epac-20231130

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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FORM 10-Q

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(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended November 30, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File No. 1-11288

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ENERPAC TOOL GROUP CORP.

(Exact name of registrant as specified in its charter)

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Wisconsin						39-0168610
(State of incorporation)						(I.R.S. Employer Id. No.)

N86 W12500 WESTBROOK CROSSING

MENOMONEE FALLS, WISCONSIN 53051

Mailing address: P. O. Box 3241, Milwaukee, Wisconsin 53201

(Address of principal executive offices)

(262) 293-1500

(Registrant’s telephone number, including area code)

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


Title of each class	Ticker Symbol(s)	Name of each exchange on which registered
Class A common stock, $0.20 par value per share	EPAC	NYSE

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨

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

Large Accelerated Filer

☒

Accelerated Filer

☐

Non-accelerated Filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.): Yes ¨ No ☒

The number of shares outstanding of the registrant’s Class A Common Stock as of December 18, 2023 was 54,129,373.

Table of Contents

TABLE OF CONTENTS


			Page No.

Forward-Looking Statements and Cautionary Factors			1

Part I—Financial Information

Item 1—Condensed Consolidated Financial Statements (Unaudited)

Condensed Consolidated Statements of Earnings			3

Condensed Consolidated Statements of Comprehensive Income			4

Condensed Consolidated Balance Sheets			5

Condensed Consolidated Statements of Cash Flows			6

Notes to the Condensed Consolidated Financial Statements			7

Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations			17

Item 3—Quantitative and Qualitative Disclosures about Market Risk			21

Item 4—Controls and Procedures			22

Part II—Other Information

Item 2—Unregistered Sales of Equity Securities and Use of Proceeds			23

Item 5 —Other Information			23

Item 6—Exhibits			23

FORWARD-LOOKING STATEMENTS AND CAUTIONARY FACTORS

This quarterly report on Form 10-Q contains certain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties. Such forward-looking statements include statements regarding expected financial results and other planned events, including, but not limited to, anticipated liquidity, anticipated restructuring costs and related savings, anticipated future charges and anticipated capital expenditures. The terms “may,” “should,” “could,” “anticipate,” “believe,” “estimate,” “expect,” “objective,” “plan,” “project” and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Therefore, actual future events or results may differ materially from these statements. We disclaim any obligation to publicly update or revise any forward-looking statements as a result of new information, future events or any other reason.

The following is a list of factors, among others, that could cause actual results to differ materially from the forward-looking statements:

•supply chain issues, including shortages of adequate component supply that increase our costs or cause delays in our ability to fulfill orders;

•failure to estimate customer demand properly may result or could have an adverse impact on our business and operating results and our relationship with customers;

•the deterioration of, or instability in, the domestic and international economy and/or in our various end markets, including as a result of geopolitical activity, including the invasion of Ukraine by Russia and international sanctions imposed in response thereto, as well as the armed conflict involving Hamas and Israel;

•decreased demand from customers in the oil & gas industry, including as a result of significant volatility in oil prices resulting from disruptions in the oil markets;

•uncertainty over global tariffs or the financial impact of tariffs;

•our ability to execute on restructuring actions and on the objectives related to the ASCEND transformation program in order to achieve anticipated incremental operating profit;

•logistics challenges, including global freight capacity shortages, significant increases in freight costs or other delays in our ability to fulfill orders;

•failure to collect on accounts receivable, including in certain foreign jurisdictions where sales are concentrated to a limited number of distributors or agents;

•risks related to our reliance on independent agents and distributors for the distribution and service of products;

•a significant failure in our information technology (IT) infrastructure, such as unauthorized access to financial and other sensitive data or cybersecurity threats;

•a material disruption at a significant manufacturing facility;

•competition in the markets we serve;

•currency exchange rate fluctuations, export and import restrictions, transportation disruptions or shortages, and other risks inherent in our international operations;

•regulatory and legal developments, including litigation, such as product liability and warranty claims;

•failure to develop new products and the extent of market acceptance of new products and price increases

•our ability to execute on our growth strategy;

•our ability to successfully identify, consummate and integrate acquisitions and realize anticipated benefits/results from acquired companies as part of our portfolio management process;

•the effects of divestitures and/or discontinued operations, including retained liabilities from, or indemnification obligations with respect to, disposed businesses;

•if the operating performance of our businesses were to fall significantly below normalized levels, the potential for a non-cash impairment charge of goodwill and/or other intangible assets, as they represent a substantial amount of our total assets;

•a global economic recession;

•the impact of rapidly rising interest rates and material, labor, or overhead cost increases;

•our ability to comply with the covenants in our debt agreements and fluctuations in interest rates;

•our ability to attract, develop, and retain qualified employees;

•inadequate intellectual property protection or infringement of the intellectual property of others;

•our ability to access capital markets; and

•other matters, including those of a political, economic, business, competitive and regulatory nature contained from time to time in our U.S. Securities and Exchange Commission ("SEC") filings, including, but not limited to, those factors listed in the "Risk Factors" section within Item 1A of Part I of our Form 10-K for the fiscal year ended August 31, 2023 filed with the SEC on October 20, 2023.

