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Item 7. Management’s Discussion and Analysis

2024-05-29 compared with 2023-05-25 · 75 added, 103 removed, 112 unchanged (61% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

This section should be read in conjunction with our consolidated financial statements included in Item 8 of this Form 10-K.

This section should be read in conjunction with our consolidated financial statements included in Item 8, Financial Statements and Supplementary Data, of this Form 10-K.

EXECUTIVE OVERVIEW

The Company is a leading worldwide designer, manufacturer and marketer of intelligent motion solutions, including motion control products, technologies, automated systems and services, that efficiently and ergonomically move, lift, position and secure materials.

Our key products include hoists, crane components, precision conveyors, actuators, rigging tools, light rail workstations, and digital power and motion control systems.

These are highly relevant, professional-grade solutions that solve customers’ critical material handling requirements.

Columbus McKinnon Corporation ("Columbus McKinnon" or the "Company") is a leading worldwide designer, manufacturer and marketer of intelligent motion solutions that move the world forward and improve lives by efficiently and ergonomically moving, lifting, positioning and securing materials.

Key products include hoists, crane components, precision conveyor systems, rigging tools, light rail workstations and digital power and motion control systems.

These are highly relevant, professional-grade solutions that solve our customers’ critical material handling requirements.

Founded in 1875, we have grown to our current size and leadership position through organic growth and acquisitions.

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From a strategic perspective, we are investing in new products as we focus on our greatest opportunities for growth.

We maintain a strong North American market share with significant leading market positions in hoists, lifting and sling chain, forged attachments, actuators, and digital power and motion control systems for the material handling industry.

We seek to maintain and enhance our market share by focusing our sales and marketing activities toward select North American and global market sectors including general industrial, energy, automotive, heavy OEM, entertainment, and construction and infrastructure.

In fiscal 2022, the Company completed its acquisitions of Dorner and Garvey.

Dorner is a leading supplier to the stable life sciences, food processing, and consumer packaged goods markets as well as the high growth industrial automation and e-commerce sectors.

Garvey is a leading accumulation systems solutions company providing unique, patented systems for the automation of production processes whose products complement those of Dorner.

The acquisitions of Dorner and Garvey accelerate the Company’s shift to intelligent motion.

In April 2023, the Company announced that it had entered into a definitive agreement to acquire montratec GmbH ("montratec"), a leading automation solutions company that designs and develops intelligent automation and transport systems for interlinking industrial production and logistics processes.

montratec product offerings complement both Dorner and Garvey, and further the Company's shift to intelligent motion and serve as a platform to expand capabilities in advanced, higher technology automation solutions.

We maintain a strong North American market share with significant leading market positions in hoists, lifting and sling chain, forged attachments, actuators, precision conveyors and digital power and motion control systems for the material handling industry.

On May 31, 2023, the Company completed its acquisition of montratec GmbH ("montratec"), a leading automation solutions company that designs and develops intelligent automation and transport systems for interlinking industrial production and logistics processes.

montratec product offerings compliment the previous acquisitions of both Dorner and Garvey, and these acquisitions are collectively expected to accelerate the Company’s shift to intelligent motion solutions and serve as a platform to expand capabilities in advanced, higher technology automation solutions.

Regardless of the economic climate and point in the economic cycle, we constantly explore ways to increase operating margins as well as further improve our productivity and competitiveness.

We have specific initiatives to reduce quote lead-times, improve on-time deliveries, reduce warranty costs, and improve material and factory productivity.

We have specific initiatives to reduce lead-times, improve on-time deliveries, reduce warranty costs, and improve material and factory productivity.

The initiatives are being driven by the implementation of our business operating system, CMBS.

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Currently, as a result of global inflation, we are experiencing higher raw material costs and availability issues for select raw materials and components.

To date, we have raised prices to our customers

to cover these increased raw material costs and are working with our supply base to prioritize shipments and improve availability of key components.

