What changed in ENERPAC TOOL GROUP CORP's 10-K — 2022 vs 2023
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Paragraph-level year-over-year comparison of ENERPAC TOOL GROUP CORP's 2022 and 2023 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 2023 report.
+250 added−260 removedSource: 10-K (2023-10-20) vs 10-K (2022-10-25)
Top changes in ENERPAC TOOL GROUP CORP's 2023 10-K
250 paragraphs added · 260 removed · 175 edited across 7 sections
- Item 7. Management's Discussion & Analysis+100 / −118 · 72 edited
- Item 1. Business+62 / −69 · 43 edited
- Item 1A. Risk Factors+67 / −51 · 40 edited
- Item 7A. Quantitative and Qualitative Disclosures About Market Risk+9 / −10 · 8 edited
- Item 5. Market for Registrant's Common Equity+9 / −9 · 9 edited
Item 1. Business
Business — how the company describes what it does
43 edited+19 added−26 removed17 unchanged
Item 1. Business
Business — how the company describes what it does
43 edited+19 added−26 removed17 unchanged
2022 filing
2023 filing
Biggest changeManufacturing 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. We have implemented single piece flow processes in most of our plants, which reduces inventory levels, lowers re-work costs and shortens lead times to customers.
Biggest changeWe have implemented single piece flow processes in most of our plants, which reduces inventory levels, lowers re-work costs and shortens lead times to customers. Components are built to our highly engineered specifications by a variety of suppliers in best-cost locations including various countries in Asia.
Examples of our products include high-forc e hydraulic and mechanical tools (cylinders, pumps, valves and specialty tools), which are designed to allow users to apply controlled force and motion to increase productivity, reduce labor costs and make work safer and easier to perform, bolt tensioners and other miscellaneous products.
Examples of our products include high-forc e hydraulic and mechanical tools (cylinders, pumps, valves, bolt tensioners, specialty tools and other miscellaneous products), which are designed to allow users to apply controlled force and motion to increase productivity, reduce labor costs and make work safer and easier to perform.
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 5 GmbH, a metal processing company. Prior to that, he held operations, logistics and dispatching management positions with a number of other manufacturing firms.
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.
We also provide rental capabilities 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 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 have operations around the world that allow us to draw on the skills of a global workforce, provide flexibility to our operations, drive economies of scale, provide revenue streams that may help offset economic trends that are specific to individual countries and access new markets.
We have operations around the world that allow us to draw on the skills of a global workforce, provide flexibility to our operations, drive economies of scale, provide revenue streams that may help offset economic trends that are specific to individual countries, and facilitate access to new markets.
Employee Safety . The safety, health, and well-being of our employees, contractors, and visitors at our sites globally is our top priority and a principle that is deeply embedded in our culture.
The safety, health, and well-being of our employees, contractors, and visitors at our sites globally is our top priority and a principle that is deeply embedded in our culture.
Item 1. Business General Enerpac Tool Group Corp. is a premier industrial tools and services 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 company serving a broad and diverse set of customers in more than 100 countries.
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, respectively, do not meet the quantitative or qualitative thresholds, individually or collectively, to be considered reportable segments, and together represent the Other operating segment.
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.
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 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.
Financial information related to the Company's 2 geographic footprint of our continuing operations is included in Note 16, "Business Segment, Geographic and Customer Information" in the notes to the consolidated financial statements.
Financial information related to the Company's geographic footprint of our continuing operations is included in Note 15, "Business Segment, Geographic and Customer Information" in the notes to the consolidated financial statements.
We continue to manage our supply chain to mitigate ongoing risks associated with the evolving political and inflationary environments. Order Backlogs and Seasonality Our operating segments have a relatively short order-to-ship cycle. We had order backlogs of $72 million and $55 million at August 31, 2022 and 2021, respectively.
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.
In 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), short and long-term disability, life and accidental disability insurance, a 401(k) retirement plan with a Company match, 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 paternal leave.
In 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.
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.
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.
Anthony Colucci, EVP and Chief Financial Officer ("CFO"), joined the Company in that capacity in May of 2022, and leads global Finance and IT. From June 2020 until joining the Company, Mr.
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.
Our health, safety, security, environment, and quality 4 (“HSSEQ”) programs are fully embraced by our leaders and employees at all levels and translate 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, 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.
We continually track and report our performance, including through 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 0.61.
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 0.64. This is up slightly year-over-year as fiscal 2022 had a TCIR of 0.61.
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.
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.
While we typically experience a stronger second half to our fiscal year, our consolidated sales are not subject to significant seasonal fluctuations. 3 Percentages of Sales by Fiscal Quarter 2022 2021 Quarter 1 (September - November) 23 % 23 % Quarter 2 (December - February) 24 % 23 % Quarter 3 (March - May) 27 % 27 % Quarter 4 (June - August) 26 % 27 % 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 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.
Colucci 52 Executive Vice President and Chief Financial Officer James P. Denis 48 Executive Vice President, General Counsel, Company Secretary & Chief Compliance Counsel Markus Limberger 52 Executive Vice President, Operations Benjamin J.
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.
The Company is a global leader in the engineering and manufacturing of 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.
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.
Topercer was the Chief Human Resource Officer for Vantage Specialty Chemicals, a manufacturer of specialty chemicals and ingredients included in consumer and industrial products.
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.
ASCEND’s key initiatives include accelerating organic growth go-to-market 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.
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.
We have been able to offset the impact of inflation with pricing actions, manufacturing efficiencies and other cost reductions. 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.
Certain information related to the Other operating segment is disclosed within Note 1 6 , "Business Segment, Geographic, and Customer Information" in order to comply with US GAAP requirements 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 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.
Raw Material Costs, Inflation and Tariffs We source materials and components from a network of global suppliers. These items are typically available from multiple suppliers. Raw materials that go into the components we source, such as steel, aluminum, plastic resin, brass, steel wire and rubber, are subject to price fluctuations and tariffs, which could have an impact on our results.
Raw materials that go into the components we source, such as steel, aluminum, plastic resin, brass, steel wire and rubber, are subject to price fluctuations and tariffs, which could have an impact on our results. We have been able to offset the impact of inflation with pricing actions, manufacturing efficiencies and other cost reductions.
The Company holds numerous patents and trademarks; however, no individual patent or trademark is believed to be o f such importance that its termination would have a material adverse effect on our business. Competition The markets for our products are highly competitive.
The Company holds numerous patents and trademarks. While no individual patent is believed to be of such importance that its termination would have a material adverse effect on our business, the termination of certain of our trademarks, including ENERPAC®, SIMPLEX®, HYDRATIGHT® and LARZEP & DESIGN®, could have a material adverse effect on our business.
We believe in coaching and the sharing of perspectives and facilitate mentorship opportunities for the benefit of our workforce. We are committed to devoting the time, resources and planning necessary to maximize the potential of our employees. We offer competitive compensation and benefits tailored to the geographical markets and industries in which we operate.
We are committed to devoting the time, resources and planning necessary to maximize the potential of our employees' career development, as well as address the future skill needs of our organization. We offer competitive compensation and benefits tailored to the geographical markets and industries in which we operate.
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.
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.
Topercer 45 Executive Vice President and Chief Human Resource Officer Scott Vuchetich 53 Executive Vice President, Marketing and President - Americas 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.
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.
Acquisitions and Divestitures For a summary of recent acquisition and divestiture transactions impacting continuing operations, see Note 5, "Acquisitions" and Note 6, "Discontinued Operations and Other Divestiture Activities" in the notes to the consolidated financial statements.
