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Item 1. Business

2021-10-25 compared with 2020-10-26 · 82 added, 46 removed, 81 unchanged (61% of the section changed)

Enerpac Tool Group Corp., formerly known as Actuant Corporation, is a premier industrial tools and services company serving a broad and diverse set of customers in more than 100 countries.

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.

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.

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The Company has two operating segments, Industrial Tools & Service ("IT&S") and Other, with IT&S being the only reportable segment.

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, energy and other markets.

Financial information related to the Company's reportable segment is included in Note 15, "Business Segment, Geographic and Customer Information" in the notes to the consolidated financial statements.

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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.We intend to leverage our strong brand, our market positions, and our dealer and distribution networks to generate organic core sales growth that exceeds end-market growth rates.

Organic growth is accomplished through a combination of market share capture and product innovation, as well as market expansion into emerging industries and geographic regions.

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 to offset cost increases, such as commodity and tariff increases and general inflation.

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.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.

Organic growth is accomplished 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.

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.

Strong cash flow generation is achieved 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, strategic acquisitions, paydown of debt and opportunistic common stock repurchases.

Strong cash flow generation is achieved by maximizing returns on assets and minimizing

primary working capital needs.

Description of Business Segments

Industrial Tools & Services Reportable Segment

IT&S is a global supplier of both products and services to a broad array of end markets, including infrastructure, industrial maintenance, repair, and operations, oil & gas, mining and alternative energy and construction markets.

Our primary products include branded tools, cylinders, hydraulic torque wrenches and highly engineered heavy lifting technology solutions.

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These tools operate at very high pressures of approximately 5,000 to 12,000 pounds per square inch.

With our products used in a wide variety of end markets, they are often deployed in harsh operating conditions, such as oil & gas production, machining and infrastructure maintenance and repair, where safety is a key differentiator.

With our products used in a wide variety of end markets, they are often deployed in harsh operating conditions, such as machining, infrastructure maintenance and repair, and oil & gas production, where safety is a key differentiator.

As a result, we hold ourselves to a world-class safety standard to protect both our employees and those using our products and services.

On the services side of the segment, our highly trained technicians provide maintenance and manpower services on oil & gas assets to meet customer-specific needs including bolting, machining, and joint integrity.

On the services side of the segment, our highly trained technicians provide maintenance and manpower services on customer assets to meet their specific needs including bolting, machining, and joint integrity.

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 OEM's and select end users.

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.

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The Other operating segment includes our Cortland U.S.

business, which primarily designs and manufactures high performance synthetic ropes and biomedical assemblies.

business, which primarily designs and manufactures high performance synthetic ropes and biomedical textiles.

The Other operating segment does not meet the quantitative or qualitative thresholds to be considered a reportable segment.

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Acquisitions and Divestitures

For a summary of recent acquisition and divestiture transactions impacting continuing operations, see footnote 2 to the table included in Item 6 Financial Data , as well as Note 4, "Acquisi tions" and Note 5, "Discontinued Operations and Other Divestiture Activities" in the notes to the consolidated financial statements.

For a summary of recent acquisition and divestiture transactions impacting continuing operations, see Note 4, "Acquisi tions" and 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 and Asia.

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 2021, we derived 36% of our net sales from the United States, 29% from Europe, 12% from the Middle East, 10% from Asia and 13% from other geographic areas.

We have operations around the world that allow us to draw on the skills of a global workforce, provide flexibility to our operations, allow us to drive economies of scale, provide revenue streams that may help offset economic trends that are specific to individual countries and offer us an opportunity to access new markets.

Although international operations are subject to certain risks, we continue to believe that a global presence is key to maintaining strong relationships with many of our global customers and suppliers.

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We believe that our engineering and research and development efforts have been, and continue to be, key drivers of our success in the marketplace.

Our advanced design and engineering capabilities contribute to the development of innovative and highly engineered products, maintain our technological leadership and enhance our ability to provide customers with unique and customized solutions and products.

Our advanced design and engineering capabilities contribute to the development of innovative and highly engineered products, maintain our technological leadership and enhance our ability to provide c ustomers with unique and customized solutions and products.

