ENERPAC TOOL GROUP CORP 10-K

Item 8. Financial Statements and Supplementary Data Page INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Reports of Independent Registered Public Accounting Firm (Ernst & Young LLP: PCAOB ID 42 ) 29 Report of Independent Registered Public Accounting Firm (PricewaterhouseCoopers LLP: PCAOB ID 238 ) 32 Consolidated Statements of Earnings for the years ended August 31, 2022, 2021 and 2020 33 Consolidated Statements of Comprehensive (Loss) Income for the years ended August 31, 2022, 2021 and 2020 34 Consolidated Balance Sheets as of August 31, 2022 and 2021 35 Consolidated Statements of Cash Flows for the years ended August 31, 2022, 2021 and 2020 36 Consolidated Statements of Shareholders’ Equity for the years ended August 31, 2022, 2021 and 2020 37 Notes to consolidated financial statements 38 INDEX TO FINANCIAL STATEMENT SCHEDULE Schedule II—Valuation and Qualifying Accounts for the years ended August 31, 2022, 2021 and 2020 62 All other schedules are omitted because they are not applicable, not required or because the required information is included in the consolidated financial statements or notes thereto. 28 Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Enerpac Tool Group Corp. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Enerpac Tool Group and Subsidiaries (the Company) as of August 31, 2022 and August 31, 2021, the related consolidated statements of earnings, c omprehensive income (loss), shareholders’' equity and cash flows for the years ended August 31, 2022, and August 31, 2021 and the related notes and financial statement schedule listed in the Index at Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at August 31, 2022 and August 31, 2021, and the results of its operations and its cash flows for the years ended August 31, 2022, and August 31, 2021 , in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of August 31, 2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated October 25, 2022 expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates. 29 Valuation of Goodwill within the IT&S Segment Description of the Matter At August 31, 2022, the Company’s consolidated goodwill balance was $257.9 million. Goodwill associated with the IT&S segment was $246.7 million. As disclosed in Note 1 to the financial statements, Management tests goodwill for impairment annually during the fourth quarter, or more frequently if events or changes in circumstances indicate that goodwill might be impaired. In estimating fair value, management utilizes a discounted cash flow model, which is dependent on a number of assumptions, most significantly forecasted revenues and operating profit margins, and the weighted average cost of capital. Auditing management’s goodwill impairment test within the IT&S segment was complex and highly judgmental due to the significant estimation required to determine the fair value of certain reporting units. In particular, the fair value estimate was sensitive to significant assumptions over forecasted revenues, operating profit margins, and the weighted average cost of capital. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s goodwill impairment review process, including controls over management's review of the significant assumptions used to develop the fair value estimates and controls over the completeness and accuracy of the underlying data used in the valuation. To test the estimated fair value of the Company’s reporting units within the IT&S segment, we performed audit procedures that included, among others, assessing methodologies and testing the significant assumptions discussed above and the completeness and accuracy of the underlying data used by the Company in its analysis. We also involved our valuation specialists to review certain significant assumptions. We compared the significant assumptions used by management to current industry and economic trends. We assessed the historical accuracy of management’s estimates and performed sensitivity analyses of significant assumptions to evaluate the changes in the fair value of the reporting units that would result from changes in the assumptions. We reconciled the fair value of the reporting units in the IT&S segment to their carrying value and tested the Company’s determination of the assets and liabilities used within the reporting units that are the basis for