Acquisitions and Divestitures For a summary of recent divestiture transactions impacting continuing operations, see Note 5, "Discontinued Operations and Other Divestiture Activities" in the notes to the consolidated financial statements. International Business Our products and services are generally available globally, with our principal markets outside the United States being Europe, the Middle East and Asia.
Sternlieb served as Executive Vice President ("EVP") and President, Protein, at John Bean Technologies Corporation ("JBT") since October 2017. Prior to JBT, Mr. Sternlieb was Group President, Global Cooking in the Food Equipment Group at Illinois Tool Works since 2014. He served as a Vice President ("VP") & General Manager with Danaher from 2011 to 2014.
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.
We provide a diverse and broad range of industrial products and services to numerous global end markets, many of which are highly fragmented. 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.
Competition The markets for our products are highly competitive. We provide a diverse and broad range of industrial products and services to numerous global end markets, many of which are highly fragmented.
We closed the transaction during our first quarter of fiscal 2020. The divestiture of the EC&S segment was a strategic shift to become a pure-play industrial tools and services company. As such, the results of the EC&S segment are considered discontinued operations in all periods presented herein.
During the fourth quarter of fiscal 2019, we entered into a Securities Purchase Agreement ("SPA") to sell the remaining businesses within our legacy Engineered Components & Systems ("EC&S") segment. We closed the transaction during our first quarter of fiscal 2020. The divestiture of the EC&S segment was a strategic shift to become a pure-play industrial tools and services company.
International Business Our products and services are generally available globally, with our principal markets outside the United States being Europe, the Middle East and Asia. In fiscal 2022, we derived 40% of our net sales from the United States, 24% from Europe, 14% from the Middle East, 14% from Asia and 8% from other geographic areas.
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.
Components are built to our highly engineered specifications by a variety of suppliers, including those in best-cost countries such as China and India. We have built strong relationships with our key suppliers and, while we single source certain of our components, in many cases there are several qualified alternative sources.
We have built strong relationships with our key suppliers and, while we single source certain of our components, in many cases there are several qualified alternative sources. Raw Material Costs, Inflation and Tariffs We source materials and components from a network of global suppliers. These items are typically available from multiple suppliers.
The talent and skills of our workforce (approximately 2,200 employees as of August 31, 2022) are critical to our future success and ability to deliver shareholder value. Our development framework starts with robust performance management. Together with their leaders, employees establish annual goals and objectives that clearly align with our organizational commitments.
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.
Our Business Model Our long-term goal is to create shareholder value and best in class returns through growth of our core businesses, driving efficiency and profitability, 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. 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.
Exclusive of further deterioration of our supply chain, substantially all of the backlog at August 31, 2022 is expected to be filled within twelve months.
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.
We monitor progress throughout the year, with candid and frequent dialogue encouraged along the way. Annually, our senior leadership team reviews the skills we require to execute our corporate strategy and key roles to identify development opportunities for our emerging talent and perform succession planning.
Bi-annually, our Executive Leadership Team ("ELT") reviews the skills we require to execute our corporate strategy and key role requirements to identify development opportunities for our emerging talent. Annually, we conduct performance review and succession planning, and we promote a long-term career development view by encouraging the creation of unique individual development plans.
Executive Officers of the Registrant The names, ages and positions of all of the executive officers of the Company as o f October 15, 2022 are listed below. Name Age Position Paul E. Sternlieb 50 President and Chief Executive Officer Barbara G. Bolens 61 Executive Vice President and Chief Strategy Officer Anthony P.
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.
We compete for business principally on the basis of customer service, product quality and availability, engineering and research and development expertise. In addition, we believe that our cost structure, strategic global sourcing capabilities and global distribution support our competitive position.
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.
Finally, cash flow generation is critical to achieving our financial 1 and long-term strategic objectives. We expect to achieve strong cash flow generation by maximizing returns on assets and minimizing primary working capital needs.
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.
Financial information related to the Company's reportable segment is included in Note 16, "Business Segment, Geographic and Customer Information" in the notes to the consolidated financial statements. During the fourth quarter of fiscal 2019, we entered into a Securities Purchase Agreement ("SPA") to sell the remaining businesses within our legacy Engineered Components & Systems ("EC&S") segment.
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.
Removed
The Company has six operating segments, Industrial Tools & Service ("IT&S") Americas, IT&S Europe/Sub Sahara Africa/India (“IT&S ESSAI”), IT&S Asia Pacific/Australia/China (“IT&S APAC”), IT&S Middle East/North Africa/Caspian (“IT&S MENAC”), Cortland Industrial and Cortland Medical.
Added
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.
Removed
In accordance with generally accepted accounting principles in the United States (“US GAAP”), the IT&S operating segments met the criterion for aggregation and have been aggregated into IT&S, our only reportable segment.
Added
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.
Removed
We intend to leverage our strong brand, market positions, and dealer and distribution networks to generate organic core sales growth that exceeds end-market growth rates. Our plan is to accomplish organic growth through a combination of market share capture and product innovation, as well as market expansion into new vertical markets, emerging industries and new geographic regions.
Added
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 .
Removed
In addition to organic growth, we also focus on profit margin expansion by utilizing continuous improvement techniques to drive productivity and lower costs and by enacting routine pricing initiatives to generate price realization and offset cost increases, such as commodity and tariff increases and general inflation.
Added
We intend to allocate the cash flow that results from the execution of our strategy in a disciplined way toward investment in our businesses, maintaining our strong balance sheet, disciplined M&A and opportunistically returning capital to shareholders. We anticipate the compounding effect of reinvesting in our business will fuel further growth and profitable returns.
Removed
The cash flow that results from efficient asset management and improved profitability is used to fund internal growth opportunities, strategic acquisitions, paydown of debt and opportunistic returns to shareholders. In March 2022, the Company announced the start of its ASCEND transformation program (“ASCEND”).
Added
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.
Removed
The Company expects that it will deliver an incremental $40-$50 million of annual operating profit from the execution of ASCEND, with the full run rate of operating profit expected to be reflected in its results as it exits fiscal 2024 and fully incorporated into its fiscal 2025 projections.
Added
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.
Removed
Enerpac anticipates investing approximately $60-$65 million over the life of the program to support the ASCEND initiatives.
Added
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.
Removed
R&D costs were $7.3 million in fiscal 2022, a decrease of 1% from $7.4 million in fiscal 2021 and an increase of 1% from $7.3 million in fiscal 2020.
Added
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.
Removed
The increase in our order backlog year over year was primarily due to a combination of strong orders and supply chain challenges putting pressure on past due backlog. The supply chain challenges, including logistical constraints, are a result of the demand surge following the lessening of the COVID-19 pandemic at the end of fiscal 2021.
Added
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.
Removed
We promote a longer-term view by inviting employees to work with leaders to create their own unique individual development plan. Training programs in many different manners are available for all levels throughout Enerpac, addressing a wide variety of skills and competencies, both general and technical.
Added
On July 11, 2023, the Company completed the sale of the Cortland Industrial business ( see Note 5, "Discontinued Operations and Other Divestiture Activities" in the notes to the consolidated financial statements).
Removed
We also offer annual tuition reimbursement of up to $3,500 for undergraduate programs and $5,000 for graduate programs for all U.S. full-time employees and $1,000 for part-time employees who work more than 20 hours per month. During 2022, we expanded paid parental leave, adoption assistance, medical coverage for fertility treatments and expanded short-term disability benefits for hourly employees.
Added
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.
Removed
Consistent with this desire, we are enhancing or adding several benefits for our U.S. employees beginning in calendar 2023, including enriching our tuition reimbursement programs and adding voluntary benefits including critical illness, accident insurance, identity protection and certain legal services. Diversity, Equity, & Inclusion.