When used herein, the terms “we,” “us,” “our” and the “Company” refer to Enerpac Tool Group Corp. and its subsidiaries. Reference to fiscal years, such as "fiscal 2024," are to the fiscal year ending on August 31 of the specified year. Enerpac Tool Group Corp. provides free-of-charge access to its Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments thereto, through its website, www.enerpactoolgroup.com, as soon as reasonably practicable after such reports are electronically filed with the SEC.

PART I—FINANCIAL INFORMATION

Item 1—Financial Statements

ENERPAC TOOL GROUP CORP.

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(In thousands, except per share amounts)

(Unaudited)


	Three Months Ended November 30,
	2023		2022
Net sales	$	141,970	$	139,382
Cost of products sold	67,720		71,476
Gross profit	74,250		67,906

Selling, general and administrative expenses	42,216		53,247
Amortization of intangible assets	824		1,368
Restructuring charges	2,401		982
Impairment & divestiture charges	147		—
Operating profit	28,662		12,309
Financing costs, net	3,697		2,815
Other expense, net	991		702
Earnings before income tax expense	23,974		8,792
Income tax expense	5,669		2,383
Net earnings from continuing operations	18,305		6,409
(Loss) earnings from discontinued operations, net of income taxes	(567)		1,044
Net earnings	$	17,738	$	7,453

Earnings per share from continuing operations
Basic	$	0.34	$	0.11
Diluted	$	0.33	$	0.11

(Loss) earnings per share from discontinued operations
Basic	$	(0.01)	$	0.02
Diluted	$	(0.01)	$	0.02

Earnings per share*
Basic	$	0.33	$	0.13
Diluted	$	0.32	$	0.13

Weighted average common shares outstanding
Basic	54,527		56,886
Diluted	55,008		57,317

*The total of Earnings per share from continuing operations and (Loss) earnings per share from discontinued operations may not equal Earnings per share due to rounding.

The accompanying notes are an integral part of these condensed consolidated financial statements.

ENERPAC TOOL GROUP CORP.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)


	Three Months Ended November 30,
	2023		2022
Net earnings	$	17,738	$	7,453
Other comprehensive income, net of tax
Foreign currency translation adjustments	903		5,941
Pension and other postretirement benefit plans	156		83
Cash flow hedges	(689)		—
Total other comprehensive income, net of tax	370		6,024
Comprehensive income	$	18,108	$	13,477

The accompanying notes are an integral part of these condensed consolidated financial statements.

ENERPAC TOOL GROUP CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)


	(Unaudited)
	November 30, 2023		August 31, 2023
ASSETS
Current assets
Cash and cash equivalents	$	147,956	$	154,415
Accounts receivable, net	94,925		97,649
Inventories, net	80,081		74,765
Other current assets	36,997		28,811
Total current assets	359,959		355,640
Property, plant and equipment, net	37,963		38,968
Goodwill	266,538		266,494
Other intangible assets, net	37,726		37,338
Other long-term assets	63,381		64,157
Total assets	$	765,567	$	762,597
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Trade accounts payable	$	45,505	$	50,483
Accrued compensation and benefits	21,775		33,194
Current maturities of debt	4,375		3,750

Income taxes payable	4,772		3,771
Other current liabilities	50,557		56,922
Total current liabilities	126,984		148,120
Long-term debt, net	240,128		210,337
Deferred income taxes	6,031		5,667
Pension and postretirement benefit liabilities	10,168		10,247
Other long-term liabilities	60,580		61,606
Total liabilities	443,891		435,977
Commitments and contingencies (Note 14)
Shareholders’ equity
Class A common stock, $0.20 par value per share, authorized 168,000,000 shares, issued 83,966,854 and 83,760,798 shares, respectively	16,793		16,752
Additional paid-in capital	223,474		220,472
Treasury stock, at cost, 29,727,622 and 28,772,715 shares, respectively	(826,622)		(800,506)
Retained earnings	1,028,871		1,011,112
Accumulated other comprehensive loss	(120,840)		(121,210)
Stock held in trust	(3,576)		(3,484)
Deferred compensation liability	3,576		3,484
Total shareholders' equity	321,676		326,620
Total liabilities and shareholders’ equity	$	765,567	$	762,597

The accompanying notes are an integral part of these condensed consolidated financial statements.

