Mezzanine Equity

12 Months Ended

Feb. 29, 2024

Equity [Abstract]

Mezzanine Equity

13. Mezzanine Equity

Series A Convertible Preferred Stock

On August 5, 2022, we exchanged our $240.0 million 6.00% convertible subordinated notes due June 30, 2030 for 240,000 shares of 6.0% Series A Convertible Preferred Stock ("Series A Preferred Stock"), following the receipt of shareholder approval for the issuance of preferred stock. The Series A Preferred Stock has a $1.00 par value per share and ranks senior to the common stock of the Company, including with respect to both income and capital, but junior to our indebtedness. The Series A Preferred Stock is classified as "Mezzanine equity" in the consolidated balance sheets.

Liquidation Preference

If we undergo a change of control, bankruptcy, insolvency, liquidation or de-listing of AZZ’s common stock (a “Fundamental Change Event”), holders of Series A Preferred Stock may elect to (i) receive the as-converted value of AZZ’s common stock at the then-current Conversion Price, (ii) require us to redeem the Series A Preferred Stock in cash for the Redemption Amount (as defined below) or (iii) retain their shares of Series A Preferred Stock if the Fundamental Change Event is a non-cash change of control.

The Series A Preferred Stock has a liquidation preference, as defined by GAAP, equal to the Redemption Amount. Under GAAP, the liquidation preference is defined as the amount that would be required to be paid to the shareholders upon liquidation or dissolution of the Company. As of February 29, 2024 and February 28, 2023, the holders of the shares of Series A Preferred Stock were entitled to a liquidation preference of approximately $312.5 million and $326.9 million, respectively, in the event of any liquidation, dissolution or winding up of the Company as of such year end.

The Certificate of Designation for the Series A Preferred Stock defines "liquidation preference" as $1,000 per share plus any unpaid dividends, which we refer to herein as the "Series A Base Amount."

Dividends

The Series A Preferred Stock accumulates a 6.0% dividend per annum, or $15.00 per share per quarter. Dividends are payable in cash or in kind, by accreting and increasing the Series A Base Amount (“PIK Dividends”). Dividends are payable on the sum of (i) the aggregate liquidation preference amount of $240.0 million plus (ii) any PIK Dividends. Dividends are accrued daily and paid quarterly in arrears, on March 31, June 30, September 30 and December 31 of each year. Following the calendar quarter ending June 30, 2027, we may not elect PIK Dividends and dividends on the Series A Preferred Stock must be paid in cash. All dividends have been paid in cash through February 29, 2024. The dividend will increase annually by one percentage point, beginning with the dividend payable for the calendar quarter ending September 30, 2028. Dividends declared and paid for the year ended February 29, 2024 and February 28, 2023 were $14.4 million and $8.1 million, respectively. As of February 29, 2024, the 240,000 shares of outstanding Series A Convertible Preferred Stock had accrued dividends of $2.4 million. We currently intend to pay such dividends in cash when due.

Conversion Features

Subject to a minimum conversion threshold of 1,000 shares of Series A Preferred Stock per conversion and customary anti-dilution and dividend adjustments, the Series A Preferred Stock is convertible by the holder at any time into shares of AZZ's common stock for $58.30 per common share (the “Conversion Price”). In addition, after May 13, 2024 we will be entitled to provide holders of Series A Preferred Stock with notice of a mandatory conversion of a portion of the Series A Preferred Stock (which may not exceed 25% of the amount of Series A Preferred Stock issued in any single quarter) at the

Conversion Price if the closing price of the Company’s common stock exceeds 185% of the Conversion Price for 20 consecutive trading days prior to the date of such notice and so long as the shelf registration statement filed November 4, 2022 to cover resales of the converted common stock remains effective and available for use. As of February 29, 2024, the Series A Convertible Preferred Stock could be converted into 4.1 million shares of common stock, at the option of the holder.

Participation Rights

Holders of Series A Preferred Stock will participate equally and ratably with the holders of AZZ's common stock in any dividends paid on AZZ’s common stock in excess of our current $0.17 quarterly dividend when, as and if declared by the Board as if such shares of Series A Preferred Stock had been converted to shares of common stock immediately prior to the record date for the payment of such dividend.

Redemption Features

AZZ will have the right to redeem the Series A Preferred Stock at a price equal to the greater of (i) the Series A Base Amount plus accrued but unpaid dividends; (ii) the initial Series A Base Amount (excluding any prior PIK dividends) multiplied by the Return Factor less all dividends paid through the redemption date; or (iii) the amount the holder of such share of convertible preferred stock would have received had such holder, immediately prior to such redemption date, converted such shares of convertible preferred stock into common shares (such greater amount, the “Redemption Amount”).

The redemption price under option (ii) contains a "Return Factor," which will be equal to 1.4 until May 13, 2024 and, (a) in each of the three years thereafter, will increase by 0.15, (b) will increase by an additional 0.15 after May 13, 2024 (the second anniversary of the issuance date of the Series A Preferred Stock) if (i) our ratio of net debt to earnings before interest, taxes, depreciation and amortization (“EBITDA”) (as defined in the 2022 Credit Agreement) on the second anniversary of the issuance date of the Series A Preferred Stock is greater than 3.5-to-1 and (ii) prior to May 13, 2024,we have not consummated dispositions of assets that, in the aggregate, resulted in proceeds in excess of $200.0 million and (c) will increase by an additional 0.20 on May 13, 2028, (the sixth anniversary of the issuance date of the Series A Preferred Stock) and each anniversary thereafter.