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 $7.3 million in fiscal 2020, a decrease of 22% from $9.3 million in fiscal 2019 and a decrease of 16% from $8.7 million in fiscal 2018.

R&D costs were $7.4 million in fiscal 2021, an increase of 1% from $7.3 million in fiscal 2020 and a decrease of 22% from $9.3 million in fiscal 2019.

We target a minimum of 10% of consolidated product sales annually to be from new product development as a result of our research and development activities.

The Company holds numerous patents and trademarks;

however, no individual patent or trademark is believed to be of such importance that its termination would have a material adverse effect on our business.

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.

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.

Although we face larger competitors in several served markets, some of our competition is comprised of smaller companies which may lack the global footprint or financial resources to serve global customers.

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.

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Manufacturing and Operations

While we do have extensive manufacturing capabilities including machining and fabrication, our manufacturing consists primarily of light assembly of components we source from a network of global suppliers.

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.

Components are built to our highly engineered specifications by a variety of suppliers, including those in low cost countries such as China and India.

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 most cases there are several qualified alternative sources.

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These items are typically available from multiple suppliers.

Raw materials that go into the components we source, such as steel, aluminum and plastic resin, 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 in recent years with manufacturing efficiencies, cost reductions and pricing actions.

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 to our customer base.

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 in recent years with pricing actions, manufacturing efficiencies and 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.

We continue to manage our supply chain to mitigate ongoing risks associated with the evolving political environments.

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We had order backlogs of $55 million and $31 million at August 31, 2021 and 2020, respectively.

The increase in our order backlog year over year was primarily due to higher order volumes, and to a lesser extent, logistical constraints as a result of the demand surge following the COVID-19 pandemic at the end of fiscal 2021.

Substantially all orders are expected to be filled within twelve months.

While we typically experience a stronger second half to our fiscal year, our consolidated sales are not subject to significant seasonal fluctuations.

Results for the year ended August 31, 2020 were not consistent with historical trends due to the impacts from the COVID-19 pandemic which negatively impacted our results of operations in the third and fourth quarter of fiscal 2020.

Results for the year ended August 31, 2020 were not consistent with historical trends due to the impacts from the COVID-19 pandemic which most negatively impacted our results of operations in the third and fourth quarter of fiscal 2020 and the first two quarters of fiscal 2021.

Percentages of Sales by Fiscal Quarter

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Quarter 4 (June - August) 27 % 22 %

At August 31, 2020, we had approximately 2,300 employees.

Our employees are not subject to collective bargaining agreements and we do not have any employees with government-mandated collective labor agreements other than certain industry agreements in the Netherlands and Spain.

We believe we have a good working relationship with our employees globally.

Environmental Matters

Our operations, like those of most industrial businesses, are subject to federal, state, local and foreign laws and regulations relating to the protection of the environment, including those regulating air and wastewater discharges, the storage and disposal of hazardous materials and the clean-up of soil and groundwater contamination.

We believe that we are in material compliance with applicable environmental regulations.

Compliance with these laws requires expenditures on an ongoing basis.

However, environmental expenditures over the last three years have not been material.

Soil and groundwater contamination has been identified at certain facilities that we operate or formerly owned or operated.

We are also a party to certain state and local environmental matters and have provided environmental indemnifications for certain divested businesses.

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.

The talent and skills of our workforce (approximately 2,100 employees) 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.

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.

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.

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.

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 maternity leave.

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.

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.

Consistent with this desire, we have enhanced or added several benefits for our U.S.

employees beginning in calendar 2022, including expanded paid parental leave, adoption assistance, medical coverage for fertility treatments and expanded short-term disability benefits for hourly employees.

Diversity, Equity, & Inclusion.

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 on a regular basis.

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.

Because of the strategic importance of DE&I, and to embed it into our strategy, DE&I initiatives are under the responsibility of our Chief Strategy Officer.

To date, as part of our strategy execution, we have engaged a third-party consulting firm to assist in execution on our priorities, created DE&I councils in our four operating regions, and formed the Women of Enerpac, our first employee resource group.

Our DE&I initiatives have strong ties into the broader organization to ensure we are successful in achieving our goals.

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 2021, our management executive committee was comprised of 20% female (1) and 20% racially diverse (1) individuals.