ENERPAC TOOL GROUP CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Three Months Ended November 30,
	2023		2022
Operating Activities
Net earnings	$	17,738	$	7,453
Less: Net (loss) earnings from discontinued operations	(567)		1,044
Net earnings from continuing operations	18,305		6,409
Adjustments to reconcile net earnings to net cash provided by operating activities - continuing operations:
Impairment & divestiture charges	147		—
Depreciation and amortization	3,426		4,193
Stock-based compensation expense	2,717		2,155
Benefit for deferred income taxes	(24)		(33)
Amortization of debt issuance costs	146		460
Other non-cash benefits	1,527		11
Changes in components of working capital and other, excluding acquisitions and divestitures:
Accounts receivable	2,517		9,844
Inventories	(4,590)		(5,684)
Trade accounts payable	(4,984)		2,130
Prepaid expenses and other assets	(9,089)		(8,377)
Income tax accounts	1,051		5,104
Accrued compensation and benefits	(11,154)		1,529
Other accrued liabilities	(3,912)		73
Cash (used in) provided by operating activities - continuing operations	(3,917)		17,814
Cash used in operating activities - discontinued operations	(2,758)		(281)
Cash (used in) provided by operating activities	(6,675)		17,533

Investing Activities
Capital expenditures	(1,567)		(2,535)

Purchase of assets	(1,027)		—
Cash used in investing activities - continuing operations	(2,594)		(2,535)
Cash used in investing activities	(2,594)		(2,535)

Financing Activities
Borrowings on revolving credit facility	39,000		14,000
Principal repayments on revolving credit facility	(8,000)		(11,000)
Principal repayments on term loan	(625)		—
Proceeds from issuance of term loan	—		200,000
Payment for redemption of revolver	—		(200,000)
Swingline borrowings/repayments, net	—		(4,000)
Payment of debt issuance costs	—		(2,417)
Purchase of treasury shares	(26,116)		—
Taxes paid related to the net share settlement of equity awards	(2,081)		(969)
Stock option exercises & other	2,317		972
Payment of cash dividend	(2,178)		(2,274)
Cash provided by (used in) financing activities - continuing operations	2,317		(5,688)
Cash provided by (used in) financing activities	2,317		(5,688)

Effect of exchange rate changes on cash	493		(766)
Net (decrease) increase in cash and cash equivalents	(6,459)		8,544
Cash and cash equivalents - beginning of period	154,415		120,699
Cash and cash equivalents - end of period	$	147,956	$	129,243

The accompanying notes are an integral part of these condensed consolidated financial statements.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Basis of Presentation

General

Enerpac Tool Group Corp. (the "Company") is a premier industrial tools, services, technology and solutions company serving a broad and diverse set of customers in more than 100 countries. The Company has one reportable segment, Industrial Tools & Services ("IT&S"), and an Other operating segment, which does not meet the criteria to be considered a reportable segment.

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with United States generally accepted accounting principles ("GAAP") for interim financial reporting and with the instructions of Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The condensed consolidated balance sheet data as of August 31, 2023 was derived from the Company’s audited financial statements but does not include all disclosures required by GAAP. For additional information, including the Company’s significant accounting policies, refer to the consolidated financial statements and related footnotes in the Company’s fiscal 2023 Annual Report on Form 10-K.

In the opinion of management, all adjustments considered necessary for a fair statement of financial results have been made. Such adjustments consist of only those of a normal recurring nature. Operating results for the three months ended November 30, 2023 are not necessarily indicative of the results that may be expected for the entire fiscal year ending August 31, 2024.

Accumulated Other Comprehensive Loss

The following is a summary of the Company's accumulated other comprehensive loss (in thousands):


	November 30, 2023		August 31, 2023
Foreign currency translation adjustments	$	102,230	$	102,268
Pension and other postretirement benefit plans	19,299		18,394
Cash flow hedges	(689)		548
Accumulated other comprehensive loss	$	120,840	$	121,210

Property Plant and Equipment

The following is a summary of the Company's components of property, plant and equipment (in thousands):


	November 30, 2023		August 31, 2023
Land, buildings and improvements	$	14,174	$	14,070
Machinery and equipment	137,809		136,566
Gross property, plant and equipment	151,983		150,636
Less: Accumulated depreciation	(114,020)		(111,668)
Property, plant and equipment, net	$	37,963	$	38,968

Note 2. Revenue from Contracts with Customers

Nature of Goods and Services

The Company generates its revenue under two principal activities, which are discussed below:

Product Sales: Sales of tools, heavy-lifting solutions, and biomedical textiles are recorded when control is transferred to the customer (i.e., performance obligation has been satisfied). For the majority of the Company’s product sales, revenue is recognized at a point in time when control of the product is transferred to the customer, which generally occurs when the product is shipped from the Company to the customer. For certain other products that are highly customized and have a limited alternative use, and for which the Company has an enforceable right of reimbursement for performance completed to date, revenue is recognized over time. We consider the input measure (efforts-expended or cost-to-cost) or output measure as a fair measure of progress for the recognition of over-time revenue associated with these custom products. For a majority of the Company’s custom products, machine hours and labor hours (efforts-expended measurement) are used as a measure of progress.

