Edgar Filing: AZZ INC

azzform10kafy11.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K/A

Amendment No. 1

ý ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended February 28, 2011

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to ____________

Commission file number: 1-12777

AZZ incorporated

(Exact name of registrant as specified in its charter)

TEXAS		75-0948250
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

One Museum Place, Suite 500
3100 West Seventh Street
Fort Worth, Texas		76107
(Address of principal executive offices)		(Zip Code)

(817) 810-0095

(Registrant’s telephone number, including area code)

None

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Name of each exchange on which registered
Common Stock, $1.00 par value per share		New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes £

No T

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.

Yes £

No T

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes T

No £

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes £

No £

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. T

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer £

Accelerated filer T

Non-accelerated filer £

Smaller Reporting Company £

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes £

No T

As of August 31, 2010 (the last business day of its most recently completed second fiscal quarter), the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $524,203,551 based on the closing sale price of $43.78 per share as reported on the New York Stock Exchange (For purposes of determining the above stated amount, only the directors, executive officers and 10% or greater shareholders of the registrant have been deemed affiliates; however, this does not represent a conclusion by the registrant that any or all such persons are affiliates of the registrant).

As of April 30, 2011, there were 12,543,674 shares of the registrant’s common stock ($1.00 par value) outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Document		Parts Into Which Incorporated

EXPLANATORY NOTE

This Amendment No. 1 to the Annual Report on Form 10-K of AZZ incorporated (“AZZ”, the “Company” or “we”) for the fiscal year ended February 28, 2011 is being filed solely to make technical corrections to the Report of Independent Registered Public Accounting Firm on pages 33 and 34 of the originally filed Form 10-K. This Form 10-K/A amends and restates Part II Item 8, Financial Statements and Supplementary Data, with respect to the original Form 10-K, in order to make such corrections.

Except as described above, no other changes have been made to the original Form 10-K, and this Form 10-K/A does not amend, update, or change the financial statements or any other items or disclosures in the original Form 10-K. This Form 10-K/A does not reflect events occurring after the filing of the original Form 10-K or modify or update those disclosures, including any exhibits to the original Form 10-K affected by subsequent events. Information not affected by the changes described above is unchanged and reflects the disclosures made at the time of the filing of the original Form 10-K on May 12, 2011. Accordingly, this Form 10-K/A should be read in conjunction with our filings made with the Securities and Exchange Commission subsequent to the filing of the original Form 10-K, including any amendments to those filings.

Item 8. Financial Statements and Supplementary Data.

Index to Consolidated Financial Statements and Schedules

		Page
1.	Consolidated Financial Statements

	Management’s Report on Internal Controls Over Financial Reporting	3

	Report of Independent Registered Public Accounting Firm	4-5

	Consolidated Statements of Income for the years ended February 28, 2011, 2010, and 2009	6

	Consolidated Balance Sheets as of February 28, 2011 and 2010	7-8

	Consolidated Statements of Cash Flows for the years ended February 28, 2011, 2010, and 2009	9-10

	Consolidated Statements of Shareholders' Equity for the years ended February 28, 2011, 2010, and 2009	11

	Notes to Consolidated Financial Statements	12-29


2.	Consolidated Financial Statements Schedule

	Schedule II – Valuation and Qualifying Accounts and Reserves	30

Management’s Report on Internal Controls Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in “Internal Control- Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission, "COSO". Based on our evaluation under the framework in COSO, our management concluded that our internal control over financial reporting was effective as of February 28, 2011. The effectiveness of our internal control over financial reporting as of February 28, 2011, has been audited by BDO USA, LLP, an independent registered public accounting firm, as stated in their attestation report included herein. Management did not assess the effectiveness of internal controls over financial reporting of NGA or its subsidiaries because of the timing of the acquisition, which was completed on August 3, 2010. NGA constituted approximately 24% of total assets as of February 28, 2011 and 13% and 24% of revenues and net income, respectively, for the year then ended.

Report of Independent Registered Public Accounting Firm

Board of Directors and Shareholders

AZZ incorporated

Fort Worth, Texas

We have audited the accompanying consolidated balance sheets of AZZ incorporated as of February 28, 2011 and 2010 and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the three years in the period ended February 28, 2011. Our audits also included the financial statement schedule listed in Item 15 of this Form 10-K. We have also audited AZZ incorporated’s internal control over financial reporting as of February 28, 2011, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). AZZ incorporated’s management is responsible for these financial statements, financial statement schedule, maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on these financial statements, financial statement schedule and to express an opinion on the company’s internal control over financial reporting based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements and the schedule are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of AZZ incorporated as of February 28, 2011 and 2010 and the results of its operations and its cash flows for each of the three years in the period ended February 28, 2011, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, AZZ incorporated maintained, in all material respects, effective internal control over financial reporting as of February 28, 2011, based on the COSO criteria.

In addition, in our opinion, the financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

As indicated in the accompanying Management’s Report on Internal Control over Financial Reporting management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of North American Galvanizing and Coatings, Inc. (NGA) whose acquisition was completed on August 3, 2010 and which are included in the consolidated balance sheet of AZZ incorporated as of February 28, 2011 and the related consolidated statements of income, shareholders equity, and cash flows for the year then ended. NGA constituted approximately 24% of total assets as of February 28, 2011 and 13% and 24% of revenues and net income, respectively, for the year then ended. Management did not assess the effectiveness of internal control over financial reporting of NGA because of the timing of the acquisition. Our audit of internal control over financial reporting of AZZ incorporated also did not include an evaluation of the internal control over financial reporting of NGA.

As discussed in Note 1 to the consolidated financial statements, the Company adopted ASC 805-10 (formerly Statement of Financial Accounting Standard No. 141(R), Business Combinations) effective March 1, 2009.

/s/ BDO USA, LLP

Dallas, Texas

May 12, 2011

AZZ incorporated

CONSOLIDATED STATEMENTS OF INCOME

	For the years ended
	February 28,			February 28,			February 28,
	2011			2010			2009

Net sales	$	380,649,407		$	357,030,075		$	412,364,321
Costs and expenses:
Cost of sales		273,006,712			247,383,972			299,011,807
Selling, general, and administrative		46,645,119			43,417,024			43,221,186
Net gain from sale of or insurance settlement on property, plant and equipment		(75,054	)		(93,299	)		(1,508,892	)
Interest expense		7,730,556			6,838,028			6,169,723
Other income, net		(1,615,942	)		(898,902	)		(1,439,635	)
		325,691,391			296,646,823			345,454,189

Income before income taxes		54,958,016			60,383,252			66,910,132
Income tax expense		19,995,375			22,655,328			24,703,907

Net income	$	34,962,641		$	37,727,924		$	42,206,225

Earnings per common share:
Basic earnings per share	$	2.81		$	3.07		$	3.48

Diluted earnings per share	$	2.77		$	3.02		$	3.43

Weighted average number common shares		12,461,350			12,283,167			12,140,152
Weighted average number common shares and potentially dilutive common shares		12,600,654			12,475,817			12,302,176

See accompanying notes to the consolidated financial statements.

AZZ incorporated

CONSOLIDATED BALANCE SHEETS

	As of February 28,
Assets	2011			2010

Current assets:
Cash and cash equivalents	$	138,389,837		$	110,607,029
Accounts receivable, net of allowance for doubtful accounts of $720,000 in 2011 and 2010		61,945,377			39,431,918
Inventories		59,552,392			40,124,581
Costs and estimated earnings in excess of billings on uncompleted contracts		15,880,092			10,782,424
Deferred income tax assets		7,003,167			5,225,379
Prepaid expenses and other		1,248,270			1,281,605
Total current assets		284,019,135			207,452,936

Property, plant, and equipment, at cost:
Land		12,096,398			5,694,013
Buildings and structures		78,142,939			60,292,211
Machinery and equipment		106,311,040			79,971,006
Furniture, fixtures, software and computers		13,735,200			12,336,230
Automotive equipment		2,058,072			2,073,225
Construction in progress		3,547,498			1,306,267
		215,891,147			161,672,952
Less accumulated depreciation		(90,529,512	)		(74,308,450	)
Net property, plant, and equipment		125,361,635			87,364,502

Goodwill		113,463,436			69,420,256
Intangibles and other assets		43,680,635			17,723,464

Total Assets	$	566,524,841		$	381,961,158

See accompanying notes to the consolidated financial statements.