the carrying value. In addition, we tested management’s reconciliation of the fair value of all the reporting units to the market capitalization of the Company and assessed the adequacy of the Company’s goodwill valuation disclosures. /s/ Ernst & Young LLP We have served as the Company’s auditor since 2020. Milwaukee, Wisconsin October 25, 2022 30 Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Enerpac Tool Group Corp. Opinion on Internal Control over Financial Reporting We have audited Enerpac Tool Group Corp. and Subsidiaries’ internal control over financial reporting as of August 31, 2022, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Enerpac Tool Group Corp. and Subsidiaries’ (the Company) maintained, in all material respects, effective internal control over financial reporting as of August 31, 2022, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of August 31, 2022 and August 31, 2021, the related consolidate d statements of earnings, c omprehensive income (loss), stockholders’ equity and cash flows for the years ended August 31, 2022, and August 31, 2021, and the related notes and financial statement schedule listed in the accompanying index and our report dated October 25, 2022 expressed an unqualified opinion thereon. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Ernst & Young LLP Milwaukee, Wisconsin October 25, 2022 31 Report of Independent Registered Public Accounting Firm To the Board of Directors and Shareholders of Enerpac Tool Group Corp. Opinion on the Financial Statements We have audited the consolidated statements of earnings, of comprehensive (loss) income, of shareholders’ equity and of cash flows of Enerpac Tool Group Corp. and its subsidiaries (the “Company”) for the year ended August 31, 2020, including the related notes and schedule of valuation and qualifying accounts for the year ended August 31, 2020 listed in the accompanying index (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the results of operations and cash flows of the Company for the year ended August 31, 2020 in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion. /s/ PricewaterhouseCoopers LLP Milwaukee, Wisconsin October 26, 2020 We served as the Company's auditor from 1997 to 2020. 32 ENERPAC TOOL GROUP CORP. CONSOLIDATED STATEMENTS OF EARNINGS (in thousands, except per share amounts) Year Ended August 31, 2022 2021 2020 Net sales Product $ 454,126 $ 411,888 $ 379,899 Service & rental 117,097 116,772 113,393 Total net sales 571,223 528,660 493,292 Cost of products sold Product 232,497 216,442 204,524 Service & rental 73,338 69,062 71,575 Total cost of products sold 305,835 285,504 276,099 Gross profit 265,388 243,156 217,193 Selling, general and administrative expenses 216,874 175,277 180,513 Amortization of intangible assets 7,306 8,176 8,323 Restructuring charges 8,135 2,392 7,335 Impairment & divestiture charges (benefit) 2,413 6,198 ( 3,159 ) Operating profit 30,660 51,113 24,181 Financing costs, net 4,386 5,266 19,218 Other expense (income), net 2,282 1,872 ( 2,886 ) Earnings before income tax expense 23,992 43,975 7,849 Income tax expense 4,401 3,763 2,292 Net earnings from continuing operations 19,591 40,212 5,557 Loss from discontinued operations, net of income taxes ( 3,905 ) ( 2,135 ) ( 4,834 ) Net earnings $ 15,686 $ 38,077 $ 723 Earnings per share from continuing operations Basic $ 0.33 $ 0.67 $ 0.09 Diluted $ 0.33 $ 0.67 $ 0.09 Loss per share from discontinued operations Basic $ ( 0.07 ) $ ( 0.04 ) $ ( 0.08 ) Diluted $ ( 0.07 ) $ ( 0.04 ) $ ( 0.08 ) Earnings per share Basic $ 0.26 $ 0.63 $ 0.01 Diluted $ 0.26 $ 0.63 $ 0.01 Weighted average common shares outstanding Basic 59,538 60,024 59,952 Diluted 59,909 60,403 60,269 The accompanying notes are an integral part of these consolidated financial statements. 33 ENERPAC TOOL GROUP CORP. CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (in thousands) Year Ended August 31, 2022 2021 2020 Net income $ 15,686 $ 38,077 $ 723 Other comprehensive (loss) income, net of tax Foreign currency translation adjustments ( 46,092 ) 5,910 23,224 Recognition of foreign currency translation losses from divested businesses — — 51,994 Pension, other postretirement benefit plans, and cash flow hedges 4,115 1,830 ( 603 ) Total other comprehensive (loss) income, net of tax ( 41,977 ) 7,740 74,615 Comprehensive (loss) income $ ( 26,291 ) $ 45,817 $ 75,338 The accompanying notes are an integral part of these consolidated financial statements. 