Document


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