Added
While we typically experience a stronger second half to our fiscal year, our consolidated sales are not subject to significant seasonal fluctuations.
Removed
Our senior leadership team and management at all levels are dedicated to creating a culture of inclusion and belonging and a workplace where all employees can thrive and do their best work, and senior management reports to the Board on the Company’s progress in these areas on a regular basis.
Added
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.
Removed
Over the past year, we have significantly enhanced our focus on Diversity, Equity & Inclusion ("DE&I") and have incorporated these objectives into our core strategy. Our DE&I objectives include: (i) a focus on our culture, (ii) supporting education for disadvantaged groups in our communities, and (iii) broadening our recruiting efforts to reach and attract more diverse employees.
Added
Training opportunities for all levels of the organization are available and focus on skill, competency and leadership development. We believe in coaching and the sharing of perspectives, and we facilitate mentorship opportunities for the benefit of our workforce.
Removed
Because of the strategic importance of DE&I, and to embed it into our strategy, DE&I initiatives are under the responsibility of our EVP & Human Resource Officer.
Added
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.
Removed
To date, as part of our strategy execution, we have hired a leader of DE&I for Enerpac, leveraged the efforts of a third-party consulting firm to assist in the execution of our priorities, created DE&I councils in our four operating regions, and formed the Women of Enerpac, our first employee resource group.
Added
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").
Removed
Our DE&I initiatives have strong ties into the broader organization to ensure we are successful in achieving our goals. In 2023, we will be adding further employee resource groups, including a multicultural resource group.
Added
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.
Removed
We also believe diversity at the executive and Board level is key to the long-term success of the Company and to promote diversity and inclusion in our workplace. At the end of fiscal 2022, our executive officers included one female (17% of the membership of that committee).
Added
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 .
Removed
At the end of fiscal 2022, our board of directors included two females (25%) and one racially diverse individual (13%). We believe that valuing diversity as part of our core strategy will provide greater opportunity for Enerpac to attract and retain talent, benefit from diverse points of view and ultimately assist in achieving our goals to drive shareholder value creation.
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Item 1A. Risk Factors
Risk Factors — what could go wrong, per management
40 edited+27 added−11 removed74 unchanged
Item 1A. Risk Factors
Risk Factors — what could go wrong, per management
40 edited+27 added−11 removed74 unchanged
2022 filing
2023 filing
Biggest changeA reduction or interruption in supply, including disruptions due to the COVID-19 pandemic, geopolitical conflicts such as the invasion of Ukraine by Russia and the imposition of international sanctions in response thereto, a significant natural disaster, shortages in global freight capacity, significant increases in the price of critical components and raw materials, a failure to appropriately forecast or adjust our requirements for components or raw materials based on our business needs, or volatility in demand for our products could materially adversely affect our business, operating results, and financial condition and could materially damage customer relationships.
Biggest changeWe 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.
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. 9 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 or successfully integrate.
The occurrence of any of these events could result in a prolonged economic slowdown or recession in the U.S. or in other areas and could have a significant impact on our business, financial condition or results of operations. 12 Our inability to attract, develop and retain qualified employees could have a material adverse impact on our operations.
The occurrence of any of these events could result in a prolonged economic slowdown or recession in the U.S. or in other areas and could have a significant impact on our business, financial condition or results of operations. Our inability to attract, develop and retain qualified employees could have a material adverse impact on our operations.
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.
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.
On March 23, 2022, we announced the launch of ASCEND, a new 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.
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.
As a result of those limitations, we may face unexpected liabilities that adversely affect our profitability and financial position. Divestitures and discontinued operations could negatively impact our business, and retained liabilities from businesses that we have sold could adversely affect our financial results.
As a result of those limitations, we may face unexpected liabilities that adversely affect our profitability and financial position. 10 Divestitures and discontinued operations could negatively impact our business, and retained liabilities from businesses that we have sold could adversely affect our financial results.
We structure our commercial and contracting practices to 8 assess and manage the risks we are assuming, but we cannot assure that material liabilities will not arise from our contracts with our business partners.
We structure our commercial and contracting practices to assess and manage the risks we are assuming, but we cannot assure that material liabilities will not arise from our contracts with our business partners.
Equipment failures, natural disasters, health issues (including 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 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.
Further, for certain of our services business agency relationships, we utilize an intermediary agent and are dependent on our agents to collect payment on our behalf. The indirect sales channels expose us to the credit risk of both our channel partners and end customers and increase the risk of delayed payments or uncollectible balances.
Further, for certain of our services business agency relationships, we utilize intermediary agents and are dependent on our agents to collect payment on our behalf. The indirect sales channels expose us to the credit risk of both our channel partners and end customers and increase the risk of delayed payments or uncollectible balances.
We recognized $1 million and $6 million in impairment charges in fiscal 2022 and 2021, respectively, related to the goodwill in our Cortland Industrial operating segment (Other Segment) (see Note 7, "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).
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 17, "Commitments and Contingencies" in the notes to the consolidated financial statements for additional information about compliance risks. Health, safety and environmental laws and regulations may result in additional costs. We are subject to federal, state, local and foreign laws and regulations governing public and worker health and safety.
See Note 16, "Commitments and Contingencies" in the notes to the consolidated financial statements for additional information about compliance risks. 11 Health, safety and environmental laws and regulations may result in additional costs. We are subject to federal, state, local and foreign laws and regulations governing public and worker health and safety.
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 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 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.
Any divestiture may result in a dilutive impact to our future earnings if we are unable to offset the dilutive impact from the loss of revenue and profits associated with the divestiture, as well as significant write-offs, including those related to goodwill and other intangible assets, which could have a material adverse effect on our results of operations and financial condition. 10 Our goodwill and other intangible assets represent a substantial amount of our total assets.
Any divestiture may result in a dilutive impact to our future earnings if we are unable to offset the dilutive impact from the loss of revenue and profits associated with the divestiture, as well as significant write-offs, including those related to goodwill and other intangible assets, which could have a material adverse effect on our results of operations and financial condition.
Logistics challenges, including global freight capacity shortages or significant increases in freight costs, could continue to 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.
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 Company’s ability to import products in a timely and cost-effective manner has been, and may continue to be, adversely affected by the current global shortage of freight capacity, delays at ports, port strikes, and other issues that otherwise affect transportation and warehousing providers.
The Company’s ability to import products in a timely and cost-effective manner has been, and may continue to be, adversely affected by shortages of freight capacity, delays at ports, port strikes, and other issues that otherwise affect transportation and warehousing providers.
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, and our failure to estimate customer demand properly may result or 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, 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.
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, 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 pose a risk to our systems, including third-party vendor operated systems, operations and products and potentially those of our business partners.
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 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 due to public health matters (such as the COVID-19 outbreaks), energy shortages or other causes.
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. To the extent that we expand our international presence, these risks may increase. 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, 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.
The ASCEND program focuses on the following key initiatives: (i) accelerating organic growth go-to-market 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 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.
Collection risk for receivables in foreign jurisdictions. We sell products and services through distributors and agents. 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 less than one year).
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. 11 Costs and liabilities arising from legal proceedings could be material and adversely impact our financial results.
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.
In such periods, our customers may experience deterioration of their businesses, which may reduce or delay our sales. 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 the results of our operations and financial condition.
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.
Changes in demand for oil due to the disruption caused by the COVID-19 pandemic, the Russia-Ukraine conflict and related sanctions, or other factors 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 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.
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.
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.
We assess annually, and more frequently if a triggering event occurs, whether there has been impairment in the value of our goodwill or indefinite-lived intangible assets.