Service & Rental Sales: Service contracts consist of providing highly trained technicians to perform bolting, technical services, machining and joint-integrity work for our customers. These revenues are recognized over time as our customers simultaneously receive and consume the benefits provided by the Company. We consider the input measure (efforts-expended or cost-to-cost) or output measure as a fair measure of progress for the recognition of over-time revenue associated with service contracts. For a majority of the Company’s service contracts, labor hours (efforts-expended measurement) is used as the measure of progress when it is

determined to be a better depiction of the transfer of control to the customer due to the timing and pattern of labor hours incurred. Revenue from rental contracts (less than a year and non-customized products) is generally recognized ratably over the contract term, depicting the customer’s consumption of the benefit related to the rental equipment.

Disaggregated Revenue and Performance Obligations

The Company disaggregates revenue from contracts with customers by reportable segment and product line and by the timing of when goods and services are transferred. See Note 13, "Segment Information" for information regarding our revenue disaggregation by reportable segment and product line.

The following table presents information regarding revenues disaggregated by the timing of when goods and services are transferred (in thousands):


	Three Months Ended November 30,
	2023		2022
Revenues recognized at point in time	$	106,142	$	109,903
Revenues recognized over time	35,828		29,479
Total	$	141,970	$	139,382

Contract Balances

The Company's contract assets and liabilities are as follows (in thousands):


	November 30, 2023		August 31, 2023
Receivables, which are included in accounts receivable, net	$	94,925	$	97,649
Contract assets, which are included in other current assets	6,468		3,989
Contract liabilities, which are included in other current liabilities	3,469		2,927

Receivables: The Company performs its obligations under a contract with a customer by transferring goods or services in exchange for consideration from the customer. The Company typically invoices its customers as soon as control of an asset is transferred and a receivable for the Company is established. Accounts receivable, net is recorded at face amount of customer receivables less an allowance for doubtful accounts. The Company maintains an allowance for doubtful accounts for expected losses as a result of customers’ inability to make required payments. Management evaluates the aging of customer receivable balances, the financial condition of its customers, historical trends and the time outstanding of specific balances to estimate the amount of receivables that may be collected in the future and records the appropriate provision. The allowance for doubtful accounts was $16.5 million and $16.8 million at November 30, 2023 and August 31, 2023, respectively.

As indicated in the "Concentration of Credit Risk" section below, as of November 30, 2023 and 2022, the Company was exposed to a concentration of credit risk with an agent as a result of its continued payment delinquency. As of November 30, 2023 and 2022, the Company had a total bad debt reserve of $13.2 million related to this agent. The allowance for doubtful accounts for this particular agent as of November 30, 2023 represents management's best estimate of the amount probable of collection and considers various factors with the 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 agent to end customer, (iii) the status of ongoing negotiations with the agent to secure payments and (iv) legal recourse available to secure payment. Actual collections from the agent may differ from the Company's estimate.

Concentration of Credit Risk: The Company sells products and services through distributors and agents. In certain jurisdictions, those third parties represent a significant portion of our sales in their respective country, which can pose a concentration of credit risk if these larger distributors or agents are not timely in their payments. As of November 30, 2023, the Company was exposed to a concentration of credit risk as a result of the payment delinquency of one of our agents whose accounts receivable represent 11.7% of the Company's outstanding accounts receivable. As of November 30, 2023, the Company has fully reserved for the amounts due from this agent.

Contract Assets: Contract assets relate to the Company’s rights to consideration for work completed but not billed as of the reporting date on contracts with customers. The contract assets are transferred to receivables when the rights become unconditional. The Company has contract assets on contracts that are generally long-term and have revenues that are recognized over time.

Contract Liabilities: As of November 30, 2023, the Company had certain contracts where there were unsatisfied performance obligations and the Company had received cash consideration from customers before the performance obligations were satisfied. The majority of these contracts relate to long-term customer contracts (project durations of greater than three months) and are recognized over time. The Company estimates that substantially all of the $3.5 million will be recognized in net sales from satisfying those performance obligations within the next twelve months.