To date, we have raised prices to our customers to cover these increased raw material costs and are working with our supply base to prioritize shipments and improve availability of key components.

We operate in a highly competitive and global business environment.

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Fiscal 2024 sales were $1,013,540,000, an increase of 8.3%, or $77,300,000 compared with fiscal 2023 sales of $936,240,000.

Sales for the fiscal year were positively impacted by $22,436,000 of incremental sales from the Garvey acquisition as well as price increases of $46,987,000.

Offsetting these increases were $9,154,000 in decreased sales volume and unfavorable foreign currency translation of $30,584,000.

Sales for the fiscal year were positively impacted by price increases of $33,837,000 as well as $32,584,000 of incremental sales from the montratec acquisition.

Offsetting these increases was $469,000 in decreased sales volume.

The translation of foreign currency had a favorable impact of $11,348,000.

Gross profit was $374,838,000 and $342,099,000 or 37.0% and 36.5% of net sales in fiscal 2024 and 2023, respectively.

The fiscal 2023 increase in gross profit of $26,369,000 or 8.4% is the result of the $22,614,000 of price increases net of material inflation, $9,521,000 in gross profit as a result of the acquisition of Garvey, $7,663,000 of prior year acquisition amortization for inventory step up, backlog and integration costs that did not reoccur, $2,850,000 from a prior year product liability settlement which did not reoccur, $1,606,000 of prior year business realignment costs that did not reoccur, $674,000 of decreased product liability costs, and $629,000 of decreased tariffs offset by $5,019,000 of decreased productivity net of other cost changes and $3,365,000 from lower sales volumes.

The translation of foreign currencies had a $10,804,000 unfavorable impact on gross profit for the year ended March 31, 2023.

Selling expenses were $102,528,000 and $99,187,000, or 11.0% and 10.9% of net sales in fiscal years 2023 and 2022.

Selling expense increased $2,417,000 as a result of the Garvey acquisition, $2,250,000 as the result of increased business realignment costs, and $2,744,000 from increased travel and trade show expenses.

Foreign currency translation had a $4,095,000 favorable impact on selling expenses.

The fiscal 2024 increase in gross profit of $32,739,000 or 9.6% is the result of the $28,987,000 of price increases net of material inflation, $13,828,000 in gross profit as a result of the acquisition of montratec, $946,000 due to favorable sales mix and $904,000 of decreased product liability costs offset by $12,087,000 of other manufacturing cost changes, $3,294,000 of start up costs for our new Monterrey, Mexico facility and $346,000 of current year business realignment costs.

The translation of foreign currencies had a $3,756,000 favorable impact on gross profit for the year ended March 31, 2024.

Selling expenses were $105,341,000 and $102,528,000, or 10.4% and 11.0% of net sales in fiscal years 2024 and 2023, respectively.

Selling expenses increased $6,426,000 as a result of the montratec acquisition offset by a decreases in net business realignment costs, which did not recur for $3,807,000, and lower employee costs of $1,157,000 as a result of the prior year business realignment.

Foreign currency translation had a $1,055,000 unfavorable impact on selling expenses.

General and administrative expenses were $106,760,000 and $94,794,000 or 10.5% and 10.1% of net sales in fiscal 2024 and 2023, respectively.

The decrease in general and administrative expenses was due to a net decrease of $8,960,000 in acquisition and deal integration costs and a decrease of $1,495,000 in stock-based compensation expense.

The decrease in stock-based compensation expense was the result of the performance condition not being fully met on the Company's fiscal 2021 performance shares.

Partially offsetting these decreases were $1,989,000 of higher general and administrative expenses incurred by the Garvey acquisition including the accrual of additional contingent consideration as discussed in Note 3 of the financial statements and $1,667,000 of higher net business realignment costs.

Foreign currency translation had a $2,220,000 favorable impact on general and administrative expenses for the year ended March 31, 2023.