AZZ incorporated

CONSOLIDATED BALANCE SHEETS (Continued)

	As of February 28,
Liabilities and Shareholders' Equity	2011			2010

Current liabilities:
Accounts payable	$	21,713,896		$	12,116,783
Income tax payable		2,838,901			246,602
Accrued salaries and wages		7,038,999			4,978,522
Other accrued liabilities		14,444,720			12,393,729
Customer advance payment		7,308,909			7,454,650
Profit sharing		4,713,445			5,216,000
Billings in excess of costs and estimated earnings on uncompleted contracts		127,360			1,221,902
Total current liabilities		58,186,230			43,628,188

Long-term debt due after one year		225,000,000			100,000,000

Deferred income tax liabilities		27,320,738			10,466,932

Total liabilities	$	310,506,968		$	154,095,120

Commitments and Contingencies

Shareholders' equity:
Common Stock, $1 par value; 50,000,000 shares authorized; 12,609,160 shares issued at February 28, 2011 and February 28, 2010		12,609,160			12,609,160
Capital in excess of par value		24,141,022			20,783,366
Retained earnings		218,889,963			196,394,134
Accumulated other comprehensive income (loss)		920,063			(672,858	)
Less Common Stock held in treasury, at cost (109,804 shares at February 28, 2011 and 252,638 shares at February 28, 2010)		(542,335	)		(1,247,764	)
Total shareholders' equity		256,017,873			227,866,038

	$	566,524,841		$	381,961,158

See accompanying notes to the consolidated financial statements.

AZZ incorporated

CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the years ended
	February 28,			February 28,			February 28,
	2011			2010			2009

Cash flows from operating activities:
Net income	$	34,962,641		$	37,727,924		$	42,206,225
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		18,929,017			15,603,004			12,921,034
Amortization		3,237,065			1,823,491			1,606,957
Non-cash compensation expense		3,146,002			2,306,330			1,843,318
Non-cash interest expense		332,424			305,394			281,076
Provision for doubtful accounts		228,959			40,602			931,794
Deferred income tax expense (benefit)		(3,383,086	)		(381,840	)		5,568,600
Net gain on insurance settlement or sale of property, plant and equipment		(75,054	)		(93,299	)		(1,508,892	)
Effects of changes in operating assets and liabilities, net of business acquisitions:
Accounts receivable		(1,268,799	)		26,822,381			(16,653,577	)
Inventories		(11,291,056	)		14,662,337			1,998,318
Prepaid expenses and other assets		303,161			(241,823)			43,211
Net change in billings related to costs and estimated earnings on uncompleted contracts		(6,192,210	)		(985,767	)		671,143
Accounts payable		2,653,172			(5,800,477	)		755,889
Other accrued liabilities and income taxes		503,119			(9,200,471	)		9,531,074

Net cash provided by operating activities		42,085,355			82,587,786			60,196,170

Cash flows from investing activities:
Proceeds from the sale or insurance settlement of property, plant and equipment		235,303			423,751			3,529,481
Acquisition of subsidiaries, net of cash acquired		(104,091,416	)		(6,899,561	)		(96,332,010	)
Purchases of property, plant and equipment		(16,410,874	)		(12,036,726	)		(20,008,583	)

Net cash used in investing activities		(120,266,987	)		(18,512,536	)		(112,811,112	)

See accompanying notes to the consolidated financial statements.

AZZ incorporated

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

	For the years ended
	February 28,			February 28,			February 28,
	2011			2010			2009
Cash flows from financing activities:
Proceeds from long-term debt		125,000,000			-			100,000,000
Debt acquisition costs		(1,254,002	)		-			(2,000,000	)
Tax benefits from stock options exercised		895,838			1,609,125			72,453
Proceeds from exercise of stock options and stock appreciation rights		379,955			466,117			31,242
Proceeds on revolving loan		12,000,000			-			-
Payments on revolving loan		(12,000,000	)		-			-
Payments on long term debt		(7,300,000	)		-			-
Proceeds from settlement of derivative		834,416			-			-
Cash dividends paid		(12,466,812	)		(3,089,130	)		-

Net cash provided by (used in) financing activities		106,089,395			(1,013,888	)		98,103,695

Effect of exchange rate changes on cash		(124,955	)		(12,044	)		(157,983	)

Net increase in cash and cash equivalents		27,782,808			63,049,318			45,330,770

Cash and cash equivalents at beginning of year		110,607,029			47,557,711			2,226,941

Cash and cash equivalents at end of year	$	138,389,837		$	110,607,029		$	47,557,711

Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest	$	6,645,354		$	6,532,634		$	3,322,618

Income taxes	$	13,849,749		$	21,167,656		$	20,558,538

See accompanying notes to the consolidated financial statements.

AZZ incorporated

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

	Common Stock				Capital in			Retained			Accumulated Other			Treasury			Total
					excess of			earnings			Comprehensive			Stock
	Shares		Amount		par value						Income (Loss)
Balance at February 29, 2008		12,609,160	$	12,609,160	$	16,369,938		$	119,549,115		$	-		$	(2,371,588	)	$	146,156,625
Exercise of stock options						(5,364	)								36,606			31,242
Stock compensation						1,804,637									38,681			1,843,318
Federal income tax deducted on stock options						72,453												72,453
Comprehensive income: Net income									42,206,225									42,206,225
Foreign currency translation												(3,198,159	)					(3,198,159	)
Comprehensive income																		39,008,066
Balance at February 28, 2009		12,609,160	$	12,609,160	$	18,241,664		$	161,755,340		$	(3,198,159	)	$	(2,296,301	)	$	187,111,704
Exercise of stock options						142,368									323,749			466,117
Stock compensation						2,271,758									34,572			2,306,330
Stock issued for SARs						(1,995,438	)								513,101			(1,482,337	)
Employee Stock Purchase Plan						513,889									177,115			691,004
Federal income tax deducted on stock options						1,609,125												1,609,125
Cash dividend paid									(3,089,130	)								(3,089,130	)
Comprehensive income: Net income									37,727,924									37,727,924
Foreign currency translation												2,525,301						2,525,301
Comprehensive income																		40,253,225
Balance at February 28, 2010		12,609,160	$	12,609,160	$	20,783,366		$	196,394,134		$	(672,858	)	$	(1,247,764	)	$	227,866,038
Exercise of stock options						146,241									233,714			379,955
Stock compensation						3,111,430									34,572			3,146,002
Stock issued for SARs						(1,316,946	)								310,344			(1,006,602	)
Employee Stock Purchase Plan						521,093									126,799			647,892
Federal income tax deducted on stock options						895,838												895,838
Cash dividend paid									(12,466,812	)								(12,466,812	)
Comprehensive income: Net income									34,962,641									34,962,641
Foreign currency translation												1,055,071						1,055,071
Interest rate swap, net of ($292,046) of income tax												537,850						537,850
Comprehensive income																		36,555,562
Balance at February 28, 2011		12,609,160	$	12,609,160	$	24,141,022		$	218,889,963		$	920,063		$	(542,335	)	$	256,017,873

See accompanying notes to the consolidated financial statements.

AZZ incorporated

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

1. Summary of significant accounting policies

Organization—AZZ incorporated (the “Company” “AZZ” or “We”) operates primarily in the United States of America and Canada. Information about the Company’s operations by segment is included in Note 11 to the consolidated financial statements.

Basis of consolidation—The consolidated financial statements were prepared in accordance with the accounting principles generally accepted in the United States of America and include the accounts of the Company and its wholly owned subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation.

Use of estimates—The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Concentrations of credit risk—Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents and trade accounts receivable.