Timing of Performance Obligations Satisfied at a Point in Time: The Company evaluates when the customer obtains control of the product based on shipping terms, as control will transfer, depending upon such terms, at different points between the Company's manufacturing facility or warehouse and the customer’s location. The Company considers control to have transferred upon shipment or delivery because (i) the Company has a present right to payment at that time; (ii) the legal title has been transferred to the customer; (iii) the Company has transferred physical possession of the product to the customer; and (iv) the customer has significant risks and rewards of ownership of the product.

Variable Consideration: The Company estimates whether it will be subject to variable consideration under the terms of the contract and includes its estimate of variable consideration in the transaction price based on the expected value method when it is deemed probable of being realized based on historical experience and trends. Types of variable consideration may include rebates, incentives and discounts, among others, which are recorded as a reduction to net sales at the time when control of a performance obligation is transferred to the customer.

Practical Expedients & Exemptions: The Company elected to expense the incremental cost to obtaining a contract when the amortization period for such contracts would be one year or less. The Company does not disclose the value of unperformed obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which it recognizes revenue at the amount to which it has the right to invoice for services performed.

Note 3. ASCEND Transformation Program

In March 2022, the Company announced the launch of ASCEND, a transformation program focused on driving accelerated earnings growth and efficiency across the business with the goal of delivering an estimated incremental $40 to $50 million of annual operating profit once fully implemented. In March 2023, the Company announced this estimate had been revised to an incremental $50 to $60 million of annual operating profit as a result of additional ASCEND initiatives and high success rate. As part of ASCEND, the Company is focusing 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 SG&A expenses by better leveraging resources to create a more efficient and agile organization.

The Company is implementing the program and originally anticipated investing approximately $60 to $65 million and in March 2023 anticipated that this investment would increase to $70 to $75 million (as disclosed in Note 4, "Restructuring Charges" approximately $10 to $15 million of these investments will be in the form of restructuring charges) over the life of the program, which is expected to be finalized as we exit fiscal 2024. Elements of these investments could include such cash costs as capital expenditures, restructuring costs, third-party support, and incentive costs (which incentives are not available for the senior management team). Total program expenses were approximately $3.6 million and $10.4 million for the three months ended November 30, 2023, and 2022 respectively. Of the total ASCEND program expenses, $1.1 million and $9.4 million were recorded within SG&A expenses for the three months ended November 30, 2023 and 2022 respectively, and approximately $0.1 million were recorded within cost of goods sold for both the three months ended November 30, 2023 and 2022, and $2.4 million and $1.0 million were recorded within restructuring expenses for the three months ended November 30, 2023 and 2022, respectively (see Note 4, "Restructuring Charges" below). 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.

Note 4. Restructuring Charges

The Company has undertaken or committed to various restructuring initiatives, including workforce reductions, leadership changes, plant consolidations to reduce manufacturing overhead, satellite office closures, the continued movement of production and product sourcing to low-cost alternatives, and the centralization and standardization of certain administrative functions. Liabilities for severance are generally to be paid within twelve months, while future lease payments related to facilities vacated as a result of restructuring are to be paid over the underlying remaining lease terms.

On June 27, 2022, the Company approved a new restructuring plan in connection with the initiatives identified as part of the ASCEND transformation program (see Note 3, “ASCEND Transformation Program”) to drive greater efficiency and productivity in global selling, general and administrative resources. The total costs of this plan were then estimated at $6 to $10 million, constituting predominately severance and other employee-related costs to be incurred as cash expenditures impacting both IT&S and Corporate. On September 23, 2022, the Company approved an updated restructuring plan. The restructuring 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 year 2024. The Company recorded $2.4 million and $1.0 million in the three months ended November 30, 2023 and 2022, respectively, of restructuring charges associated with the ASCEND transformation program.

The following summarizes restructuring reserve activity for the IT&S segment and Corporate (which for the three months ended November 30, 2023 excludes $0.2 million of charges associated with the accelerated vesting of equity awards within the ASCEND transformation plan, which has no impact on the restructuring reserve) (in thousands):


	Three Months Ended November 30, 2023
	IT&S		Corporate
Balance as of August 31, 2023	$	2,238	$	74
Restructuring charges	2,062		174
Cash payments	(1,312)		(75)
Balance as of November 30, 2023	$	2,988	$	173


	Three Months Ended November 30, 2022
	IT&S		Corporate
Balance as of August 31, 2022	$	2,008	$	797
Restructuring charges	944		38
Cash payments	(1,211)		(117)
Impact of changes in foreign currency rates	67		—
Balance as of November 30, 2022	$	1,808	$	718

Total restructuring charges (inclusive of the Other operating segment) were $2.4 million and $1.0 million in the three months ended November 30, 2023 and 2022, respectively, being reported in "Restructuring charges."