The increase in general and administrative expenses was due to the acquisition of montratec which added $3,586,000 in expenses, net increases of $2,595,000 for acquisition and deal integration costs, an increase in stock-based compensation of $2,171,000, an increase of $1,596,000 for the new Monterrey, Mexico facility and an increase in net business realignment costs of $1,084,000.

These increases were offset by a $1,230,000 adjustment in the prior year for the Garvey acquisition contingent consideration which did not recur.

Foreign currency translation had a $711,000 unfavorable impact on general and administrative expenses for the year ended March 31, 2024.

Research and development expenses were $26,193,000 and $20,935,000 in fiscal 2024 and 2023, respectively.

As a percentage of consolidated net sales, research and development expenses were 2.2% and 1.7% in fiscal 2023 and 2022.

As a percentage of consolidated net sales, research and development expenses were 2.6% and 2.2% in fiscal 2024 and 2023, respectively.

The increase in research and development expenses was due to additional spending to achieve strategic goals related to new product development.

Amortization of intangibles were $26,001,000 and $25,283,000 in fiscal 2023 and 2022, respectively, with the increase related to new intangible assets recorded from the Garvey acquisition.

Amortization of intangibles were $29,396,000 and $26,001,000 in fiscal 2024 and 2023, respectively, with the increase related to amortization of new intangible assets acquired in the montratec acquisition.

Interest and debt expense was $37,957,000 and $27,942,000 in fiscal 2024 and 2023, respectively.

The increase is related to higher interest rates, as well as increased borrowings to finance the Garvey acquisition.

The Company incurred $14,803,000 in Cost of debt refinancing in 2022.

As described in Note 12 to our March 31, 2023 consolidated financial statements, this was a result of the Dorner acquisition and related refinancing during fiscal 2022.

There were no similar expenses incurred in fiscal 2023.

The increase is related to higher interest rates, as well as increased borrowings to finance the montratec acquisition.

Investment income of $1,759,000 and $315,000, in fiscal 2024 and 2023, respectively, related to earnings on marketable securities held in the Company’s wholly owned captive insurance subsidiary and the Company's equity method investment in EMC, described in Note 7 to our March 31, 2024 consolidated financial statements.

Foreign currency exchange resulted in a gain of $2,189,000 and a loss $1,574,000 in fiscal 2023 and 2022, respectively.

This favorable change was due to the recent strengthening of the Euro in comparison to the U.S.

Other income was $2,072,000 in fiscal 2023 and $1,122,000 in fiscal 2022.

As described in Note 13, the increase in Other income is primarily related to a tax indemnification reimbursement received from STAHL's former owners in accordance with the share purchase agreement.

Foreign currency exchange resulted in a loss of $1,826,000 and a gain $2,189,000 in fiscal 2024 and 2023, respectively.

This unfavorable change was due to the strengthening of the U.S.

Dollar in comparison to the Euro and other currencies where our businesses operates.

Other expense was $7,597,000 in fiscal 2024 and other income was $2,072,000 in fiscal 2023.

During fiscal 2024, the Company terminated both of its Canadian pension plans and began the process to terminate one of its U.S.

pension plans.

plan, lump sum payments were made to eligible participants who elected to receive them.

Both of these actions resulted in a settlement charge of $4,984,000.

Further as discussed in Note 17, the increase in expense is also related to an income tax refund which will be paid to the former owners of STAHL, as agreed to in a tax indemnification agreement, as it relates to a tax period prior to the acquisition date.

Income tax expense as a percentage of income from continuing operations before income tax expense was 24.2% and 35.0% in fiscal 2024 and 2023, respectively.

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state tax valuation allowance.

The valuation allowance primarily relates to changes in the Company’s expectations regarding its ability to more likely than not utilize certain state net operating losses prior to their expiration.

The valuation allowance primarily relates to changes in the Company’s expectations regarding its ability to more likely than not utilize certain U.S.

state net operating losses prior to their expiration.