The Company maintains cash and cash equivalents with various financial institutions. These financial institutions are located throughout the United States and Company policy is designed to limit exposure to any one institution. The Company performs periodic evaluations of the relative credit standing of those financial institutions that are considered in the Company’s banking relationships. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk related to cash and cash equivalents. The majority of cash equivalents are invested in Treasury Funds or FDIC Guaranteed Liquidity programs.

Concentrations of credit risk with respect to trade accounts receivable are limited due to the Company’s diversity by virtue of two operating segments, the number of customers, and the absence of a concentration of trade accounts receivable in a small number of customers. The Company performs continuous evaluations of the collectability of trade accounts receivable and allowance for doubtful accounts based upon historical losses, economic conditions and customer specific events. After all collection efforts are exhausted and an account is deemed uncollectible, it is written off against the allowance for doubtful accounts. The Company’s net credit losses in 2011, 2010 and 2009 were approximately $327,000, $231,000 and $662,000, respectively. Collateral is usually not required from customers as a condition of sale.

Revenue recognition—The Company recognizes revenue for the Electrical and Industrial Products Segment upon transfer of title and risk to customer or based upon the percentage-of-completion method of accounting for electrical products built to customer specifications under long-term contracts. We typically recognize revenue for the Galvanizing Services Segment at completion of the service unless we specifically agree with the customer to hold its material for a predetermined period of time after the completion of the galvanizing process and, in that circumstance, we invoice and recognize revenue upon shipment. Customer advanced payments presented in the balance sheet arise from advanced payments received from our customers prior to shipment of the product and are not related to revenue recognized under the percentage of completion method. The extent of progress for revenue recognized using the percentage of completion method is measured by the ratio of contract costs incurred to date to total estimated contract costs at completion. Contract costs include direct labor and material and certain indirect costs. Selling, general and administrative costs are charged to expense as incurred.

Provisions for estimated losses, if any, on uncompleted contracts are made in the period in which such losses are able to be determined. The assumptions made in determining the estimated cost could differ from actual performance resulting in a different outcome for profits or losses than anticipated.

Cash and cash equivalents—For purposes of reporting cash flows, cash and cash equivalents include cash on hand, deposits with banks and all highly liquid investments with an original maturity of three months or less.

AZZ incorporated

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Inventories—Cost is determined principally using a weighted-average method for the Electrical and Industrial Products Segment and the first-in-first-out (FIFO) method for the Galvanizing Services Segment.

Property, plant and equipment—For financial reporting purposes, depreciation is computed using the straight-line method over the estimated useful lives of the related assets as follows:

Buildings and structures	10-25 years
Machinery and equipment	3-15 years
Furniture and fixtures	3-15 years
Automotive equipment	3 years

Maintenance and repairs are charged to expense as incurred; renewals and betterments that significantly extend the useful life of the asset are capitalized.

Long-lived assets, intangible assets and goodwill—Purchased intangible assets included on the balance sheet as other assets are comprised of customer lists, backlogs and non-compete agreements. Such intangible assets are being amortized using the straight-line method over the estimated useful lives of the assets ranging from two to fifteen years. The Company records impairment losses on long-lived assets, including identifiable intangible assets, when events and circumstances indicate that the assets might be impaired and the undiscounted projected cash flows associated with those assets are less than their carrying amount. In those situations, impairment loss on a long-lived asset is measured based on the excess of the carrying amount of the asset over the asset's fair value. For goodwill, the Company performs an annual impairment test on December 31st each year or as indicators are present. The test is calculated using the anticipated future cash flows after tax from our operating segments. Based on the present value of the future cash flows, we determine whether impairment may exist. A significant change in projected cash flows or cost of capital for future years could result in an impairment of goodwill in future years. Variables impacting future cash flows include, but are not limited to, the level of customer demand for and response to products and services we offer to the power generation market, the electrical transmission and distribution markets, the general industrial market and the hot dip galvanizing market; changes in economic conditions of these various markets; raw material and natural gas costs and availability of experienced labor and management to implement our growth strategies.

Debt issue costs—Debt issue costs, included in other assets, are amortized using the effective interest rate method over the term of the debt.

Income taxes—Income tax expense is based on the asset and liability method. Under this method of accounting, deferred tax assets and liabilities are recognized based on differences between financial accounting and income tax basis of assets and liabilities using presently enacted tax rates and laws.

Stock-based compensation—The Company has granted stock options, stock appreciation rights or restricted stock units for a fixed number of shares to employees and directors. A discussion of stock-based compensation can be found in Note 9 of Notes to Consolidated Financial Statements.

Financial instruments —The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable and long-term debt. The fair values of financial instruments approximate the amount of their carrying value.

Derivative financial instruments—From time to time, the Company uses derivatives to manage interest rate risk. The Company’s policy is to use derivatives for risk management purposes only, which includes maintaining the ratio between the Company’s fixed and floating rate debt obligations that management deems appropriate, and prohibits entering into such contracts for trading purposes. The Company enters into derivatives only with counterparties (primarily financial institutions) which have substantial financial wherewithal to minimize credit risk. As the result of the recent global financial crisis, a number of financial institutions have failed or required government assistance, and counterparties considered substantial may develop credit risk. The amount of gains or losses from the use of derivative financial instruments has not been and is not expected to be material to the Company’s consolidated financial statements. As of February 28, 2011, the Company had no derivative financial instruments.

AZZ incorporated

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Warranty reserves—Within other accrued liabilities, a reserve has been established to provide for the estimated future cost of warranties on a portion of the Company’s delivered products. Management periodically reviews the reserves, and adjustments are made accordingly. A provision for warranty on products is made on the basis of the Company’s historical experience and identified warranty issues. Warranties cover such factors as non-conformance to specifications and defects in material and workmanship.

The following is a roll-forward of amounts accrued for warranties:

	(In thousands)
Balance at February 29, 2008	$	1,732
Warranty costs incurred		(1,454	)
Additions charged to income		1,737
Balance at February 28, 2009	$	2,015
Warranty costs incurred		(2,130	)
Additions charged to income		2,912
Balance at February 28, 2010	$	2,797
Warranty costs incurred		(2,821)
Additions charged to income		2,510
Balance at February 28, 2011	$	2,486

Accumulated Other Comprehensive Income (Loss)—Accumulated other comprehensive income (loss) is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources and includes all changes in equity during a period except those resulting from investments by owners and distributions to owners.

On January 21, 2011, we entered into an additional Note Purchase Agreement, (the “2011 Agreement”) and incurred fixed rate, long-term indebtedness of $125 million in relation to the 2011 Agreement. See note 10 to the consolidated financial statements. In anticipation of the 2011 Note Offering, we entered into a treasury lock hedging transaction with Bank of America Merrill Lynch (“BAML) in order to eliminate the variability of cash flows on the forecasted fixed rate coupon of the debt during the pre-issuance period. The hedging transaction settled during the Company’s third fiscal quarter of fiscal 2011, and the Company received a payment from BAML in the amount of $834,416 resulting therefrom. The notional value of the hedge was $75 million and qualified for hedge accounting as a cash flow hedge. The gain on the settlement has been recorded as a component of Accumulated Other Comprehensive Income and will be amortized to interest expense over the life of the 10 year loan. Amortization for interest expense was recorded in the amount of $4,520 for fiscal 2011.

Accumulated other comprehensive income also includes foreign currency translation adjustments from our Canadian subsidiary, Blenkhorn and Sawle (B&S).

Foreign Currency Translation—The local currency is the functional currency for the Company’s B&S subsidiary located in Canada. B&S’s assets and liabilities are translated into United States dollars at exchange rates existing at the balance sheet date, and revenues and expenses are translated at weighted-average exchange rates. The foreign currency translation adjustment is recorded as a separate component of shareholders’ equity and is included in accumulated other comprehensive income (loss).