We believe that valuing diversity as part of our core strategy will provide great 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.

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.

Our health, safety, security, environment, and quality (“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.

At the heart of our HSSEQ efforts is a desire to foster a culture of continuous improvement and employee empowerment through training, frequent and constructive management engagement, a risk-based evaluation of business activities and behaviors, and the deployment of programs and

resources to mitigate those risks.

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.

COVID-19 Response:

Throughout fiscal 2021, our business and our employees experienced the effects of the COVID-19 pandemic, and we responded by implementing various polices and protocols to support the health and safety of our employees.

In addition to strictly following the recommendations of local and regional health authorities, for those employees who worked onsite, the Company provided necessary PPE, completed daily health assessments including temperature checks, extended paid leave benefits if self-quarantine was required according to our protocols, enhanced cleaning and sanitation practices at our facilities, and implemented social distancing policies.

For all other employees who could effectively do their jobs while not being in the office, we implemented broad work-from-home initiatives allowing for limited entry to the office where additional safety protocols were in place.

These and other COVID-19-related protocols were highly effective in maintaining a safe and productive environment for our global teams and ensured that we were able to support our customers’ needs throughout the pandemic.

Our global employee base continues to return to offices where that can be accomplished in a safe manner.

Executive Officers of the Registrant

The names, ages and positions of all of the executive officers of the Company as of October 15, 2020 are listed below.

The names, ages and positions of all of the executive officers of the Company as o f October 15, 2021 are listed below.

Name Age Position

Baker 57 President and Chief Executive Officer

Sternlieb 49 President and Chief Executive Officer

Dillon 50 Executive Vice President and Chief Financial Officer

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Jeffrey Schmaling 62 Executive Vice President and Chief Operating Officer

Baker, President, Chief Executive Officer.

Baker was appointed President and Chief Executive Officer of the Company in March 2016.

Paul Sternlieb, President, Chief Executive Officer, was appointed President and Chief Executive Officer of the Company in October 2021.

Prior to joining the Company, Mr.

Baker held multiple roles during a six-year tenure at Joy Global, including most recently as Chief Operating Officer.

Prior to Joy Global, Mr.

Baker was an executive with Case New Holland Inc., holding a variety of roles including President and CEO of its agricultural equipment business.

Baker also held diverse leadership roles in marketing, sales, product development and engineering at Komatsu America Corporation, Ingersoll-Rand and Sandvik Corporation.

Dillon, Executive Vice President and Chief Financial Officer, joined the Company in December 2016.

Sternlieb served as Executive Vice President 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 & 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.

Rick Dillon, Executive Vice President and Chief Financial Officer, joined the Company in December 2016.

Prior to joining the Company, Mr.

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Dillon served as Vice President-Business Planning and Analysis and Vice President-Controller and Chief Accounting Officer at Newell Brands, and Vice President-Controller and Chief Accounting Officer at Briggs & Stratton Corporation.

Bolens, Executive Vice President and Chief Strategy Officer, joined the Company in August 2018 as Vice President of Investor Relations and Corporate Strategy and was appointed Executive Vice President and Chief Strategy Officer in October 2019.

Barbara Bolens, Executive Vice President and Chief Strategy Officer, joined the Company in August 2018 as Vice President of Investor Relations and Corporate Strategy and was appointed Executive Vice President and Chief Strategy Officer in October 2019.

Prior to joining the Company, Ms.

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Prior to Komatsu, she held financial leadership positions of progressive responsibility at several other multinational corporations as well as early career leadership roles in sales and marketing.

Rasetti, Executive Vice President—General Counsel, Secretary and Global Human Resources, joined the Company in May 2018 from Boart Longyear where he held the position of Senior Vice President, General Counsel and Secretary since 2006.

Fabrizio Rasetti, Executive Vice President—General Counsel, Secretary and Global Human Resources, joined the Company in May 2018 from Boart Longyear where he held the position of Senior Vice President, General Counsel and Secretary since 2006.

For the ten years prior he worked at SPX Corporation in roles of increasing responsibility including Segment General Counsel & Vice President, Business Development, Flow Segment.

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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 1. Business