The tax rate was also unfavorably affected by non-deductible compensation and U.S.

taxes on foreign earnings.

These increased the rate by 2 percentage points each.

taxes on foreign earnings, which increased the rate by 2 percentage points each.

LIQUIDITY AND CAPITAL RESOURCES

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In fiscal 2024, net income of $46,625,000 and non-cash adjustments to net income of $57,928,000 were the largest contributors.

Of the non-cash adjustments, $41,947,000 was depreciation and amortization and $10,425,000 was stock-based compensation.

Net working capital increases reduced operating cash flows by $12,092,000, which included an increase of $9,087,000 in inventories as the Company increased inventory due to continuing supply chain constraints and a $13,964,000 decrease in accounts payable as the Company purchased less inventory in the final month of fiscal 2023 compared to fiscal 2022.

This was partially offset by an increase in accrued liabilities of $9,150,000.

The increase in accrued liabilities is primarily related to an increase in customer down payments.

Of the non-cash adjustments, $45,945,000 was depreciation and amortization and $12,039,000 was stock-based compensation offset by $15,285,000 of deferred income taxes and related valuation allowance.

Net working capital increases reduced operating cash flows by $29,132,000, which included an increase of $14,428,000 in accounts receivable, a $9,583,000 decrease in accrued liabilities and an increase in prepaid expenses and other of $8,555,000.

This was partially offset by a decrease in trade payables of $4,748,000.

In addition, non-current liabilities decreased by $8,760,000.

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Net cash used for investing activities was $133,364,000 and $13,932,000 in fiscal 2024 and 2023, respectively.

In fiscal 2023, the most significant uses of cash in investing activities was $12,632,000 in capital expenditures and $1,616,000 related to a working capital adjustment for the Garvey acquisition described in Note 3 of the financial statements.

In fiscal 2024, the most significant uses of cash in investing activities was $108,145,000 of cash used for the purchase of montratec on May 31, 2023.

Additionally, the Company used $24,813,000 in capital expenditures.

Cash flow from financing activities

Net cash used for financing activities was $49,987,000 in fiscal 2023 compared to net cash provided by financing activities of $420,700,000 in fiscal 2022.

In fiscal 2023, the most significant uses of cash were $40,550,000 in the repayment of debt and $8,008,000 in dividend payments.

We believe that our cash on hand, cash flows, and borrowing capacity under our First Lien Facilities (as defined below) will be sufficient to fund our ongoing operations and debt obligations, and capital expenditures for at least the next twelve months.

Net cash provided by financing activities was $48,201,000 in fiscal 2024 compared to net cash used for financing activities of $49,987,000 in fiscal 2023.

The most significant source of cash was $120,000,000 in gross proceeds from the issuance of long-term debt, which was used to fund the montratec acquisition.

This was offset by $60,604,000 in debt repayments, $8,044,000 in dividend payments and $2,859,000 in fees paid to secure the new debt borrowings.

Associated cash flows from hedging activities are classified as financing activities in the Statement of Cash Flows, which resulted in a net cash inflow of $1,370,000.

We believe that our cash on hand, cash flows, and borrowing capacity under our Amended and Restated Credit Agreement will be sufficient to fund our ongoing operations and debt obligations, and capital expenditures for at least the next twelve months.

This belief is dependent upon successful execution of our current business plan and effective working capital utilization.

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subsidiaries.

Additionally, we expect to meet our U.S.

funding needs without repatriating non-U.S.

cash and incurring incremental U.S.

We expect to meet our funding needs with cash provided by our U.S.

operations, as well as by repatriating non-U.S.

We do not expect to incur significant incremental U.S.

taxes as we repatriate funds.

As of March 31, 2024, $64,103,000 of cash and cash equivalents were held by foreign subsidiaries.

As discussed in Note 3 of the financial statements, the Company announced in April 2023 that it entered into an agreement to acquire montratec.

The acquisition is expected to close on May 31, 2023.