Note 5. Discontinued Operations and Other Divestiture Activities

On October 31, 2019, as part of our overall strategy to become a pure-play industrial tools and services company, the Company completed the sale of the businesses comprising its former Engineered Components & Systems ("EC&S") segment. This divestiture was considered part of our strategic shift to become a pure-play industrial tools and services company, and therefore, the results of operations are recorded as a component of "(Loss) earnings from discontinued operations, net of income taxes" in the Condensed Consolidated Statements of Earnings for all periods presented. All discontinued operations activity included within the Condensed Consolidated Statements of Earnings and the Condensed Consolidated Statements of Cash Flows for the periods presented relate to impacts from certain retained liabilities.

The following represents the detail of "(Loss) earnings from discontinued operations, net of income taxes" within the Condensed Consolidated Statements of Earnings (in thousands):


	Three Months Ended November 30,
	2023		2022
Selling, general and administrative expenses	$	122	$	5
Impairment & divestiture benefit	—		(1,329)
Operating (loss) profit	(122)		1,324
Other loss, net	—		—
(Loss) earnings before income tax expense	(122)		1,324
Income tax expense	445		280
(Loss) earnings from discontinued operations, net of income taxes	$	(567)	$	1,044

Other Divestiture Activities

On July 11, 2023, the Company completed the sale of the Cortland Industrial business, which had been included in the Other operating segment, for net cash proceeds of $20.1 million. In connection with the completion of the sale, the Company recorded a net gain of $6.0 million, inclusive of $0.1 million of purchase price from the customary finalization of working capital negotiations in the first quarter of Fiscal 2024. The historical results of the Cortland Industrial business (which had net sales of $7.0 million, for the quarter ended November 30, 2022) are not material to the consolidated financial results.

Note 6. Goodwill, Intangible Assets and Long-Lived Assets

Changes in the gross carrying value of goodwill and intangible assets result from changes in foreign currency exchange rates, business acquisitions, divestitures and impairment charges. The changes in the carrying amount of goodwill for the three months ended November 30, 2023 are as follows (in thousands):


	IT&S		Other		Total
Balance as of August 31, 2023	$	255,285	$	11,209	$	266,494
Impact of changes in foreign currency rates	44		—		44
Balance as of November 30, 2023	$	255,329	$	11,209	$	266,538

The gross carrying value and accumulated amortization of the Company’s intangible assets are as follows (in thousands):


		November 30, 2023						August 31, 2023
	Weighted Average Amortization Period (Years)	Gross Carrying Value		Accumulated Amortization		Net Book Value		Gross Carrying Value		Accumulated Amortization		Net Book Value
Amortizable intangible assets:
Customer relationships	14	$	108,309	$	96,187	$	12,122	$	108,292	$	95,395	$	12,897
Patents	13	9,753		9,220		533		9,769		9,210		559
Trademarks and tradenames	14	2,732		2,215		517		2,734		2,197		537
Indefinite lived intangible assets:
Tradenames	N/A	24,554		—		24,554		23,345		—		23,345
		$	145,348	$	107,622	$	37,726	$	144,140	$	106,802	$	37,338

The Company estimates that amortization expense will be $2.5 million for the remaining nine months of fiscal 2024. Amortization expense for future years is estimated to be: $2.9 million in fiscal 2025, $1.9 million in fiscal 2026, $1.8 million in fiscal 2027, $1.7 million in fiscal 2028, $1.5 million in fiscal 2029 and $1.0 million cumulatively thereafter. The future amortization expense amounts represent estimates and may be impacted by future acquisitions, divestitures, or changes in foreign currency exchange rates, among other causes.

Note 7. Product Warranty Costs

The Company generally offers its customers an assurance warranty on products sold, although warranty periods may vary by product type and application. The reserve for future warranty claims, which is recorded within the "Other current liabilities" line in the Condensed Consolidated Balance Sheets, is based on historical claim rates and current warranty cost experience. The following summarizes the changes in product warranty reserves for the three months ended November 30, 2023 and 2022, respectively (in thousands):


	Three Months Ended November 30,
	2023		2022
Beginning balance	$	856	$	1,140
Provision for warranties	45		234
Warranty payments and costs incurred	(164)		(256)
Impact of changes in foreign currency rates	2		18
Ending balance	$	739	$	1,136

Note 8. Debt

The following is a summary of the Company’s long-term indebtedness (in thousands):


	November 30, 2023		August 31, 2023
Senior Credit Facility
Revolver	47,000		16,000
Term Loan	198,125		198,750
Total Senior Indebtedness	245,125		214,750
Less: Current maturities of long-term debt	(4,375)		(3,750)
Debt issuance costs	(622)		(663)
Total long-term debt, less current maturities	$	240,128	$	210,337

Senior Credit Facility

On September 9, 2022, the Company refinanced its previous senior credit facility with 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. The Company has the option to request up to $300 million of additional revolving commitments and/or term loans under the new facility, subject to customary conditions, including the commitment of the participating lenders. This facility replaces LIBOR with adjusted term SOFR as the interest rate benchmark and provides for interest rate margins above adjusted term SOFR ranging from 1.125% to 1.875% per annum depending on the Company’s net leverage ratio. In addition, a non-use fee is payable quarterly on the average unused amount of the revolving line of credit ranging from 0.15% to 0.3% per annum, based on the Company's net leverage. Borrowings under the new facility initially bear interest at adjusted term SOFR plus 1.125% per annum.