The goodwill results from acquisitions, representing the excess of the purchase price over the fair value of the net tangible and other identifiable intangible assets we have acquired. We assess annually, and more frequently if a triggering event occurs, whether there has been impairment in the value of our goodwill or indefinite-lived intangible assets.
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.
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.
This has resulted in, and in the future could result in, lower capital expenditures and project modifications, delays or cancellations in that end market that may adversely affect the results of our operations and financial condition. Uncertainty over global tariffs, or the financial impact of tariffs, may negatively affect our results.
This has resulted in, and in the future could result in, lower capital expenditures and project modifications, delays or cancellations by those customers, reducing the demand for certain of our products serving that end market, which could adversely affect our results of operations and financial condition.
Our vendors also may be unable to meet our demand, significantly increase lead times for deliveries, or impose significant price increases that we may be unable to offset through alternate sources of supply, price increases to our customers or increased productivity in our operations. We procure certain components for our products from single or limited suppliers.
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.
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.
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.
Further, 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 We may not be able to fully realize expected cost savings from our ASCEND transformation program and from restructuring actions.
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.
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. Insurance coverage, to the extent it is available, may not cover all losses arising from such contingencies.
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.
A liquidity event or dispute involving one of these channel partners may adversely affect our results of operations and financial condition . Cybersecurity vulnerabilities, threats and more sophisticated and targeted computer crime could pose a risk to our systems, networks, operations, products, solutions, services and data.
Cybersecurity vulnerabilities, threats and more sophisticated and targeted computer crime could pose a risk to our systems, networks, operations, products, solutions, services and data.
We currently are experiencing supply shortages and inflationary pressures for certain components and raw materials that are important to our manufacturing proc ess. Growth in the global economy may exacerbate these pressures on us and our 6 suppliers, and we expect these supply chain challenges and cost impacts to continue for the foreseeable future.
Growth in the global economy may exacerbate these pressures on us and our suppliers, and we expect these supply chain challenges and cost impacts may continue to impact us in the future.
These issues could delay importation of products or require the Company to locate alternative ports or warehousing providers to avoid disruption to customers. These alternatives may not be available on 7 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.
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.
Changes in U.S. domestic and global tariff frameworks have increased our costs of producing goods and resulted in additional risks to our supply chain. 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.
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.
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. Our businesses and operating results have been, and will continue to be, affected by domestic and international economic conditions.
Our 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.
Our total assets reflect substantial intangible assets, primarily goodwill. As of August 31, 2022, goodwill and other intangible assets totaled $299 million, or 40% of our total assets. The goodwill results from acquisitions, representing the excess of the purchase price over the fair value of the net tangible and other identifiable intangible assets we have acquired.
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.
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 • 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.
Foreign currency exchange rates result in volatility in our financial results, as over one-third of our sales are generated outside of the United States in currencies other than the U.S. dollar. In addition, United States tax reform has significantly changed how foreign operations are taxed in the United States.
Failure to properly manage these risks could adversely affect our business, financial condition, results of operations and cash flows. In addition, United States tax reform has significantly changed how foreign operations are taxed in the United States.
Removed
Our international operations present significant and varied risks, such as from political tensions among China and the United States, potential temporary closures of our manufacturing and sourcing operations in China, currency exchange rate fluctuations, exposure to local economic and political conditions, export and import restrictions and controls on repatriation of cash.
Added
In addition, a failure by us to appropriately forecast or adjust our requirements for components or raw materials based on our business needs and volatility in demand for our products may impact our ability to timely procure raw materials and components necessary to maintain desired productivity in our operations.
Removed
Risks Related to COVID-19 We have been and continue to be negatively impacted by the COVID-19 pandemic and its related impacts to our employees, operations, customers and suppliers.
Added
These supply chain issues could materially adversely affect our business, operating results, and financial condition and could materially damage customer relationships. We procure certain components for our products from single or limited suppliers.
Removed
The COVID-19 pandemic first had a significant impact on our global operations in the third quarter of fiscal 2020, continues to adversely impact our business and may continue to affect our business in the future.
Added
We have in the recent past experienced supply shortages and inflationary pressures for certain components and raw materials that were important to our manufacturing proc ess due to a number of the factors described above.
Removed
Such impacts include, and could continue to include, reductions in demand for certain of our products and services, the inability of our global teams and suppliers to meet our customers’ demand, other disruptions of supply chain, restrictions on our employees’ ability to visit customers, our service technicians’ ability to travel to job sites, or labor constraints resulting from employee turnover or departures due to resistance to vaccine mandates.
Added
Uncertainty over global tariffs, or the financial impact of tariffs, may negatively affect our results. Changes in U.S. domestic and global tariff frameworks have increased our costs of producing goods and resulted in additional risks to our supply chain.
Removed
Other adverse effects could result from government-imposed mandatory closures of job sites, manufacturing facilities or other important business locations, work-from-home orders, or other such restrictions. Should such conditions occur, persist or increase in severity, they could materially affect our ability to adequately staff and maintain our operations and impact our financial results.
Added
These issues could delay importation of products or require the Company to locate alternative ports or warehousing providers to avoid disruption to customers.
Removed
The duration and ultimate impact of the COVID-19 pandemic on our business, results of operations and financial condition, including liquidity, capital and financing resources, will depend on numerous evolving factors and future developments.
Added
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.
Removed
Such factors and developments may include the geographic spread, severity and duration of the COVID-19 pandemic, including whether there are periods of increased COVID-19 cases, disruption to our operations resulting from employee illnesses, the long-term efficacy of vaccines or their effectiveness against variants such as the Omicron variant, governmental responses to outbreaks including health and safety measures, such as mandatory facility closures of non-essential businesses, stay-at-home orders or similar restrictions, social distancing mandates and travel bans, and import and export restrictions, which could disrupt our relationship with customers.
Added
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.
Removed
If we are unable to respond to and manage the impact of these events, our business and results of operations may be adversely affected. Although our current accounting estimates contemplate current and expected future conditions, as applicable, it is reasonably possible that actual conditions could differ from our expectations, which could materially affect our results of operations and financial position.
Added
A loss of a significant number of these agents or distributors, or of a particular agent or distributor in a key market or with key customer relationships, could significantly inhibit our ability to effectively market our products, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Removed
In particular, a number of estimates have been and will continue to be affected by the ongoing COVID-19 pandemic. The severity, magnitude and duration of the pandemic, as well as its economic consequences, are uncertain, result in significant volatility for our business and are difficult to predict.
Added
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.
Removed
As a result, our accounting estimates and assumptions may change over time in response to COVID-19. Such changes could result in future impairments of goodwill, intangible assets, long-lived assets, incremental credit losses on accounts receivable, the valuation of our inventory, or a decrease in the carrying amount of our deferred tax assets.
Added
Our operations outside the United States require us to comply with a number of United States and international regulations.
Removed
Any of these events could amplify the other risks and uncertainties described herein and could have an adverse effect on our business and financial results. 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.
Added
For example, we are subject to the Foreign Corrupt Practices Act (the “FCPA”), which prohibits United States companies or their agents and employees from providing anything of value to a foreign official for the purposes of influencing any act or decision of these individuals in their official capacity to help obtain or retain business, direct business to any person or corporate entity, or obtain any unfair advantage.
Added
Our activities in countries outside the United States create the risk of unauthorized payments or offers of payments by one of our employees or agents that could be in violation of the FCPA, even though these parties are not always subject to our control.
Added
We have internal control policies and procedures and have implemented training and compliance programs with respect to the FCPA. However, we cannot assure that our policies, procedures and programs always will protect us from reckless or criminal acts committed by our employees or agents.
Added
In the event that we believe or have reason to believe that our employees or agents have or may have violated applicable anti-corruption laws, including the FCPA, we may be required to investigate or have outside counsel investigate the relevant facts and circumstances.