AZZ incorporated

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Recent Accounting Pronouncement—In March 2009, the Company adopted ASC 805-10 (formerly SFAS 141R), “Business Combinations,” which continues the evolution toward fair value reporting and significantly changes the accounting for acquisitions, both at acquisition date and in subsequent periods. In April 2009, the FASB amended the guidance to clarify the accounting for assets acquired and liabilities assumed arising from contingencies. The new guidance retains the fundamental principles of purchase method of accounting for business combinations, however, it requires several changes in the way assets and liabilities are recognized in an acquisition. All assets acquired and liabilities assumed excluding contingent consideration, are recognized at the acquisition date fair value with limited exceptions. Acquisition related costs, including due diligence fees, are required to be expensed. New accounting concepts and valuation complexities are introduced and many of the changes have the potential to generate greater earnings volatility after acquisition. We applied the new accounting requirements to our most recent acquisitions on July 31, 2009 of Zinc Partners LLC and Pilot Galvanizing, Inc. and on June 14, 2010 of North American Galvanizing and Coatings, Inc. (NGA) and the total acquisition expense were $0.3 million and $1.9 million, respectively.

New Accounting Pronouncements—In 2009, the FASB issued a revised standard for accounting and disclosures of revenues related to arrangements with customers to provide multiple products and services at different points in time or over different time periods. This standard is effective for the Company’s fiscal year ending February 29, 2012. The adoption of this standard is not expected to have a material effect on the Company’s consolidated financial statements.

2.	Inventories

Inventories consist of the following:

	2011		2010
	(In thousands)
Raw materials	$	42,745	$	23,356
Work-in-process		12,452		11,542
Finished goods		4,355		5,227
	$	59,552	$	40,125

3.	Costs and estimated earnings on uncompleted contracts

Costs and estimated earnings on uncompleted contracts consist of the following:

	2011		2010
	(In thousands)
Costs incurred on uncompleted contracts	$	70,835	$	83,169
Estimated earnings		49,375		53,876
		120,210		137,045
Less billings to date		104,457		127,485
	$	15,753	$	9,560

The amounts noted above are included in the accompanying consolidated balance sheet under the following captions:

	2011		2010
	(In thousands)
Cost and estimated earnings in excess of billings on uncompleted contracts	$	15,880	$	10,782
Billings in excess of costs and estimated earnings on uncompleted contracts		(127)		(1,222	)
	$	15,753	$	9,560

AZZ incorporated

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

4.	Other accrued liabilities

Other accrued liabilities consist of the following:

	2011		2010
	(In thousands)
Accrued interest	$	3,353	$	2,600
Tenant improvements		1,699		1,938
Accrued warranty		2,486		2,797
Commissions		1,510		1,737
Group medical insurance		1,198		1,009
Other		4,199		2,313
	$	14,445	$	12,394

5.	Employee benefit plans

The Company has a trustee profit sharing plan and 401(k) plan covering substantially all of its employees. Under the provisions of the plan, the Company contributes amounts as authorized by the Board of Directors. Total contributions to the profit sharing plan, which included the Company’s 401(k) matching, were $6,118,000 for 2011, $6,711,000 for 2010 and $7,435,000 for 2009.

6.	Income taxes

Deferred federal and state income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial accounting purposes and the amounts used for income tax purposes. Significant components of the Company’s net deferred income tax liability are as follows:

	2011			2010
	(In thousands)
Deferred income tax assets:
Employee related items	$	2,643		$	1,686
Inventories		690			334
Accrued warranty		932			1,049
Accounts receivable		271			269
Other		2,467			1,887
Total deferred income tax assets	$	7,003		$	5,225

Deferred income tax liabilities:
Depreciation methods and property basis differences	$	(11,570	)	$	(5,842	)
Other assets and tax-deductible goodwill		(15,751	)		(4,625	)
Total deferred income tax liabilities		(27,321	)		(10,467	)
Net deferred income tax liabilities	$	(20,318	)	$	(5,242	)

AZZ incorporated

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The provision for income taxes consists of:

	2011				2010		2009
	(In thousands)
Federal:
Current	$	21,057		$	19,306		$	16,363
Deferred		(3,439	)		(118	)		5,264
State:
Current		2,346			3,743			2,725
Deferred		(178	)		(8	)		400
Foreign
Current					-			70
Deferred		209			(268	)		(118	)
	$	19,995		$	22,655		$	24,704

A reconciliation from the federal statutory income tax rate to the effective income tax rate is as follows:

	2011			2010			2009

Statutory federal income tax rate		35.0	%		35.0	%		35.0	%
Expenses not deductible for tax purposes		1.5			.2			.2
State income taxes, net of federal income tax benefit		2.7			3.7			3.2
Benefit of Section 199 of the Code, manufacturing deduction		(3.7	)		(1.8	)		(1.6	)
Other		.9			.4			.1
Effective income tax rate		36.4	%		37.5	%		36.9	%

7.	Intangible assets and goodwill

Goodwill is not amortized but is subject to annual impairment tests. Other intangible assets continue to be amortized over their useful lives.

Changes in goodwill by segment during the year are as follows:

Segment	March 1, 2010		Acquisitions		Foreign Exchange Translation		February 28, 2011
	(In thousands)
Galvanizing services	$	26,863	$	43,108	$	-	$	69,971
Electrical & industrial products		42,557		-		935		43,492
Total	$	69,420	$	43,108	$	935	$	113,463

Segment	March 1, 2009		Acquisitions		Foreign Exchange Translation		February 28, 2010
	(In thousands)
Galvanizing services	$	25,584	$	1,279	$	-	$	26,863
Electrical & industrial products		40,573		-		1,984		42,557
Total	$	66,157	$	1,279	$	1,984	$	69,420

AZZ incorporated

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Segment	March 1, 2008		Acquisitions		Foreign Exchange Translation			February 28, 2009
	(In thousands)
Galvanizing services	$	9,966	$	15,618	$	-		$	25,584
Electrical & industrial products		30,996		12,062		(2,485	)		40,573
Total	$	40,962	$	27,680	$	(2,485	)	$	66,157

The Company completes its annual impairment analysis of goodwill on December 31st of each year. As a result the Company determined that there was no impairment of goodwill. There have been no impairment charges of goodwill through February 28, 2011.

Intangible assets consisted of the following:

	2011		2010
	(In thousands)
Amortizable intangible assets
Customer related intangibles	$	42,475	$	15,675
Non-compete agreements		2,983		2,983
Trademarks		2,110		853
Certifications		267		247
Backlog		965		892
		48,800		20,650
Less accumulated amortization		7,812		4,491
	$	40,988	$	16,159

Accumulated amortization related to customer related intangibles and non-compete agreements were $4,298,000 and $2,134,000, respectively, at February 28, 2011, and $1,854,000 and $1,722,000, respectively, at February 28, 2010.

The Company recorded amortization expenses for Fiscal 2011, 2010 and 2009 in the amount of $3,237,000, $1,823,000 and $1,607,000, respectively. The following table projects the estimated amortization expense for the five succeeding fiscal years and thereafter.

(In thousands)
2012	$	3,676
2013		3,671
2014		3,294
2015		3,264
2016		3,264
Thereafter		23,819
Total	$	40,988

AZZ incorporated

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

8.	Earnings per share

Basic earnings per share is based on the weighted average number of shares outstanding during each year. Diluted earnings per share were similarly computed but have been adjusted for the dilutive effect of the weighted average number of stock options, stock appreciation rights and restricted stock units outstanding.

The following table sets forth the computation of basic and diluted earnings per share:

	2011		2010		2009
	(In thousands, except share and per share amounts)
Numerator:
Net income for basic and diluted earnings per common share	$	34,963	$	37,728	$	42,206

Denominator:
Denominator for basic earnings per common share - weighted-average shares		12,461,350		12,283,167		12,140,152

Effect of dilutive securities:
Stock compensation award		139,304		192,650		162,024

Denominator for diluted earnings per common share - adjusted weighted-average shares		12,600,654		12,475,817		12,302,176

Earnings per share basic and diluted:
Basic earnings per common share	$	2.81	$	3.07	$	3.48
Diluted earnings per common share	$	2.77	$	3.02	$	3.43

Stock options or Stock Appreciation Rights for which the exercise price was greater than the average market price of common shares were not included in the computation of diluted earnings per share as the effect would be anti-dilutive. At the end of fiscal years 2011, 2010 and 2009, there were none, 121,170, and 131,690 stock options and stock appreciation rights, respectively, outstanding with exercise prices greater than the average market price of common shares.