To finance the montratec acquisition, the Company expanded its New Revolving Credit Facility by $75 million.

The Company has drawn on the expanded New Revolving Credit facility to initially fund the acquisition on May 31, 2023.

In addition, the Company plans to raise approximately $50 million in additional debt by June 30, 2023 through the securitization of certain of the Company's U.S.

customer accounts receivable balances.

The Company intends to use these proceeds to partially repay borrowings under its New Revolving Credit Facility.

Please refer to Note 3 of the financial statements for additional information related to the montratec acquisition.

CAPITAL EXPENDITURES

In addition to keeping our current equipment and plants properly maintained, we are committed to replacing, enhancing and upgrading our property, plant and equipment to support new product development, improve productivity and customer responsiveness, reduce production costs, increase flexibility to respond effectively to market fluctuations and changes, meet environmental requirements, enhance safety and promote ergonomically correct work stations.

responsiveness, reduce production costs, increase flexibility to respond effectively to market fluctuations and changes, meet environmental requirements, enhance safety and promote ergonomically correct work stations.

Our capital expenditures for fiscal 2024 and 2023 were $24,813,000 and $12,632,000, respectively.

This increase in capital expenditures during fiscal 2024 was related to the establishment of a machining center of excellence in Mexico.

Excluded from fiscal 2024 capital expenditures is $690,000 and $624,000, in property, plant and equipment purchases included in accounts payable at March 31, 2024 and 2023, respectively.

We expect capital expenditure spending in fiscal 2025 to range from $20,000,000 to $30,000,000.

The increase in expected capital expenditures is related to investments to create a machining center of excellence.

INFLATION AND OTHER MARKET CONDITIONS

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We test goodwill for impairment at least annually, as of the end of February, and more frequently whenever events occur or circumstances change that indicate there may be impairment.

These events or

circumstances could include a significant long-term adverse change in the business climate, poor indicators of operating performance, or a sale or disposition of a significant portion of a reporting unit.

These events or circumstances could include a significant long-term adverse change in the business climate, poor indicators of operating performance, or a sale or disposition of a significant portion of a reporting unit.

We test goodwill at the reporting unit level, which is one level below our operating segment.

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We also aggregate components that have similar economic characteristics into single reporting units (for example, similar products and / or services, similar long-term financial results, product processes, classes of customers, or in circumstances where the components share assets or other resources and have other economic interdependencies).

We have three reporting units, Duff-Norton, Rest of Products and Precision Conveyance, and have goodwill totaling $9,699,000, $306,988,000, and $327,942,000, respectively, at March 31, 2023.

The Precision Conveyance group was new in fiscal 2022 with the acquisitions of Dorner and Garvey (refer to Note 3).

We have three reporting units, Linear Motion Products (formerly referred to as Duff-Norton), Rest of Products and Precision Conveyance, and have goodwill totaling $9,699,000, $304,760,000, and 395,875,000, respectively, at March 31, 2024.

montratec, which was acquired in fiscal 2024 has been included in the Precision Conveyance reporting unit.

Annual Goodwill Impairment Test

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If, after completing this assessment, it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying value, we proceed to a quantitative impairment test.

We also proceed to the quantitative model when economic or other business factors indicate that the fair value of our reporting units may have declined since our last quantitative test.

We performed the qualitative assessment as of February 28, 2023 and determined the quantitative test should be performed for the Rest of Products, Precision Conveyance, and Duff Norton due to volatility in our stock price and changes in our business during fiscal 2023.

We also performed sensitivities and other analysis and determined that goodwill is not impaired as of March 31, 2023.

In order to perform the quantitative impairment tests for the Rest of Products, Precision Conveyance and Duff Norton reporting units, we use the discounted cash flow method to estimate fair value.

We also proceed to the quantitative model when economic or other business factors indicate that the fair value of our reporting units may have declined since our last quantitative impairment test.

