AZZ INC

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. We are a provider of hot-dip galvanizing and coil coating solutions to a broad range of end markets in North America. We have three distinct operating segments: the AZZ Metal Coatings segment, the AZZ Precoat Metals segment, and the AZZ Infrastructure Solutions segment. Our AZZ Metal Coatings segment is a leading provider of metal coating solutions for corrosion protection, including hot-dip galvanizing, spin galvanizing, powder coating, anodizing and plating to the North American steel fabrication industry and other industries. The AZZ Precoat Metals segment provides aesthetic and corrosion protective coatings and related value-added services for steel and aluminum coil, primarily serving the construction; appliance; heating, ventilation, and air conditioning (HVAC); container; transportation and other end markets in North America. The AZZ Infrastructure Solutions segment ("AIS") represents our 40% non-controlling interest in the AIS Investment Holdings LLC (the "AVAIL JV"). AIS Investment Holdings LLC is primarily 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 markets worldwide. See Note 8 for additional information about the AVAIL JV. See Note 7 for information about the Company's operations by segment.

Presentation

The accompanying condensed consolidated balance sheet as of February 28, 2026, was derived from audited financial statements. 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 28, 2026, included in our Annual Report on Form 10-K covering such period which was filed with the Securities and Exchange Commission ("SEC") on April 22, 2026. Certain previously reported amounts have been reclassified to conform to current period presentation.

Our 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, 2027, is referred to as fiscal 2027.

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, 2026, and the results of its operations and cash flows for the three months ended May 31, 2026 and 2025. The interim results reported herein are not necessarily indicative of results for a full year.

Accounts receivable, net of allowance for credit losses

The balance of trade accounts receivable, net of allowance for credit losses was $163.9 million, $142.6 million, and $135.1 million as of May 31, 2026, February 28, 2026, and February 28, 2025, respectively.

Recently Adopted Accounting Pronouncements

In July 2025, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2025-05, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets ("ASU 2025-05"). ASU 2025-05 provides a practical expedient that permits entities, when estimating expected credit losses for current accounts receivable and current contract assets arising from transactions accounted for under Topic 606, Revenue from Contracts with Customers, to assume that current conditions as of the balance sheet date do not change for the remaining life of the asset. The Company adopted ASU 2025-05 effective March 1, 2026, and the adoption of ASU 2025-05 did not have a material impact on the Company’s condensed consolidated financial statements.

Accounting Pronouncements Not Yet Adopted

In December 2025, the FASB issued ASU No. 2025-11, Interim Reporting (Topic 270): Narrow-Scope Improvements ("ASU 2025-11"), which clarifies the applicability of the interim reporting guidance, the types of interim reporting, and the form and content of interim financial statements in accordance with GAAP. The amendment does not intend to change the fundamental nature of interim reporting or expand or reduce current interim disclosure requirements, but rather to provide clarity and improve the navigability of the existing interim reporting guidance. ASU 2025-11 is effective for interim periods within annual reporting periods beginning after December 15, 2027, with early adoption permitted, and may be applied either prospectively or retrospectively for all prior periods presented. We expect to adopt ASU 2025-11 for the interim period ending May 31, 2028, and we are currently evaluating the impact of ASU 2025-11 on our consolidated financial statements.

In December 2025, the FASB issued ASU No. 2025-10, Government Grants (Topic 832): Accounting for Government Grants Received by Business Entities("ASU 2025-10"), which establishes authoritative guidance on the recognition, measurement, presentation, and disclosure of government grants. Under ASU 2025-10, government grants are recognized when it is probable that the entity will both comply with the conditions of the grant and the grant will be received. ASU 2025-10 provides specific accounting models for grants related to assets and grants related to income, including options to recognize government grants as deferred income or as a reduction of the asset’s cost basis. ASU 2025-10 also requires enhanced disclosures regarding the nature of government grants, significant terms and conditions, accounting policies applied, and amounts recognized in the financial statements. ASU 2025-10 is effective for fiscal years beginning after December 15, 2028, including interim periods within those fiscal years, with early adoption permitted. We expect to adopt ASU 2025-10 for the interim period ending May 31, 2029, and we are currently evaluating the impact of ASU 2025-10.

In September 2025, the FASB issued ASU No. 2025-06, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software("ASU 2025-06") which updates the accounting for software costs that are accounted for under Subtopic 350-40, Intangibles—Goodwill and Other—Internal-Use Software (referred to as "internal-use software"). ASU 2025-06 will be effective for annual periods beginning after December 15, 2027 and interim reporting periods within those annual periods. We expect to adopt ASU 2025-06 for the interim period ending May 31, 2028, and we are currently evaluating the impact of ASU 2025-06 on our consolidated financial statements.