9.	Stock compensation

During fiscal 2002, the Company adopted the AZZ incorporated 2001 Long-Term Incentive Plan (“2001 Plan and, together with the 2001 Plan, the “Plans””) and during fiscal 2006, it adopted the AZZ incorporated 2005 Long Term Plan (as subsequently amended and restated, the “2005 Plan”). The purpose of both Plans is to promote the growth and prosperity of the Company by permitting the Company to grant to its employees, directors and advisors various types of Restricted Stock awards and options to purchase Common Stock of the Company. The maximum number of shares that may be issued under the 2001 Plan is 1,500,000 shares and under the 2005 Plan is 1,000,000 shares.

In conjunction with the adoption of the 2001 Plan, all options still available for issuance under pre-existing option plans were terminated. At February 28, 2011, 11,746 vested options were outstanding under the 2001 Plan and exercisable at prices ranging from $4.22 to $12.12 per share. Options under the 2001 Plan vest from immediately upon issuance to ratably over a period of three to five years and expire at various dates through March 2013. There were no new options or Stock Appreciation Rights granted under the 2001 plan during fiscal 2011.

AZZ incorporated

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

On June 1, 2006, 234,160 stock appreciation rights (“Stock Appreciation Rights” or “SARs”) were issued under the 2005 Plan with an exercise price of $11.55. As of February 28, 2011, none of these SARs were outstanding. These awards qualify for equity treatment. These SARs have a three year cliff vesting schedule, but may vest early if accelerated vesting provisions in the plan are met. The weighted average fair value of SARs granted on June 1, 2006 was determined to be $2.915 based on the following assumptions: risk-free interest rate of 5%, no dividend yield, expected volatility of 27.81% and expected life of 3 years. Compensation expenses related to the June 1, 2006 grant were $0, $19,000 and $120,000 for fiscal 2011, 2010 and 2009, respectively. None of these SARs were outstanding as of February 28, 2011.

On March 1, 2007, 147,740 Stock Appreciation Rights were awarded under the 2005 Plan with an exercise price of $19.88. These Stock Appreciation Rights have a three year cliff vesting schedule, but may vest early if accelerated vesting provisions in the plan are met and qualify for equity treatment. The weighted average fair value of SARs granted on March 1, 2007, was determined to be $5.54 based on the following assumptions: risk-free interest rate of 5%, no dividend yield, expected volatility of 29.52% and expected life of 3 years. As of February 28, 2011, none of these SARs were outstanding. Compensation expense related to the March 1, 2007 grants were $0, $103,000 and $202,000 for fiscal 2011, 2010 and 2009, respectively.

On March 1, 2008, 131,690 Stock Appreciation Rights were awarded under the 2005 Plan with an exercise price of $35.88. These Stock Appreciation Rights have a three year cliff vesting schedule, but may vest early if accelerated vesting provisions in the plan are met and qualify for equity treatment. The weighted average fair value of SARs awarded on March 1, 2008, was determined to be $11.80 based on the following assumptions: risk-free interest rate of 5%, dividend yield of 0.0%, expected volatility of 41.81% and expected life of 3 years. As of February 28, 2011, 123,060 of these SARs were outstanding after giving effect to the forfeiture of 6,740 SARs and the exercise of 1,890 SARs due to the accelerated vesting of a retired employee. Compensation expense related to the March 1, 2008 SAR grants was recognized in the amount of $235,000, $234,000 and $1,091,000, respectively for fiscal 2011, fiscal 2010 and fiscal 2009. We had unrecognized cost of $1,000 related to the March 1, 2008 SAR grants as of February 28, 2011.

On September 1, 2008, we adopted the AZZ incorporated Employee Stock Purchase Plan (the “Plan”). The purpose of the Plan is to allow employees of the Company to purchase Common Stock of the Company through accumulated payroll deductions. Offerings under the Plan have a duration of 24 months. On the first day of an offering period (the “Enrollment Date”), the participant is granted the option to purchase shares on each exercise date during the offering period up to 10% of the participant’s compensation at the lower of 85% of the fair market value of a share of Common Stock on the Enrollment Date or 85% of the fair market value of a share of Common Stock on the Exercise Date. The participant’s right to purchase Common Stock in the Plan is restricted to no more than $25,000 per calendar year, and the participant may not purchase more than 5,000 shares under the Plan during any offering period. Participants may terminate their interest in a given offering, or a given exercise period, by withdrawing all, but not less than all, of the accumulated payroll deductions of the account at any time prior to the end of the offering period.

We estimated the shares to be issued on the first enrollment at September 1, 2008 to be 36,100 shares after forfeitures. The weighted average fair value of these shares was determined to be $14.69 based on the following assumptions: risk-free interest rate of 2%, dividend yield of 0.0%, expected volatility of 50.40% and expected life of 2 years. Compensation expenses in the amount of $133,000, $265,000 and $103,000 were recognized during fiscal 2011, 2010, and 2009, respectively. As of February 28, 2011, we had no unrecognized costs related to the first issuance under the Plan. In accordance with the Plan, we issued 20,822, 9,097, 7,245 and 7,584 shares on March 1, 2009, September 1, 2009, March 1, 2010 and September 1, 2010, respectively, to the enrolled employees.

On March 1, 2009, the date of the second offering, the estimated shares to be issued were 14,019 after forfeitures. The weighted average fair value of these shares was determined to be $7.33 based on the following assumptions: risk-free interest rate of 3%, dividend yield of 0.0%, expected volatility of 50.40% and expected life of 2 years. Compensation expenses relating to the second issuance under the Plan in the amount of $51,000, $51,000 and $0 were recognized during fiscal 2011, 2010, and 2009, respectively. In accordance with the Plan, we issued 5,943, 4,175 and 4,139 shares on September 1, 2009, March 1, 2010 and September 1, 2010, respectively. As of February 28, 2011, we had no unrecognized costs related to the second issuance under the Plan.

AZZ incorporated

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

On September 1, 2009, the date of the third offering, the estimated shares to be issued were 3,523 after estimated forfeitures. The weighted average fair value of these shares was determined to be $15.31 based on the following assumptions: risk-free interest rate of 3.25%, dividend yield of 0.0%, expected volatility of 54.52% and expected life of 2 years. Compensation expense related to the third issuance under the Plan in the amount of $27,000 and $13,000 was recognized during fiscal 2011 and 2010, respectively. As of February 28, 2011, we had unrecognized costs of $13,000 related to the third issuance under the Plan. In accordance with the Plan, 991 and 793 shares were issued on March 1, 2010 and September 1, 2010, respectively, to the enrolled employees.

On March 1, 2010, the date of the fourth offering, the estimated shares to be issued were 2,715 after estimated forfeitures. The weighted average fair value of these shares was determined to be $15.19 based on the following assumptions: risk-free interest rate of 3.87%, dividend yield of 2.96%, expected volatility of 67.65% and expected life of 2 years. Compensation expense related to the fourth issuance under the Plan in the amount of $21,000 was recognized during fiscal 2011. In accordance with the Plan we issued 747 shares on September 1, 2010, to the enrolled employees. As of February 28, 2011, we had unrecognized costs of $21,000 related to the fourth issuance under of the Plan.

On September 1, 2010, the date of the fifth offering, the estimated shares to be issued were 47,078 after estimated forfeitures. The weighted average fair value of these shares was determined to be $15.76 based on the following assumptions: risk-free interest rate of 2.59%, dividend yield of 2.43%, expected volatility of 52.11% and expected life of 2 years. Compensation expense related to the fifth issuance under the Plan in the amount of $185,000 was recognized during fiscal 2011. As of February 28, 2011, we had unrecognized costs of $556,000 related to the fifth issuance under the Plan.

On March 1, 2009, 31,666 shares of Restricted Stock Units were issued to our key employees under the 2005 Plan. The Restricted Stock Unit awards have a three year cliff vesting schedule, but may vest early under accelerated vesting provisions in the 2005 Plan. The market value of a share of our Common Stock was $18.12 on the date the Company granted the Restricted Stock Units. Compensation expense related to these Restricted Stock Units in the amount of $75,000 and $423,000 was recognized during fiscal 2011 and 2010, respectively. The amount of unrecognized cost related to these Restricted Stock Units at February 28, 2011 was $75,000.