The facility contains financial covenants requiring the Company to not permit (i) the net leverage ratio, determined as of the end of each of its fiscal quarters, to exceed 3.75 to 1.00 (or, at the Company’s election and subject to certain conditions, 4.25 to 1.00 for the covenants period during which certain material acquisitions occur and the next succeeding four testing periods) or (ii) the interest coverage ratio, determined as of the end of each of its fiscal quarters, to be less than 3.00 to 1.00. Borrowings under the facility are secured by substantially all personal property assets of the Company and its domestic subsidiary guarantors (other than certain specified excluded assets) and certain of the equity interests of certain subsidiaries of the Company. The Company was in compliance with all covenants under the credit facility at November 30, 2023.

At November 30, 2023, there were $198.1 million in borrowings outstanding under the term loans, $47.0 million in borrowings outstanding under the revolving line of credit and $351.8 million available for borrowing under the revolving line of credit facility after reduction for $1.2 million of outstanding letters of credit issued under the facility.

Note 9. Fair Value Measurements

The Company assesses the inputs used to measure the fair value of financial assets and liabilities using a three-tier hierarchy. Level 1 inputs include unadjusted quoted prices for identical instruments and are the most observable. Level 2 inputs include quoted prices for similar assets and observable inputs such as interest rates, foreign currency exchange rates, commodity rates and yield curves. Level 3 inputs are not observable in the market and include management’s own judgments about the assumptions market participants would use in pricing an asset or liability.

The fair value of the Company’s cash and cash equivalents, accounts receivable, accounts payable and variable rate long-term debt approximated book value at both November 30, 2023 and August 31, 2023 due to their short-term nature and/or the fact that the interest rates approximated market rates. Foreign currency exchange contracts and interest rate swaps are recorded at fair value. The fair value of the Company's foreign currency exchange contracts was a net asset of less than $0.1 million and a net liability of less than $0.1 million at November 30, 2023 and August 31, 2023, respectively. The fair value of the Company's interest rate swap (see Note 10, “Derivatives”, for further information on the Company's interest rate swap) was an asset of $0.5 million and $0.7 million at November 30, 2023 and August 31, 2023, respectively. The fair value of the Company's net investment hedge (see Note 10, “Derivatives” for further information on the Company's net investment hedge) was a liability of $1.2 million at both November 30, 2023 and August 31, 2023. The fair value of all derivative contracts were based on quoted inactive market prices and therefore classified as Level 2 within the valuation hierarchy.

Note 10. Derivatives

All derivatives are recognized in the balance sheet at their estimated fair value. The Company does not enter into derivatives for speculative purposes. Changes in the fair value of derivatives (not designated as hedges) are recorded in earnings along with the gain or loss on the hedged asset or liability.

The Company is exposed to market risk for changes in foreign currency exchange rates due to the global nature of its operations. In order to manage this risk, the Company utilizes foreign currency exchange contracts to reduce the exchange rate risk associated with recognized non-functional currency balances. The effects of changes in exchange rates are reflected concurrently in earnings for both the fair value of the foreign currency exchange contracts and the related non-functional currency asset or liability. These derivative gains and losses offset foreign currency gains and losses from the related revaluation of non-functional currency assets and liabilities (amounts included in "Other expense, net" in the Condensed Consolidated Statements of Earnings). The U.S. dollar equivalent notional value of these short duration foreign currency exchange contracts was $17.8 million and $13.8 million at November 30, 2023 and August 31, 2023, respectively. The fair value of outstanding foreign currency exchange contracts was a net asset of less than $0.1 million and a net liability of less than $0.1 million at November 30, 2023 and August 31, 2023, respectively. Net foreign currency loss (gain) (included in "Other expense" in the Condensed Consolidated Statements of Earnings) related to these derivative instruments are as follows (in thousands):


	Three Months Ended November 30,
	2023		2022
Foreign currency loss (gain), net	$	292	$	(636)

During December 2022, the Company entered into an interest rate swap for the notional amount of $60.0 million at a fixed interest rate of 4.022% to hedge the floating interest rate of the Company's term loan with a maturity date of November 30, 2025. The interest rate swap was designated and qualified as a cash flow hedge. The Company uses the interest rate swap for the management of interest rate risk exposure, as an interest rate swap effectively converts a portion of the Company's debt from a floating rate to a fixed rate.