Added
In addition, we are subject to and must comply with all applicable export controls and economic sanctions laws and embargoes imposed by the United States and other various governments.
Added
Changes in export control or trade sanctions laws may restrict our business practices, including cessation of business activities in sanctioned countries or with sanctioned entities, and may result in modifications to compliance programs and increase compliance costs, and violations of these laws or regulations may subject us to fines, penalties and other sanctions, such as loss of authorizations needed to conduct aspects of our international business or debarments from export privileges.
Added
Violations of the FCPA or export controls or sanctions laws and regulations may result in severe criminal or civil sanctions, and we may be subject to other liabilities, which could negatively affect our business, financial condition, results of operations, and cash flows.
Added
We intend to continue to pursue international growth opportunities, which could increase our exposure to risks associated with international sales and operations. As we expand our international operations, we may also encounter new risks that could adversely affect our revenues and profitability.
Added
Insurance coverage, to the extent it is available, may not cover all losses arising from such contingencies.
Added
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").
Added
Increases in the referenced SOFR will increase our borrowing costs and negatively impact financial results and cash flows. Risks Related to Ownership of Our Common Stock The market price of our common stock may be volatile.
Added
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.
Added
The market price of our common stock could fluctuate significantly for many reasons, including in response to the risks described in this section and elsewhere in this report or for reasons unrelated to our operations, such as reports by industry analysts, investor perceptions or negative announcements by our customers, competitors or suppliers regarding their own performance, as well as industry conditions and general financial, economic and political instability.
Added
Because our quarterly revenues and operating results may vary significantly in future periods, our stock price may fluctuate. Our revenue and operating results may vary significantly from quarter to quarter. A high proportion of our costs are fixed, due in part to significant selling and manufacturing costs.
Added
Small declines in revenues could disproportionately affect operating results in a quarter and the price of our common stock may fall.
Added
Other factors that could significantly affect quarterly operating results include, but are not limited to: • demand for our products and services; • the timing of sales of our products and services; • changes in foreign currency exchange rates; • changes in applicable tax rates; • an impairment of goodwill or other intangible assets; • the occurrence of restructuring charges; • unanticipated delays or problems in introducing new products; • announcements by competitors of new products, services or technological innovations; • changes in our pricing policies or the pricing policies of our competitors; • increased expenses, whether related to sales and marketing, raw materials or supplies, labor matters, product development or administration; • major changes in the level of economic activity in major regions of the world in which we do business; • costs related to possible future acquisitions or divestitures of technologies or businesses; • an increase in the number or magnitude of product liability or environmental claims; and • our ability to expand our operations and the amount and timing of expenditures related to expansion of our operations, particularly outside the U.S.
Added
Various provisions and laws could delay or prevent a change of control. The anti-takeover provisions of our articles of incorporation and bylaws and provisions of Wisconsin corporation law could delay or prevent a change of control or may impede the ability of the holders of our common stock to change our management.
Item 2. Properties
Properties — owned and leased real estate
2 edited+0 added−0 removed1 unchanged
Item 2. Properties
Properties — owned and leased real estate
2 edited+0 added−0 removed1 unchanged
2022 filing
2023 filing
Biggest changeProperties As of August 31, 2022, 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 32 41 132 962 1,094 Corporate and Other 4 1 5 26 235 261 13 33 46 158 1,197 1,355 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, 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.
See Note 11, “Leases” in the notes to the consolidated financial statements for information regarding our lease commitments.
See Note 10, “Leases” in the notes to the consolidated financial statements for information regarding our lease commitments. 14
Item 3. Legal Proceedings
Legal Proceedings — active lawsuits and investigations
1 edited+0 added−0 removed2 unchanged
Item 3. Legal Proceedings
Legal Proceedings — active lawsuits and investigations
1 edited+0 added−0 removed2 unchanged
2022 filing
2023 filing
Biggest changeInformation with respect to contingencies arising from legal proceedings, including governmental investigations, set forth in Note 17, “Commitments and Contingencies” in the notes to the consolidated financial statements is incorporated by reference. 13 Item 4. Mine Safety Disclosures Not applicable. 14 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. 15 PART II
Item 5. Market for Registrant's Common Equity
Market for Common Equity — stock, dividends, buybacks
9 edited+0 added−0 removed0 unchanged
Item 5. Market for Registrant's Common Equity
Market for Common Equity — stock, dividends, buybacks
9 edited+0 added−0 removed0 unchanged
2022 filing
2023 filing
Biggest changeAll rights reserved. 8/17 8/18 8/19 8/20 8/21 8/22 Enerpac Tool Group Corp. $ 100.00 $ 122.64 $ 92.63 $ 86.90 $ 105.35 $ 81.39 Russell 2000 Index 100.00 125.45 109.27 115.85 170.40 139.92 S&P 600 Industrial Index 100.00 137.90 118.75 123.44 178.72 165.78 The stock price performance included in this graph is not necessarily indicative of future stock price performance. 16 Item 6.
Biggest changeAll 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]
Fiscal year ending August 31. Copyright© 2022 Standard & Poor's, a division of S&P Global. All rights reserved. Copyright© 2022 Russell Investment Group.
Fiscal year ending August 31. Copyright© 2023 Standard & Poor's, a division of S&P Global. All rights reserved. Copyright© 2023 Russell Investment Group.
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, 2017 and tracks it through August 31, 2022. *$100 Invested on 8/31/17 in stock or index, including reinvestment of dividends.
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.
In fiscal 2021, the Company declared a dividend of $0.04 per share of Class A common stock payable on October 18, 2021 to shareholders of record on October 1, 2021. 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 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.
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, 2022, there were 934 shareh olders 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, 2023, there were 873 shareholde rs of record of the Company's Class A common stock.
Since the inception of the initial share repurchase program in fiscal 2012, the Company has repurchased 26,558,965 shares of common stock for $743 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 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.
As of August 31, 2022, the maximum number of shares that may yet be purchased under this authorization is 6,240,265 shares. The following table summarizes share repurchases during the fourth quarter of fiscal 2022, all of which were purchased under publicly announced share repurchase programs.
As 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.
Dividends 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.
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.
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, 2022 689,768 $ 19.94 7,555,157 July 1 to July 31, 2022 1,314,892 19.01 6,240,265 August 1 to August 31, 2022 — — 6,240,265 2,004,660 $ 19.36 15 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, 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.
Item 7. Management's Discussion & Analysis
Management's Discussion & Analysis (MD&A) — revenue / margin commentary
72 edited+28 added−46 removed39 unchanged
Item 7. Management's Discussion & Analysis
Management's Discussion & Analysis (MD&A) — revenue / margin commentary
72 edited+28 added−46 removed39 unchanged
2022 filing
2023 filing
Biggest changeWe remain focused on new product development, driving organic growth and pursuing disciplined acquisition opportunities. 18 Historical Financial Data (dollars in millions) Year Ended August 31, 2022 2021 2020 Statements of Earnings Data: (1) Net sales $ 571 100 % $ 529 100 % $ 493 100 % Cost of products sold 306 54 % 286 54 % 276 56 % Gross profit 265 46 % 243 46 % 217 44 % Selling, general and administrative expenses 217 38 % 175 33 % 181 37 % Amortization of intangible assets 7 1 % 8 2 % 8 2 % Restructuring charges 8 1 % 3 1 % 7 1 % Impairment & divestiture charges (benefit) 2 0 % 6 1 % (3) (1) % Operating profit 31 5 % 51 10 % 24 5 % Financing costs, net 4 1 % 5 1 % 19 4 % Other expense (income), net 2 0 % 2 0 % (3) (1) % Earnings before income tax expense 24 4 % 44 8 % 8 2 % Income tax expense 4 1 % 4 1 % 2 0 % Net earnings $ 20 3 % $ 40 8 % $ 6 1 % Other Financial Data: (1) Depreciation $ 12 $ 13 $ 12 Capital expenditures 8 12 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 $6.2 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.