On March 1, 2009, we awarded 163,233 Stock Appreciation Rights under the 2005 Plan with an exercise price of $18.12. The weighted average fair value of the SARs awarded on March 1, 2009, was determined to be $8.08 based on the following assumptions: risk-free interest rate of 3%, dividend yield of 0.0%, expected volatility of 46.89% and expected life of 5 years. As of February 28, 2011, 119,557 SARs were outstanding after giving effect to the forfeiture of 1,661 SARs and the exercise of 42,015 SARs. Compensation expense related to the March 1, 2009 SAR grants in the amount of $175,000 and $969,000 was recognized during fiscal 2011 and 2010, respectively. As of February 28, 2011, we had unrecognized cost of $175,000 related to the March 1, 2009 SAR grants.

On March 1, 2010, 150,382 Stock Appreciation Rights were awarded under the 2005 Plan with an exercise price of $31.67. The weighted average fair value of SARs awarded on March 1, 2010, was determined to be $12.31 based on the following assumptions: risk-free interest rate of 3.61%, dividend yield of 3.16%, expected volatility of 53.31% and expected life of 5 years. Compensation expense related to the March 1, 2010 SAR grants in the amount of $1,360,000 was recognized during the year ended February 28, 2011. As of February 28, 2011, we had unrecognized cost of $490,000 related to the March 1, 2010 SAR grants.

On March 1, 2010, we issued 22,906 shares of Restricted Stock to our key employees under the 2005 Plan. The market value of a share of our Common Stock was $31.67 on the date of grant. Compensation expense related to the March 1, 2010 Restricted Stock grants in the amount of $535,000 was recognized during fiscal 2011. The amount of unrecognized cost at February 28, 2011 was $190,000 related to the March 1, 2010 Restricted Stock grants.

AZZ incorporated

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

On June 1, 2010, we issued 1,887 shares of Restricted Stock to a key employee under the 2005 Plan. The market value of a share of our Common Stock was $40.01 on the date of grant. Compensation expense related to the June 1, 2010 Restricted Stock grants in the amount of $19,000 was recognized during the year ended February 28, 2011. The amount of unrecognized cost at February 28, 2011 was $57,000 related to the June 1, 2010 Restricted Stock grants.

On June 1, 2010, we awarded 11,014 Stock Appreciation Rights to a key employee under the 2005 Plan with an exercise price of $40.01. The weighted average fair value of SARs awarded on June 1, 2010, was determined to be $15.70 based on the following assumptions: risk-free interest rate of 2.20%, dividend yield of 2.50%, expected volatility of 53.32% and expected life of 5 years. Compensation expense related to the June 1, 2010 SARs grant in the amount of $43,000 was recognized during the year ended February 28, 2011. As of February 28, 2011, we had unrecognized cost of $130,000 related to the June 1, 2010 SARs grant.

During each of fiscal 2011, 2010 and 2009, the Company granted each of its seven independent directors 1,000 shares of the Company’s Common Stock, respectively. Stock compensation expense was recognized with regard to these grants in the amount of $286,000, $226,000 and $317,000 for fiscal 2011, 2010 and 2009, respectively.

A summary of the Company’s stock option and equity settled Stock Appreciation Rights activity and related information is as follows:

	2011					2010					2009
	Options/ SAR’s			Weighted Average Exercise Price		Options/ SAR’s			Weighted Average Exercise Price		Options			Weighted Average Exercise Price
Outstanding at beginning of year		475,141		$	21.86		607,070		$	17.87		485,292		$	12.78
Granted		161,396			32.24		163,233			18.12		131,690			35.80
Exercised		(216,697	)		16.95		(288,422	)		11.02		(9,912	)		6.89
Forfeited		(4,081	)		19.17		(6,740	)		35.88		0			N/A
Outstanding at end of year		415,759		$	28.47		475,141		$	21.86		607,070		$	17.87

Exercisable at end of year		243,698		$	27.20		290,760		$	20.32		414,350		$	16.24

Weighted average fair value for the fiscal year indicated of options and SARs granted during such year				$	12.54				$	8.08				$	11.80

The aggregate intrinsic value of the equity settled Stock Appreciation Rights and stock options for the outstanding shares/Stock Appreciation Rights and exercisable shares/Stock Appreciation Rights at February 28, 2011 were $5.9 million and $3.8 million, respectively.

The following table summarizes additional information about stock options and Stock Appreciation Rights outstanding at February 28, 2011.

AZZ incorporated

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Range of Exercise Prices		Total Shares/ SAR’s		Weighted Average Remaining Life		Weighted Average Exercise Price		Shares / SAR’s Currently Exercisable		Weighted Average Exercise Price

$	4.22 - $5.54		7,746		2.08	$	4.22		7,746	$	4.22
$	7.70 - $8.80		4,000		1.33	$	7.70		4,000	$	7.70
$	18.12 - $29.97		121,447		0.99	$	18.30		77,406	$	18.12
$	31.67 - $40.01		282,556		1.15	$	33.80		154,546	$	33.41
$	4.22 - $40.01		415,759		1.12	$	28.47		243,698	$	27.20

As of February 28, 2011, the Company has approximately 558,083 shares reserved for future issuance under its various stock plans.

10. Long-term debt

Long-term debt consists of the following:	2011			2010
	(In thousands)
Senior Note, due in balloon payment in January 2021	$	125,000		-
Senior Note, due in annual installments of $14,285,714 beginning in March 2012 through March 2018	$	100,000	$	100,000
Revolving line of credit with bank		-		-
	$	225,000	$	100,000
Less amount due within one year		-		-
	$	225,000	$	100,000

On May 25, 2006, we entered into the Second Amended and Restated Credit Agreement (the “Credit Agreement”) by and between AZZ and Bank of America, N.A. ("Bank of America"). The Credit Agreement provides for a $60 million unsecured revolving line of credit, maturing on May 25, 2011. The facility is used to provide for working capital needs, capital improvements, debt repayment, future acquisitions and letter of credit needs. On April 29, 2010, we amended the Credit Agreement to provide for an $80 million unsecured revolving line of credit maturing on May 25, 2014, increase the amount of cash dividends the Company is allowed to pay to $15 million annually and increase the basket for AZZ common stock repurchases to $40 million over the life of the Credit Agreement.

The Credit Agreement provides for various financial covenants consisting of a) Minimum Consolidated Net Worth–Maintain on a consolidated basis net worth equal to at least the sum of $182.3 million plus 50% of future net income, b) Maximum Leverage Ratio–Maintain on a consolidated basis a Leverage Ratio (as defined in the Credit Agreement) not to exceed 3.25:1.0, c) Fixed Charge Coverage Ratio– Maintain on a consolidated basis a Fixed Charge Coverage Ratio (as defined in the Credit Agreement) of at least 1.75:1.0 and d) Capital Expenditures–Not to make Capital Expenditures (as defined in the Credit Agreement) on a consolidated basis in an amount in excess of $30 million.

The Credit Agreement also provides for an applicable margin ranging from 1.00% to 1.75% over the Eurodollar Rate and Commitment Fees ranging from .20% to .30% depending on our Leverage Ratio.

At February 28, 2011 and 2010, we had no outstanding debt against the revolving credit facility. As of February 28, 2011, we had letters of credit outstanding in the amount of $12.3 million, which left approximately $67.7 million of additional credit available under the Credit Agreement.

AZZ incorporated

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

On March 31, 2008, the Company entered into a Note Purchase Agreement (the "Note Purchase Agreement") pursuant to which the Company issued $100 million aggregate principal amount of its 6.24% unsecured Senior Notes (“2008 Notes”) due March 31, 2018 through a private placement (the "2008 Note Offering"). These 2008 Notes are for 10 years with interest only paid semi annually for the first 4 years and then principal payments of $14.3 million paid each year starting on March 31, 2012 plus applicable interest paid each quarter. Pursuant to the Note Purchase Agreement, the Company’s payment obligations with respect to the 2008 Notes may be accelerated upon any Event of Default, as defined in the Note Purchase Agreement.

The Company entered into an additional Note Purchase Agreement on January 21, 2011 (the “2011 Agreement”), pursuant to which the Company issued $125 million aggregate principal amount of its 5.42% unsecured Senior Notes (the “2011 Notes”), due in January of 2021, through a private placement (the “2011 Note Offering”). Pursuant to the 2011 Agreement, the Company’s payment obligations with respect to the 2011 Notes could be accelerated under certain circumstances. The Company anticipates using the proceeds from the 2011 Note Offering for possible future acquisitions, working capital needs, capital improvements, debt repayment and future cash dividend payments.

In connection with the 2008 Note Offering the Company entered into an amendment to our Credit Agreement. The Second Amendment contained the consent of Bank of America to the 2008 Note Offering, amended the Credit Agreement to provide that the 2008 Note Offering will not constitute a default under the Credit Agreement and amended Credit Agreement to reflect the same financial covenants as the 2008 Notes. In connection with the 2011 Note Offering, the Company obtained the consent of Bank of America to the 2011 Note Offering and the agreement of Bank of America that the 2011 Note Offering will not constitute a default under the Credit Agreement.

The 2008 Notes and 2011 Notes provide for various financial covenants of a) Minimum Consolidated Net Worth - Maintain on a consolidated basis net worth equal to at least the sum of $116.9 million plus 50% of future net income; b) Maximum Ratio of Consolidated Indebtedness to Consolidated EBITDA - Maintain a ratio of indebtedness to EBITDA (as defined in Note Purchase Agreement) not to exceed 3.25:1.00; c) Fixed Charge Coverage Ratio – Maintain on a consolidated basis a Fixed Charge Coverage Ratio (as defined in Note Purchase Agreement) of at least 2.0:1.0; d) Priority Indebtedness – The Company will not at any time permit aggregate amount of all Priority Indebtedness (as defined in Note Purchase Agreement) to exceed 10% of Consolidated Net Worth (as defined in Note Purchase Agreement).

As of February 28, 2011, the Company is in compliance with all of its debt covenants.

Maturities of long-term debt are as follows:

(In thousands)
2012	$	-
2013		14,286
2014		14,286
2015		14,286
2016		14,286
Thereafter		167,856
Total	$	225,000

11. Operating segments

The Company has two reportable segments: (1) Electrical and Industrial Products and (2) Galvanizing Services. The Electrical and Industrial Products Segment provides highly engineered specialty components to the power generation transmission and distribution market and to the industrial market. The Galvanizing Services Segment provides hot dip galvanizing services to the steel fabrication industry through facilities located throughout the South, Midwest, East Coast and Southwest of the United States. Hot dip galvanizing is a metallurgical process by which molten zinc is applied to a customer’s material. The zinc bonding renders a corrosive resistant coating enhancing the life of the material for up to fifty years.

AZZ incorporated

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Information regarding operations and assets by segment is as follows:

	2011			2010			2009
Net sales:	(In thousands)
Electrical and Industrial Products	$	162,600		$	203,457		$	225,797
Galvanizing Services		218,049			153,573			186,567
	$	380,649		$	357,030		$	412,364
Segment Operating income (a):
Electrical and Industrial Products	$	27,072		$	40,803		$	38,952
Galvanizing Services		56,965			44,843			53,183
Total Segment Operating Income		84,037			85,646			92,135

General corporate expenses (b)		21,492			18,447			19,441
Interest expense		7,731			6,838			6,170
Other (income) expense, net (c)		(144	)		(22	)		(386	)
					25,263			25,225
Income before income taxes	$	54,958		$	60,383		$	66,910

Depreciation and amortization:
Electrical and Industrial Products	$	3,396		$	3,725		$	3,116
Galvanizing Services		17,004			12,163			10,280
Corporate		1,766			1,539			1,176
	$	22,166		$	17,427		$	14,572

Expenditures for acquisitions, net of cash, and property, plant and equipment:
Electrical and Industrial Products	$	1,282		$	2,311		$	20,339
Galvanizing Services		117,746			15,486			92,811
Corporate		1,474			1,139			3,248
	$	120,502		$	18,936		$	116,398
Total assets:
Electrical and Industrial Products	$	136,381		$	119,689		$	159,334
Galvanizing Services		277,366			139,228			138,826
Corporate		152,778			123,044			56,555
	$	566,525		$	381,961		$	354,715

Goodwill:
Electrical and Industrial Products	$	69,971		$	42,557		$	40,574
Galvanizing Services		43,492			26,863			25,583
	$	113,463		$	69,420		$	66,157

(a)

Segment operating income consists of net sales less cost of sales, specifically identifiable selling, general and administrative expenses and other income and expense items that are specifically identifiable to a segment.

(b)

General Corporate Expense consists of selling, general and administrative expenses that are not specifically identifiable to a segment.

(c)

Other (income) expense, net includes gains and losses on sale of property, plant and equipment and other (income) expenses not specifically identifiable to a segment.

AZZ incorporated

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

12.	Commitments and contingencies

Leases

The Company leases various facilities under non-cancelable operating leases with initial terms in excess of one year. As of February 28, 2011, the future minimum payments required under these operating leases are summarized in the below table. Rental expense for real estate and personal property was approximately $6,671,000, $5,823,000 and $4,713,000 for fiscal years 2011, 2010 and 2009, respectively, and includes all short-term as well as long-term rental agreements.

The following summarizes the Company’s operating leases for the next five years and thereafter.


	(In thousands)
2012	$	4,161
2013		3,705
2014		3,249
2015		3,078
2016		2,793
Thereafter		9,011
Total	$	25,997

Commodity pricing

The Company manages its exposures to commodity prices through the use of the following:

In the Electrical and Industrial Products Segment, the Company has exposure to commodity pricing for copper, aluminum and steel. Because the Electrical and Industrial Products Segment does not commit contractually to minimum volumes, increases in price for these items are normally managed through escalation clauses in customer contracts, although during continuing difficult market conditions these escalation clauses may not be obtainable.

In the Galvanizing Services Segment, the Company utilizes contracts with our zinc suppliers that include protective caps to guard against rising zinc prices. The Company also secures firm pricing for natural gas supplies with individual utilities when possible. There is no contracted volume purchase commitments associated with the natural gas or zinc agreements. Management believes these agreements ensure adequate supplies and partially offset exposure to commodity price escalation.

Other

At February 28, 2011, the Company had outstanding letters of credit in the amount of $12.3 million. These letters of credit are issued to customers in our Electrical and Industrial Products Segment to cover any potential warranty costs and in lieu of performance and bid bonds. In addition, as of February 28, 2011, a warranty reserve in the amount of $2.5 million has been established to offset any future warranty claims.

The Company has been named as a defendant in certain lawsuits in the normal course in business. In the opinion of management, after consulting with legal counsel, the liabilities, if any, resulting from these matters should not have a material effect on our financial position or results of operations.