In November 2024, the FASB issued ASU No. 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses ("ASU 2024-03"), which expands disclosures about a public entity's expenses, including inventory, employee compensation, depreciation, intangible asset amortization, selling expenses and other expense categories. In January 2025, the FASB issued ASU No. 2025-01, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40) - Clarifying the Effective Date("ASU 2025-01"), which clarifies the effective date of ASU 2024-03 for companies with a non-calendar year end. ASU 2024-03 is effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. We do not expect the adoption of ASU 2024-03 or ASU 2025-01 to affect our financial position or our results of operations, but ASU 2024-03 will result in additional disclosures for our annual reporting period ending February 29, 2028, and interim reporting periods beginning in fiscal 2029.

2. Acquisitions

Canton Galvanizing

On July 1, 2025, we completed the acquisition of all the assets of Canton Galvanizing, LLC ("Canton Galvanizing"), a privately held hot-dip galvanizing company based in Canton, Ohio, for approximately $30.1 million. The acquisition expanded our geographical coverage in metal coatings capacity and further strengthens our network of facilities in the Midwest region of the United States. The business is included in the AZZ Metal Coatings segment. The goodwill arising from this acquisition was allocated to the AZZ Metal Coatings segment and is expected to be deductible for income tax purposes.

The allocation of purchase price to the identifiable assets acquired and liabilities assumed for this acquisition has been finalized. Intangible assets subject to amortization from the acquisition consist of customer relationships. The total weighted-average amortization period for these assets is 15 years, and the assets haveno residual value.

The following table summarizes the fair values of the allocation of assets acquired and liabilities assumed, in aggregate, related to the Canton Galvanizing acquisition, as of the date of the acquisition (in thousands):

3. Inventories

The following table summarizes the components of inventory (in thousands):

Our inventory reserves were $3.1 million and $3.4 million as of May 31, 2026 and February 28, 2026, respectively. Inventory cost is determined principally using the first-in-first-out (FIFO) method for the AZZ Metal Coatings segment and the specific identification method for the AZZ Precoat Metals segment.

4. Earnings Per Share

Basic earnings per share is based on the weighted average number of common shares outstanding during each period. Diluted earnings per share is calculated by giving effect to the potential dilution that could occur if securities or other contracts to issue common shares were exercised and converted into common shares during the period.

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

For the three months ended May 31, 2026 and 2025,55.6 thousand and 50.9 thousand shares, respectively, were excluded from the computation of diluted earnings per share as their effect would have been anti-dilutive. These shares could be dilutive in future periods.

5. Disaggregated Sales

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

During the three months ended May 31, 2026, the Company revised its disaggregated sales categories to better reflect its current business operations. For the three months ended May 31, 2025, customer industry categories have been reclassified to conform to the current period presentation. This reclassification had no impact on total sales. See Note 7 for sales information by operating segment.

Contract Assets and Liabilities

The timing of revenue recognition, billings and cash collections results in accounts receivable, contract assets (unbilled receivables), and contract liabilities (customer advances and deposits) on the consolidated balance sheets. Our contract assets and contract liabilities are primarily related to the AZZ Precoat Metals segment. Customer billing can occur subsequent to revenue recognition, resulting in contract assets. In addition, we can receive advances from our customers before revenue is recognized, resulting in contract liabilities. These assets and liabilities are reported on the consolidated balance sheets on a contract-by-contract basis at the end of each reporting period.

The increases in contract assets and contract liabilities during the three months ended May 31, 2026, were primarily due to normal timing differences between AZZ's performance and customer payments. Contract liabilities of $0.7 million, $0.6 million, and $0.5 million as of May 31, 2026, February 28, 2026, and February 28, 2025, respectively, are included in "Other accrued liabilities" in the consolidated balance sheets. The balance of contract assets was $117.1 million, $112.8 million, and $106.5 million as of May 31, 2026, February 28, 2026, and February 28, 2025, respectively.

Remaining Unsatisfied Performance Obligations

Remaining unsatisfied performance obligations ("RUPO") represent the total dollar value of work to be performed on contracts awarded and in progress. The amount of RUPO increases with new contracts or additions to existing contracts and decreases as revenue is recognized on existing contracts. Contracts are included in the amount of RUPO when an enforceable agreement has been reached. We have elected the practical expedient to exclude remaining performance obligations with a duration of one year or less. The Company has a long-term customer contract related to the aluminum coil coating facility in Washington, Missouri that includes RUPO through fiscal year 2031. The amounts associated with remaining performance obligations are subject to variability based on customer ordering patterns, production capacity, and contractual provisions. As of May 31, 2026, the amount of RUPO that we expect to recognize as revenue is not significant for any year through fiscal year 2031.

