Discontinued Operations

9 Months Ended

Nov. 30, 2023

Discontinued Operations and Disposal Groups [Abstract]

Discontinued Operations

3. Discontinued Operations

On September 30, 2022, AZZ contributed its AZZ Infrastructure Solutions ("AIS") segment, excluding AZZ Crowley Tubing, to a joint venture, AIS Investment Holdings LLC (the "AVAIL JV") and sold a 60% interest in the AVAIL JV to Fernweh Group LLC ("Fernweh"). On September 30, 2022, the AVAIL JV was deconsolidated. Beginning October 1, 2022,

the Company began accounting for its 40% interest in the AVAIL JV under the equity method of accounting. The AVAIL JV is included in the AZZ Infrastructure Solutions segment.

The divestiture of the AZZ Infrastructure Solutions segment represents an intentional strategic shift in our operations and will allow the Company to become a focused provider of coating and galvanizing solutions for critical applications. As a result, the results of the AIS segment were classified as discontinued operations in our condensed statements of operations and excluded from both continuing operations and segment results for the three and nine months ended November 30, 2022.

As part of recognizing the business as held for sale in accordance with GAAP, the Company was required to measure AIS at the lower of its carrying amount or fair value less cost to sell. As a result of this analysis, during fiscal 2023, the Company recognized a non-cash, pre-tax loss on disposal of $159.9 million, of which $45.0 million was recognized during the three months ended November 30, 2022, and $114.9 million was recognized during the second quarter of fiscal 2023. The loss is included in "Loss on disposal of discontinued operations" in the consolidated statements of operations. The loss was determined by comparing the fair value of the consideration received for the sale of a 60% interest in the AIS JV and the fair value of the Company’s retained 40% investment in the AIS JV with the net assets of the AIS JV immediately prior to the transaction. The fair value of the Company’s retained investment in the AIS JV was determined in a manner consistent with the transaction price received for the sale of the 60% interest in the AIS JV.

The results of operations from discontinued operations for the three and nine months ended November 30, 2022, have been reflected as discontinued operations in the consolidated statements of operations and consist of the following (in thousands):

	Three Months Ended			Nine Months Ended
		November 30, 2022		November 30, 2022
Sales		$	42,300	$	256,224
Cost of sales		35,020		202,707
Gross margin		7,280		53,517
Selling, general and administrative		4,074		26,186
Loss on disposal of discontinued operations		45,010		159,910
Operating loss from discontinued operations		(41,804)		(132,579)
Interest expense		2		8
Other (income) expense, net		2,002		6,270
Loss from discontinued operations before income tax		(43,808)		(138,857)
Income tax benefit		(4,827)		(25,910)
Net loss from discontinued operations		$	(38,981)	$	(112,947)
Loss per common share from discontinued operations:
Basic loss per share		$	(1.57)	$	(4.55)
Diluted loss per share		$	(1.56)	$	(4.52)

The depreciation, amortization, capital expenditures, and significant operating and investing non-cash items of the discontinued operations consist of the following (in thousands):

	Nine Months Ended November 30, 2022
Depreciation and amortization	$	7,279
Purchase of property, plant and equipment	4,831
Non-cash loss on disposal of discontinued operations	(159,910)
Gain on sale of property, plant and equipment	486