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What changed in ENERPAC TOOL GROUP CORP's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of ENERPAC TOOL GROUP CORP's 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+225 added−216 removedSource: 10-K (2024-10-21) vs 10-K (2023-10-20)

Top changes in ENERPAC TOOL GROUP CORP's 2024 10-K

225 paragraphs added · 216 removed · 174 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

42 edited+13 added−12 removed25 unchanged
Biggest changeIn the U.S., employees who work more than 30 hours per week are eligible for a comprehensive menu of benefits, including paid time off, healthcare (health, dental, and vision) coverage, short and long-term disability, life and accidental disability insurance, a 401(k) retirement plan with a Company match and immediate vesting, access to our employee assistance program, an annual bonus program with broad participation, equity incentive programs, an employee stock ownership plan that allows employees to buy company shares at a discount, flexible work arrangements, and up to 12 weeks of parental leave, of which six weeks are paid at an employee's full salary.
Biggest changeEmployees are offered thirteen paid holidays, and three weeks of paid time off, military leave, a 401(k) retirement plan with a Company match and immediate vesting, access to our employee assistance program, an annual bonus program with broad participation, 4 equity incentive programs, an employee stock purchase plan (ESPP) that allows employees to buy company shares at a 15% discount (up from 10% in the last fiscal year), and flexible work arrangements.
Although we face larger competitors in several served markets, some of our competition is comprised of smaller companies which may lack the footprint or financial resources to serve global customers. We compete for business principally on the basis of customer service, product quality and availability, engineering and research and development expertise.
Although we face larger competitors in several served markets, some of our competition is comprised of smaller companies which may lack the footprint or financial resources to serve global customers. We compete for business principally on the basis of customer service, product quality and availability, and engineering and research and development expertise.
As such, retained liabilities associated with the former EC&S segment are considered discontinued operations in all periods presented herein. Our Business Model Our long-term goal is to create sustainable returns for our shareholders through above-market growth in our core business, expanding our margins, generating strong cash flow, and being disciplined in the deployment of our capital.
As such, retained liabilities associated with the former EC&S segment are considered discontinued operations in all periods presented herein. 1 Our Business Model Our long-term goal is to create sustainable returns for our shareholders through above-market growth in our core business, expanding our margins, generating strong cash flow, and being disciplined in the deployment of our capital.
Our leaders and employees at all levels embrace our health, 4 safety, security, environment, and quality (“HSSEQ”) programs, which translates into an enterprise-wide obligation to provide healthy, safe and productive work environments for our employees and deliver high standards of safety and quality in the products, services and solutions for our customers and end-users.
Our leaders and employees at all levels embrace our health, safety, security, environment, and quality (“HSSEQ”) programs, which translates into an enterprise-wide obligation to provide healthy, safe and productive work environments for our employees and deliver high standards of safety and quality in the products, services and solutions for our customers and end-users.
Sternlieb was Group President, Global Cooking in the Food Equipment Group at Illinois Tool Works since 2014. He served as a Vice President & General Manager with Danaher from 2011 to 2014. Before Danaher, he held management roles with the H.J. Heinz Company, a leading food production company and was a consultant with McKinsey & Company.
Sternlieb was Group President, Global Cooking in the Food Equipment Group at Illinois Tool Works since 2014. He served as a Vice President & General Manager with Danaher from 2011 to 2014. Before Danaher, he held management roles with the H.J. Heinz Company, a leading food production company, and was a consultant with McKinsey & Company. P.
C ertain information related to the Other operating segment is disclosed within Note 15, "Business Segment, Geographic, and Customer Information" in the notes to the consolidated financial 2 statements in order to comply with requirements under generally accepted accounting principles in the United States ("US GAAP") to reconcile certain required disclosures to the Consolidated Financial Statements.
C ertain information related to the Other operating segment is disclosed within Note 15, "Business Segment, Geographic, and Customer Information" in the notes to the consolidated financial statements in order to comply with requirements under generally accepted accounting principles in the United States ("US GAAP") to reconcile certain required disclosures to the Consolidated Financial Statements.
In addition, we believe that our cost structure, strategic global sourcing capabilities and global distribution support our competitive position. Manufacturing and Operations While we do have manufacturing capabilities including machining and fabrication, our manufacturing consists primarily of light assembly of components we source from a net work of global suppliers.
In addition, we believe that our cost structure, strategic global sourcing capabilities and global distribution support our competitive position. 3 Manufacturing and Operations While we do have manufacturing capabilities including machining and fabrication, our manufacturing consists primarily of light assembly of components we source from a net work of global suppliers.
Percentages of Sales by Fiscal Quarter 2023 2022 Quarter 1 (September - November) 23% 23% Quarter 2 (December - February) 24% 24% Quarter 3 (March - May) 26% 27% Quarter 4 (June - August) 27% 26% 100% 100% Human Capital Management The goal of human capital management strategy and practices is for Enerpac to be considered an employer of choice, and our initiatives and programs are predicated on making this objective a reality.
Percentages of Sales by Fiscal Quarter 2024 2023 Quarter 1 (September - November) 24% 23% Quarter 2 (December - February) 23% 24% Quarter 3 (March - May) 26% 26% Quarter 4 (June - August) 27% 27% 100% 100% Human Capital Management The goal of our human capital management strategy and practices is for Enerpac to be considered an employer of choice, and our initiatives and programs are predicated on making this objective a reality.
This puts our performance in the top quartile in comparison to the BLS NAICS bracket for Machinery Manufacturing (333) for companies with greater than 1,000 employees. Executive Officers of the Registrant The names, ages and positions of all of the executive officers of the Company as o f October 15, 2023 are listed below. Name Age Position Paul E.
This puts our performance in the top quartile in comparison to the BLS NAICS bracket for Machinery Manufacturing (333) for companies with greater than 1,000 employees. Executive Officers of the Registrant The names, ages and positions of all of the executive officers of the Company as o f October 15, 2024 are listed below. Name Age Position Paul E.
Our primary products include branded tools, cylinders, pumps, hydraulic torque wrenches and highly engineered heavy lifting technology solutions.
Our primary products include branded tools, cylinders, pumps, hydraulic torque wrenches, highly engineered heavy lifting technology solutions and other tools.
Topercer 46 Executive Vice President and Chief Human Resource Officer Paul Sternlieb, President and Chief Executive Officer, was appointed President and Chief Executive Officer of the Company in October 2021. Prior to joining the Company, Mr. Sternlieb served as Executive Vice President ("EVP") and President, Protein, at John Bean Technologies Corporation ("JBT") since October 2017. Prior to JBT, Mr.
Topercer 47 Executive Vice President and Chief Human Resource Officer Paul Sternlieb, President and Chief Executive Officer, was appointed President and Chief Executive Officer of the Company in October 2021. Prior to joining the Company, Mr. Sternlieb served as Executive Vice President ("EVP") and President, Protein, at John Bean Technologies Corporation ("JBT") since October 2017. Prior to JBT, Mr.
We anticipate that we will continue to make significant expenditures for research and development as we seek to provide new innovative tools and services to grow our market share. Research and development ("R&D") costs are expensed as incurred. R&D costs were $9 million in fiscal 2023, $7 million in fiscal 2022 and $7 million in fiscal 2021.
We anticipate that we will continue to make significant expenditures for research and development as we seek to provide new innovative tools and services to grow our market share. Research and development ("R&D") costs are expensed as incurred. R&D costs were $12 million in fiscal 2024, $9 million in fiscal 2023 and $7 million in fiscal 2022.
These tools operate at very high pressures of approximately 5,000 to 12,000 pounds per square inch. With our products used in a wide variety of end markets, they are often deployed in harsh operating conditions, such as machining, infrastructure maintenance and repair, and oil & gas production, where safety is a key differentiator.
These tools operate at very high pressures of approximately 5,000 to 12,000 pounds per square inch. With our products used in a wide variety of end markets, they are often deployed in harsh operating conditions, such as machining, infrastructure maintenance and repair, and refining, and petrochemical production, where safety is a key differentiator.
Enerpac Tool Group's businesses are global leaders of high pressure hydraulic tools, controlled force products and solutions for precise positioning of heavy loads that help customers around the world safely, reliably and efficiently tackle some of the most challenging, complex, and often hazardous jobs. The Company was founded in 1910 and is headquartered in Menomonee Falls, Wisconsin.
Enerpac Tool Group's businesses are global leaders in providing high pressure hydraulic tools, controlled force products and solutions for precise positioning of heavy loads that help customers safely and reliably tackle some of the most challenging jobs around the world. The Company was founded in 1910 and is headquartered in Menomonee Falls, Wisconsin.
The talent that makes up our workforce (approximately 2,100 employees as of August 31, 2023) is critical to the success of our company and the ability to deliver shareholder value. Our talent development framework is built around a robust performance management and development structure.
The talent that makes up our workforce (approximately 2,000 employees as of August 31, 2024) is critical to the success of our company and the ability to deliver shareholder value. Our talent development framework is built around a robust performance management and development structure.
We also provide rental services for certain of our products. Our branded tools and services are primarily marketed through the Enerpac, Hydratight, Larzep and Simplex brand names. The segment delivers products and services primarily through our world-class, global network of distributors, as well as direct sales to OEMs and select end users. Examples of industrial distributors include W.W.
We also provide rental services for certain of our products. Our branded tools and services are primarily marketed through the ENERPAC®, HYDRATIGHT®, LARZEP & DESIGN® and SIMPLEX® brand names. 2 The segment delivers products and services primarily through our world-class, global network of distributors, as well as direct sales to OEMs and select end users.
We continually track and report our performance, including thorough reviews of incidents, near-misses, and quality issues; and management accountability and discussion of these improvement opportunities is a cornerstone of all business reviews. We finished the year with a total case incident rate (TCIR) of 0.64. This is up slightly year-over-year as fiscal 2022 had a TCIR of 0.61.
We continually track and report our performance, including thorough reviews of incidents, near-misses, and quality issues; and management accountability and discussion of these improvement opportunities is a cornerstone of all business reviews. We finished the year with a total case incident rate (TCIR) of 0.50. This is a decrease year-over-year as fiscal 2023 had a TCIR of 0.64.
Item 1. Business General Enerpac Tool Group Corp. is a premier industrial tools, services, technology and solutions company serving a broad and diverse set of customers in more than 100 countries.
Item 1. Business General Enerpac Tool Group Corp. is a premier industrial tools, services, technology, and solutions provider serving a broad and diverse set of customers and end markets for mission-critical applications in more than 100 countries.
We also apply these techniques and pricing actions to offset commodity increases and inflationary pricing. Finally, cash flow generation is critical to achieving our financial and long-term strategic objectives. We believe driving profitable growth and margin expansion will result in cash flow generation, which we seek to supplement through minimizing primary working capital.
Finally, cash flow generation is critical to achieving our financial and long-term strategic objectives. We believe driving profitable growth and margin expansion will result in cash flow generation, which we seek to supplement through minimizing primary working capital.
In addition to organic growth, we also focus on margin expansion through operational efficiency techniques, including lean, continuous improvement and 80/20, to drive productivity and lo wer costs, as well as 1 optimizing our selling, general and administrative expenses through consolidation and shared service implementation .
In addition to organic growth, we also focus on margin expansion through operational efficiency techniques, including lean, continuous improvement and 80/20, to drive productivity and lower costs, as well as optimizing our selling, general and administrative expenses through consolidation and shared service implementation. We also apply these techniques and pricing actions to offset commodity increases and inflationary pricing.
In March 2022, the Company announced the start of its ASCEND transformation program (“ASCEND”). ASCEND’s key initiatives include accelerating organic growth strategies, improving operational excellence and production efficiency by utilizing a Lean approach, and driving greater efficiency and productivity in selling, general and administrative expense by better leveraging resources to create a more efficient and agile organization.
ASCEND’s key initiatives include accelerating organic growth strategies, improving operational excellence and production efficiency by utilizing a Lean approach, and driving greater efficiency and productivity in selling, general and administrative expense by better leveraging resources to create a more efficient and agile organization.
From June 2016 until he joined Enerpac, Mr. Topercer was the Chief Human Resource Officer for Vantage Specialty Chemicals, a manufacturer of specialty chemicals and ingredients included in consumer and industrial products.
Topercer was the Chief Human Resource Officer for Vantage Specialty Chemicals, a manufacturer of specialty chemicals and ingredients included in consumer and industrial products.
The IT&S segment and the Company are well-positioned to drive shareholder value through a sustainable business strategy built on well-established brands, broad global distribution and end markets, with a clear focus on the core tools and services business, and disciplined capital deployment.
Our businesses provide an array of products and services across multiple markets and geographies, which results in significant diversification. The IT&S segment and the Company are well-positioned to drive shareholder value through a sustainable business strategy built on well-established brands, broad global distribution and end markets, clear focus on the core tools and services business, and disciplined capital deployment.
In fiscal 2023, we derived 39% of our net sales from the United States, 25% from Europe, 14% from the Middle East, 12% from Asia and 10% from other geographic areas.
In fiscal 2024, we derived 38% of our net sales from the United States, 29% from Europe, 15% from the Middle East, 10% from Asia and 8% from other geographic areas.