6. Supplemental Cash Flow Information

To arrive at net cash provided by operating activities, net income is adjusted by, among other things, changes in current assets and current liabilities as follows (in thousands):

Cash flows related to interest were as follows (in thousands):

Supplemental disclosures of non-cash investing and financing activities were as follows (in thousands):

7. Operating Segments

Segment Information

Our Chief Executive Officer, who is the chief operating decision maker ("CODM"), reviews financial information presented on an operating segment basis for purposes of making operating decisions and assessing financial performance. Sales and operating income are the primary measures used by the CODM to evaluate segment operating performance and to allocate resources to the AZZ Metal Coatings and the AZZ Precoat Metals segments. The CODM uses net income before taxes as the primary measure to evaluate performance and allocate resources to the AZZ Infrastructure Solutions segment. The CODM assesses these metrics and compares actuals to budgeted and forecasted values to evaluate segment operating performance and allocate resources to the operating segments. Expenses related to certain centralized administration or executive functions that are not specifically related to an operating segment are included in Corporate.

A summary of each of our operating segments is as follows:

AZZ Metal Coatings — provides hot-dip galvanizing, spin galvanizing, powder coating, anodizing and plating, and other metal coating applications to the steel fabrication industry and other industries through facilities located throughout North America. Hot-dip galvanizing is a metallurgical manufacturing process in which molten zinc reacts with steel, which provides corrosion protection and extends the lifecycle of fabricated steel for several decades.

AZZ Precoat Metals —provides coil coating application of protective and decorative coatings and related value-added downstream processing for steel and aluminum coils. Primarily serving the construction; appliance; heating, ventilation, and air conditioning (HVAC); container; transportation; and other end markets, the coil coating process emphasizes sustainability and enhanced product lifecycles. It involves cleaning, treating, painting, and curing metal coils as a flat material before they are cut, formed, and fabricated into finished products. This highly efficient method optimizes waste through tight film control and improves final product performance by painting and curing the substrates under conditions unmatched by other application processes.

AZZ Infrastructure Solutions — represents our 40% non-controlling interest in the AVAIL JV, as well as other expenses directly related to AIS receivables and liabilities that were retained following the divestiture of the AIS business.

For the three months ended May 31, 2026, following the divestiture of certain business operations, the AVAIL JV provided industrial and hazardous-duty lighting products, specialized welding, maintenance, and asset integrity solutions serving the power generation, oil and gas, and industrial markets. For the three months ended May 31, 2025, the AVAIL JV was a global provider of application-critical equipment, highly engineered technologies, and specialized services to the power generation, transmission, distribution, oil and gas, and industrial markets.

The following tables contain operating segment data for the three months ended May 31, 2026 and 2025 was as follows (in thousands):

Asset balances by operating segment were as follows (in thousands):

Depreciation and amortization expense by segment for the three months ended May 31, 2026 and 2025 was as follows (in thousands):

Financial Information About Geographical Areas

Financial information about geographical areas for the periods presented was as follows (in thousands). The geographic area is based on the location of the operating facility and no customer accounted for 10% or more of consolidated sales.

8. Investments in Unconsolidated Entity

AVAIL JV

We account for our 40% interest in the AVAIL JV under the equity method of accounting and include our equity in earnings as part of the AZZ Infrastructure Solutions segment. We record our equity in earnings in the AVAIL JV on a one-month lag.

As of May 31, 2026, our investment in the AVAIL JV was $19.0 million. For the three months ended May 31, 2026, we recorded $0.5 million of equity in earnings.

The following tables summarize balance sheet and income statement information for the AVAIL JV (in thousands):

Cash Distributions from the AVAIL JV

We classify cash flows from distributions using the cumulative earnings method. Cash received is classified as return on investment in operating cash flows to the extent that cumulative earnings exceed cumulative distributions, less distributions received in prior periods that were deemed returns of investment. We did not receive cash distributions from the AVAIL JV during the three months ended May 31, 2026. During the three months ended May 31, 2025, we received cash distributions from the AVAIL JV of $273.2 million, following AVAIL’s sale of its Electrical Products Group ("EPG") to nVent Electric plc.