We performed the qualitative assessment as of February 29, 2024 and determined the quantitative test should be performed for the Precision Conveyance reporting unit as the businesses in this reporting unit were recently acquired resulting in a relatively small difference between the reporting unit's book and fair value.

We performed sensitivities and other analysis and determined that goodwill is not impaired as of March 31, 2024 for the Precision Conveyance reporting unit.

The qualitative assessment as of February 29, 2024 for the Rest of Products and Linear Motion Products reporting units determined it was not more likely than not that the fair value of the reporting units were less than their applicable carrying value.

Accordingly, we did not perform the quantitative goodwill impairment test for the Rest of Products and Linear Motion Products reporting units during fiscal 2024.

Quantitative Test for the Precision Conveyance Group

In order to perform the quantitative impairment test for the Precision Conveyance reporting unit, we used the discounted cash flow method to estimate fair value.

The discounted cash flow method incorporates various assumptions, the most significant being projected revenue growth rates, EBITDA margins and cash flows, and the weighted-average cost of capital.

Management projects discounted cash flows based on each reporting unit’s current business, expected developments and operational strategies over a five to seven-year period.

Management projects discounted cash flows based on the reporting unit's current business, expected developments and operational strategies over a seven-year period.

In estimating the terminal growth rate, we consider our historical and projected results, as well as the economic environment in which the reporting unit operates.

The weighted-average cost of capital utilized for each reporting unit reflect management’s assumptions of marketplace participants’ cost of capital and risk assumptions, both specific to the reporting unit and overall in the economy.

Rest of Products Reporting Unit

Testing goodwill for impairment under the quantitative method described above requires us to estimate fair value of the reporting unit using significant estimates and judgmental factors.

The compound annual growth rate for revenue during the first seven years of our projections was approximately 6.73% for the Rest of Products reporting unit.

The terminal value was calculated assuming a projected growth rate of 3.0% after seven years.

These rates reflect our estimate of long-term growth into perpetuity and approximates the long-term gross domestic product growth expected on a global basis as well as our normal annual price increases.

The estimated weighted-average cost of capital for the reporting unit was determined to be 11.8% for the Rest of Products reporting unit.

This was estimated based upon an analysis of similar companies and their debt to equity mix, their related volatility and the size of their market capitalization.

We also consider any additional risk of the Rest of Products reporting unit achieving its forecast, and adjust the weighted-average cost of capital applied when determining the reporting unit’s estimated fair value.

Future changes in these estimates and assumptions could materially affect the results of our goodwill impairment tests.

For example, a decline in the terminal growth rate by 50 basis points would decrease fair market value by $15,100,000 and an increase in the weighted-average cost of capital by 50 basis points would result in a decrease in fair market value by $29,000,000 for the Rest of Products reporting unit.

Even with such changes, the fair value of the reporting unit would be greater than its net book value as of February 28, 2023, therefore indicating no impairment.

Precision Conveyance

The weighted-average cost of capital utilized for the reporting unit reflects management’s assumptions of marketplace participants’ cost of capital and risk assumptions, both specific to the reporting unit and overall in the economy.

Testing goodwill for impairment under the quantitative method described above requires us to estimate fair value of the reporting unit using significant estimates and judgmental factors.

The compound annual growth rate for revenue during the first seven years of our projections was approximately 13.0% for the Precision Conveyance reporting unit.

This reflects the higher expected growth rates on our conveyor business compared to our other businesses.

This reflects the higher expected growth rates on our precision conveyor business compared to our other businesses.

The terminal value was calculated assuming a projected growth rate of 3.0% after seven years.

These rates reflect our estimate of long-term growth into perpetuity and approximate the long-term gross domestic product growth expected on a global basis as well as our normal annual price

The estimated weighted-average cost of capital for the reporting units was determined to be 13.2% for the Precision Conveyance reporting unit.

These rates reflect our estimate of long-term growth into perpetuity and approximate the long-term gross domestic product growth expected on a global basis as well as our normal annual price increases.