Together with their leaders, employees establish annual goals and objectives that align directly with our organizational commitments. We monitor progress throughout the year, with candid and frequent dialogue encouraged along the way, and, new for fiscal 2024, a formal check-in process to facilitate a clear understanding of goals and the status of progress toward achieving those goals.
We monitor progress throughout the year, with candid and frequent dialogue encouraged along the way, and, new for fiscal 2024, a formal check-in process at the mid-year point to facilitate a clear understanding of goals and the status of progress toward achieving those goals.
Denis was a shareholder with the law firm of Reinhart Boerner Van Deuren s.c., where he was a member of the firm’s Products Liability and Insurance Risk Management Teams. Markus Limberger, EVP, Operations, joined the Company in September of 2022, with responsibilities for manufacturing, distribution, and procurement. Mr.
Denis was a shareholder with the law firm of Reinhart Boerner Van Deuren s.c., where he was a member of the firm’s Products Liability and Insurance Risk Management Teams.
In addition, several of our products have been subject to tariffs, but to date we have been able to offset the majority of additional costs from tariffs through price increases.
In addition, several of our products have been subject to tariffs, but to date we have been able to offset the majority of additional costs from tariffs through price increases. We continue to manage our supply chain to mitigate ongoing risks associated with the evolving geopolitical and inflationary environments.
The Company has one reportable segment, the Industrial Tools & Services Segment ("IT&S"). The IT&S segment is primarily engaged in the design, manufacture and distribution of branded hydraulic and mechanical tools and in providing services and tool rental to the industrial, maintenance, infrastructure, oil & gas, alternative energy and other markets.
The IT&S segment is primarily engaged in the design, manufacture and distribution of branded hydraulic and mechanical tools and in providing services and tool rental to the refinery/petrochemical; general industrial; industrial maintenance, repair and operations ("MRO"); machining & manufacturing; power generation; infrastructure; mining; and other markets.
In fiscal 2023, we increased our tuition reimbursement to $5,250 for associate and undergraduate programs and $7,500 for graduate programs, while also offering the same level of reimbursement to part time workers as full-time workers. During fiscal 2023, we expanded our supplemental life and spousal insurance offering.
We offer tuition reimbursement up to $5,250 for associate and undergraduate programs and $7,500 for graduate programs, while also offering the same level of reimbursement to part time workers as full-time workers. We also offer a dependent scholarship of up to $2,500 for both part-time and full-time employees.
In June 2022, the Company approved a restructuring plan in connection with the initiatives identified as part of the ASCEND transformation program (see Note 3, “ASCEND Transformation Program” in the notes to the consolidated financial statements) to drive greater efficiency and productivity in global selling, general and administrative resources.
At the time, the Company anticipated investing $60 to $65 million through the end of fiscal 2024 to complete these actions. In June 2022, the Company approved a restructuring plan in connection with the initiatives identified as part of the ASCEND transformation program to drive greater efficiency and productivity in global selling, general and administrative resources.
The total costs of this plan were then estimated at $6 to $10 million, constituting predominately severance and other employee-related costs to be incurred as cash expenditures and impacting both IT&S and Corporate. On September 23, 2022, the Company approved an updated restructuring plan.
The total costs of this plan were then estimated at $6 to $10 million, constituting predominately severance and other employee-related costs to be incurred as cash expenditures and impacting both IT&S and Corporate (see Note 4, “Restructuring Charges” in the notes to the consolidated financial statements). These costs were incorporated into the initial investment of $60 to $65 million.
We continue to evaluate enhancements to our compensation and benefit programs in all locations to ensure we remain competitive and meet the needs of our employees. Diversity, Equity, Inclusion & Belonging. Diversity, Equity, Inclusion & Belonging ("DEIB") remains a core tenet of our organizational ethos, championed by our ELT and management at all levels.
We continue to evaluate enhancements to our compensation and benefit programs in all locations to ensure we remain competitive and meet the needs of our employees. Diversity, Inclusion & Belonging. Diversity, Inclusion & Belonging ("DI&B") remains a focus area as we strive to foster an inclusive culture of belonging.
The decrease in our order backlog during the fiscal year was primarily due to alleviated pressure on the supply chain. Assuming no significant supply chain constraints arise after the date of this report, substantially all of the backlog at August 31, 2023 is expected to be filled within twelve months.
Assuming no significant supply chain constraints arise after the date of this report, substantially all of the backlog at August 31, 2024 is expected to be filled within twelve months. While we typically experience a stronger second half to our fiscal year, our consolidated sales are not subject to significant seasonal fluctuations.
Therefore, the results are not disclosed separately as would be required if the Other operating segment were considered a reportable segment, and as the business is not closely related to the IT&S segment, results are not aggregated to be included in the results of the IT&S reportable segment.
Cortland Biomedical does not meet the quantitative or qualitative thresholds to be considered a reportable segment and, since the business is not closely related to the IT&S segment, results are not aggregated to be included in the results of the IT&S reportable segment.
Description of Business Segments Industrial Tools & Services Reportable Segment IT&S is a global supplier of both products and services to a broad array of end markets, including infrastructure, industrial maintenance, repair and operations, oil & gas, mining, alternative and renewable energy, and civil construction markets.
Description of Business Segments Industrial Tools & Services Reportable Segment IT&S is a global supplier of branded hydraulic and mechanical tools and services to a broad array of end markets, including refinery/petrochemical; general industrial; industrial MRO; machining & manufacturing; power generation; infrastructure; mining; and other markets.
Financial information related to the Company's reportable segment is included in Note 15, "Business Segment, Geographic and Customer Information" in the notes to the consolidated financial statements. Our businesses provide an array of products and services across multiple markets and geographies, which results in significant diversification.
Financial information related to the Company's reportable segment is included in Note 15, "Business Segment, Geographic and Customer Information" in the notes to the consolidated financial statements. The Company has an Other operating segment, which does not meet the criteria to be considered a reportable segment.
Through the end of fiscal 2023, the Company has realized approximately $54 million of annual operating profit from the execution of the ASCEND program and had invested approximately $60 million as part of the program.
Through fiscal 2023, the Company invested approximately $60 million as part of the program, both through program charges and restructuring. Through fiscal 2024, the Company has invested approximately $75 million as part of the program, consisting of $19 million through restructuring and $56 million in ASCEND transformation program charges.
Sternlieb 51 President and Chief Executive Officer Anthony P. Colucci 53 Executive Vice President and Chief Financial Officer James P. Denis 49 Executive Vice President, General Counsel, Company Secretary & Chief Compliance Counsel Markus Limberger 53 Executive Vice President, Operations Benjamin J.
Sternlieb 52 President and Chief Executive Officer P. Shannon Burns 54 Interim Principal Financial Officer and Head of Financial Planning, Operations and Decision Support Eric T. Chack 46 Executive Vice President - Operations James P. Denis 50 Executive Vice President, General Counsel, Company Secretary & Chief Compliance Counsel Benjamin J.
Mr. Colucci served in various financial roles with AT&T Wireless from September 1997 until he joined Honeywell. James Denis, EVP, General Counsel, Company Secretary & Chief Compliance Counsel, has served in this capacity since September 2022.
In addition, he served as an Infantry Officer in the Marine Corps. 5 James Denis, EVP, General Counsel, Company Secretary & Chief Compliance Counsel, has served in this capacity since September 2022.
Limberger resigned his position as Executive Vice President, Operations effective December 1, 2023, when by mutual agreement he will be placed on leave but will continue as an employee, at the same salary with the same benefits, through his contractual notice period until March 31, 2024. 5 Benjamin Topercer, EVP and Chief Human Resource Officer, joined the Company in February 2022 and leads the global human resources function, including our global HSSEQ organization, as well as our DEIB initiatives and communications function.
Benjamin Topercer, EVP and Chief Human Resource Officer, joined the Company in February 2022 and leads the global human resources function, including our global HSSEQ organization, as well as our DEIB initiatives and communications function. From June 2016 until he joined Enerpac, Mr.
We continue to manage our supply chain to mitigate ongoing risks associated with the evolving political and inflationary environments. 3 Order Backlogs and Seasonality Our operating segments have a relatively short order-to-ship cycle. We had order backlogs of $54 million and $72 million at August 31, 2023 and 2022, respectively.
Order Backlogs and Seasonality Our operating segments have a relat iv ely short order-to-ship cycle. We had order backlogs of $41 million and $54 million at August 31, 2024 and 2023, respectively. The decrease in our order backlog during the fiscal year was primarily due to continued effort to decrease inventory levels globally.
We firmly believe that embedding diversity into our core strategy not only aligns with our values but also provides a competitive advantage, attracting exceptional talent, leveraging diverse perspectives, and ultimately driving value creation for our shareholders. Employee Safety .
In addition, our Board reflects a diverse set of Directors, including three female (30%) and one racially diverse (10%) individual. We believe a continued focus on DI&B aligns with our values and provides a competitive advantage, enabling us to attract exceptional talent, leverage diverse perspectives, and ultimately drive value creation for our shareholders. Employee Safety .
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In support of the ASCEND initiatives, the Company anticipates investing approximately $70-$75 million over the life of the program, which is expected to be fully implemented by the end of the fourth quarter of fiscal 2024, with an expected annual operating profit improvement from the program in the range of $50-$60 million.
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During fiscal 2025, the Company is scheduled to relocate our headquarters to Milwaukee, Wisconsin. The Company has one reportable segment, the Industrial Tools & Services ("IT&S") Segment.
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The costs of this updated plan (which includes the amounts for the plan approved in June 2022) are estimated at $10 to $15 million. These costs are expected to be incurred over the expected duration of the transformation program, ending in the fourth quarter of fiscal 2024.
Added
In March 2022, the Company announced the start of its ASCEND transformation program (“ASCEND”), initially estimating an incremental $40 to $50 million of annual operating profit once fully implemented.
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Grainger, MSC and Blackwoods. Other Operating Segment The Cortland Industrial and Medical operating segments, which primarily design and manufacture high performance synthetic ropes and biomedical textiles, do not meet the quantitative or qualitative thresholds to be considered reportable segments, and together represent the Other operating segment.
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In September 2022, the Company approved an update to the restructuring plan to a range of $10 to $15 million; these costs were still incorporated into the initial investment value, and the range did not change at that time.
Removed
While we typically experience a stronger second half to our fiscal year, our consolidated sales are not subject to significant seasonal fluctuations.
Added
In March 2023, the Company increased the anticipated investment range to $70 to $75 million, inclusive of the $10 to $15 million of the previously announced restructuring, over the life of the program.
Removed
Our unwavering commitment to fostering an inclusive culture of belonging is reflected in our four key DEIB pillars: prioritize cultivating a diverse and inclusive workplace culture, support education and skill building opportunities for our employees, broaden our talent acquisition efforts to attract diversity, and empower employees through employee resource groups ("ERGs").
Added
In October 2023, the Company announced that during fiscal 2023, the Company had realized approximately $54 million of annual operating profit from execution of the ASCEND program and would no longer be breaking out the ASCEND benefit from results going into fiscal 2024.
Removed
We include diverse representation in our slates for all positions and will continue to do so. At the end of fiscal 2023, our board of directors includes three female (30%) and one racially diverse (10%) individual.
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Examples of industrial distributors include W.W. Grainger, MSC and Blackwoods. Other Operating Segment Cortland Biomedical is a full-service biomedical textile product development company and represents the Other operating segment.
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Anthony Colucci, EVP and Chief Financial Officer, joined the Company in that capacity in May of 2022, and leads global Finance and Information Technology. From June 2020 until joining the Company, Mr.
Added
Together with their leaders, employees establish annual goals and objectives that align directly with our organizational commitments.
Removed
Colucci served as Executive Vice President and Chief Finance and Administrative Officer of Robertshaw Industries, a global engineering and manufacturing company focused on controls and solutions for residential white goods and commercial appliances. Prior to joining Robertshaw, Mr.
Added
In the U.S., employees who work more than 30 hours per week are eligible for a comprehensive menu of benefits, including healthcare (health, dental, and vision) coverage, health savings accounts with $500/$1,000 employer funding, dependent care and healthcare flexible spending accounts, company-paid short-term disability, long-term disability, company-paid base life and accidental disability insurance, voluntary life coverage up to 6x annual salary, spousal and dependent life coverage.
Removed
Colucci served as Senior Vice President and Chief Financial Officer of Hayward Industries, Inc., a manufacturer of pool equipment and controls products, from May 2018 to May 2020, and in various positions with Honeywell International since September 2006, including as Vice President and Chief Financial Officer of Honeywell Performance Materials & Technologies from March 2016 to May 2018 and Vice President and Chief Financial Officer of Honeywell Sensing & Productivity Solutions from September 2011 to March 2016.
Added
Both part time and full-time employees are eligible for adoption assistance and up to 12 weeks of parental leave, of which six weeks are paid for full time employees at an employee's full salary.
Removed
Limberger served as Vice President Global Operations for Leica Microsystems GmbH, a subsidiary of Danaher Corporation and manufacturer of microscopy equipment, from September 2018 until he joined Enerpac. Prior to that, Mr. Limberger was with Leica Camera AG, serving as Head of Operations from January 2011 to July 2011 and then as Chief Operating Officer until August 2018.
Added
Shannon Burns, Interim Principal Financial Officer and Head of Financial Planning, Operations and Decision Support, was appointed as the Company’s Interim Principal Financial Officer by the Board of Directors effective March 1, 2024. Prior to his appointment, Mr. Burns served as Head of Financial Planning, Operations, and Decision Support since joining the Company in November 2022.
Removed
Before joining Leica Camera, Mr. Limberger served as Head of Production from August 2007 to January 2008 and then as Managing Director until December 2010 of Uwe Weller Feinwerktechnik GmbH, a metal processing company. Prior to that, he held operations, logistics and dispatching management positions with a number of other manufacturing firms.
Added
Prior to joining the Company, Mr. Burns was with Harley-Davidson Motor Company, holding various positions in Finance and Investor Relations from August 2011 through November 2022. From June 2007 to August 2011, Mr. Burns was with MillerCoors Brewing Company, serving as a Manager, following ten years with Ernst & Young and seven years with American Express Financial Advisors. Eric T.
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His background includes a strong focus on operational excellence and in developing and executing operations strategies to achieve sustained improvements in performance, with extensive experience in Lean and continuous improvement principles. On September 26, 2023, Mr.
Added
Chack, Executive Vice President - Operations, joined the Company in July 2024 and leads all aspects of Enerpac’s global operations, including oversight for manufacturing, procurement, logistics, continuous improvement, quality, and reliability. Prior to joining Enerpac, Mr. Chack was SVP Supply Chain for Mohawk Industries. Before his time at Mohawk, Mr.
Added
Chack was SVP Global Operations & Supply Chain for Briggs & Stratton and held global operations leadership roles at SPX Corporation and IDEX Corporation. He has extensive experience building, developing, and optimizing the performance of world-class operations teams.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

49 edited+11 added−3 removed89 unchanged
Biggest changeOur businesses and operating results have been, and will continue to be, affected by domestic and international economic conditions. The level of demand for our products is affected by general economic and business conditions in our served end markets.
Biggest changeDeterioration of, or instability in, the domestic and international economy and challenging end-market conditions could impact our ability to grow the business and adversely impact our financial condition, results of operations and cash flows and our ability to execute our strategy. Our businesses and operating results have been, and will continue to be, affected by domestic and international economic conditions.
Risks Related to Economic Conditions Supply chain issues, including shortages of adequate component supply, that increase our costs or cause delays in our ability to fulfill orders, or a failure by us to estimate customer demand properly, could have an adverse impact on our business and operating results and our relationships with customers.
Risks Related to Economic Conditions Supply chain issues, including shortages of adequate component supply or that increase our costs or cause delays in our ability to fulfill orders, or a failure by us to estimate customer demand properly, could have an adverse impact on our business and operating results and our relationships with customers.
We have experienced contraction and challenging demand conditions in many of our served markets historically, and it is reasonably possible that we could experience such conditions in the future which may adversely affect our ability to execute our strategy, financial condition, results of operations and cash flows.
We have experienced contraction and challenging demand conditions in many of our served markets historically, and it is reasonably possible that we could experience such conditions in the future, which may adversely affect our financial condition, results of operations and cash flows and our ability to execute our strategy.
We may incur increased interest expense as a result of our variable rate debt. Borrowings under our revolving line of credit and our $200 million term loan incur interest which is variable based on fluctuations in the referenced SOFR ("Secured Overnight Financing Rate").
We may incur increased interest expense as a result of our variable rate debt. Borrowings under our revolving line of credit and our $200 million term loan incur interest which is variable based on fluctuations in the referenced Secured Overnight Financing Rate ("SOFR").
A relatively small number of shares are normally traded in any one day and higher volumes could have a significant effect on the market price of our common stock.
A relatively small number of shares of our common stock are normally traded in any one day and higher volumes could have a significant effect on the market price of our common stock.
Our sales and operating activities outside of the U.S. are, and will continue to be, subject to a number of risks, including: • unfavorable fluctuations in foreign currency exchange rates; • adverse changes in foreign tax, legal and regulatory requirements; • export and import restrictions and controls on repatriation of cash; 8 • political and economic instability; • difficulty in protecting intellectual property; • government embargoes, tariffs and trade protection measures, such as “anti-dumping” duties applicable to classes of products, and import or export licensing requirements, as well as the imposition of trade sanctions against a class of products imported from or sold and exported to, or the loss of “normal trade relations” status with, countries in which we conduct business, that could significantly increase our cost of products or otherwise reduce our sales and harm our business; • cultural norms and expectations that may sometimes be inconsistent with our Code of Conduct and our requirements about the manner in which our employees, agents and distributors conduct business; • differing labor regulations; and • acts of hostility, terror or war.
Our sales and operating activities outside of the U.S. are, and will continue to be, subject to a number of risks, including: • unfavorable fluctuations in foreign currency exchange rates; • adverse changes in foreign tax, legal and regulatory requirements; • export and import restrictions and controls on repatriation of cash; • political and economic instability; • difficulty in protecting intellectual property; • government embargoes, tariffs and trade protection measures, such as “anti-dumping” duties applicable to classes of products, and import or export licensing requirements, as well as the imposition of trade sanctions against a class of products imported from or sold and exported to, or the loss of “normal trade relations” status with, countries in which we conduct business, that could significantly increase our cost of products or otherwise reduce our sales and harm our business; • cultural norms and expectations that may sometimes be inconsistent with our Code of Conduct and our requirements about the manner in which our employees, agents and distributors conduct business; • differing labor regulations; and • acts of hostility, terror or war.
Our failure to comply with these covenants also could result in events of default which, if not cured or waived, could require us to repay indebtedness before its due date, and we may not have the financial resources or otherwise be able to arrange alternative financing to do so.
Our failure to comply with these covenants also could result in events of default which, if not cured or waived, could require us to repay indebtedness before its due date, and we may not have the financial resources or otherwise be able to arrange alternative 12 financing to do so.
The marketing success of many of our businesses in the U.S. and abroad depends largely upon our independent agents’ and distributors’ sales and service expertise and relationships with customers in our end markets. Many of these agents have developed strong ties to existing and potential customers because of their detailed knowledge of our products.
The marketing success of many of our businesses in the U.S. and abroad depends largely upon our independent agents’ and distributors’ sales and service expertise and relationships with customers in our end markets. Many of these agents have 7 developed strong ties to existing and potential customers because of their detailed knowledge of our products.
In addition, some of our competitors may be willing to reduce prices and accept lower margins to compete with us. Our international operations pose political, currency and other risks. We expect sales from and into foreign markets to continue to represent a significant portion of our revenue.
In addition, some of our competitors may be willing to reduce prices and accept lower margins to compete with us. 8 Our international operations pose political, currency and other risks. We expect sales from and into foreign markets to continue to represent a significant portion of our revenue.
Therefore, we continue to review our organizational structure, and changes to where income is generated, may have a material adverse effect on our liquidity and results of operations. Our customers and other business partners often require terms and conditions that expose us to significant risks and liabilities.
Therefore, we continue to review our organizational structure, and changes to where income is generated, which changes may have a material adverse effect on our liquidity and results of operations. Our customers and other business partners often require terms and conditions that expose us to significant risks and liabilities.
We may experience a reduction or interruption in supply due to factors beyond our control, including as a geopolitical conflicts and the imposition of international sanctions in response thereto, a significant natural disaster, pandemics, or shortages in global freight capacity.
We may experience a reduction or interruption in supply due to factors beyond our control, including as a result of geopolitical conflicts and the imposition of international sanctions in response thereto, a significant natural disaster, pandemics, or shortages in global freight capacity.
In certain jurisdictions, those third parties represent a significant portion of our sales in their respective country. Collection times for receivables in many foreign jurisdictions may often be substantially longer than those in the United States (though less than one year).
In certain jurisdictions, those third parties represent a significant portion of our sales in their respective country. Collection times for receivables in many foreign jurisdictions may often be substantially longer than those in the United States (though typically less than one year).
If borrowings under our senior credit facility were declared or became due and payable immediately as the 12 result of an event of default and we were unable to repay or refinance those borrowings, our lenders could foreclose on the pledged assets and stock.
If borrowings under our senior credit facility were declared or became due and payable immediately as the result of an event of default and we were unable to repay or refinance those borrowings, our lenders could foreclose on the pledged assets and stock.
The ASCEND program has focused on the following key initiatives: (i) accelerating organic growth strategies, (ii) improving operational excellence and production efficiency by utilizing a lean approach and (iii) driving greater efficiency and productivity in selling, general and administrative expenses.
The ASCEND program focused on the following key initiatives: (i) accelerating organic growth strategies, (ii) improving operational excellence and production efficiency by utilizing a lean approach and (iii) driving greater efficiency and productivity in selling, general and administrative expenses.
If we fail to make innovations, launch products with quality problems, experience development cost overruns, or the market does not accept our new products, then our financial condition, results of operations, cash flows and liquidity could be adversely affected. Our growth strategy includes strategic acquisitions, which we may not be able to consummate or successfully integrate.
If we fail to make innovations, launch products with quality problems, experience development cost overruns, or the market does not accept our new products, then our financial condition, results of operations, cash flows and liquidity could be adversely affected. Our growth strategy includes strategic acquisitions, which we may not be able to consummate.
Equipment failures, natural disasters, health issues (including pandemics like COVID-19), power outages, fires, explosions, terrorism, adverse weather conditions, labor disputes or other influences could create a material disruption. Interruptions to production could increase our cost of sales, harm our reputation and adversely affect our ability to attract or retain our customers.
Equipment failures, natural disasters, health issues (including pandemics like COVID-19), power outages, fires, explosions, terrorism, adverse weather conditions, labor disputes or other events could create a material disruption. Interruptions to production could increase our cost of sales, harm our reputation and adversely affect our ability to attract or retain our customers.
These alternatives may not be available on short notice or could result in higher freight and logistics costs, which could have an adverse impact on the Company’s business and financial condition. 7 Collection risk for receivables in foreign jurisdictions. We sell products and services through distributors and agents.
These alternatives may not be available on short notice or could result in higher freight and logistics costs, which could have an adverse impact on the Company’s business and financial condition. We face collection risk for receivables in foreign jurisdictions. We sell products and services through distributors and agents.
Our vendors may be unable to meet our demand for raw materials or components, or significantly increase lead times for deliveries, which may be unable to offset through alternate sources of supply, or impose significant increases in the price of critical components and raw materials that we may be unable to pass along to our customers.
Our vendors may be unable or unwilling to meet our demand for raw materials or components, or significantly increase lead times for deliveries, which may be unable to offset through alternate sources of supply, Further, vendors may impose significant increases in the price of critical components and raw materials that we may be unable to pass along to our customers.
On March 23, 2022, we announced the launch of ASCEND, a transformation program focused on driving accelerated earnings growth and efficiency across the business with the goal of delivering improved annual operating profit once fully implemented.
In March 2022, we announced the launch of ASCEND, a transformation program focused on driving accelerated earnings growth and efficiency across the business with the goal of delivering improved annual operating profit once fully implemented.
Increased global cybersecurity threats, computer viruses and more sophisticated and targeted cyber-related attacks, as well as cybersecurity failures re sulting from human error, vulnerabilities and technological errors pose a risk to our systems, including third-party vendor operated systems, operations and products and potentially those of our business partners.
Increased global cybersecurity threats, computer viruses and more sophisticated and targeted cyber-related attacks, as well as cybersecurity failures re sulting from human error, vulnerabilities and technological errors, including the errors of third-party software providers, pose a risk to our systems, including third-party vendor operated systems, operations and products and potentially those of our business partners.
We are reliant on our supply chain for components and raw materials to manufacture our products and provide services to our customers, and this reliance could have an adverse impact on our business and operating results.
We rely on our supply chain for components and raw materials to manufacture our products and provide services to our customers, and this reliance could have an adverse impact on our business and operating results.
"ASCEND Transformation Program" in the notes to the consolidated financial statements and "Business Update" within Item 7 for further discussion of the ASCEND program and other current restructuring activities).
"ASCEND Transformation Program" and Note 4 , " Restructuring Charges," in the notes to the consolidated financial statements and "Business Update" within Item 7 for further discussion of the ASCEND program and other current restructuring activities).
Terrorist attacks against targets in the U.S. or abroad, rumors or threats of war, other geopolitical activity or trade disruptions, such as those caused by the Russia-Ukraine conflict, the armed conflict involving Hamas and Israel, or any conflict or threatened conflict between China and Taiwan, may cause general economic conditions in the U.S. or abroad to deteriorate.
Terrorist attacks against targets in the U.S. or abroad, rumors or threats of war, other geopolitical activity or trade disruptions, such as those caused by the Russia-Ukraine conflict, the armed conflicts in the Middle East, or any conflict or threatened conflict between China and Taiwan, may cause general economic conditions in the U.S. or abroad to deteriorate.
Our effective tax rate could be adversely affected by changes in tax law (including a potential increase in the U.S. federal income tax rate), the mix of earnings among countries with differing statutory tax rates, or changes in the valuation allowance of deferred tax assets.
Our effective tax rate could be adversely affected by changes in tax law (including a potential increase in the U.S. federal income tax rate or increased tariffs on goods imported into the U.S.), the mix of earnings among countries with differing statutory tax rates, or changes in the valuation allowance of deferred tax assets.
In addition, from time to time, we implement other plans that incur restructuring costs to (i) eliminate redundancies in our corporate or regional structures (ii) eliminate excess capacity in our facilities as a result of integration of acquisitions or divestitures of product lines, or (iii) eliminate product or service lines that do not meet targeted profitability metrics.
In addition, we implemented other plans that incurred restructuring costs to (i) eliminate redundancies in our corporate or regional structures, (ii) eliminate excess capacity in our facilities as a result of integration of acquisitions or divestitures of product lines, or (iii) eliminate product or service lines that did not meet targeted profitability metrics.
When facing component supply-related challenges, we may also increase our inventories and purchase commitments to shorten lead times and ensure adequate inventories to meet customer expectations.
When facing component supply-related challenges, we may also increase our inventories and purchase commitments to shorten lead times and increase the likelihood of maintaining adequate inventories to meet customer expectations.
Disruptions in the global oil & gas markets (such as those due to the COVID-19 pandemic and the Ukraine/Russia conflict and the resulting international sanctions) and other changes in demand for oil can negatively affect oil prices and negatively affect cash flows for many of those customers.
Disruptions in the global oil & gas markets (such as those due to the Ukraine/Russia conflict and the resulting international sanctions and the armed conflicts in the Middle East) and other changes in demand for oil can negatively affect oil prices and negatively affect cash flows for many of those customers.
Further, we procure a significant portion of our components from suppliers located in China, and we are therefore exposed to potential disruptions in deliveries from these suppliers due to political tensions with China, geopolitical risks, government-mandated facility closures in China due to public health matters (such as the COVID-19 outbreaks), energy shortages or other causes.
Further, we procure a significant portion of our components from suppliers located in China, and we are therefore exposed to potential disruptions in deliveries from these suppliers due to political tensions with China, geopolitical risks, government-mandated facility closures in China, energy shortages or other causes.
Our goodwill and other intangible assets represent a substantial amount of our total assets. Our total assets reflect substantial intangible assets, primarily goodwill. As of August 31, 2023, goodwill and other intangible assets totaled $304 million, or 40% of our total assets.
Our goodwill and other intangible assets represent a substantial amount of our total assets. Our total assets reflect substantial intangible assets, primarily goodwill. As of August 31, 2024, goodwill and other intangible assets totaled $306 million, or 39% of our total assets.
We attempt to mitigate these risks by employing measures including employee training, network monitoring and testing, maintenance of protective systems, contingency planning, and the engagement of third-party experts but we remain potentially vulnerable to additional known or unknown threats. There is no assurance the financial or operational impact from such threats will not be material.
We attempt to mitigate these risks by employing measures including employee training, network monitoring and testing, maintenance of protective systems, contingency planning, and the engagement of third-party experts, but we remain potentially vulnerable to additional known or unknown threats.
In particular, our articles of incorporation and bylaws, among other things: • require a supermajority shareholder vote to approve a merger of the Company with another entity; • regulate how shareholders may present proposals or nominate directors for election at shareholders’ meetings; and • authorize our board of directors to issue preferred stock in one or more series, without shareholder approval. 13 General Risk Factors Geopolitical unrest and terrorist activities may cause the economic conditions in the U.S. or abroad to deteriorate, which could harm our business.
In particular, our articles of incorporation and bylaws, among other things: • require a supermajority shareholder vote to approve a merger of the Company with another entity; • regulate how shareholders may present proposals or nominate directors for election at shareholders’ meetings; and 13 • authorize our board of directors to issue preferred stock in one or more series, without shareholder approval.
Our ability to develop innovative new products can affect our competitive position and often requires the investment of significant resources. Difficulties or delays in research, development, production or commercialization of new products, or failure to gain market acceptance of new products and technologies, may reduce future sales and adversely affect our competitive position.
Difficulties or delays in research, development, production or commercialization of new products, or failure to gain market acceptance of new products and technologies, may reduce future sales and adversely affect our competitive position.
We may not be able to realize planned benefits from acquired companies. We may not be able to realize planned benefits from acquired companies. Achieving those benefits depends on the timely, efficient and successful execution of a number of post-acquisition events, including integrating the acquired business into the Company.
Achieving those benefits depends on the timely, efficient and successful execution of a number of post-acquisition events, including integrating the acquired business into the Company.
If the demand for our products is less than our expectations or if we otherwise fail to anticipate customer demand properly, an oversupply of components could result in inventory levels that could also lead to significant excess and obsolete inventory charges and affect our operating and financial results. 6 Deterioration of, or instability in, the domestic and international economy and challenging end-market conditions could impact our ability to grow the business and adversely impact our ability to execute our strategy, financial condition, results of operations and cash flows.
If the demand for our products is less than our expectations or if we otherwise fail to anticipate customer demand properly, an 6 oversupply of components could result in inventory levels that could also lead to significant excess and obsolete inventory charges and adversely affect our operating and financial results.
An attack also could result in losses due to ransomware payments, security breaches, theft, lost or corrupted data, misappropriation of sensitive, confidential or personal data or information, loss of trade secrets and commercially valuable information, production downtimes and operational disruptions.
An attack also could result in losses due to an inability to recover lost data, software and key documentation, ransomware payments, security breaches, theft, lost or corrupted data, misappropriation of sensitive, confidential or personal data or information, loss of trade secrets and commercially valuable information, reputational harm, including loss of confidence by our customers, suppliers and employees in our ability to adequately protect their information, fines, production downtimes and operational disruptions.
In addition, a reduction in the production of petroleum products as a result of consumer behavior that embraces alternative sources of energy over oil & gas could similarly adversely affect our results of operations by reducing the demand for our products and services. 9 Risks Related to the Execution of Our Strategy If we fail to develop new products, or customers do not accept our new products, our business could be adversely affected.
In addition, a reduction in the production of petroleum products as a result of consumer behavior that embraces alternative sources of energy over oil & gas could similarly adversely affect our results of operations by reducing the demand for our products and services.
Logistics challenges, including global freight capacity shortages, could increase our freight costs or cause delays in our ability to fulfill orders and could have an adverse impact on our business and operating results.
Uncertainties about future tariff changes could result in mitigation actions that prove to be ineffective or detrimental to our business. Risks Related to Our Business and Operations Logistics challenges, including global freight capacity shortages, could increase our freight costs or cause delays in our ability to fulfill orders and could have an adverse impact on our business and operating results.
The process of integrating acquired businesses into our existing operations also may result in unforeseen operating difficulties and may require additional financial resources and attention from management that would otherwise be available for the ongoing development or expansion of our existing operations.
The process of integrating acquired businesses into our existing operations also may require additional financial resources and attention from management that would otherwise be available for the ongoing development or expansion of our existing operations. Although we expect to successfully integrate any acquired businesses, we may not achieve the desired net benefit in the timeframe planned.
Costs and liabilities arising from legal proceedings could be material and adversely impact our financial results. We are subject to legal and regulatory proceedings, including litigation asserting product liability and warranty claims. We maintain insurance and have established reserves for these matters as appropriate and in accordance with applicable accounting standards and practices.
Costs and liabilities arising from legal proceedings could be material and adversely impact our financial results. We are subject to legal and regulatory proceedings, including litigation asserting product liability and warranty claims.
Although we expect that the improved operating profit, cost savings and realization of efficiencies will offset the related costs of these initiatives and provide additional annual benefit, we may not fully achieve the expected benefits of these efforts (see Note 4, "Restructuring Charges," Note 3.
Although we expect that the improved operating profit, cost savings and realization of efficiencies will continue to provide annual benefit, we may not fully maintain these improvements (see Note 3.
A substantial portion of our revenues is derived from customers in cyclical industries (such as the industrial and oil & gas sectors) that typically are adversely affected in periods of economic contraction or volatility. In such periods, our customers may experience deterioration of their businesses, which may reduce or delay our sales.
The level of demand for our products is affected by general economic and business conditions in our served end markets. A substantial portion of our revenues is derived from customers in cyclical industries (such as the industrial and oil & gas sectors) that typically are adversely affected in periods of economic contraction or volatility.
Although we expect to successfully integrate any acquired businesses, we may not achieve the desired net benefit in the timeframe planned. Failure to effectively execute our acquisition strategy or successfully integrate the acquired businesses could have an adverse effect on our competitive position, reputation, financial condition, results of operations, cash flows and liquidity.
Failure to effectively execute our acquisition strategy could have an adverse effect on our competitive position, reputation, financial condition, results of operations, cash flows and liquidity. We may not be able to realize planned benefits from acquired companies. We may not be able to realize planned benefits from acquired companies.
A liquidity event or dispute involving one of these channel partners may adversely affect our results of operations and financial condition . If we fail to retain the agents and distributors upon whom we rely to market our products and services, we may be unable to effectively market our products and services and our revenue and profitability may decline.
If we fail to retain the agents and distributors upon whom we rely to market our products and services, we may be unable to effectively market our products and services and our revenue and profitability may decline.
Any future goodwill or intangible asset impairments could negatively affect our financial condition and results of operations. Risks Related to Legal, Compliance and Regulatory Matters We are subject to many laws and regulations that may change in ways that are detrimental to our competitiveness or results.
Risks Related to Legal, Compliance and Regulatory Matters We are subject to many laws and regulations that may change in ways that are detrimental to our competitiveness or results. Our businesses are subject to regulation under a broad range of U.S. and foreign laws and regulations.
Imposition of climate-related laws and regulations that disadvantage the oil & gas industry compared to other industries or consumer behavior that reduces demand for petroleum products may have an adverse impact on our results of operations. A significant portion of our revenues are derived from the sale of products and services to end users in the oil & gas industry.
Also, our contracting standards may be more stringent than those of certain competitors, and as a result, we may experience market share losses or the reduction in growth opportunities. 9 Imposition of climate-related laws and regulations that disadvantage the oil & gas industry compared to other industries or consumer behavior that reduces demand for petroleum products may have an adverse impact on our results of operations.
We recognized $1 million in impairment charges in fiscal 2022 related to the goodwill in our Cortland Industrial operating segment (Other Segment) (see Note 6, "Goodwill, Intangible Assets and Long-Lived Assets" in the notes to the consolidated financial statements and "Critical Accounting Estimates" for further discussion on goodwill, intangible asset and long-lived asset impairments).
See Note 6, "Goodwill, Intangible Assets and Long-Lived Assets" in the notes to the consolidated financial statements and "Critical Accounting Estimates" for further discussion on goodwill, intangible asset and long-lived asset impairments. Any future goodwill or intangible asset impairments could negatively affect our financial condition and results of operations.
Insurance coverage, to the extent it is available, may not cover all losses arising from such contingencies.
We maintain insurance and have established reserves for these matters as appropriate and in accordance with applicable accounting standards and practices. Insurance coverage, to the extent it is available, may not cover all losses arising from such contingencies.
We have developed and implemented strategies to mitigate previously implemented and, in some cases, proposed tariff increases, but there is no assurance we will be able to continue to mitigate prolonged tariffs. Further, uncertainties about future tariff changes could result in mitigation actions that prove to be ineffective or detrimental to our business.
We have developed and implemented strategies to mitigate previously implemented and, in some cases, proposed tariff increases, but there is no assurance we will be able to continue to mitigate prolonged tariffs. The outcome of the 2024 U.S. presidential elections may have a significant impact on U.S. domestic and global tariffs.
These issues could delay importation of products or require the Company to locate alternative ports or warehousing providers to avoid disruption to customers.
Globally, the shipping industry faces other challenges, including labor disputes at major ports and railways and weather-related disruptions, such as droughts in Panama reducing capacity in the Panama Canal. These issues could delay importation of products or require the Company to locate alternative ports or warehousing providers to avoid disruption to customers.
Removed
Risks Related to Our Business and Operations We may not be able to fully realize expected cost savings from our ASCEND transformation program and from restructuring actions.
Added
In such periods, our customers may experience deterioration of their businesses, which may reduce or delay our sales.
Removed
Also, our contracting standards may be more stringent than those of certain competitors, and as a result, we may experience market share losses or the reduction in growth opportunities.
Added
For example, the armed conflicts in the Middle East and the associated attacks on commercial ships in the Red Sea has caused global increases in shipping costs, as well as significant delays for some shipments.
Removed
Our businesses are subject to regulation under a broad range of U.S. and foreign laws and regulations.
Added
For example, during the year ended August 31, 2022, we recognized a $13.2 million bad debt reserve as a result of the continued payment delinquency of one of our agents. A liquidity event or dispute involving one of our channel partners may adversely affect our results of operations and financial condition .
Added
The development and adoption of generative artificial intelligence ("AI") technologies exacerbates these risks and may give rise to new tools for threat actors to attack and disrupt our systems.
Added
We anticipate that meaningful investments in our operating technology infrastructure will be necessary as we continue to evaluate our vulnerabilities and take actions to safeguard our systems.
Added
Further, while we currently maintain insurance coverage tha t, subject to its terms and conditions, is intended to address costs associated with certain aspects of cybersecurity incidents and information systems failures, this insurance coverage may not, depending on the specific facts and circumstances surrounding an incident, cover all losses or all types of claims that arise from an incident, or the damage to our reputation that may result from an incident.
Added
There is no assurance the financial or operational impact fr om such threats or events will not be material. We may not be able to maintain operational improvements from our ASCEND transformation program and from restructuring actions.
Added
A significant portion of our revenues are derived from the sale of products and services to end users in the oil & gas industry.
Added
Risks Related to the Execution of Our Strategy If we fail to develop new products, or customers do not accept our new products, our business could be adversely affected. Our ability to develop innovative new products can affect our competitive position and often requires the investment of significant resources.
Added
Because our products are used in critical applications in demanding environments, including in the oil & gas industry, product and service failures can have significant consequences and could result in significant product liability, warranty and other claims against us, regardless of whether our products and services caused the incident that is the subject of the claim, and we may have obligations to participate in the recall of products in which our products are components, if any of the components or services we supply prove to be defective.
Added
General Risk Factors Geopolitical unrest and terrorist activities may cause the economic conditions in the U.S. or abroad to deteriorate, which could harm our business.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeProperties As of August 31, 2023, we owned or leased the following facilities (square footage in thousands): Number of Locations Square Footage Distribution / Sales / Admin Manufacturing Total Owned Leased Total Industrial Tools & Services 9 36 45 132 1,053 1,185 Corporate and Other 2 1 3 26 117 143 11 37 48 158 1,170 1,328 We consider our facilities suitable and adequate for the purposes for which they are used and do not anticipate difficulty in renewing existing leases as they expire or in finding alternative facilities.
Biggest changeProperties As of August 31, 2024, we owned or leased the following facilities (square footage in thousands): Number of Locations Square Footage Distribution / Sales / Admin Manufacturing Total Owned Leased Total Industrial Tools & Services 10 35 45 132 1,181 1,313 Corporate and Other 2 2 4 26 173 199 12 37 49 158 1,354 1,512 We consider our facilities suitable and adequate for the purposes for which they are used and do not anticipate difficulty in renewing existing leases as they expire or in finding alternative facilities.
Our largest facilities are located in the United States, the United Kingdom, the Netherlands, China and Spain. We also maintain a presence in Algeria, Australia, Brazil, France, Germany, Kazakhstan, India, Italy, Japan, Norway, Poland, Saudi Arabia, Singapore, South Africa, South Korea and the United Arab Emirates.
Our largest facilities are located in the United States, the Netherlands, China and the United Kingdom. We also maintain a presence in Algeria, Australia, Brazil, France, Germany, Kazakhstan, India, Italy, Japan, Norway, Poland, Saudi Arabia, Singapore, South Africa, South Korea, Spain and the United Arab Emirates.
See Note 10, “Leases” in the notes to the consolidated financial statements for information regarding our lease commitments. 14
See Note 10, “Leases” in the notes to the consolidated financial statements for information regarding our lease commitments.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeInformation with respect to contingencies arising from legal proceedings, including governmental investigations, set forth in Note 16, “Commitments and Contingencies” in the notes to the consolidated financial statements is incorporated by reference. Item 4. Mine Safety Disclosures Not applicable. 15 PART II
Biggest changeInformation with respect to contingencies arising from legal proceedings, including governmental investigations, set forth in Note 16, “Commitments and Contingencies” in the notes to the consolidated financial statements, is incorporated by reference. Item 4. Mine Safety Disclosures Not applicable. 16 PART II
Item 3. Legal Proceedings We are a party to various legal proceedings that have arisen in the normal course of business. These legal proceedings typically include product liability, breaches of contract, employment, personal injury and other disputes. We have recorded reserves for estimated losses based on the specific circumstances of each case.
Item 3. Legal Proceedings We are a party to various legal proceedings that have arisen in the normal course of business. These legal proceedings typically include product liability, breaches of contract, employment, personal injury and other disputes. 15 We have recorded reserves for estimated losses based on the specific circumstances of each case.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeAs of August 31, 2023, the maximum number of shares that may yet be purchased under this authorization is 4,026,515 shares. The following table summarizes share repurchases during the fourth quarter of fiscal 2023, all of which were purchased under publicly announced share repurchase programs.
Biggest changeIn addition to the initial share retirement, the Company repurchased and retired 240,972 shares during the year-ended August 31, 2024. The following table summarizes share repurchases during the fourth quarter of fiscal 2024, all of which were purchased under publicly announced share repurchase programs.
Fiscal year ending August 31. Copyright© 2023 Standard & Poor's, a division of S&P Global. All rights reserved. Copyright© 2023 Russell Investment Group.
Fiscal year ending August 31. Copyright© 2024 Standard & Poor's, a division of S&P Global. All rights reserved. Copyright© 2024 Russell Investment Group.
Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities The Company’s Cla ss A common stock is traded on the New York Stock Exchange under the symbol EPAC. As of September 30, 2023, there were 873 shareholde rs of record of the Company's Class A common stock.
Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities The Company’s Cla ss A common stock is traded on the New York Stock Exchange under the symbol EPAC. As of September 30, 2024, there were 672 shareholde rs of record of the Company's Class A common stock.
Dividends In fiscal 2023, the Company declared a dividend of $0.04 per share of Class A common stock payable on October 18, 2023 to shareholders of record on October 6, 2023.
Dividends In fiscal 2024, the Company declared a dividend of $0.04 per share of Class A common stock payable on October 18, 2024 to shareholders of record on October 7, 2024.
In fiscal 2022, the Company declared a dividend of $0.04 per share of Class A common stock payable on October 17, 2022 to shareholders of record on October 7, 2022. Share Repurchases The Company's Board of Directors has authorized the repurchase of shares of the Company's common stock under publicly announced share repurchase programs.
In fiscal 2023, the Company declared a dividend of $0.04 per share of Class A common stock payable on October 18, 2023 to shareholders of record on October 6, 2023. Share Repurchases The Company's Board of Directors has authorized the repurchase of shares of the Company's common stock under publicly announced share repurchase programs.
Since the inception of the initial share repurchase program in fiscal 2012, the Company has repurchased 28,772,715 shares of common stock for $801 million. In March 2022, the Company's Board of Directors rescinded its prior share repurchase authorization and approved a new share repurchase program authorizing the repurchase of a total of 10,000,000 shares of the Company's outstanding common stock.
Since the inception of the initial share repurchase program in fiscal 2012, the Company has repurchased 30,082,181 shares of common stock for $839 million. In March 2022, the Company's Board of Directors rescinded its prior share repurchase authorization and approved a new share repurchase program authorizing the repurchase of a total of 10,000,000 shares of the Company's outstanding common stock.
They assume that the value of the investment in our common stock for the last trading day of each fiscal year, in each index, and in the peer group (in each case, including reinvestment of dividends) was $100 on August 31, 2018 and tracks it through August 31, 2023. *$100 Invested on 8/31/18 in stock or index, including reinvestment of dividends.
They assume that the value of the investment in our Class A common stock for the last trading day of each fiscal year, in each index, and in the peer group (in each case, including reinvestment of dividends) was $100 on August 31, 2019 and tracks it through August 31, 2024. *$100 Invested on 8/31/19 in stock or index, including reinvestment of dividends.
Period Shares Repurchased Average Price Paid per Share Maximum Number of Shares That May Yet Be Purchased Under the Program June 1 to June 30, 2023 419,018 $ 26.65 4,977,558 July 1 to July 31, 2023 366,787 26.93 4,610,771 August 1 to August 31, 2023 584,256 26.32 4,026,515 1,370,061 $ 26.62 16 Performance Graph The graph and table b elow compare the cumulative 5-year total return of the Company's common stock with the cumulative total returns of the Russell 2000 Index and the S&P 600 Industrial Index.
Period Shares Repurchased Average Price Paid per Share Maximum Number of Shares That May Yet Be Purchased Under the Program June 1 to June 30, 2024 — $ — 2,860,748 July 1 to July 31, 2024 — — 2,860,748 August 1 to August 31, 2024 143,699 39.40 2,717,049 143,699 $ 39.40 17 Performance Graph The graph and table b elow compare the cumulative 5-year total return of the Company's Class A common stock with the cumulative total returns of the Russell 2000 Index and the S&P 600 Industrial Index.
All rights reserved. 8/18 8/19 8/20 8/21 8/22 8/23 Enerpac Tool Group Corp. $ 100.00 $ 75.52 $ 70.86 $ 85.90 $ 66.36 $ 89.80 Russell 2000 Index 100.00 87.11 92.35 135.83 111.54 116.73 S&P 600 Industrial Index 100.00 86.12 89.51 129.60 120.21 145.45 The stock price performance included in this graph is not necessarily indicative of future stock price performance. 17 Item 6. [ Reserved]
All rights reserved. 8/19 8/20 8/21 8/22 8/23 8/24 Enerpac Tool Group Corp. $ 100.00 $ 93.82 $ 113.74 $ 87.87 $ 118.90 $ 187.42 Russell 2000 Index 100.00 106.02 155.94 128.05 134.01 158.76 S&P 600 Industrial Index 100.00 103.94 150.50 139.60 168.90 213.20 The stock price performance included in this graph is not necessarily indicative of future stock price performance. 18 Item 6. [ Reserved]
Added
As of August 31, 2024, the maximum number of shares that may yet be purchased under this authorization is 2,717,049 shares. In December 2023, the Company's Board of Directors authorized the retirement of the Company's repurchased shares, and the Company retired 29,841,209 treasury shares.
Added
The initial share retirement resulted in reductions of $6.0 million in Class A Common Stock and $824.6 million in Retained Earnings reflected in the Condensed Consolidated Balance Sheets at August 31, 2024. Shares repurchased after December 18, 2023 were retired upon repurchase.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

63 edited+25 added−27 removed49 unchanged
Biggest changeThe Company recorded a net gain of $6.2 million, see additional discussion in Note 5, "Discontinued Operations and Other Divestiture Activities" in the notes to the consolidated financial statements. 19 Historical Financial Data The following table and corresponding year-over-year analysis sets forth our results of continuing operations (dollars in millions, except per share amounts): Year Ended August 31, 2023 2022 2021 Statements of Earnings Data: (1) Net sales $ 598 100 % $ 571 100 % $ 529 100 % Cost of products sold 303 51 % 306 54 % 286 54 % Gross profit 295 49 % 265 46 % 243 46 % Selling, general and administrative expenses 205 34 % 217 38 % 175 33 % Amortization of intangible assets 5 1 % 7 1 % 8 2 % Restructuring charges 7 1 % 8 1 % 3 1 % Impairment & divestiture (benefit) charges (6) (1) % 2 — % 6 1 % Operating profit 84 14 % 31 5 % 51 10 % Financing costs, net 12 2 % 4 1 % 5 1 % Other expense, net 3 1 % 2 — % 2 — % Earnings before income tax expense 69 12 % 24 4 % 44 8 % Income tax expense 15 3 % 4 1 % 4 1 % Net earnings $ 54 9 % $ 20 3 % $ 40 8 % Other Financial Data: (1) Depreciation $ 11 $ 12 $ 13 Capital expenditures 9 8 12 (1) Results are from continuing operations and exclude the financial results of previously divested businesses reported as discontinued operations.
Biggest changeThe Company recorded a net gain of $6 million, see additional discussion in Note 5, "Discontinued Operations and Other Divestiture Activities" in the notes to the consolidated financial statements. 20 Historical Financial Data The following table and corresponding year-over-year analysis sets forth our results of continuing operations (dollars in millions, except per share amounts): Year Ended August 31, 2024 2023 2022 Statements of Earnings Data: (1) Net sales $ 590 100 % $ 598 100 % $ 571 100 % Cost of products sold 288 49 % 303 51 % 306 54 % Gross profit 301 51 % 295 49 % 265 46 % Selling, general and administrative expenses 169 29 % 205 34 % 217 38 % Amortization of intangible assets 3 1 % 5 1 % 7 1 % Restructuring charges 7 1 % 7 1 % 8 1 % Impairment & divestiture (benefit) charges — — % (6) (1) % 2 — % Operating profit 122 21 % 84 14 % 31 5 % Financing costs, net 14 2 % 12 2 % 4 1 % Other expense, net 3 1 % 3 1 % 2 — % Earnings before income tax expense 106 18 % 69 12 % 24 4 % Income tax expense 23 4 % 15 3 % 4 1 % Net earnings $ 82 14 % $ 54 9 % $ 20 3 % Other Financial Data: (1) Depreciation $ 10 $ 11 $ 12 Capital expenditures 11 9 8 (1) Results are from continuing operations and exclude the financial results of previously divested businesses reported as discontinued operations.
Background The Company has one reportable segment, Industrial Tools & Service ("IT&S"), and an Other operating segment, which does not meet the criteria to be considered a reportable segment.
Background The Company has one reportable segment, the Industrial Tools & Service ("IT&S") segment, and an Other operating segment, which does not meet the criteria to be considered a reportable segment.
Operating profit for fiscal 2023 was $84 million, approximately $53 million higher than the prior fiscal year of $31 million. Operating profit was impacted by the increased gross profit noted above, as well as a reduction of Selling, general & administrative ("SG&A") expense of $12 million compared to the prior year.
Operating profit for fiscal 2023 was $84 million, approximately $53 million higher than the prior fiscal year of $31 million. Operating profit was impacted by the increased gross profit noted above, as well as a reduction of Selling, general & administrative ("SG&A") expense of $12 million compared to the prior fiscal year.
These reductions were partially offset by increased incentive compensation expense and expense from the ASCEND transformation program ($21 million) compared to the prior year. Restructuring charges in fiscal 2023 decreased by $1 million to $7 million compared to fiscal 2022.
These reductions were partially offset by increased incentive compensation expense and expense from the ASCEND transformation program ($21 million) compared to the prior fiscal year. Restructuring charges in fiscal 2023 decreased by $1 million to $7 million compared to fiscal 2022.
We intend to grow through execution of our organic growth strategy, focused on key vertical markets that benefit from long-term macro trends, driving customer driven innovation, expansion of our digital ecosystem to acquire and engage customers, and expansion in emerging markets such as Asia Pacific.
We intend to grow through execution of our organic growth strategy, focused on key vertical markets that benefit from long-term macro trends, driving customer driven innovation, expansion of our digital ecosystem to acquire and engage customers, and an expansion in emerging markets such as Asia Pacific.
We have the ability to notify the supplier that they no longer need to maintain the minimum level of inventory should we discontinue manufacturing a product during the contract period; however, we must purchase the remaining minimum 24 inventory levels the supplier was required to maintain within a defined period of time.
We have the ability to notify the supplier that they no longer need to maintain the minimum level of inventory should we discontinue manufacturing a product during the contract period; however, we must purchase the remaining minimum inventory levels the supplier was required to maintain within a defined period of time.
Our customer base generally consists of financially reputable distributors, agents, OEMs, and other customers with whom we have long standing relationships, and historically we have not experienced significant write off of accounts receivables as a percentage of our annual net sales (accounts receivable written off as a percentage of net sales was less than 0.5% for each the years ended August 31, 2023, 2022, and 2021, respectivel y).
Our customer base generally consists of financially reputable distributors, agents, OEMs, and other customers with whom we have long standing relationships, and historically we have not experienced significant write off of accounts receivables as a percentage of our annual net sales (accounts receivable written off as a percentage of net sales was less than 0.5% for each the years ended August 31, 2024, 2023, and 2022, respectivel y).
Relevant factors in determining the realizability of deferred tax assets include future taxable income, the expected timing of the reversal of temporary differences, tax planning strategies and the expiration dates of the various tax attributes. 26
Relevant factors in determining the realizability of deferred tax assets include future taxable income, the expected timing of the reversal of temporary differences, tax planning strategies and the expiration dates of the various tax attributes.
Cash used in financing activities was $53 million, nearly flat to prior year use of $52 million; however the mix of usage in each fiscal year was different.
Cash used in financing activities was $53 million, nearly flat compared to the use of $52 million in the prior fiscal year; however the mix of usage in each fiscal year was different.
The SG&A decrease was primarily due to personnel savings from the actions taken in the ASCEND transformation program, as well as prior-year charges including MENAC agent specific reserve ($13 million) and leadership transition charges ($7 million), reduction of business review charges related to external support for the deep dive holistic business review ($3 million).
The SG&A decrease was primarily due to personnel savings from the actions taken in the ASCEND transformation program, as well as prior-fiscal-year charges including the EMEA agent specific reserve ($13 million) and leadership transition charges ($7 million), and a reduction of business review charges related to external support for the deep dive holistic business review ($3 million).
The increase in sales was predominately driven by growth in the product business primarily due to pricing actions, with some volume contribution, which were partially offset by the decline in the service business due to the implementation of 80/20 analysis and a more selective process for quoting projects in the MENAC region, with a focus on more differentiated solutions in the MENAC region.
The increase in sales was predominately driven by growth in the Product business primarily due to pricing actions, with some volume contribution, which was partially offset by the decline in the Service business due to the implementation of 80/20 analysis and a more selective process for quoting projects in the EMEA region, with a focus on more differentiated solutions in the EMEA region.
Approximately 1% of our historical annual sales are to customers and distributors associated with Russia and we had approximately $0.5 million of receivables associated with those customers and distributors as of February 28, 2022.
Approximately 1% of our historical annual sales were to customers and distributors associated with Russia and we had approximately $0.5 million of receivables associated with those customers and distributors as of February 28, 2022.
No impairment was recorded in fiscal 2023 and no material impairment was recorded in fiscal 2022 as a result of triggering events or the annual impairment review of indefinite-lived intangible assets. A considerable amount of management judgment is required in performing impairment tests, principally in determining the fair value of each reporting unit and the indefinite-lived intangible assets.
No impairment was recorded in fiscal 2024 or 2023 as a result of triggering events or the annual impairment review of indefinite-lived intangible assets. A considerable amount of management judgment is required in performing impairment tests, principally in determining the fair value of each reporting unit and the indefinite-lived intangible assets.
The allowance for doubtful accounts for this particular agent remained unchanged as of August 31, 2023 and continues to represent management's best estimate of the amount probable of collection and considers various factors with respect to this matter, including, but not limited to, (i) the lack of payment by the agent since the fiscal quarter ended February 28, 2021, (ii) our due diligence on balances due to the agent from its end customers related to sales of our services and products and the known markup on those sales from the agent to end customer, (iii) the status of ongoing negotiations with the agent to secure payments and (iv) legal recourse available to secure payment.
The allowance for credit losses for this particular agent remained unchanged as of August 31, 2024 and continues to represent management's best estimate of the amount probable of collection and considers various factors with respect to this matter, including, but not limited to, (i) the lack of payment by the agent since the fiscal quarter ended February 28, 2021, (ii) our due diligence on balances due to the agent from its end customers related to sales of our services and products and the known markup on those sales from the agent to end customer, (iii) the status of ongoing negotiations with the agent to secure payments and (iv) legal recourse available to secure payment.
We determine the discount rate assumptions by referencing high-quality, long-term bond rates that are matched to the duration of our benefit obligations, with appropriate consideration of local market factors, participant demographics and benefit payment forecasts. At August 31, 2023 and 2022, the discount rates on domestic benefit plans were 5.4% and 4.8%, respectively.
We determine the discount rate assumptions by referencing high-quality, long-term bond rates that are matched to the duration of our benefit obligations, with appropriate consideration of local market factors, participant demographics and benefit payment forecasts. At August 31, 2024 and 2023, the discount rates on domestic benefit plans were 5.0% and 5.4%, respectively.
The EC&S segment is treated as discontinued operations in our financial statements for all periods. On July 11, 2023, the Company completed the sale of the Cortland Industrial business, for net proceeds of $20.1 million.
The EC&S segment is treated as discontinued operations in our financial statements for all periods included therein. On July 11, 2023, the Company completed the sale of the Cortland Industrial business, for net proceeds of $20 million.
Service sales declined 8%, unfavorably impacted by $2 million or 1% of foreign currency and our reduced activity in the MENAC region following implementation of an 80/20 analysis that drove a more selective process for quoting projects, with a focus on more differentiated solutions.
Service sales declined 8%, unfavorably impacted by $2 million, or 1%, due to foreign currency and our reduced activity in the EMEA region following implementation of an 80/20 analysis that drove a more selective process for quoting projects, with a focus on more differentiated solutions.
The sanctions currently in place limit our ability to provide goods to those customers and distributors and banking sanctions effectively negate our ability to collect those receivables; as such, we recorded a full allowance for doubtful accounts against those receivables as of February 28, 2022 and indefinitely suspended doing business in Russia.
The sanctions currently in place limit our ability to provide goods to those customers and distributors and banking sanctions effectively negate our ability to collect those receivables; as such, we recorded a full allowance for credit losses against those receivables as of February 28, 2022 and indefinitely suspended doing business in Russia.
Actual collections from the agent may differ from the Company's estimate. Inventories: Inventory cost is determined using the last-in, first-out (“LIFO”) method for a portion of U.S. owned inventory (approximately 48% and 52% of total inventories at August 31, 2023 and 2022, respectively).
Actual collections from the agent may differ from the Company's estimate. Inventories: Inventory cost is determined using the last-in, first-out (“LIFO”) method for a portion of U.S. owned inventory (approximately 49% and 48% of total inventories at August 31, 2024 and 2023, respectively).
Accounts receivable, net: Accounts receivable, net is recorded based on the contractual value of our accounts receivable, net of an estimated allowance for doubtful accounts representing management’s best estimate of the amount of receivables that are not probable of collection.
Accounts receivable, net: Accounts receivable, net is recorded based on the contractual value of our accounts receivable, net of an estimated allowance for credit losses representing management’s best estimate of the amount of receivables that are not probable of collection.
During the year ended August 31, 2022, the Company recorded through bad debt expense (included in "Selling, general and administrative expenses" in the Condensed Consolidated Statements of Earnings) a reserve of $13 million to fully reserve for the outstanding accounts receivable balance for an agent in our Middle East/North Africa/Caspian ("MENAC") region.
During the year ended August 31, 2022, the Company recorded through bad debt expense (included in "Selling, general and administrative expenses" in the Condensed Consolidated Statements of Earnings) a reserve of $13 million to fully reserve for the outstanding accounts receivable balance for an agent in our Europe/Middle East/Africa ("EMEA") region.
Both the fiscal 2023 and prior-year income tax provisions were impacted by the mix of earnings in foreign jurisdictions with income tax rates different than the U.S. federal income tax rate and income tax benefits from global tax planning initiatives.
Both the fiscal 2024 and prior-year income tax provisions were impacted by the mix of earnings in foreign jurisdictions with income tax rates different than the U.S. federal income tax rate and income tax benefits from global tax planning initiatives. The fiscal 2024 and 2023 effective tax rate were both 22.1%.
The unused credit line and amount available for borrowing under the revolving line of credit of the Senior Credit Facility was $382 million at August 31, 2023. 23 We believe that the revolving credit facility under the Senior Credit Facility, combined with our existing cash on hand and anticipated operating cash flows, will be adequate to meet operating, debt service, acquisition and capital expenditure funding requirements for the foreseeable future.
The unused credit line and amount available for borrowing under the revolving line of credit of the Senior Credit Facility was $398 million at August 31, 2024. 24 We believe that the revolving credit facility under the Senior Credit Facility, combined with our existing cash on hand and anticipated operating cash flows, will be adequate to meet operating, debt service, acquisition and capital expenditure funding requirements for the foreseeable future.
The following table summarizes the cash flow attributable to operating, investing and financing activities (in millions): Year Ended August 31, 2023 2022 2021 Cash provided by operating activities $ 78 $ 52 $ 54 Cash provided by (used in) investing activities 11 (7) 13 Cash used in financing activities (53) (52) (82) Effect of exchange rate changes on cash (2) (12) 2 Net increase (decrease) from cash and cash equivalents $ 34 $ (20) $ (12) Cash flow provided by operations was $78 million for fiscal 2023 and $52 million for fiscal 2022.
The following table summarizes the cash flow attributable to operating, investing and financing activities (in millions): Year Ended August 31, 2024 2023 2022 Cash provided by operating activities $ 81 $ 78 $ 52 Cash (used in) provided by investing activities (14) 11 (7) Cash used in financing activities (56) (53) (52) Effect of exchange rate changes on cash 2 (2) (12) Net increase (decrease) from cash and cash equivalents $ 13 $ 34 $ (20) Cash flow provided by operations was $81 million for fiscal 2024 and $78 million for fiscal 2023.
Prior to this, the Company's senior credit facility was comprised of a $400 million revolving line of credit and a $200 million term loan which were scheduled to mature in March 2024.
Prior to this, the Company's senior credit facility was comprised of a $400 million revolving line of credit and a $200 million term loan which were scheduled to mature in March 2024. The Senior Credit Facility contains restrictive covenants and financial covenants.
The expected return on domestic benefit plan assets was 5.7% and 5.45% for the fiscal years ended August 31, 2023 and 2022, respectively. A 25 basis point change in the assumptions for the discount rate or expected return on plan assets would not have materially changed the fiscal 2023 domestic benefit plan expense.
The expected return on domestic benefit plan assets was 5.7% for each of the fiscal years ended August 31, 2024 and 2023. A 25 basis point change in the assumptions for the discount rate or expected return on plan assets would not have materially changed the fiscal 2024 domestic benefit plan expense.
The Senior Credit Facility contains restrictive covenants and financial covenants see Note 7, "Debt" in the notes to the consolidated financial statements for further details of the Senior Credit Facility. The Company was in compliance with all covenants, including the financial covenants, under the Senior Credit facility at August 31, 2023.
See Note 7, "Debt" in the notes to the consolidated financial statements for further details of the Senior Credit Facility. The Company was in compliance with all covenants, including the financial covenants, under the Senior Credit facility at August 31, 2024.
The allowance for doubtful accounts for this particular agent remains unchanged during fiscal 2023 and represents management's best estimate of the probable amount of collection and considers various factors with respect to this matter, including, but not limited to, (i) the lack of payment by the agent since the fiscal quarter ended February 28, 2021, (ii) our due diligence on balances due to the agent from its end customers related to sales of our services and products and the known markup on those sales from the agent to end customers, (iii) the status of ongoing negotiations with the agent to secure payments and (iv) legal recourse available to us to secure payment.
The allowance for credit losses for this particular agent remains unchanged during fiscal 2024 and represents management's best estimate of the probable amount of collection and considers various factors with respect to this matter, including, but not limited to, (i) the lack of payment by the agent since the fiscal quarter ended February 28, 2021, (ii) our due diligence on balances due to the agent from its end customers related to sales of our services and products and the known markup on those sales from the agent to end customers, (iii) the status of ongoing negotiations with the agent to secure payments, (iv) legal recourse available to us to secure payment, and (v) the agent is currently in bankruptcy proceedings.
As of August 31, 2023, the Company was exposed to a concentration of credit risk with an agent as a result of its continued payment delinquency.
As of August 31, 2024, the Company continued to be exposed to a concentration of credit risk with an agent as a result of its continued payment delinquency.
Fiscal 2023 results included a $6 million impairment and divestiture benefit, whereas fiscal 2022 and fiscal 2021 results included $2 million and $6 million of impairment and divestiture charges, respectively. A substantial portion of these charges (benefits) do not result in a tax expense or benefit.
Fiscal 2024 results included less than $1 million of impairment and divestiture charges, whereas fiscal 2023 results included $6 million of impairment and divestiture benefits and fiscal 2022 results included $2 million of impairment and divestiture charges. A substantial portion of these charges (benefits) do not result in a tax expense or benefit.
We believe that such estimates are made based on consistent and appropriate methods; however, actual results may differ from these estimates under different assumptions or conditions.
The inventory valuation assumptions used are based on historical experience. We believe that such estimates are made based on consistent and appropriate methods; however, actual results may differ from these estimates under different assumptions or conditions.
The fiscal 2023 effective tax rate was slightly higher than the statutory 21% primarily as a result of state income taxes and taxes in foreign jurisdictions with rates higher than the U.S. which were partially offset by one-time tax benefits related to global tax planning initiatives that will not repeat in future periods due to certain tax attributes that are no longer available. 22 Liquidity and Capital Resources At August 31, 2023, cash and cash equivalents were $154 million, comprised of $148 million of cash held by foreign subsidiaries and $6 million held domestically.
The fiscal 2024 effective tax rate was slightly higher than the statutory 21% primarily as a result of state income taxes and taxes in foreign jurisdictions with rates higher than the U.S. which were partially offset by one-time tax benefits related to the lapse of the statute of limitations on uncertain tax positions and global tax planning initiatives that will not repeat in future periods due to certain tax attributes that are no longer available. 23 Liquidity and Capital Resources At August 31, 2024, cash and cash equivalents were $167 million, comprised of $111 million of cash held by foreign subsidiaries and $56 million held domestically.
The timing of principal payments associated with our revolving line of credit are disclosed in Note 7, "Debt" in the notes to the consolidated financial statements. We pay interest monthly based on prevailing interest rates at the time and the balance outstanding on our revolving line of credit.
The timing of principal payments associated with our revolving line of credit are disclosed in Note 7, "Debt" in the notes to the consolidated financial statements. We pay interest monthly based on prevailing interest rates at the time and the balance outstanding on our revolving line of credit. Our lease contracts are primarily for real estate, vehicles, and manufacturing equipment.
Corporate Corporate consists of selling, general and administrative costs and expenses, including executive, legal, finance, human resources, and information technology, that are not allocated to the segments based on their nature. Corporate expenses were $63 million in fiscal 2023 which is $14 million higher than the fiscal 2022 expenses of $49 million.
Corporate Corporate consists of selling, general and administrative costs and expenses, including executive, legal, finance, human resources, and information technology, that are not allocated to the segments based on their nature. Corporate expenses were $36 million in fiscal 2024, which was $27 million lower than the fiscal 2023 expenses of $63 million.
The reduction of SG&A expense was a result of $13 million of discrete bad debt charges in fiscal 2022 from our MENAC agent and personnel savings from ASCEND actions, which were partially offset by increased incentive compensation expense and higher costs for the ASCEND transformation program in fiscal 2023.
The reduction of SG&A expense was a result of a $13 million EMEA agent specific reserve and personnel savings from ASCEND actions, which were partially offset by increased incentive compensation expense and higher costs for the ASCEND transformation program in fiscal 2023.
The impact of foreign currency rates unfavorably impacted fiscal 2023 sales by approximately $11 million or 2% and the divestiture of the Cortland Industrial business during the fourth quarter of fiscal 2023 unfavorably impacted sales by approximately $6 million or 1%, management refers to sales adjusted for these items as "core sales".
The impact of foreign currency rates unfavorably impacted fiscal 2023 sales by approximately $11 million, or 2%, and the divestiture of the Cortland Industrial business during the fourth quarter of fiscal 2023 unfavorably impacted sales by approximately $6 million, or 1%.
On October 31, 2019, the Company completed the sale of its former EC&S segment to wholly owned subsidiaries of BRWS Parent LLC, a Delaware limited liability company and affiliate of One Rock Capital Partners II, LP, for a purchase price of approximately $216 million (inclusive of final working capital adjustments), with approximately $3 million which was due in four equal quarterly installments, the last of which was received in the first quarter of fiscal 2021.
On October 31, 2019, the Company completed the sale of its former EC&S segment to wholly owned subsidiaries of BRWS Parent LLC, a Delaware limited liability company and affiliate of One Rock Capital Partners II, LP, for a purchase price of approximately $216 million (inclusive of final working capital adjustments).
General Business Update In March 2022, the Company announced the start of its ASCEND transformation program (“ASCEND”). ASCEND’s key initiatives include accelerating organic growth strategies, improving operational excellence and production efficiency by utilizing a Lean approach, and driving greater efficiency and productivity in selling, general and administrative expense by better leveraging resources to create a more efficient and agile organization.
ASCEND’s key initiatives include accelerating organic growth strategies, improving operational excellence and production efficiency by utilizing a Lean approach, and driving greater efficiency and productivity in selling, general and administrative expense by better leveraging resources to create a more efficient and agile organization.
The following table shows the components of our primary working capital (dollars in millions): August 31, 2023 August 31, 2022 $ PWC % $ PWC % Accounts receivable, net $ 98 15 % $ 107 18 % Inventory, net 75 12 % 84 13 % Accounts payable (51) (8) % (73) (11) % Net primary working capital $ 122 19 % $ 118 20 % Total primary working capital was $122 million at August 31, 2023, which increased from $118 million at August 31, 2022.
The following table shows the components of our primary working capital (dollars in millions): August 31, 2024 August 31, 2023 $ PWC % $ PWC % Accounts receivable, net $ 104 16 % $ 98 15 % Inventory, net 73 12 % 75 12 % Accounts payable (43) (7) % (51) (8) % Net primary working capital $ 134 21 % $ 122 19 % Total primary working capital was $134 million at August 31, 2024, which increased from $122 million at August 31, 2023.
The following table sets forth the results of operations for the IT&S segment (dollars in millions): Year Ended August 31, 2023 2022 2021 Net Sales $ 555 $ 527 $ 493 Operating Profit 136 79 82 Operating Profit % 24.5 % 14.9 % 16.6 % Fiscal 2023 compared to Fiscal 2022 Fiscal 2023 net sales were $555 million, an increase of 5% or $28 million from fiscal 2022 sales of $527 million, with foreign currency rates unfavorably impacting sales by approximately $11 million or 3%.
The following table sets forth the results of operations for the IT&S segment (dollars in millions): Year Ended August 31, 2024 2023 2022 Net Sales $ 571 $ 555 $ 527 Operating Profit 153 136 79 Operating Profit % 26.8 % 24.5 % 14.9 % Fiscal 2024 compared to Fiscal 2023 Fiscal 2024 net sales were $571 million, an increase of $16 million, or 3% from fiscal 2023 sales of $555 million.
Except per share amounts, the summation of the individual components may not equal the total due to rounding. Fiscal 2023 compared to Fiscal 2022 C onsolidated net sales for fiscal 2023 were $598 million, 5% higher than the prior-year sales of $571 million.
The summation of the individual components may not equal the total due to rounding. Fiscal 2024 compared to Fiscal 2023 C onsolidated net sales for fiscal 2024 were $590 million, 1% lower than the prior-year sales of $598 million.
Fiscal 2023 Impairment Charges : The fiscal 2023 annual review of reporting units performed in the fourth quarter did not result in an impairment. All reporting units exceeded the carrying value by more than 65%.
All reporting units exceeded the carrying value by more than 85%. Fiscal 2023 Impairment Charges : The fiscal 2023 annual review of reporting units performed in the fourth quarter did not result in an impairment. All reporting units exceeded the carrying value by more than 65%. Indefinite-lived intangibles (tradenames): Indefinite-lived intangible assets are also subject to annual impairment testing.
Pre-tax earnings, income tax expense and effective income tax rate from continuing operations for the past three fiscal years were as follows (dollars in thousands): Year Ended August 31, 2023 2022 2021 Earnings before income tax expense $ 68,898 $ 23,992 $ 43,975 Income tax expense 15,249 4,401 3,763 Effective income tax rate 22.1 % 18.3 % 8.6 % The comparability of pre-tax earnings, income tax expense and the related effective income tax rates are impacted by impairment and other divestiture charges and benefits as well as the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), which was enacted on March 27, 2020.
Pre-tax earnings, income tax expense and effective income tax rate from continuing operations for the past three fiscal years were as follows (dollars in thousands): Year Ended August 31, 2024 2023 2022 Earnings before income tax expense $ 105,519 $ 68,898 $ 23,992 Income tax expense 23,312 15,249 4,401 Effective income tax rate 22.1 % 22.1 % 18.3 % The comparability of pre-tax earnings, income tax expense and the related effective income tax rates are impacted by impairment and other divestiture charges and benefits.
Temporary differences create deferred tax assets and liabilities, which are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
Some of these differences are permanent, such as expenses that are not tax deductible, while others are temporary differences, such as amortization and depreciation expenses. 27 Temporary differences create deferred tax assets and liabilities, which are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
The IT&S segment is primarily engaged in the design, manufacture and distribution of branded hydraulic and mechanical tools, as well as providing services and tool rental to the industrial, maintenance, infrastructure, oil & gas, alternative energy and other markets.
The IT&S segment is primarily engaged in the design, manufacture and distribution of branded hydraulic and mechanical tools, and in providing services and tool rental to the refinery/petrochemical; general industrial; industrial maintenance, repair and operations ("MRO"); machining & manufacturing; power generation; infrastructure; mining and other markets.
The $26 million increase in cash flow from operations was primarily the result of $34 million of higher earnings from continuing operations offset by increases in incentive compensation of $10 million.
Cash flow provided by operations was $78 million for fiscal 2023 and $52 million for fiscal 2022. The $26 million increase in cash flow from operations was primarily the result of $34 million of higher earnings from continuing operations, partially offset by an increase in accrued compensation and benefits, principally for incentive compensation, of $10 million.
Accounts receivable, net was $98 million as of August 31, 2023 , which is net of a $17 million allowance for doubtful accounts.
Accounts receivable, net was $104 million as of August 31, 2024 , which is net of a $16 million allowance for credit losses.
Our lease contracts are primarily for real estate leases, vehicle leases, IT and manufacturing leases, information technology services and telecommunications services. See Note 10, "Leases" in the notes to the consolidated financial statements for future minimum lease payments associated with our lease portfolio.
See Note 10, "Leases" in the notes to the consolidated financial statements for future minimum lease payments associated with our lease portfolio.
Impairment and divestitures charges (benefit) improved by $9 million due to the gain on sale recorded from the Cortland Industrial divestiture in the fourth quarter of fiscal 2023. 20 Fiscal 2022 compared to Fiscal 2021 Consolidated net sales from continuing operations in fiscal 2022 were $571 million, 8% higher than the prior-year sales of $529 million.
Impairment and divestitures charges (benefit) improved by $9 million due to the gain on sale recorded from the Cortland Industrial divestiture in the fourth quarter of fiscal 2023.
As part of our global sourcing strategy, we have entered into agreements with certain suppliers that require the supplier to maintain minimum levels of inventory to support certain products for which we require a short lead time to fulfill customer orders.
We have long-term obligations related to our deferred compensation, pension and postretirement plans that are summarized in Note 11, “Employee Benefit Plans” in the notes to the consolidated financial statements. 25 As part of our global sourcing strategy, we have entered into agreements with certain suppliers that require the supplier to maintain minimum levels of inventory to support certain products for which we require a short lead time to fulfill customer orders.
If the fair value of a reporting unit is less than its carrying value, an impairment loss is recorded. The estimated fair value represents the amount we believe a reporting unit could be bought or sold for in a current transaction between willing parties on an arms-length basis.
The estimated fair value represents the amount we believe a reporting unit could be bought or sold for in a current transaction between willing parties on an arms-length basis. 26 Fiscal 2024 Impairment Charges : The fiscal 2024 annual review of reporting units performed in the fourth quarter did not result in an impairment.