9. Derivative Instruments

Interest Rate Swap Derivative

As a policy, we do not hold, issue or trade derivative instruments for speculative purposes. We periodically enter into forward sale contracts to purchase a specified volume of zinc and natural gas at fixed prices. These contracts are not accounted for as derivatives because they meet the criteria for the normal purchases and normal sales scope exception in ASC 815, Derivatives and Hedging.

We manage our exposure to fluctuations in interest rates on our floating-rate debt by entering into interest rate swap agreements to convert a portion of our variable-rate debt to a fixed rate. On June 30, 2025, we entered into a fixed-rate interest rate swap agreement (the "2025 Swap"). The 2025 Swap converts the SOFR-based component of the interest rate to 3.759%. As of May 31, 2026, the 2025 Swap resulted in a total fixed rate of 5.509%. The 2025 Swap has a notional amount of $290.0 million and a maturity date of June 30, 2027. The objective of the 2025 Swap is to eliminate the variability of cash flows in interest payments attributable to changes in benchmark one-month SOFR interest rates. The hedged risk is the interest rate risk exposure to changes in interest payments, attributable to changes in benchmark one-month SOFR interest rates over the interest rate swap term. The changes in cash flows of the interest rate swap are expected to exactly offset changes in cash flows of the variable-rate debt. We designated the 2025 Swap as a cash flow hedge at inception. Cash settlements, in the form of cash payments or cash receipts, of the 2025 Swap are recognized in interest expense.

At May 31, 2026, changes in fair value attributable to the effective portion of the 2025 Swap were included on the consolidated balance sheets in "Accumulated other comprehensive loss." For derivative instruments that qualify for hedge accounting treatment, the fair value is recognized on our consolidated balance sheets as derivative assets or liabilities with offsetting changes in fair value recognized in accumulated other comprehensive income (loss) until reclassified into earnings when the interest expense on the underlying debt is reflected in earnings. During the three months ended May 31, 2026, we reclassified $0.1 million before income tax, or $0.05 million net of tax, from other comprehensive income to earnings for the 2025 Swap.

10. Debt

Our long-term debt instruments and balances outstanding as of May 31, 2026 and February 28, 2026 were as follows (in thousands):

2022 Credit Agreement and Term Loan B

We have a credit agreement with a syndicate of financial institutions as lenders, entered into on May 13, 2022 and amended from time to time (collectively referred to herein as the "2022 Credit Agreement").

The 2022 Credit Agreement includes the following significant terms:

i. provides for a senior secured initial term loan in the aggregate principal amount of $1.3 billion (the "Term Loan B"), due May 13, 2029, which is secured by substantially all of the assets of the Company; as of May 31, 2026, the outstanding balance of the Term Loan B was $335.0 million;

ii. provides for a maximum senior secured Revolving Credit Facility in the aggregate principal amount of $400.0 million (the "Revolving Credit Facility"), due May 13, 2027;

iii. includes a letter of credit sub-facility of up to $100.0 million, which is part of, and not in addition to, the Revolving Credit Facility;

iv. borrowings under the Term Loan B bear an interest rate of Secured Overnight Financing Rate ("SOFR") plus 1.75% and the Revolving Credit Facility bears a leverage-based rate with various tiers between 1.25% and 2.25%; as of May 31, 2026, the interest rate was SOFR plus 1.25%;

v. includes customary affirmative and negative covenants, and events of default; including restrictions on the incurrence of non-ordinary course debt, investment and dividends, subject to various exceptions; and,

vi. includes a maximum quarterly leverage ratio financial covenant, with reporting requirements to our banking group at each quarter-end.

On May 7, 2026, we amended our 2022 Credit Agreement to change the following terms of the Revolving Credit Facility:

i. extended the maturity date of our Revolving Credit Facility from May 31, 2026 to May 7, 2029;

ii. added JP Morgan Chase Bank, N.A. and PNC Capital Markets LLC as additional lenders, and removed Citibank N.A. and Barclays Bank PLC as lenders;

iii. reduced the interest rate tiers from a range of SOFR plus 1.75% to 2.75% to a range of SOFR plus 1.25% to 2.25%; and

iv. reduced the leverage-based commitment fee tiers from a range of 0.20% to 0.30% to a range of 0.15% to 0.25%.

In connection with the amendment, approximately 37.5% of the aggregate principal amount was reallocated to the new lenders. We evaluated the amendment under the guidance in ASC 470-50, Debt—Modifications and Extinguishments and concluded that the amendment represented a modification at the instrument level, as the quantitative 10% cash flow test was not met. However, the lender reallocation resulted in a partial extinguishment at the lender level. As a result, for the three months ended May 31, 2026, we recognized a write-off of approximately $0.6 million of unamortized debt financing costs, which is included in "Interest expense, net" on our consolidated statement of operations and in "Amortization of debt financing costs" on our consolidated statement of cash flows.

We primarily utilize proceeds from the Revolving Credit Facility to finance timing fluctuations of working capital needs, capital improvements, quarterly cash dividends, acquisitions and other general corporate purposes.

As defined in the 2022 Credit Agreement, quarterly prepayments were due against the outstanding principal of the Term Loan B and were payable on the last business day of each May, August, November and February, beginning August 31, 2022, in a quarterly aggregate principal amount of $3.25 million, with the entire remaining principal amount due on May 13, 2029, the maturity date. Additional prepayments made against the Term Loan B contributed to these required quarterly payments. Due to prepayments made against the Term Loan B since August 31, 2022, the quarterly mandatory principal payment requirement has been met, and the quarterly payments of $3.25 million are no longer required.

Receivables Securitization Facility

On July 10, 2025, we entered into a credit agreement secured by our trade accounts receivable and contract assets (the "Receivables Securitization Facility.") Under this arrangement, we transferred our trade receivables to a special purpose entity ("SPE"), which in turn pledged those receivables as collateral for borrowings under the facility. The transaction does not qualify as a sale under ASC 860, Transfers and Servicing; as a result, the arrangement is accounted for as a secured borrowing.

Accordingly, the receivables transferred to the SPE will remain on our consolidated balance sheet within trade accounts receivable and contract assets, and the Receivables Securitization Facility is included in "Long-term debt, net." The Receivables Securitization Facility has a limit of $150.0 million and is due July 10, 2028. As of May 31, 2026, the total amount of receivables pledged under the facility was $268.1 million, consisting of $153.8 million in trade accounts receivable and $114.3 million in contract assets, with outstanding borrowings of $150.0 million. The interest rate on the Receivables Securitization Facility is one-month SOFR plus 0.95%.

We remain exposed to the credit risk associated with the underlying receivables and are responsible for their collection. The Receivables Securitization Facility includes provisions that allow the SPE to take control of the assets only in the event of bankruptcy or violation of servicing the secured accounts receivable. We will monitor these provisions to ensure ongoing compliance and availability under the facility.

The proceeds from the Receivables Securitization Facility were used to pay down the Term Loan B.

Debt Compliance, Outstanding Borrowings and Letters of Credit

Our 2022 Credit Agreement requires us to maintain a maximum Total Net Leverage Ratio (as defined in the loan agreement) no greater than 4.5. We are also required to maintain certain covenants under the Receivables Securitization Facility. As of May 31, 2026, we were in compliance with all covenants and other requirements set forth in the 2022 Credit Agreement and the Receivables Securitization Facility.

As of May 31, 2026, we had $515.0 million of debt outstanding, with varying maturities through fiscal 2030. We had approximately $359.4 million of additional credit available as of May 31, 2026.

As of May 31, 2026, we had outstanding letters of credit in the amount of $10.6 million. These standby letters of credit are primarily issued to support insurance deductibles and other collateral requirements.

Other Disclosures

The weighted-average interest rate for our outstanding debt, including the Revolving Credit Facility, the Term Loan B, and the Receivables Securitization Facility was 5.24% and 5.94% as of May 31, 2026 and February 28, 2026, respectively. We are also obligated to pay a leverage-based commitment fee with various tiers between 0.15% and 0.25% per year for unused amounts under the Revolving Credit Facility. As of May 31, 2026, the commitment fee rate was 0.175%.

Interest expense is comprised as follows (in thousands):

Capitalized interest for the three months ended May 31, 2026 and 2025 relates to interest cost on the construction of the greenfield aluminum coil coating facility in Washington, Missouri. The decrease for the three months ended May 31, 2026 compared to the prior year is due to the higher average construction work in process in the prior year, as the new facility was placed in service during fiscal 2026.

11. Fair Value Measurements

Recurring Fair Value Measurements

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. In accordance with ASC 820, Fair Value Measurement ("ASC 820"), certain of our assets and liabilities, which are carried at fair value, are classified in one of the following three categories:

•Level 1: Quoted market prices in active markets for identical assets or liabilities;

•Level 2: Observable market-based inputs, other than Level 1, or unobservable inputs corroborated by market data; or,

•Level 3: Unobservable inputs that are not corroborated by market data and reflect the Company’s own assumptions.

The carrying amount of our financial instruments (cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities) approximates the fair value of these instruments based upon either their short-term nature or their variable market rate of interest. We have not made an option to elect fair value accounting for any of our financial instruments.

Interest Rate Swap Agreement

Our derivative instrument consists of the 2025 Swap, which is considered Level 2 of the fair value hierarchy. The 2025 Swap is included in "Other assets" and "Other long-term liabilities" as of May 31, 2026 and February 28, 2026, respectively, in the consolidated balance sheets. The valuation of the 2025 Swap is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of the derivative. This analysis reflects the contractual terms of the derivative, including the period to maturity, and uses observable market-based inputs, including swap rates, spread, and/or index levels and interest rate curves. See Note 9 for more information about the 2025 Swap.

Our financial instruments that are measured at fair value on a recurring basis as of May 31, 2026 and February 28, 2026 are as follows (in thousands):

Non-recurring Fair Value Measurements

Investment in Joint Venture

The fair value of our investment in the unconsolidated AVAIL JV was determined using the income approach at the date on which we entered into the joint venture. The income approach uses discounted cash flow models that require various observable and non-observable inputs, such as operating margins, revenues, product costs, operating expenses, capital expenditures, terminal-year values and risk-adjusted discount rates. These valuations resulted in Level 3 non-recurring fair value measurements.

We assess our investment in the unconsolidated AVAIL JV for recoverability when events and circumstances are present that suggest there has been a decline in value, and if it is determined that a loss in value of the investment is other-than-temporary, the investment is written down to its fair value.

Long-Term Debt

The fair values of our long-term debt instruments are estimated based on market values for debt issued with similar characteristics or rates currently available for debt with similar terms. These valuations are Level 2 non-recurring fair value measurements.

The principal amount of our outstanding debt under the 2022 Credit Agreement was $365.0 million and $385.0 million at May 31, 2026 and February 28, 2026, respectively. The estimated fair value of our outstanding debt was $365.8 million and $385.5 million at May 31, 2026 and February 28, 2026, excluding unamortized debt issuance costs. The estimated fair values of our outstanding debt were determined based on the present value of future cash flows using model-derived valuations that use observable inputs such as interest rates and credit spreads. The carrying amount of the Receivables Securitization Facility approximates the fair value.

12. Leases

We are a lessee under various leases for facilities and equipment. As of May 31, 2026, we were the lessee for 161 operating leases and 158 finance leases with terms of 12 months or more. These leases are reflected in "Right-of-use assets," "Lease liability—short-term" and "Lease liability—long-term" in our consolidated balance sheets.

Our leases are primarily for (i) operating facilities, (ii) vehicles and equipment used in operations, (iii) facilities used for back-office functions, (iv) equipment used for back-office functions, and (v) temporary storage. The majority of our vehicle and equipment leases have both a fixed and variable component.

Leases with an initial term of 12 months or less are not recorded on the consolidated balance sheets and we recognize lease expense for these leases on a straight-line basis over the lease term. We have a significant number of short-term leases, including month-to-month agreements. Our short-term lease agreements include expenses incurred hourly, daily, monthly and for other durations of time of one year or less. Our future lease commitments as of May 31, 2026, do not reflect all of our short-term lease commitments.

The following table outlines the classification of right-of-use ("ROU") assets and lease liabilities in the consolidated balance sheets as of May 31, 2026 and February 28, 2026 (in thousands):

Supplemental information related to our leases was as follows (in thousands, except years and percentages):

The following table outlines our lease expense in the consolidated statements of operations as of May 31, 2026 and May 31, 2025 (in thousands):

As of May 31, 2026, maturities of our lease liabilities were as follows (in thousands):

We sublease multiple buildings in Columbia, South Carolina to multiple subtenants. The Columbia sublease agreements are by and between AZZ Precoat Metals and multiple subtenants. Sublease income is recognized over the term of the sublease on a straight-line basis and is reported in the consolidated statement of operations as a reduction to "Cost of sales."Sublease income for the three months ended May 31, 2026 and 2025 was as follows (in thousands):

13. Income Taxes

The provision for income taxes reflects an effective tax rate of 21.2% for the three months ended May 31, 2026, compared to 24.3% for the three months ended May 31, 2025. The decrease in the effective tax rate is driven by higher tax deductions for stock compensation in the current year, coupled with higher tax expense in the prior year related to equity in earnings from the AVAIL JV.

14. Equity

Share Repurchase Program

On November 10, 2020, our Board of Directors authorized a $100 million share repurchase program pursuant to which we may repurchase our common stock (the "2020 Authorization"). Repurchases under the 2020 Authorization will be made through open market 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. Currently, share repurchases may not exceed 6% of our market capitalization per fiscal year.

On January 22, 2026, our Board of Directors authorized a $100 million share repurchase program (the "2026 Share Repurchase Program") pursuant to which we may repurchase our common stock. Repurchases under the 2026 Share Repurchase Program will be made through open market 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. Currently, share repurchases may not exceed 6% of our market capitalization per fiscal year.

During the three months ended May 31, 2026, we did not repurchase any shares of common stock under the 2020 Share Authorization or the 2026 Share Repurchase Program. As of May 31, 2026, there was $33.2 million and $100.0 million remaining to repurchase shares under the 2020 Authorization and the 2026 Share Repurchase Program, respectively.

Accumulated Other Comprehensive Income (Loss)

The components of accumulated other comprehensive income (loss) ("AOCI"), after tax, for the three months ended May 31, 2026 and 2025, consisted of the following (in thousands):

15. Share-based Compensation

Effective April 18, 2025, the Compensation Committee of the Board of Directors (the "Compensation Committee") adopted the Executive Retiree LTI Program (the "ERP") to continue the vesting of annual equity awards to certain executive officers and other senior members of the management team as designated by the Compensation Committee, including the Company's named executive officers (a "Covered Executive" or collectively, the "Covered Executives"), upon qualified Retirement (as such term is defined in the Company's 2023 Long-Term Incentive Plan). The ERP is applicable to both annual restricted share unit awards and annual performance share unit awards granted to the Covered Executives pursuant to newly adopted Restricted Share Unit ("RSU") Award Agreements and Performance Share Unit ("PSU") Award Agreements for the Covered Executives (collectively, the "Award Agreements") containing such provisions for the fiscal year 2026 long-term incentive equity awards.

Upon adoption of the ERP, the service requirement for executives that are currently eligible for retirement has been met. As a result, we recognized additional stock-based compensation for the three months ended May 31, 2025, of $2.2 million upon the adoption of the ERP related to the RSUs for Covered Executives that have achieved qualified retirement status.

16. Defined Benefit Pension Plan

Pension and Employee Benefit Obligations

In our AZZ Precoat Metals segment, certain current or past employees participate in a defined benefit pension plan (the "Plan"). Prior to the acquisition of AZZ Precoat Metals, benefit accruals were frozen for all participants. After the freeze, participants no longer accrued benefits under the Plan, and new hires of AZZ Precoat Metals are not eligible to participate in the Plan. During the first quarter of fiscal year 2027, the Company's Board of Directors approved a plan to terminate the Plan. The Company intends to complete the termination through a combination of lump-sum distributions to active and terminated vested plan participants and the purchase of annuity contracts for current in-pay participants and those participants who do not elect a lump sum distribution. The termination process is subject to regulatory requirements, including approval from the Internal Revenue Service ("IRS") and the Pension Benefit Guaranty Corporation ("PBGC"), and is expected to be completed by the end of fiscal year 2028. The approval of the Plan termination does not result in an immediate settlement of the Company's pension obligation. The Company expects to recognize settlement accounting in future periods as individual settlement transactions occur. Upon settlement, the Company may be required to remeasure the Plan's projected benefit obligation and plan assets and may recognize in earnings a portion of the actuarial gains or losses currently recorded in AOCI. At this time, the Company is unable to reasonably estimate the total financial impact of the Plan termination, including the timing and amount of any gains or losses that may be recognized in future periods. As of May 31, 2026, the Plan was underfunded, and we have a net pension obligation of $13.7 million, which is included in "Other long-term liabilities" in the consolidated balance sheets and represents the underfunded portion of the Plan.

The components of net benefit cost other than the employer service cost are included in "Selling, general and administrative" expense and were not significant for the three months ended May 31, 2026 and 2025. We paid employer contributions of $1.3 million into the Plan during the three months ended May 31, 2026. We expect to pay $1.9 million of contributions into the Plan during the remainder of fiscal year 2027.

17. Restructuring Charges

During fiscal year 2026, management completed a restructuring plan for certain surface technologies facilities within the AZZ Metal Coatings segment (the "AST Restructuring") to improve overall operational efficiency and financial performance. During the three months ended May 31, 2025, we recognized restructuring charges of $3.8 million, which were included in "Cost of sales" in the consolidated statement of operations and included the loss on sale of equipment, for which we received $0.7 million in proceeds. The restructuring charges consisted primarily of $3.3 million for the write-off of intangible assets and goodwill, as well as $0.5 million for the write-off of other assets, loss on the sale of equipment and severance accruals.