The estimated weighted-average cost of capital was determined to be 13.2% for the Precision Conveyance reporting unit.

This was estimated based upon an analysis of similar companies and their debt to equity mix, their related volatility and the size of their market capitalization.

We also consider any additional risk of the Precision Conveyance reporting unit achieving its forecast, and adjust the weighted-average cost of capital applied when determining the reporting unit’s estimated fair value.

Future changes in these estimates and assumptions could materially affect the results of our goodwill impairment tests.

For example, a decline in the terminal growth rate by 50 basis points would decrease fair market value by $9,300,000 and an increase in the weighted-average cost of capital by 50 basis points would result in a decrease in fair market value by $16,600,000 for the Precision Conveyance reporting unit.

Even with such changes, the fair value of the reporting unit would be greater than its net book value as of February 28, 2023, therefore indicating no impairment.

Duff-Norton Reporting Unit

Testing goodwill for impairment under the quantitative method described above requires us to estimate fair value of the reporting unit using significant estimates and judgmental factors.

The compound annual growth rate for revenue during the first five years of our projections was approximately 9.14% for the Duff-Norton reporting unit.

The terminal value was calculated assuming a projected growth rate of 3.5% after five years.

The estimated weighted-average cost of capital for the reporting units was determined to be 10.4% for the Duff-Norton reporting unit.

This was estimated initially based on the Company's consolidated weighted-average cost of capital and increased for additional market risk.

We also consider any additional risk of the Duff-Norton reporting unit achieving its forecast, and adjust the weighted-average cost of capital applied when determining the reporting unit’s estimated fair value.

The quantitative test results indicate that the Precision Conveyance reporting unit is not impaired as its fair value exceeds its book value by 6%.

Future changes in these estimates and assumptions could materially affect the results of our goodwill impairment tests.

For example, a decline in the terminal growth rate by 50 basis points would decrease fair market value by $8,900,000 and an increase in the weighted-average cost of capital by 50 basis points would result in a decrease in fair market value by $12,200,000 for the Duff-Norton reporting unit.

For example, a decline in the terminal growth rate by 100 basis points would decrease fair market value by $24,800,000, an increase in the weighted-average cost of capital by 75 basis points would result in a decrease in fair market value by $33,500,000, and an annual decrease in gross profit of 200 basis points would result in a decrease in fair value of $23,100,000 for the Precision Conveyance reporting unit.

Even with such changes, the fair value of the reporting unit would be greater than its net book value as of February 29, 2024, therefore indicating no impairment.

We further test our indefinite-lived intangible asset balance of $46,338,000 consisting of trademarks for acquisitions prior to fiscal 2023 on an annual basis for impairment.

The methodology used to value trademarks is the relief from royalty method.

The recorded book value of these trademarks in excess of the calculated fair value results in impairment.

The key estimate used in this calculation consists of an overall royalty rate applied to the sales covered by the trademark.

After performing this analysis, we determined that the fair value of these trademarks exceeded their book values, and as such, no other impairment was recorded.

We further test our indefinite-lived intangible asset balance of $46,254,000 consisting of trademarks for acquisitions prior to fiscal 2024.

Similar to goodwill, we first assess various qualitative factors in the analysis.

If, after completing this assessment, it is determined that it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying value, we proceed to a quantitative impairment test.

We performed the qualitative assessment as of February 29, 2024 and determined that it was not more likely than not that the fair value of each of our indefinite-lived intangible assets was less than its applicable carrying value.

Effects of New Accounting Pronouncements

Information regarding the effects of new accounting pronouncements is included in Note 21 to the accompanying consolidated financial statements included in Item 8 of this Form 10-K.

Information regarding the effects of new accounting pronouncements is included in Note 21 to the accompanying consolidated financial statements included in Item 8, Financial Statements and Supplementary Data, of this Form 10-K.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis