Azz Inc 10-Q for FY2021 Q1

Azz Inc (AZZ)

10-Q 2020-07-09 For: 2020-05-31

Added on April 04, 2026

About this 10-Q

Azz Inc filed this 10-Q on July 9, 2020, covering the quarter ended May 31, 2020 (FY2021 Q1).

Headline figures

Quarter ended May 31, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $213.29M; down 26.2% from $289.12M a year earlier
Net income: $5.54M; down 74.0% from net income of $21.28M a year earlier
Diluted EPS: $0.21; down 74.1% from $0.81 a year earlier

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		PAGE NO.
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Income	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	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	20
Item 4.	Controls and Procedures.	20

PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings.	21
Item 1A.	Risk Factors.	21
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	21
Item 6.	Exhibits.	22

	SIGNATURES	23


	May 31, 2020		February 29, 2020
Assets
Current assets:
Cash and cash equivalents	$	26,414	$	36,687
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
Inventories:
Raw material	90,092		88,837
Work-in-process	8,145		5,543
Finished goods	5,746		5,461
Contract assets	65,044		70,093
Prepaid expenses and other	9,541		8,727
Total current assets	335,029		354,562
Property, plant and equipment, net	214,965		213,104
Operating lease right-of-use assets	41,767		43,208
Goodwill	355,808		356,225
Intangibles and other assets, net	103,204		106,732
Total assets	$	1,050,773	$	1,073,831
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	45,895	$	61,987
Income tax payable	6,239		2,876
Accrued salaries and wages	12,376		38,882
Other accrued liabilities	25,778		26,868
Customer deposits	626		255
Contract liabilities	17,365		18,418
Lease liability, short-term	6,338		6,327
Debt due within one year	125,000		125,000
Total current liabilities	239,617		280,613
Debt due after one year, net	93,911		77,878
Lease liability, long-term	38,290		38,114
Other long-term liabilities	7,604		4,934
Deferred income taxes	35,695		37,926
Total liabilities	415,117		439,465
Commitments and contingencies
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
Capital in excess of par value	67,883		66,703
Retained earnings	573,530		572,414
Accumulated other comprehensive loss	(31,952)		(30,899)
Total shareholders’ equity	635,656		634,366
Total liabilities and shareholders' equity	$	1,050,773	$	1,073,831


	Three Months Ended May 31,
	2020		2019

Net sales	$	213,293	$	289,123
Cost of sales	171,085		223,016
Gross margin	42,208		66,107

Selling, general and administrative	27,890		35,133
Operating income	14,318		30,974

Interest expense	2,634		3,584

Other expense, net	1,456		424
Income before income taxes	10,228		26,966
Income tax expense	4,687		5,682
Net income	$	5,541	$	21,284
Earnings per common share
Basic earnings per share	$	0.21	$	0.81
Diluted earnings per share	$	0.21	$	0.81

Cash dividends declared per common share	$	0.17	$	0.17


	Three Months Ended May 31,
	2020		2019

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


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

Net (gain) loss on sale of property, plant and equipment	40		(200)
Amortization of deferred borrowing costs	135		136
Share-based compensation expense	1,766		1,350
Effects of changes in assets and liabilities, net of acquisitions:
Accounts receivable	8,721		(14,228)
Inventories	(4,449)		7,681
Prepaid expenses and other	(941)		(1,240)
Other assets	123		185
Net change in contract assets and liabilities	3,168		(55,088)
Accounts payable	(15,328)		7,068
Other accrued liabilities and income taxes payable	(19,610)		(454)
Net cash used in operating activities	(11,184)		(17,896)
Cash Flows From Investing Activities
Proceeds from sale of property, plant and equipment	—		210
Purchase of property, plant and equipment	(10,847)		(4,686)
Acquisition of subsidiaries, net of cash acquired	—		(38,993)
Net cash used in investing activities	(10,847)		(43,469)
Cash Flows From Financing Activities

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




Payments of dividends	(4,425)		(4,440)
Net cash provided by financing activities	11,036		50,869
Effect of exchange rate changes on cash	722		77
Net decrease in cash and cash equivalents	(10,273)		(10,419)
Cash and cash equivalents at beginning of period	36,687		24,005
Cash and cash equivalents at end of period	$	26,414	$	13,586

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


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


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


	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, 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


	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


	May 31, 2020		February 29, 2020
Property, plant and equipment, net:
United States	$	194,012	$	190,365
Canada	15,647		16,385
Other countries	5,306		6,354
Total	$	214,965	$	213,104


Beginning of period	$	3,702
Warranty costs incurred	(509)
Additions charged to income	327
End of period	$	3,520


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


2011 Senior Notes	125,000		125,000
Total debt, gross	219,000		203,000
Unamortized debt issuance costs	(89)		(122)
Total debt, net	218,911		202,878
Less amount due within one year	(125,000)		(125,000)
Debt due after one year, net	$	93,911	$	77,878


	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	%


Fiscal year:
2021 (remaining 9 months)	$	6,224
2022	8,037
2023	7,553
2024	6,725
2025	5,776
Thereafter	17,493
Total lease payments	51,808
Less imputed interest	(8,789)
Total	$	43,019


	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


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

Revenues recognized		(213,293)			(289,123)
Backlog	5/31/2020	205,371		5/31/2019	300,115
Book to revenue ratio		0.82			0.89


	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


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 N.A. as Administrative Agent, Swing Line Lender and L/C Issuer, and the other Lender's party thereto (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by the Registrant on March 24, 2017).

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.

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.

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