As a result of the AST Restructuring, we closedtwo surface technology facilities; the facilities were located in Garland, Texas and Tampa, Florida. Management performed an analysis of the assets at each location closed. For assets that were not sold or transferred to another location for use in operations, management wrote down the assets to reflect a decrease in the estimated useful life and lower value to the Company.

18. Commitments and Contingencies

Legal

AZZ and its subsidiaries are named defendants and plaintiffs in various routine lawsuits incidental to our business. These proceedings include labor and employment claims, various commercial disputes, worker’s compensation and environmental matters, all arising in the normal course of business. As discovery progresses on all outstanding legal matters, we continuously evaluate opportunities to either mediate the cases or settle the disputes for nuisance value or the cost of litigation as a way to resolve the disputes prior to trial. As the pending cases progress through additional discovery and potential mediation, our assessment of the likelihood of a favorable or an unfavorable outcome on the pending lawsuits may change. The actual outcome of these lawsuits or other proceedings cannot be predicted with any 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. Therefore, management, after consultation with legal counsel believes it has strong claims or defenses to all of its legal 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, results of operations or cash flows.

In 2017, Southeast Texas Industries, Inc. ("STI") filed a breach of contract lawsuit against the Company in the 1st District Court of Jasper County, Texas (the "Court"). In 2020, we filed a counter suit against STI for amounts due to AZZ Beaumont for work performed. On October 16, 2023, the case went to trial, and on October 27, 2023, the jury rendered a verdict in favor of STI and against AZZ in the amount of $4.5 million in damages for breach of contract and breach of express warranty. On February 14, 2024, the trial court entered Final Judgment in favor of STI, awarding STI actual damages of $4.5 million, plus $1.0 million in attorney fees. On May 14, 2024, we filed a Notice of Appeal in the Court of Appeals for the Ninth district of Texas in Beaumont. AZZ has purchased a supersedeas bond to cover the final judgment amount during the appellate process. We filed our appellate brief on February 24, 2025. Oral arguments were presented by the parties to the Court of Appeals on March 5, 2026. On April 9, 2026, the Beaumont Court of Appeals ruled there was insufficient evidence to support the final judgment against AZZ, and that STI shall take nothing from AZZ. STI has until June 26, 2026 to file a petition for review in the Supreme Court of Texas. As of the date of this filing, we still have a legal accrual of $5.5 million recorded, which is included in "Other accrued liabilities" on our consolidated balance sheets. This legal accrual will remain in place until the time the Supreme Court of Texas has declined to review the case as requested by STI, or makes a ruling on STI's petition on the merits, whichever scenario is applicable.

On May 1, 2026, Kaiser Aluminum Warrick LLC ("Kaiser") filed a complaint against Precoat Mezzanine LLC ("Precoat"), an indirectly held subsidiary of AZZ Inc., in the Superior Court for the State of Delaware alleging breach of contract and breach of express warranty, and seeking declaratory judgment. Kaiser has asserted that Precoat failed to fulfill its obligations under a Master Agreement for Procurement of Services entered into on October 9, 2024. This matter is in its early stages, and we are unable to estimate a range of possible loss, if any, at this time. The Company, in consultation with its legal counsel, intends to vigorously defend this lawsuit, including the assertion of counterclaims.

Environmental

As of May 31, 2026, the reserve balance for our environmental liabilities was $17.4 million, of which $2.0 million is classified as current. Environmental remediation liabilities include costs directly associated with site investigation and site remediation, such as materials, external contractor costs, legal and consulting expenses and incremental internal costs directly related to ongoing remediation plans. Estimates used to record environmental remediation liabilities are based on the Company's best estimate of probable future costs based on site-specific facts and circumstances known at the time of these estimates and they are updated on a quarterly basis. Estimates of the cost for the potential or ongoing remediation plans are developed using internal resources and third-party environmental engineers and consultants.

We accrue the anticipated cost of environmental remediation when the obligation is probable and the amount can be reasonably estimated. If a range of amounts can be reasonably estimated and no amount within the range is a better estimate than any other amount, then the minimum of the range is accrued. While any revisions to our environmental remediation liabilities could potentially be material to the operating results of any fiscal quarter or fiscal year, we do not expect such additional remediation expenses to have an adverse material effect on our financial position, results of operations, or cash flows.