34 ENERPAC TOOL GROUP CORP. CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share amounts) August 31, 2022 2021 A S S E T S Current assets Cash and cash equivalents $ 120,699 $ 140,352 Accounts receivable, net 106,747 103,233 Inventories, net 83,672 75,347 Other current assets 31,262 38,503 Total current assets 342,380 357,435 Property, plant and equipment, net 41,372 48,590 Goodwill 257,949 277,593 Other intangible assets, net 41,507 54,545 Other long-term assets 74,104 82,084 Total assets $ 757,312 $ 820,247 L I A B I L I T I E S A N D S H A R E H O L D E R S’ E Q U I T Y Current Liabilities Trade accounts payable $ 72,524 $ 61,958 Accrued compensation and benefits 21,390 21,597 Short-term debt 4,000 — Income taxes payable 4,594 5,674 Other current liabilities 50,680 45,535 Total current liabilities 153,188 134,764 Long-term debt, net 200,000 175,000 Deferred income taxes 7,355 4,397 Pension and postretirement benefit liabilities 11,941 17,783 Other long-term liabilities 66,217 76,105 Total liabilities 438,701 408,049 Commitments and contingencies (Note 17) Shareholders’ equity Class A common stock, $0.20 par value per share, authorized 168,000,000 shares, issued 83,397,458 and 83,021,654 shares, respectively 16,679 16,604 Additional paid-in capital 212,986 202,971 Treasury stock, at cost, 26,558,965 and 22,799,230 shares, respectively ( 742,844 ) ( 667,732 ) Retained earnings 966,751 953,339 Accumulated other comprehensive loss ( 134,961 ) ( 92,984 ) Stock held in trust ( 3,209 ) ( 3,067 ) Deferred compensation liability 3,209 3,067 Total shareholders' equity 318,611 412,198 Total liabilities and shareholders' equity $ 757,312 $ 820,247 The accompanying notes are an integral part of these consolidated financial statements. 35 ENERPAC TOOL GROUP CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Year Ended August 31, 2022 2021 2020 Operating Activities Net earnings $ 15,686 $ 38,077 $ 723 Less: Net loss from discontinued operations ( 3,905 ) ( 2,135 ) ( 4,834 ) Net earnings from continuing operations 19,591 40,212 5,557 Adjustments to reconcile net earnings from continuing operations to net cash provided by operating activities - continuing operations: Impairment & divestiture charges (benefit), net of tax effect 2,413 5,586 ( 2,506 ) Depreciation and amortization 19,600 21,611 20,720 Stock-based compensation expense 13,619 9,215 9,624 (Benefit) provision for deferred income taxes ( 5,291 ) 9,639 ( 7,819 ) Amortization of debt issuance costs 480 480 2,549 Provision for bad debts 13,856 — — Other non-cash (benefits) charges ( 344 ) ( 9,172 ) 1,204 Changes in components of working capital and other, excluding acquisitions and divestitures: Accounts receivable ( 23,753 ) ( 19,113 ) 44,749 Inventories ( 16,036 ) ( 5,857 ) 8,960 Trade accounts payable 9,658 16,695 ( 32,081 ) Prepaid expenses and other assets 12,545 ( 18,812 ) 7,828 Income tax accounts 4,022 ( 4,293 ) ( 7,306 ) Accrued compensation and benefits 1,267 3,631 ( 9,845 ) Other accrued liabilities 619 5,038 ( 23,635 ) Cash provided by operating activities - continuing operations 52,246 54,860 17,999 Cash used in operating activities - discontinued operations ( 510 ) ( 677 ) ( 21,158 ) Cash provided by (used in) operating activities 51,736 54,183 ( 3,159 ) Investing Activities Capital expenditures ( 8,417 ) ( 12,019 ) ( 12,053 ) Proceeds from sale of property, plant and equipment 1,176 22,409 708 Proceeds from company owned life insurance policies — 2,911 — Cash paid for business acquisitions, net of cash acquired — — ( 33,298 ) Proceeds from sale of business, net of transaction costs — — 10,226 Other investing activities — — ( 710 ) Cash (used in) provided by investing activities - continuing operations ( 7,241 ) 13,301 ( 35,127 ) Cash provided by investing activities - discontinued operations — — 211,200 Cash (used in) provided by investing activities ( 7,241 ) 13,301 176,073 Financing Activities Borrowings on revolving credit facility 85,000 10,000 395,000 Principal repayments on revolving credit facility ( 60,000 ) ( 90,000 ) ( 140,000 ) Swingline borrowings/repayments, net 4,000 — — Principal repayments on term loan — — ( 175,000 ) Redemption of 5.625% Senior Notes — — ( 287,559 ) Purchase of treasury shares ( 75,112 ) — ( 27,520 ) Stock options, taxes paid related to the net share settlement of equity awards & other ( 3,681 ) 128 ( 1,428 ) Payment of cash dividend ( 2,409 ) ( 2,394 ) ( 2,419 ) Cash used in financing activities - continuing operations ( 52,202 ) ( 82,266 ) ( 238,926 ) Cash provided by financing activities - discontinued operations — 750 — Cash used in financing activities ( 52,202 ) ( 81,516 ) ( 238,926 ) Effect of exchange rate changes on cash ( 11,946 ) 2,214 7,031 Net decrease in cash and cash equivalents ( 19,653 ) ( 11,818 ) ( 58,981 ) Cash and cash equivalents - beginning of period 140,352 152,170 211,151 Cash and cash equivalents - end of period $ 120,699 $ 140,352 $ 152,170 The accompanying notes are an integral part of these consolidated financial statements. 36 ENERPAC TOOL GROUP CORP. CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (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, 2019 81,919 $ 16,384 $ 181,213 $ ( 640,212 ) $ 915,466 $ ( 171,672 ) $ ( 3,070 ) $ 3,070 $ 301,179 Net earnings — — — — 723 — — — 723 Other comprehensive income, net of tax — — — — — 74,615 — — 74,615 Stock contribution to employee benefit plans and other 23 5 456 — — — — — 461 Vesting of equity awards 484 96 ( 96 ) — — — — — — Cash dividend ($0.04 per share) — — — — ( 2,391 ) — — — ( 2,391 ) Treasury stock repurchases — — — ( 27,520 ) — — — — ( 27,520 ) Stock based compensation expense — — 13,309 — — — — — 13,309 Stock option exercises 145 29 2,602 — — — — — 2,631 Tax effect related to net share settlement of equity awards — — ( 4,286 ) — — — — — ( 4,286 ) Stock issued to, acquired for and distributed from rabbi trust 23 5 294 — — — 508 ( 508 ) 299 Adoption of accounting standards — — — — 3,873 ( 3,667 ) — — 206 Balance at August 31, 2020 82,594 16,519 193,492 ( 667,732 ) 917,671 ( 100,724 ) ( 2,562 ) 2,562 359,226 Net earnings — — — — 38,077 — — — 38,077 Other comprehensive income, net of tax — — — — — 7,740 — — 7,740 Stock contribution to employee benefit plans and other 17 4 359 — — — — — 363 Vesting of equity awards 282 56 ( 56 ) — — — — — — Cash dividend ($0.04 per share) — — — — ( 2,409 ) — — — ( 2,409 ) Stock based compensation expense — — 9,215 — — — — — 9,215 Stock option exercises 104 20 2,188 — — — — — 2,208 Tax effect related to net share settlement of equity awards — — ( 2,445 ) — — — — — ( 2,445 ) Stock issued to, acquired for and distributed from rabbi trust 25 5 218 — — — ( 505 ) 505 223 Balance at August 31, 2021 83,022 16,604 202,971 ( 667,732 ) 953,339 ( 92,984 ) ( 3,067 ) 3,067 412,198 Net earnings — — — — 15,686 — — — 15,686 Other comprehensive loss, net of tax — — — — — ( 41,977 ) — — ( 41,977 ) Stock contribution to employee benefit plans and other 15 3 266 — — — — — 269 Vesting of equity awards 350 70 ( 70 ) — — — — — — Cash dividend ($0.04 per share) — — — — ( 2,274 ) — — — ( 2,274 ) Treasury stock repurchases — — — ( 75,112 ) — — — — ( 75,112 ) Stock based compensation expense — — 13,619 — — — — — 13,619 Tax effect related to net share settlement of equity awards — — ( 3,950 ) — — — — — ( 3,950 ) Stock issued to, acquired for and distributed from rabbi trust 10 2 150 — — — ( 142 ) 142 152 Balance at August 31, 2022 83,397 $ 16,679 $ 212,986 $ ( 742,844 ) $ 966,751 $ ( 134,961 ) $ ( 3,209 ) $ 3,209 $ 318,611 The accompanying notes are an integral part of these consolidated financial statements. 37 ENERPAC TOOL GROUP CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. Summary of Significant Accounting Policies Nature of Operations: Enerpac Tool Group Corp. (the “Company”), is a global manufacturer of a broad range of industrial products and solutions, organized into six operating segments. In accordance with generally accepted accounting principle in the United States ("US GAAP"), four of these operating segments have been aggregated into the Company's only reportable segment, the Industrial Tools & Services segment ("IT&S"). IT&S is primarily engaged in the design, manufacture and distribution of branded hydraulic and mechanical tools and in providing services and tool rental to the infrastructure, industrial maintenance, repair, and operations, oil & gas, mining, alternative and renewable energ y, and civil construction markets. Consolidation and Presentation: T he consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly owned. The results of companies acquired or disposed of during