The fiscal 2022 tax provision included a tax benefit of $3 million related to global tax planning initiatives resulting from certain prior-year business losses for which no benefits were previously recognized as compared to a $3 million and $4 million benefit in fiscal 2021 related to the lapse of statute of limitations on uncertain tax positions and the net operating loss carryback provision of the CARES Act, respectively.
The fiscal 2023 tax provision included a tax benefit of $2 million related to global tax planning initiatives, whereas the fiscal 2022 tax provision included a tax benefit of $3 million related to global tax planning initiatives resulting from certain prior-year business losses for which no benefits were previously recognized.
Segment Results IT&S Segment The IT&S segment is a global supplier of branded hydraulic and mechanical tools and services to a broad array of end markets, including infrastructure, industrial maintenance, repair, and operations, oil & gas, mining, alternative and renewable energy, and civil construction markets.
Segment Results IT&S Segment The IT&S segment is a global supplier of branded hydraulic and mechanical tools and services to a broad array of end markets, including refinery/petrochemical; general industrial; industrial MRO; machining & manufacturing; power generation; infrastructure; mining and other markets.
In June 2022, the Company approved a restructuring plan in connection with the initiatives identified as part of the ASCEND transformation program (see Note 3, “ASCEND Transformation Program” in the notes to the consolidated financial statements) to drive greater efficiency and productivity in global selling, general and administrative resources.
At the time the company anticipated investing $60 to $65 million through the end of fiscal 2024 to complete these actions. In June 2022, the Company approved a restructuring plan in connection with the initiatives identified as part of the ASCEND transformation program to drive greater efficiency and productivity in global selling, general and administrative resources.
The fiscal 2023 tax provision included a tax benefit of $2 million related to global tax planning initiatives.
The fiscal 2024 tax provision included a tax benefit of $4 million related to the lapse of the statute of limitations on uncertain tax positions and global tax planning initiatives.
The total costs of this plan were then estimated at $6 to $10 million, constituting predominately severance and other employee-related costs to be incurred as cash expenditures and impacting both IT&S and Corporate. On September 23, 2022, the Company approved an updated restructuring plan.
The total costs of this plan were then estimated at $6 to $10 million, constituting predominately severance and other employee-related costs to be incurred as cash expenditures and impacting both IT&S and Corporate. (see Note 4, “Restructuring Charges” in the notes to the consolidated financial statements). These costs were incorporated into the initial investment of $60 to $65 million.
Net financing costs were $12 million, $4 million and $5 million in fiscal years 2023, 2022 and 2021, respectively. The increase in net financing costs in fiscal 2023 as compared to fiscal 2022 was due to the year-over-year increase in interest rates and debt mix during the year.
The increase in net financing costs for both fiscal 2023 to fiscal 2024 and fiscal 2022 to fiscal 2023 was due to the year-over-year increase in interest rates and debt levels during each succeeding fiscal year.
If the LIFO method were not used, inventory balances would be higher than amounts presented in the Consolidated Balance Sheet by $18 million and $19 million at August 31, 2023 and 2022, respectively.
If the LIFO method were not used, inventory balances would be higher than amounts presented in the Consolidated Balance Sheet by $18 million at both August 31, 2024 and 2023. We perform an analysis on historical sales usage of individual inventory items on hand and record a reserve to adjust inventory cost to net realizable value, if necessary.
This increase was primarily from ASCEND transformation program expenses ($15 million) and incentive compensation expense. Additional expense was offset by a decrease in leadership transition charges ($7 million) and external support for the deep dive-holistic business review ($3 million). Corporate expenses were $49 million in fiscal 2022 compared to $20 million in fiscal 2021.
This decrease was primarily due to a reduction in ASCEND transformation program charges in fiscal 2024 ($25 million). Corporate expenses were $63 million in fiscal 2023 which was $14 million higher than the fiscal 2022 expenses of $49 million. This increase was primarily from ASCEND transformation program expenses ($15 million) and incentive compensation expense.
We had outstanding letters of credit totaling $9 million and $11 million at August 31, 2023 and 2022, respectively, the majority of which relate to commercial contracts and self-insured workers' compensation programs. Additional detail regarding contingencies is included in Note 16, "Commitments and Contingencies" in the notes to the consolidated financial statements, which is incorporated by reference.
Additional detail regarding contingencies is included in Note 16, "Commitments and Contingencies" in the notes to the consolidated financial statements, which is incorporated by reference.
In fiscal 2023 we had lower treasury share purchases than the prior year. During fiscal 2023 we paid $1 million on our term loan. Cash flow provided by operations was $52 million and $54 million in fiscal 2022 and 2021, respectively.
In fiscal 2023, the amount for our repurchases of shares of our Class A common stock was lower than the prior fiscal year. During fiscal 2023, we paid $1 million on our term loan.
We believe that our capital expenditure requirements are not as extensive as other industrial companies given the nature of our operations. Capital expenditures associated with continuing operations were $9 million, $8 million and $12 million in fiscal 2023, 2022 and 2021, respectively.
The reduction in payables is related to the decrease in our ASCEND transformation program charges. Capital Expenditures The majority of our manufacturing activities consist of assembly operations. We believe that our capital expenditure requirements are not as extensive as other industrial companies given the nature of our operations.
Through the end of fiscal 2023, we invested approximately $60 million as part of the program, with operating profit improving by approximately $54 million in fiscal 2023 compared to the prior fiscal year.
Through fiscal 2023, the Company invested approximately $60 million as part of the program, both through program charges and restructuring. Through the end of fiscal 2024 when the ASCEND program concluded, the Company has invested approximately $75 million as part of the program, consisting of $19 million through restructuring and $56 million in ASCEND transformation program charges.
Removed
In support of the ASCEND initiatives, we anticipate investing approximately $70-$75 million over the life of the program, which is expected to be fully implemented by the end of the fourth quarter of fiscal 2024, with the expected annual operating profit improvement from the program in the range of $50-$60 million.
Added
General Business Update In March 2022, the Company announced the start of its ASCEND transformation program (“ASCEND”), initially estimating an incremental $40 to $50 million of annual operating profit once fully implemented.
Removed
The costs of this updated plan (which includes the amounts for the plan approved in June 2022) are estimated at $10 to $15 million. These costs are expected to be incurred over the expected duration of the transformation program, ending in the fourth quarter of fiscal 2024.
Added
In September 2022, the Company approved an update to the restructuring plan to a range of $10 to $15 million; these costs were still incorporated into the initial investment value and the range did not change at that time.
Removed
For fiscal 2024, we expect to incur $10 to $15 million of ASCEND transformation program costs, this range is inclusive of $3 to $5 million of restructuring costs. 18 Commencing in February 2022, in response to the armed conflict in Ukraine, many countries, including the member countries of NATO initiated a variety of sanctions and export controls targeting Russia and associated entities.
Added
In March 2023, the Company increased the estimated investment range to $70 to $75 million, inclusive of the $10 to $15 million of the previously announced restructuring, over the life of the program. 19 In October 2023, the Company announced that during fiscal 2023, the Company had realized approximately $54 million of annual operating profit from execution of the ASCEND program and would no longer be breaking out the ASCEND benefit from results going into fiscal 2024.
Removed
The impact from foreign currency rates unfavorably impacted sales by roughly $15 million or 3%.
Added
The following summarizes ASCEND transformation charges (in thousands): Year-Ended August 31, 2024 2023 2022 Program to Date ASCEND Expense recorded in Cost of products sold 1,018 924 6 1,948 ASCEND Expense recorded in SG&A expenses 6,029 34,495 13,610 54,134 Total ASCEND Expense 7,047 35,419 13,616 56,082 Recorded with Restructuring charges 7,843 7,719 3,050 18,612 Total ASCEND Transformation Charges $ 14,890 $ 43,138 $ 16,666 $ 74,694 Commencing in February 2022, in response to the armed conflict in Ukraine, many countries, including the member countries of NATO, initiated a variety of sanctions and export controls targeting Russia and associated entities.
Removed
Sales growth was from product pricing actions that the Company took beginning in late fiscal 2021 and during fiscal 2022 in response to significant inflationary pressures on commodities, freight and energy costs coupled with year-over-year product volume growth largely in the first half of fiscal 2022, as prior year fiscal 2021 fir st half sales were still impacted by the COVID-19 pandemic, were the primary drivers of the increase in net sales.
Added
The impact of foreign currency rates was nearly flat year-over-year, while the divestiture of the Cortland Industrial business during the fourth quarter of fiscal 2023 unfavorably impacted fiscal 2024 sales by approximately $23 million, or 4%.
Removed
Gross profit as a percentage of net sales in fiscal 2022 of 46% remained relatively flat with fiscal 2021, with improved gross profit margins on product sales primarily due to the aforementioned pricing actions outweighing the impact of inflation and improved productivity in our manufacturing facilities being offset by lower service gross profit margins due to lower service utilization as a result of the Russia-Ukraine conflict and the mix of service work performed year-over-year.
Added
Management refers to sales adjusted to exclude the impact of these items, foreign currency changes and recent acquisitions and divestitures, as "organic sales", which we formerly referred to as "core sales".
Removed
Operating profit was $20 million lower in fiscal 2022 as compared to fiscal 2021 predominantly due to $42 million of incremental SG&A expenses offset by a $22 million increase in gross profit, as described above.
Added
Product sales declined 3% compared to prior fiscal year to $474 million, with foreign currency impact of less than 1% and the Cortland Industrial divestiture unfavorably impacting sales by 5%, resulting in a 1% improvement in Product organic sales.
Removed
The increase in SG&A was due to ASCEND transformation program charges of $14 million related primarily to the use of external services for the support in the design, development and execution of the program; discrete bad debt charges of approximately $14 million associated with the significant delinquency in payments from a MENAC region agent and for Russian customers and distributors; incremental leadership transition charges of $8 million; charges of $3 million related to external support for the deep-dive holistic business review prior to the launch of the ASCEND program; and roughly $3 million of higher travel and entertainment costs tied to more commercial and leadership travel as we exited the COVID-19 pandemic.
Added
The increase in Product organic sales was driven by pricing actions and mix within the IT&S product offerings; however, this was partially offset by a decrease in organic sales in the Cortland Medical business due to softness in demand related to certain surgical procedures utilizing Cortland Biomedical products.
Removed
Restructuring charges increased $6 million as compared to the prior period as a result of charges to streamline and flatten the organizational structure ($3 million), as well as ASCEND-related restructuring expenses ($3 million).

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

6 edited+0 added−0 removed6 unchanged
Biggest changeAn interest-rate swap effectively converts the SOFR-based rate of $60 million of term borrowings under our credit facility to a fixed rate. A ten percent increase in the average costs of our variable rate debt would have resulted in a $1 million increase in financing costs for the fiscal year ended August 31, 2023 .
Biggest changeA ten percent increase in the average costs of our variable-rate debt would have resulted in a $2 million increase in financing costs for the fiscal year ended August 31, 2024 . Foreign Currency Risk — We maintain operations in the U.S. and various foreign countries.
Similarly, a ten percent decline in foreign currency exchange rates relative to the U.S. dollar on our August 31, 2023 financial position would result in a $38 million reduction to equity (accumulated other comprehensive loss), as a result of non-U.S. dollar denominated assets and liabilities being translated into U.S. dollars, our reporting currency.
Similarly, a ten percent decline in foreign currency exchange rates relative to the U.S. dollar on our August 31, 2024 financial position would result in a $35 million reduction to equity (accumulated other comprehensive loss), as a result of non-U.S. dollar denominated assets and liabilities being translated into U.S. dollars, our reporting currency.
We strive to timely pass along such commodity price increases to customers to avoid profit margin erosion. 27
We strive to timely pass along such commodity price increases to customers to avoid profit margin erosion. 28
Foreign Currency Risk — We maintain operations in the U.S. and various foreign countries. Our more significant non-U.S. operations are located in Australia, the Netherlands, the United Kingdom, United Arab Emirates and China, and we have foreign currency risk relating to receipts from customers, payments to suppliers and intercompany transactions denominated in foreign currencies.
Our more significant non-U.S. operations are located in Australia, the Netherlands, the United Kingdom, Saudi Arabia and China, and we have foreign currency risk relating to receipts from customers, payments to suppliers and intercompany transactions denominated in foreign currencies.
Under this assumption, annual sales would have been $26 million lower and operating profit would have been $2 million lower for the fiscal year ended August 31, 2023.
Under this assumption, annual sales would have been $3 million lower and operating profit would have been less than $1 million lower for the fiscal year ended August 31, 2024.
Interest Rate Risk — As of August 31, 2023, long term debt consisted of $16 million of borrowings under the revolving line of credit (variable rate debt) and $200 million of term loan debt bearing interest on SOFR (variable rate).
Interest Rate Risk — As of August 31, 2024, long-term debt consisted of no borrowings under the revolving line of credit (variable rate debt) and $200 million of term-loan debt bearing interest based on SOFR (variable rate). An interest-rate swap effectively converts the SOFR-based rate of $60 million of term borrowings under our credit facility to a fixed rate.

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