AZZ incorporated

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

13.	Quarterly financial information, Unaudited (in thousands, except per share amounts)

	Quarter ended
	May 31, 2010		August 31, 2010		November 30, 2010		February 28, 2011
Net sales	$	77,475	$	99,591	$	102,898	$	100,686
Gross profit		23,563		29,053		27,645		27,383
Net income		6,373		9,647		9,718		9,225
Basic earnings per common share		.51		.77		.78		.74
Diluted earnings per common share		.51		.77		.77		.73

	Quarter ended
	May 31, 2009		August 31, 2009		November 30, 2009		February 28, 2010
Net sales	$	95,492	$	95,157	$	81,518	$	84,863
Gross profit		29,688		30,614		25,713		23,631
Net income		9,900		11,119		8,743		7,966
Basic earnings per common share		.81		.91		.71		.64
Diluted earnings per common share		.80		.89		.70		.64

14.	Acquisitions

On August 3, 2010, we completed our acquisition of North American Galvanizing & Coatings, Inc. (“NGA”), a leading provider of corrosion protection for iron and steel components fabricated by its customers. AZZ gained control of NGA on June 14, 2010 by acquiring approximately 83% of its outstanding capital stock (calculated on a fully diluted basis) through a cash tender offer and caused NGA to be merged with and into an indirect wholly owned subsidiary of AZZ created solely for such acquisition, with NGA as the surviving entity. Pursuant to the terms of the Agreement and Plan of Merger among AZZ, such subsidiary of AZZ and NGA, upon the completion of this merger each share of the remaining 17% of NGA’s outstanding capital stock (i.e., the shares not held by AZZ) was converted into the right to receive the same per-share cash consideration paid in such tender offer. This merger resulted in NGA being an indirect wholly-owned subsidiary of AZZ. The total cash purchase price for NGA was $132 million ($104 million net of cash acquired on hand at NGA of $28 million). The acquisition was funded from our cash on hand and our existing credit facility. As of February 28, 2011, we have expensed $1.9 million in acquisition costs related to the NGA acquisition. Acquisition costs are included in selling, general and administrative expenses. This acquisition is included in the Galvanizing Services Segment. The acquisition was made to complement our existing facilities in this region and to expand our geographic footprint.

Under the acquisition method of accounting, the total purchase price was allocated to NGA’s net tangible and intangible assets based on their estimated fair values as of June 14, 2010, the date on which AZZ acquired control of NGA through the acquisition of approximately 83% of NGA’s outstanding capital stock (calculated on a fully diluted basis). The excess of the purchase price over the net tangible and intangible assets are recorded as goodwill. The following table summarizes the estimated fair value of the assets acquired and liabilities of NGA assumed at the date of acquisition:

AZZ incorporated

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

	($ in thousands)
Current Assets		$	58,176
Property and Equipment			40,552
Intangible Assets			28,000
Goodwill			43,109
Other Assets			2,950
Total Assets Acquired			172,787
Current Liabilities			(11,670	)
Long Term Liabilities			(28,673	)
Net Assets Acquired		$	132,444

All of the $28.0 million of intangible assets acquired are assigned to customer related intangibles and other. The goodwill recorded in connection with the acquisition is primarily attributable to a larger geographic footprint and also synergies expected to arise. These intangible assets are being amortized and have a weighted average life of 12.4 years. Goodwill of $43.1 million arising from the acquisition has been allocated to the Galvanizing Services Segment and will not be deductible for income tax purposes. Total revenues and earnings of NGA reflected in the current year are $49.7 million and $12.2 million, respectively.

The following consolidated pro forma information assumes that the acquisition of NGA took place on March 1, 2009 for the income statements for the years ended 2011 and 2010.

	February 28, 2011		February 28, 2010
	(In thousands, except per share amounts)

Net Sales	$	399,560	$	434,113

Net Income	$	38,637	$	49,692

Earnings Per Common Share:
Basic Earnings Per Share	$	3.10	$	4.05
Diluted Earnings Per Share	$	3.07	$	3.98

On March 31, 2008, AZZ acquired substantially all of the assets of AAA Industries, Inc. The purchase price of the transaction was approximately $81.6 million. The purchased assets included six galvanizing plants (three plants located in Illinois, one plant located in Indiana, one plant located in Minnesota and one plant located in Oklahoma) and related equipment and supplies. This acquisition is included in the Galvanizing Services Segment. The acquisition was made to compliment our existing facilities in this region and to expand our geographic footprint.

The following table summarizes the estimated fair value of the assets acquired and liabilities of AAA Industries, Inc. assumed at the date of acquisition:

	($ in thousands)
Current Assets		$	18,061
Property and Equipment			32,879
Intangible Assets			16,070
Goodwill			15,618
Total Assets Acquired			82,628
Current Liabilities			(1,053	)
Net Assets Acquired		$	81,575

Of the $16.1 million of intangible assets acquired, $1.8 million and $14.3 million are assigned to non-compete agreements and customer related intangibles and other, respectively. The goodwill assigned to other represents the expected synergies from the merger of operations and intangible assets that do not qualify for separation recognition. These intangible assets are being amortized and have a weighted average life of 13.8 years. As of March 31, 2008 goodwill of $15.6 million arising from the acquisition has been allocated to the Galvanizing Services Segment and will be deductible for income tax purposes.

The following consolidated pro forma information assumes that the acquisition of AAA Industries, Inc. took place on March 1, 2008 for the income statements for the year ended 2009.

	February 28, 2009
(In thousands, except per share amounts)

Net Sales	$	416,914

Net Income	$	42,237

Earnings Per Common Share:
Basic Earnings Per Share	$	3.48
Diluted Earnings Per Share	$	3.43

On July 31, 2009, AZZ acquired substantially all of the assets related to Pilot Galvanizing, Inc. in Poca, West Virginia, and Zinc Partners, LLC in Bristol, Virginia. The acquisition is a part of the stated AZZ strategy to continue the geographic expansion of our served market in order to provide a basis for continued growth of the Galvanizing Services Segment of the Company.

On July 1, 2008, we acquired substantially all of the assets of Blenkhorn and Sawle, Ltd., headquartered in St. Catharines, Ontario, Canada. The purchase price was approximately $14.9 million in cash plus assumption of certain current liabilities. Goodwill recognized in connection with the transaction was $12.1 million and is expected to be deductible for tax purposes. Intangible assets recognized were $2 million including customer lists and trademarks. Blenkhorn and Sawle has been a premier supplier of electrical equipment since 1948. As a custom turn-key solutions provider and certified professional engineering house, they have supplied products to the major utility companies, and to the oil and gas, mining, industrial and nuclear power industries in Canada. This acquisition is included in our Electrical and Industrial Products Segment. The acquisition was made to obtain a local manufacturer of electrical products to expand our served markets to include the Canadian Utility market.

Schedule II

AZZ incorporated

Valuation and Qualifying Accounts and Reserves

(In thousands)

				Year Ended
	February 28, 2011			February 28, 2010			February 28, 2009
Allowance for Doubtful Accounts

Balance at Beginning of year	$	720		$	900		$	630
Balance acquired by acquisition		97			10			-
Additions charged or credited to income		229			41			932
Balances written off, net of recoveries		(327	)		(231	)		(662	)
Effect of exchange rate		1			-			-
Balance at end of year	$	720		$	720		$	900

Item 15. Exhibits and Financial Statement Schedules.

Exhibits Required by Item 601 of Regulation S-K

A list of the exhibits required by Item 601 of Regulation S-K and filed as part of this Form 10-K/A is set forth in the Index to Exhibits beginning on page 33, which immediately precedes such exhibits.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	AZZ incorporated
	(Registrant)

Date: 8/26/2011		By: /s/ David H. Dingus
		David H. Dingus, Principal Executive Officer and Director

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of AZZ and in the capacities and on the dates indicated.

/s/David H. Dingus		/s/ Dana L. Perry
David H. Dingus, Principal Executive Officer and Director		Dana L. Perry, Principal Financial Officer and Director


/s/Daniel R. Feehan		/s/ Richard Butler
Daniel R. Feehan, Director		Richard Butler, Vice President and Controller, Principal Accounting Officer


/s/Martin C. Bowen		/s/Peter A. Hegedus
Martin C. Bowen, Director		Peter A. Hegedus, Director


/s/Daniel E. Berce		/s/Dr. H. Kirk Downey
Daniel E. Berce, Director		Dr. H. Kirk Downey, Chairman of the Board and Director


/s/Sam Rosen		/s/Kevern R. Joyce
Sam Rosen, Director		Kevern R. Joyce, Director

EXHIBIT INDEX

Exhibit No.

31.1	Chief Executive Officer Certificate pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 dated August 26, 2011. Filed Herewith.
31.2	Chief Financial Officer Certificate pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 dated August 26, 2011. Filed Herewith.
32.1	Chief Executive Officer Certificate pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 dated August 26, 2011. Filed Herewith.
32.2	Chief Financial Officer Certificate pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 dated August 26, 2011. Filed Herewith.