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 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.
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.
The operating profit decrease was a result of a $14 million increase in SG&A primarily due to 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 offset by a $15 million increase in gross profit due to 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.
The operating profit decrease was a result of a $14 million increase in SG&A expense primarily due to 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 offset by a $15 million increase in gross profit due to 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.
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 $13.2 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 Middle East/North Africa/Caspian ("MENAC") region.
During the year ended August 31, 2022, the Company recorded through bad debt expense (included in SG&A in the Condensed Consolidated Statements of Earnings) a reserve of $13 million for this agent based on the consideration of the factors listed below, which fully reserves for this agent's outstanding account receivable balance.
During the year ended August 31, 2022, the Company recorded through bad debt expense (included in SG&A expenses in the Condensed Consolidated Statements of Earnings) a reserve of $13 million for this agent based on the consideration of the factors listed below, which fully reserves for this agent's outstanding account receivable balance.
In estimating the expected return on plan assets, we consider historical returns, forward-looking considerations, 25 inflation assumptions and the asset-allocation strategy in investing such assets. Domestic benefit plan assets consist primarily of participating units in mutual funds with equity based strategies, mutual funds with fixed income based strategies, and U.S treasury securities.
In estimating the expected return on plan assets, we consider historical returns, forward-looking considerations, inflation assumptions and the asset-allocation strategy in investing such assets. Domestic benefit plan assets consist primarily of participating units in mutual funds with equity based strategies, mutual funds with fixed income based strategies, and U.S treasury securities.
In certain circumstances, we also review a market approach in which a trading multiple is applied to either forecasted EBITDA (earnings before interest, income taxes, depreciation and amortization) or anticipated proceeds of the reporting unit to arrive at the estimated fair value.
In certain circumstances, we also may review a market approach in which a trading multiple is applied to either forecasted EBITDA (earnings before interest, income taxes, depreciation and amortization) or anticipated proceeds of the reporting unit to arrive at the estimated fair value.
The cash used in financing activities in fiscal 2021 was primarily for the paydown of $90 million of principal on our outstanding credit facility with cash provided by operating activites and excess cash on hand.
The cash used in financing activities in fiscal 2021 was primarily for the paydown of $90 million of principal on our outstanding credit facility with cash provided by operating activities and excess cash on hand.
Approximately 1% of our historical annual sales are to customers and distributors associated with Russia and we had approximately $0.5 17 million of receivables associated with those customers and distributors as of February 28, 2022.
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.
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.
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
Based on information provided by independent actuaries and other relevant sources, we believe that the assumptions used are reasonable; however, changes in these assumptions could impact our financial position, results of operations or cash flow. See Note 12, “Employee Benefit Plans” in the notes to the consolidated financial statements for further discussion.
Based on information provided by independent actuaries and other relevant sources, we believe that the assumptions used are reasonable; however, changes in these assumptions could impact our financial position, results of operations or cash flow. See Note 11, “Employee Benefit Plans” in the notes to the consolidated financial statements for further discussion.
Employee Benefit Plans: We provide a variety of benefits to employees and former employees including, in some cases, pensions and postretirement health care. Plan assets and obligations are recorded based on an August 31 measurement date utilizing various actuarial assumptions such as discount rates, assumed rates of return on plan assets and health care cost trend rates.
Defined Benefit Plans: We provide a variety of benefits to employees and former employees including, in some cases, pensions and postretirement health care. Plan assets and obligations are recorded based on an August 31 measurement date utilizing various actuarial assumptions such as discount rates, assumed rates of return on plan assets and health care cost trend rates.
Its primary products include branded tools, cylinders, pumps, hydraulic torque wrenches, highly engineered heavy lifting technology solutions and other tools (Product product line). On the service and rental side, the segment provides maintenance and manpower services to meet customer-specific needs and rental capabilities for certain of our products (Service & Rental product line).
Its primary products include branded tools, cylinders, pumps, hydraulic torque wrenches, highly engineered heavy lifting technology solutions and other tools (Product product line). The segment provides maintenance and manpower services to meet customer-specific needs and rental capabilities for certain of our products (Service & Rental product line).
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 52% and 48% of total inventories at August 31, 2022 and 2021, 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 48% and 52% of total inventories at August 31, 2023 and 2022, respectively).
Financial information related to the Company's reportable segment is included in Note 16, "Business Segment, Geographic and Customer Information" in the notes to the consolidated financial statements. Business Update 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. Business Update Our businesses provide an array of products and services across multiple markets and geographies which results in significant diversification.
We have the ability to notify the supplier that they no longer need to maintain the minimum level of inventory should 23 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.
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.
The timing of principal payments associated with our revolving line of credit are disclosed in Note 8, "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.
The increase in SG&A is 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 & board search 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.
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.
The costs of this updated plan (which includes the amounts for the plan approved in June) 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 year 2024.
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.
Our lease contracts are primarily for real estate leases, vehicle leases, IT and manufacturing leases, information technology services and telecommunications services. See Note 11, "Leases" in the notes to the consolidated financial statements for future minimum lease payments associated with our lease portfolio.
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.
Both the fiscal 2022 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 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.
In estimating the fair value of a reporting unit, we generally use a discounted cash flow model, which calculates fair value as the sum of the projected discounted cash flows over a discrete seven-year period plus an estimated terminal value.
In estimating the fair value of a reporting unit, we generally use a discounted cash flow model, which calculates fair value as the sum of the projected discounted cash flows over a discrete six-year period plus an estimated terminal value.
We have long-term obligations related to our deferred compensation, pension and postretirement plans that are summarized in Note 12, “Employee Benefit Plans” in the notes to the consolidated financial statements.
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.
The 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 first half sales were still impacted by the COVID-19 pandemic, were the primary drivers of the increase in net sales.
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.
On October 31, 2019, the Com pany completed the previously announced 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 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), 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.
As of August 31, 2022, 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, 2023, the Company was exposed to a concentration of credit risk with an agent as a result of its continued payment delinquency.
While we believe our judgments and assumptions are reasonable, different assumptions could change the estimated fair values and, therefore, impairment charges could be required.
While we believe our judgments and ass umptions are reasonable, different assumptions could change the estimated fair values and, therefore, impairment charges could be required.
This 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, as well as providing services and tool rental to the industrial, maintenance, infrastructure, oil & gas, alternative energy and other markets.
The allowance for doubtful accounts for this particular agent as of August 31, 2022 represents 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 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.
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, 2022 and 2021, the discount rates on domestic benefit plans were 4.8% and 2.6%, 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, 2023 and 2022, the discount rates on domestic benefit plans were 5.4% and 4.8%, respectively.
The allowance for doubtful accounts for this particular agent as of August 31, 2022 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 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.
Income Taxes: Judgment is required to determine the annual effective income tax rate, deferred tax assets and liabilities, reserves for unrecognized tax benefits and any valuation allowances recorded against net deferred tax assets.
Income Taxes: J udgment is required to determine the annual effective income tax rate, deferred tax assets and liabilities, reserves for unrecognized tax benefits and any valuation allowances recorded against net deferred tax assets.
No material impairments were recorded in fiscal 2022 or fiscal 2021 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 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.
Operating profit was $20 million lower in fiscal 2022 as compared to fiscal 2021 predominantly due to $42 million of incremental selling, general and administrative ("SG&A") expenses offset by a $22 million increase in gross profit, as described above.
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.
Goodwill and Long-lived Assets: Goodwill Impairment Review and Estimates: A considerable amount of management judgment is required in performing the impairment tests, principally in determining the fair value of each reporting unit and the indefinite-lived intangible assets.
Goodw ill and Indefinite-lived intangibles: Goodwill Impairment Review and Estimates: A considerable amount of management judgment is required in performing the impairment tests, principally in determining the fair value of each reporting unit and the indefinite-lived intangible assets.
Fiscal 2022 and 2021 results included $2 million and $6 million of impairment and divestiture charges, respectively, and a $3 million impairment and divestiture benefit in fiscal 2020. A substantial portion of these charges (benefits) do not result in a tax expense or benefit.
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.
The expected return on domestic benefit plan assets was 5.5% and 4.2% for the fiscal years ended August 31, 2022 and 2021, 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 2022 domestic benefit plan expense.
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.
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, 2022 2021 2020 Earnings before income tax expense $ 23,992 $ 43,975 $ 7,849 Income tax expense 4,401 3,763 2,292 Effective income tax rate 18.3 % 8.6 % 29.2 % 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, 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.
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 $8 million for 2022 and $12 million in both fiscal 2021 and 2020.
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.
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 0.1% for each the years ended August 31, 2022 , 2021 , and 2020, respectively).
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).
The increase in core sales was predominantly attributable to the continued global market recovery from the COVID-19 pandemic resulting in incremental product volume growth largely in the first half of the fiscal year coupled with the impact from pricing actions taken in late fiscal 2021 and during fiscal 2022 due to the significant inflation affecting commodity, freight and energy costs.
The increase in sales was predominantly attributable to the continued global market recovery from the COVID-19 pandemic resulting in incremental product volume growth largely in the first half of fiscal 2022 coupled with the impact from pricing actions taken in late fiscal 2021 and during fiscal 2022 due to the significant inflation affecting commodity, freight and energy costs. 21 Fiscal 2022 operating profit decreased $3 million (4%) from the prior year.
We used $7 million of cash in investing activities in the current year as compared to $13 million cash provided by investing activities in the prior-year period. The cash used in fiscal 2022 was primarily used for capital expenditures.
We used $7 million of cash in investing activities in fiscal 2022 as compared to $13 million cash provided by investing activities in fiscal 2021. The cash used in fiscal 2022 was primarily used for capital expenditures.
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.
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.
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 $49 million in fiscal 2022 compared to $20 million in fiscal 2021.
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.
Net financing costs were $4 million, $5 million and $19 million in fiscal 2022, 2021 and 2020, respectively. The decrease in net financing costs in fiscal 2022 as compared to fiscal 2021 was due to the year-over-year increase in interest income due to greater short-term investment of excess cash in fiscal 2022.
The decrease in net financing costs in fiscal 2022 as compared to fiscal 2021 was due to the year-over-year increase in interest income due to greater short-term investment of excess cash in fiscal 2022.
The following table shows the components of our primary working capital (dollars in millions): August 31, 2022 August 31, 2021 $ PWC % $ PWC % Accounts receivable, net $ 107 18 % $ 103 18 % Inventory, net 84 14 % 75 13 % Accounts payable (73) (12) % (62) (11) % Net primary working capital $ 118 20 % $ 116 20 % Total primary working capital was $118 million at August 31, 2022, which increased from $116 million at August 31, 2021.
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 summarizes the cash flow attributable to operating, investing and financing activities (in millions): Year Ended August 31, 2022 2021 2020 Net cash provided by (used in) operating activities $ 52 $ 54 $ (3) Net cash (used in) provided by investing activities (7) 13 176 Net cash used in financing activities (52) (82) (239) Effect of exchange rate changes on cash (12) 2 7 Net decrease in cash and cash equivalents $ (20) $ (12) $ (59) Cash flow provided by operations was $52 million and $54 million in fiscal 2022 and 2021, respectively.
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.
Accounts receivable, net was $107 million as of August 31, 2022 , which is net of a $18 million allowance for doubtful accounts.
Accounts receivable, net was $98 million as of August 31, 2023 , which is net of a $17 million allowance for doubtful accounts.
We define this metric as the sum of net accounts receivable and net inventory less accounts payable, divided by the past three months' sales annualized.
Primary Working Capital Management We use primary working capital as a percentage of sales as a key metric for working capital efficiency. We define this metric as the sum of net accounts receivable and net inventory less accounts payable, divided by the past three months' sales annualized.
Management’s Discussion and Analysis is provided as a supplement to, and should be read in conjunction with, our audited consolidated financial statements that are included in Item 8. "Financial Statements and Supplementary Data ". Background The Company has one reportable segment, Industrial Tools & Service ("IT&S").
Management’s Discussion and Analysis is provided as a supplement to, and should be read in conjunction with, our audited consolidated financial statements included in Item 8. "Financial Statements and Supplementary Data ".
Our Business Model Our long-term goal is to create shareholder value and best in class returns through growth of our core businesses, driving efficiency and profitability, generating strong cash flow, and being disciplined in the deployment of our capital.
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.
ASCEND’s key initiatives include accelerating organic growth go-to-market 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 program is expected to be executed over roughly 24 to 36 months.
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.
Fiscal 2022 Impairment Charges: In the fourth quarter of fiscal 2022, in conjunction with our annual goodwill impairment assessment, we recorded a $1 million goodwill impairment charge associated with the Cortland Industrial reporting unit. See Note 7, "Goodwill, Intangible Assets, and Long-Lived Assets" in the notes to the consolidated financial statements for further discussion.
Fiscal 2022 Impairment Charges : In the fourth quarter of fiscal 2022, in conjunction with our annual goodwill impairment assessment, we recorded a $1 million goodwill impairment charge associated with the Cortland Industrial reporting unit.
The Company's senior credit facility is comprised of a $400 million revolving line of credit and a $200 million term loan which were scheduled to mature in March 2024 (see Note 8, "Debt" in the notes to the consolidated financial statements for further details of the senior credit facility).
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 fiscal 2022 tax provision included a tax benefit of $3 million related global tax planning initiatives resulting from certain prior-year business losses for which no benefits were previously recognized.
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 following table sets forth the results of operations for the IT&S segment (dollars in millions): Year Ended August 31, 2022 2021 2020 Net Sales $ 527 $ 493 $ 455 Operating Profit 79 82 66 Operating Profit % 14.9 % 16.6 % 14.4 % Fiscal 2022 compared to Fiscal 2021 Fiscal 2022 IT&S segment net sales increased by $34 million (7%) from fiscal 2021 to $527 million, which included a $15 million or 3% unfavorable impact on sales due to changes in foreign currency exchange rates.
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%.
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). 19 Fiscal 2021 compared to Fiscal 2020 Consolidated net sales from continuing operations in fiscal 2021 were $529 million, 7% higher than the prior-year sales of $493 million.
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).
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.
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.
On September 9, 2022, the Company refinanced its credit facility resulting in a new $600 million senior credit facility, comprised of a $400 million revolving line of credit and a $200 million term loan, which will mature in September 2027. See N ote 18, " Subsequent Event " in the notes to the consolidated financial statements for further details.
During fiscal 2023, the Company refinanced its credit facility resulting in an updated senior credit facility (the "Senior Credit Facility") of $600 million, comprised of a $400 million revolving line of credit and a $200 million term loan, which will mature in September 2027.
If the LIFO method were not used, inventory balances would be higher than amounts presented in the Consolidated Balance Sheet by $19 million and $16 million at August 31, 2022 and 2021, respectively. 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 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.
