | |||||
| Weighted Average Shares Outstanding | ||||||||||||
| Basic | 25,991 | 25,991 | ||||||||||
| Diluted | 26,065 | 26,065 | ||||||||||
The table below sets forth the anticipated impacts to the consolidated balance sheets (unaudited, in thousands):
| February 28, 2017 | February 29, 2016 | |||||||||||||||||||||||
As Reported | Correction | As Restated | As Reported | Correction | As Restated | |||||||||||||||||||
| Assets | ||||||||||||||||||||||||
| Inventories - net | $ | 123,208 | $ | (35,583 | ) | $ | 87,625 | $ | 102,135 | $ | (30,793 | ) | $ | 71,342 | ||||||||||
| Costs and estimated earnings in excess of billings on uncompleted contracts | 20,546 | 29,716 | 50,262 | 32,287 | 31,195 | 63,482 | ||||||||||||||||||
| Total current assets | 296,537 | (5,867 | ) | 290,670 | 309,334 | 402 | 309,736 | |||||||||||||||||
| Total assets | $ | 977,839 | $ | (5,867 | ) | $ | 971,972 | $ | 982,010 | $ | 402 | $ | 982,412 | |||||||||||
| Liabilities and Shareholders’ Equity | ||||||||||||||||||||||||
| Customer deposits and billings in excess of costs and estimated earnings on uncompleted contracts | $ | 32,808 | $ | (10,732 | ) | $ | 22,076 | $ | 24,889 | $ | (4,645 | ) | $ | 20,244 | ||||||||||
| Total current liabilities | 141,850 | (10,732 | ) | 131,118 | 148,405 | (4,645 | ) | 143,760 | ||||||||||||||||
| Deferred income tax liabilities | 51,550 | 1,825 | 53,375 | 49,960 | 1,893 | 51,853 | ||||||||||||||||||
| Total liabilities | 448,200 | (8,907 | ) | 439,293 | 500,794 | (2,752 | ) | 498,042 | ||||||||||||||||
| Shareholders’ equity: | ||||||||||||||||||||||||
| Retained earnings | 495,030 | 3,040 | 498,070 | 450,754 | 3,154 | 453,908 | ||||||||||||||||||
| Total shareholders’ equity | 529,639 | 3,040 | 532,679 | 481,216 | 3,154 | 484,370 | ||||||||||||||||||
| Total liabilities and shareholders' equity | $ | 977,839 | $ | (5,867 | ) | $ | 971,972 | $ | 982,010 | $ | 402 | $ | 982,412 | |||||||||||
| May 31, 2017 | August 31, 2017 | |||||||||||||||||||||||
As Reported | Correction | As Restated | As Reported | Correction | As Restated | |||||||||||||||||||
| Assets | ||||||||||||||||||||||||
| Inventories - net | $ | 131,187 | $ | (36,466 | ) | $ | 94,721 | $ | 144,008 | $ | (42,075 | ) | $ | 101,933 | ||||||||||
| Costs and estimated earnings in excess of billings on uncompleted contracts | 27,295 | 32,337 | 59,632 | 32,082 | 36,616 | 68,698 | ||||||||||||||||||
| Total current assets | 325,744 | (4,129 | ) | 321,615 | 325,007 | (5,459 | ) | 319,548 | ||||||||||||||||
| Total assets | $ | 1,004,998 | $ | (4,129 | ) | $ | 1,000,869 | $ | 1,011,401 | $ | (5,459 | ) | $ | 1,005,942 | ||||||||||
| Liabilities and Shareholders’ Equity | ||||||||||||||||||||||||
| Customer deposits and billings in excess of costs and estimated earnings on uncompleted contracts | $ | 31,527 | $ | (7,277 | ) | $ | 24,250 | $ | 32,659 | $ | (10,193 | ) | $ | 22,466 | ||||||||||
| Total current liabilities | 130,699 | (7,277 | ) | 123,422 | 126,273 | (10,193 | ) | 116,080 | ||||||||||||||||
| Deferred income tax liabilities | 52,431 | 1,181 | 53,612 | 52,293 | 1,776 | 54,069 | ||||||||||||||||||
| Total liabilities | 468,608 | (6,096 | ) | 462,512 | 466,088 | (8,417 | ) | 457,671 | ||||||||||||||||
| Shareholders’ equity: | ||||||||||||||||||||||||
| Retained earnings | 503,847 | 1,967 | 505,814 | 507,754 | 2,958 | 510,712 | ||||||||||||||||||
| Total shareholders’ equity | 536,390 | 1,967 | 538,357 | 545,313 | 2,958 | 548,271 | ||||||||||||||||||
| Total liabilities and shareholders' equity | $ | 1,004,998 | $ | (4,129 | ) | $ | 1,000,869 | $ | 1,011,401 | $ | (5,459 | ) | $ | 1,005,942 | ||||||||||
The restatements described above result from a correction to the accounting method historically used by the Company to record revenues for certain contracts within its Energy Segment. In particular, the Company determined that for certain contracts for which revenue was recognized upon contract completion and transfer of title, the Company instead should have applied the percentage-of-completion method in accordance with ASC 605-35. In general, the percentage-of-completion method results in a revenue recognition pattern over time as a project progresses as opposed to deferring revenues until contract completion. The Company determined that the impact of applying the percentage-of-completion method to certain of its revenue contracts was materially different from its previously reported results, primarily for certain current asset accounts on its consolidated balance sheets, under its historical practice.
In connection with the restatements, the Company re-evaluated its conclusion regarding the effectiveness of the Company’s disclosure controls and procedures and internal controls over financial reporting for the Relevant Periods and determined that a material weakness existed relating to revenue recognition on certain contracts. In addition, as a result of the material weakness, BDO USA LLP’s report on the Company’s internal control over financial reporting as of February 28, 2017 should no longer be relied upon. Management has begun to develop and institute a plan to remediate this material weakness.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits
| Exhibit | Description | |
| Exhibit 99.1 | ||
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 hereunto duly authorized.
| AZZ Inc. | |
| DATE: March 29, 2018 | By: /s/ Paul W. Fehlman |
Paul W. Fehlman Senior Vice President and CFO | |