Leases

9 Months Ended

Nov. 30, 2023

13. Leases

The Company is a lessee under various leases for facilities and equipment. As of November 30, 2023, the Company was the lessee for 159 operating leases and 25 finance leases with terms of 12 months or more. Many of the operating leases either have renewal options of between one and five years or convert to month-to-month agreements at the end of the specified lease term.

The Company’s operating leases are primarily for (i) operating facilities, (ii) vehicles and equipment used in operations, (iii) facilities used for back-office functions and (iv) equipment used for back-office functions, and (v) temporary storage. The majority of the Company’s long-term lease expenses 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 the Company recognizes lease expense for these leases on a straight-line basis over the lease term. The Company has a significant number of short-term leases, including month-to-month agreements. The Company's short-term lease agreements include expenses incurred hourly, daily, monthly and for other durations of time of one year or less. The Company’s future lease commitments as of November 30, 2023 do not reflect all of the Company’s short-term lease commitments.

The following table outlines the classification of the Company's right-of-use asset and lease liabilities in the balance sheets as of November 30, 2023 and February 28, 2023 (in thousands):


	Balance Sheet Classification	As of
		November 30, 2023		February 28, 2023
Assets
Right-of-use assets	Right-of-use assets	$	22,830	$	26,392
Liabilities
Operating lease liabilities ― short-term	Lease liability - short-term	$	5,999	$	6,119
Operating lease liabilities ― long-term	Lease liability - long-term	15,732		19,659
Finance lease liabilities ― short-term	Lease liability - short-term	454		284
Finance lease liabilities ― long-term	Lease liability - long-term	1,380		1,045

Supplemental information related to the Company's portfolio of operating leases from continuing operations was as follows (in thousands, except years and percentages):


	Three Months Ended November 30,				Nine Months Ended November 30,
	2023		2022		2023		2022
Operating cash flows from operating leases included in lease liabilities	$	1,811	$	2,862	$	5,471	$	8,069
Lease liabilities obtained from new ROU assets - operating	60		2,396		1,942		4,938
Decrease in ROU assets related to lease terminations	—		—		(1,294)		—
Operating and financing cash flows from financing leases included in lease liabilities	130		70		330		182
Lease liabilities obtained from new ROU assets - financing	173		—		773		398


	As of
	November 30, 2023		February 28, 2023
Weighted-average remaining lease term - operating leases	4.29 years		5.04 years
Weighted-average discount rate - operating leases	4.44	%	4.31	%
Weighted-average remaining lease term - financing leases	4.25 years		4.61 years
Weighted-average discount rate - financing leases	5.66	%	5.15	%

The following table outlines the classification of lease expense related to operating leases from continuing operations, in the statements of operations (in thousands):


	Three Months Ended November 30,				Nine Months Ended November 30,
	2023		2022		2023		2022
Cost of sales	$	2,997	$	3,306	$	9,234	$	8,590
Selling, general and administrative	495		494		1,500		1,435
Total lease cost	$	3,492	$	3,800	$	10,734	$	10,025

As of November 30, 2023, maturities of the Company's lease liabilities were as follows (in thousands):


Fiscal year:	Operating Leases		Finance Leases		Total
2024	$	1,787	$	136	$	1,923
2025	6,532		536		7,068
2026	5,583		459		6,042
2027	4,410		423		4,833
2028	2,441		349		2,790
2029	1,871		138		2,009
Thereafter	1,252		24		1,276
Total lease payments	$	23,876	$	2,065	$	25,941
Less imputed interest	(2,145)		(231)		(2,376)
Total	$	21,731	$	1,834	$	23,565

The Company subleases 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 in "Cost of sales." The Company recognized $0.3 million and $0.8 million of income from subleases during the three and nine months ended November 30, 2023, respectively.