The Company records the fair value of the interest rate swap as an asset or liability on its balance sheet. The change in the fair value of the interest rate swap, a net loss of $0.1 million for the three months ended November 30, 2023 is recorded in other comprehensive income (loss).

The Company also uses interest-rate derivatives to hedge portions of our net investments in non-U.S. subsidiaries (net investment hedge) against the effect of exchange rate fluctuations on the translation of foreign currency balances to the U.S. dollar. For derivatives that are designated and qualify as a net investment hedge in a foreign operation, the net gains or losses attributable to the hedge changes are recorded in other comprehensive income (loss) where they offset gains and losses recorded on our net investments where the entity has non-U.S. dollar functional currency. As of November 30, 2023, the notional amount of cross-currency swaps designated as net investment hedges was $30.5 million. The change in the fair value of the net investment hedge, a net loss of less than $0.1 million for the three months ended November 30, 2023, is recorded in other comprehensive income (loss).

Note 11. Earnings per Share and Shareholders' Equity

The Company's Board of Directors has authorized the repurchase of shares of the Company's common stock under publicly announced share repurchase programs. Since the inception of the initial share repurchase program in fiscal 2012, the Company has repurchased 29,727,622 shares of common stock for $826.6 million. The Company suspended the initial share repurchase program in response to the COVID-19 pandemic in the third quarter of fiscal 2020. 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. The Company repurchased 954,907 shares for $26.1 million in the three months ended November 30, 2023 and did not repurchase shares in the three months ended November 30, 2022. As of November 30, 2023, the maximum number of shares that may yet be purchased under the program is 3,071,608 shares.

The reconciliation between basic and diluted earnings per share is as follows (in thousands, except per share amounts):


	Three Months Ended November 30,
	2023		2022
Numerator:
Net earnings from continuing operations	$	18,305	$	6,409
Net (loss) earnings from discontinued operations	(567)		1,044
Net earnings	$	17,738	$	7,453

Denominator:
Weighted average common shares outstanding - basic	54,527		56,886
Net effect of dilutive securities - stock based compensation plans	481		431
Weighted average common shares outstanding - diluted	55,008		57,317

Earnings per share from continuing operations:
Basic	$	0.34	$	0.11
Diluted	$	0.33	$	0.11

(Loss) earnings per share from discontinued operations:
Basic	$	(0.01)	$	0.02
Diluted	$	(0.01)	$	0.02

Earnings per share:*
Basic	$	0.33	$	0.13
Diluted	$	0.32	$	0.13

Anti-dilutive securities from stock based compensation plans (excluded from earnings per share calculation)	312		818

*The total of Earnings per share from continuing operations and (Loss) earnings per share from discontinued operations may not equal Earnings per share due to rounding.

The following table illustrates the changes in the balances of each component of shareholders' equity for the three months ended November 30, 2023 (in thousands):


	Common Stock			Additional Paid-in Capital		Treasury Stock		Retained Earnings		Accumulated Other Comprehensive Loss		Stock Held in Trust		Deferred Compensation Liability		Total Shareholders’ Equity
	Issued Shares	Amount
Balance at August 31, 2023	83,761	$	16,752	$	220,472	$	(800,506)	$	1,011,112	$	(121,210)	$	(3,484)	$	3,484	$	326,620
Net earnings	—	—		—		—		17,738		—		—		—		17,738
Other comprehensive loss, net of tax	—	—		—		—		—		370		—		—		370
Stock contribution to employee benefit plans and other	2	—		51		—		—		—		—		—		51
Vesting of equity awards	118	23		(23)		—		—		—		—		—		—
Cash dividend ($0.04 per share) true-up	—	—		—		—		21		—		—		—		21
Treasury stock repurchases	—	—		—		(26,116)		—		—		—		—		(26,116)
Stock based compensation expense	—	—		2,717		—		—		—		—		—		2,717
Stock option exercises	83	17		2,193		—		—		—		—		—		2,210
Tax effect related to net share settlement of equity awards	—	—		(2,025)		—		—		—		—		—		(2,025)
Stock issued to, acquired for and distributed from rabbi trust	3	1		89		—		—		—		(92)		92		90
Balance at November 30, 2023	83,967	$	16,793	$	223,474	$	(826,622)	$	1,028,871	$	(120,840)	$	(3,576)	$	3,576	$	321,676

SEC Form 10-Q filed by Enerpac Tool Group Corp.