Higher inventory levels, specifically the purchase of inventory, was the driver of the $11 million of incremental accounts payable as of August 31, 2022 compared to August 31, 2021. Capital Expenditures The majority of our manufacturing activities consist of assembly operations.
This decrease as well as payment s related to our ASCEND transformation program was the driver of the $22 million decrease in accounts payable as of August 31, 2023 compared to August 31, 2022 . Capital Expenditures The majority of our manufacturing activities consist of assembly operations.
The primary working capital increase related to increased accounts receivable as a result of higher sales in the fourth quarter of fiscal 2022 compared to the fourth quarter of fiscal 2021 and due to $9 million of higher inventory as we continue to work through supply chain issues.
The primary working capital increase related to decreased accounts receivable from increased collections during fiscal 2023 and due to $9 million of lower inventory as we continue to work through SKU rationalization.
The EC&S segment is treated as discontinued operations in our financial statements for all periods.
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 fiscal 2022 effective tax rate was 18.3%, which is significantly higher than the fiscal 2021 effective tax rate of 8.6%.
The fiscal 2023 effective tax rate was 22.1%, which is higher than the fiscal 2022 effective tax rate of 18.3% primarily due to one-time benefits in fiscal 2022.
We believe that the revolver, 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. 22 Primary Working Capital Management We use primary working capital as a percentage of sales as a key metric for working capital efficiency.
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 fiscal 2021 annual review of other reporting units performed in the fourth quarter did not result in any reporting units having an estimated fair value that exceeded the carrying value (expressed as a percentage of the carrying value) by less than 100%. Indefinite-lived intangibles (tradenames): Indefinite-lived intangible assets are also subject to annual impairment testing.
All other reporting units exceeded the carrying value by more than 60%. 25 Indefinite-lived intangibles (tradenames): Indefinite-lived intangible assets are also subject to annual impairment testing.
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 with the impact from foreign currency rates unfavorably impacting sales by roughly $15 million or 3%.
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.
Future minimum lease payments for these leases at August 31, 2022 were $4 million with monthly payments extending to fiscal 2025. We had outstanding letters of credit totaling $11 million and $12 million at August 31, 2022 and 2021, respectively, the majority of which relate to commercial contracts and self-insured workers' compensation programs.
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.
E xcept per share amounts, the summation of the individual components may not equal the total due to rounding.
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 fiscal 2022 effective tax rate was lower than the statutory 21% primarily as a result of the 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. 21 Items Impacting Comparability On January 7, 2020, the Company acquired the stock of HTL Group ("HTL"), a provider of controlled bolting products, calibration and repair services, and tool rental services, which contributed net sales of $11 million, $14 million and $6 million in fiscal 2022, 2021 and 2020, respectively.
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 net sales increase included a $2 million (1%) decrease from strategic exits and divestitures of non-core product lines, acquisitions in fiscal 2021, and a 2% favorable impact on sales due to changes in foreign currency exchange rates.
Fiscal 2022 compared to Fiscal 2021 Fiscal 2022 IT&S segment net sales increased by $34 million (7%) from fiscal 2021 to $527 million , which included a $15 million or 3% unfavorable impact on sales due to changes in foreign currency exchange rates.
In addition to organic growth, we also focus on profit margin expansion by utilizing continuous improvement techniques to drive productivity and lower costs and by enacting routine pricing initiatives to generate price realization and offset cost increases, such as commodity and tariff increases and general inflation. Finally, cash flow generation is critical to achieving our financial and long-term strategic objectives.
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.
Removed
We intend to leverage our strong brand, market positions, and dealer and distribution networks to generate organic core sales growth that exceeds end-market growth rates. our plan is to accomplish organic growth through a combination of market-share capture and product innovation, as well as market expansion into new vertical markets, emerging industries and new geographic regions.
Added
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.
Removed
We expect to achieve strong cash flow generation by maximizing returns on assets and minimizing primary working capital needs. The cash flow that results from efficient asset management and improved profitability is used to fund internal growth opportunities, pay down of debt, opportunistic returns for shareholders, and strategic acquisitions.
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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.
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General Business Update In March 2022, the Company announced the start of its ASCEND transformation program (“ASCEND”).
Added
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.
Removed
The Company expects that it will deliver an incremental $40-$50 million of annual operating profit from the execution of ASCEND, with the full run rate of operating profit expected to be reflected in its results as it exits fiscal 2024 and fully incorporated into its fiscal 2025 projections.
Added
We intend to allocate the cash flow that results from the execution of our strategy in a disciplined way toward investment in our businesses, maintaining our strong balance sheet, disciplined M&A and opportunistically returning capital to shareholders. We anticipate the compounding effect of reinvesting in our business will fuel further growth and profitable returns.
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Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market Risk — interest-rate, FX, commodity exposure
8 edited+1 added−2 removed3 unchanged
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market Risk — interest-rate, FX, commodity exposure
8 edited+1 added−2 removed3 unchanged
2022 filing
2023 filing
Biggest changeA ten percent increase in the average costs of our variable rate debt would have resulted in less than $0.1 million increase in financing costs for the year ended August 31, 2022 . 26 C ommodity Risk —We source a wide variety of materials and components from a network of global suppliers.
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 .
Similarly, a ten percent decline in foreign currency exchange rates relative to the U.S. dollar on our August 31, 2022 financial position would result in a $40 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, 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.
Under certain conditions, we enter into hedging transactions, primarily forward foreign currency swaps, that enable us to mitigate the potential adverse impact of foreign currency exchange rate risk (see Note 10, “Derivatives” in the notes to the consolidated financial statements for further information).
Under certain conditions, we enter into hedging transactions (primarily foreign currency exchange contracts) that enable us to mitigate the potential adverse impact of foreign currency exchange rate risk (see Note 9, “Derivatives” in the notes to the consolidated financial statements for further information).
Our non-U.S. operations, the largest of which are located in the Netherlands (and other countries whose functional currency is the Euro), the United Kingdom, Australia, the United Arab Emirates and China, have foreign currency risk relating to receipts from customers, payments to suppliers and intercompany transactions denominated in foreign currencies.
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.
Interest Rate Risk — As of August 31, 2022, long term debt consisted of $200 million of borrowings under the revolving line of credit (variable rate debt).
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).
Under this assumption, annual sales would have been $24 million lower and operating profit would have been relatively flat for the twelve months ended August 31, 2022.
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.
While such materials are typically available from numerous suppliers, commodity raw materials, such as steel, aluminum, plastic resin, brass, steel wire and rubber are subject to price fluctuations which could have a negative impact on our results. We strive to timely pass along such commodity price increases to customers to avoid profit margin erosion. 27
C ommodity Risk —We source a wide variety of materials and components from a network of global suppliers. While such materials are typically available from numerous suppliers, commodity raw materials, such as steel and plastic resin are subject to price fluctuations which could have a negative impact on our results.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk We are exposed to market risk from changes in foreign currency exchange rates and interest rates and, to a lesser extent, commodities. To reduce such risks, we selectively use financial instruments and other proactive management techniques.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk The diverse nature of our business activities necessitates the management of various financial and market risks, including those related to changes in interest rates, foreign currency exchange rates and commodity costs.
Removed
All hedging transactions are authorized and executed pursuant to clearly defined policies and procedures, which strictly prohibit the use of financial instruments for trading or speculative purposes. A discussion of our accounting policies for derivative financial instruments is included within Note 10, “Derivatives” in the notes to the consolidated financial statements.
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We strive to timely pass along such commodity price increases to customers to avoid profit margin erosion. 27
Removed
Foreign Currency Risk —We maintain operations in the U.S. and various foreign countries.