The redemption price under option (iii) is subject to provisions of the Certificate of Designation that limits the Company’s right to redeem to the period following the two year anniversary of the initial issuance, limits the quarterly conversion to up to 25% of the number of shares of convertible preferred stock outstanding, and requires the Company’s market price per share of common stock to exceed 185% of the conversion price.

As of February 29, 2024 and February 28, 2023, the Redemption Amount for the Series A Preferred stock was $312.5 million and $326.9 million, respectively.

Voting Rights

Holders of Series A Preferred Stock will be entitled to a number of votes on all matters presented to holders of voting capital stock of AZZ equal to the number of shares of the AZZ’s common stock then issuable upon conversion of such holders’ Series A Preferred Stock. The vote or consent of the holders of at least a majority of the outstanding shares of Series A Preferred Stock will be required for certain actions, including:

a.issuances by AZZ of equity securities that are senior to, or equal in priority with, the Series A Preferred Stock, including any additional shares of Series A Preferred Stock;

b.incurrence of any additional indebtedness (including refinancings of existing indebtedness) by the Company unless our ratio of net debt to EBITDA (as defined in the 2022 Credit Agreement) does not exceed 5.5x;

c.refinancings of the 2022 Credit Agreement, subject to certain exceptions;

d.dividends or distributions upon, or redemptions of, shares of AZZ’s common stock unless our ratio of net debt to EBITDA (as defined in the 2022 Credit Agreement) does not exceed 5.5x;

e.any acquisition, investment, sale, disposition or similar transaction (whether of an entity, business, equity interests or assets) that has total consideration (including assumption of liabilities) of at least $250.0 million (or, when our market capitalization is $2.0 billion or greater, has total consideration (including assumption of liabilities) of at least $500.0 million);

f.amendments to our organizational documents that would have an adverse effect on the holders of Series A Preferred Stock;

g.any affiliate transaction except those on arms’-length terms; and

h.any voluntary dissolution, liquidation, bankruptcy, winding up or deregistration or delisting of AZZ’s common stock.

The holders of Series A Preferred Stock will also have customary information and preemptive rights, and the Series A Preferred Stock will be subject to customary anti-dilution provisions. The Series A Preferred Stock and all shares of common stock issuable upon conversion of the Series A Preferred Stock will have customary demand and piggyback registration rights pursuant to the registration rights agreement, which was entered into on May 13, 2022 with BTO Pegasus Holdings DE L.P., a Delaware limited partnership (together with its assignees, “Blackstone”). Holders of Series A Preferred Stock will also be prohibited from transferring shares of Series A Preferred Stock to any competitor of AZZ or activist investors, subject to certain exceptions.

At February 29, 2024, the outstanding shares of Series A Preferred Stock were not redeemable at the election of the holder, and we determined that the events outside of our control that would trigger the holders' right to redemption were not probable.

14. Equity

Share Repurchases

On November 10, 2020, our Board of Directors authorized a $100 million share repurchase program, pursuant to which we 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 Rule 10b5-1 trading plans, which allows stock repurchases when we might otherwise be precluded from doing so.

During fiscal 2024 and 2023 and 2023, to prioritize repayments of debt, including debt incurred to finance the Precoat Acquisition, we did not repurchase shares of common stock under the 2020 Share Authorization. During fiscal 2022, we repurchased 601,822 shares of common stock for $30.8 million, or $51.20 per share.

Accumulated Other Comprehensive Income

The components of accumulated other comprehensive gain (loss), after tax, consisted of the following for 2024, 2023 and 2022 (in thousands):

	Foreign Currency Translation Gain (Loss)		Foreign Currency Translation Gain (Loss) for Unconsolidated Subsidiary, Net of Tax		Net Actuarial Gain (Loss), Net of Tax		Interest Rate Swap, Net of Tax		Interest Rate Swap, Net of Tax for Unconsolidated Subsidiary		Total
Balance as of February 28, 2021	$	(25,084)	$	—	$	—	$	—	$	—	$	(25,084)
Other comprehensive loss before reclassification	(2,240)		—		—		—		—		(2,240)
Amounts reclassified from AOCI	—		—		—		—		—		—
Net change in AOCI	(2,240)		—		—		—		—		(2,240)
Balance at February 28, 2022	$	(27,324)	$	—	$	—	$	—	$	—	$	(27,324)
Other comprehensive income (loss) before reclassification	(7,997)		—		119		2,740		—		(5,138)
Amounts reclassified from AOCI	27,750		—		—		139		—		27,889
Net change in AOCI	19,753		—		119		2,879		—		22,751
Balance at February 28, 2023	$	(7,571)	$	—	$	119	$	2,879	$	—	$	(4,573)
Other comprehensive income (loss) before reclassification	(57)		1,418		(303)		3,321		(33)		4,346
Amounts reclassified from AOCI	—		—		—		(3,667)		—		(3,667)
Net change in AOCI	(57)		1,418		(303)		(346)		(33)		679
Balance at February 29, 2024	$	(7,628)	$	1,418	$	(184)	$	2,533	$	(33)	$	(3,894)