the year are included in the consolidated financial statements from the effective date of acquisition or until the date of divestiture. All intercompany balances, transactions and profits have been eliminated in consolidation. At August 31, 2019, the Company's former Engineered Components & Systems ("EC&S") segment was considered held for sale and was subsequently divested on October 31, 2019. As the divestiture represented a strategic shift in our operations, the results of the former segment through the date of divestiture and subsequent impacts to the financial results from retained liabilities are recorded in "Loss from discontinued operations, net of income taxes" within the Consolidated Statements of Earnings. Cash Equivalents: The Company considers all highly liquid investments with original maturities of 90 days or less to be cash equivalents. Inventories: Inventories are comprised of material, direct labor and manufacturing overhead. A majority of inventory is recorded on the first-in, first-out or average cost method and is stated at the lower of cost or net realizable value. A portion of U.S. owned inventory is determined using the last-in, first-out (“LIFO”) method ( 51.7 % and 48.4 % of total inventories as of August 31, 2022 and 2021, respectively). If the LIFO method were not used, inventory balances would be higher than reported amounts in the consolidated balance sheets by $ 19.0 million and $ 15.9 million at August 31, 2022 and 2021, respectively. The nature of the Company’s products is such that they generally have a very short production cycle. Consequently, the amount of work-in-process at any point in time is minimal. In addition, many parts or components are ultimately either sold individually or assembled with other parts making a distinction between raw materials and finished goods impractical to determine. Certain locations maintain and manage their inventories using a job cost system where the distinction of categories of inventory by state of completion is also not available. As a result of these factors, it is neither practical nor cost effective to segregate the amounts of raw materials, work-in-process or finished goods inventories at the respective balance sheet dates, as segregation would only be possible as the result of physical inventories which are taken at dates different from the balance sheet dates. Property, Plant and Equipment: Property, plant and equipment are stated at cost. Plant and equipment are depreciated on a straight-line basis over the estimated useful lives of the assets, ranging from ten to forty years for buildings and improvements and two to fifteen years for machinery and equipment. Equipment includes assets which are rented to customers of our IT&S segment. Leasehold improvements are amortized over the shorter of the life of the related asset or the term of the lease. Depreciation expense was $ 12.3 million, $ 13.4 million and $ 12.4 million for the years ended August 31, 2022, 2021 and 2020, respectively. The following is a summary of the Company's components of property, plant and equipment (in thousands): August 31, 2022 August 31, 2021 Land, buildings and improvements $ 14,121 $ 16,617 Machinery and equipment 141,571 145,541 Gross property, plant and equipment 155,692 162,158 Less: Accumulated depreciation ( 114,320 ) ( 113,568 ) Property, plant and equipment, net $ 41,372 $ 48,590 Leases: We determine if an arrangement contains a lease in whole or in part at the inception of the contract and identify classification of the lease as financing or operating. We account for the underlying operating lease asset at the individual lease level. Operating leases are recorded as operating lease right-of-use (“ROU”) assets in “Other long-term assets” and operating lease liabilities in “Other current liabilities” and “Other long-term liabilities” on the Consolidated Balance Sheets. All leases greater than 12 months result in recognition of a ROU asset and a liability at the lease commencement date and are recorded at the present value of the future minimum lease payments over the lease term. The lease term is equal to the initial term at commencement plus any renewal or extension options that the Company is reasonably certain will be exercised. ROU assets at the date of commencement are equal to the amount of the initial lease liability, the initial direct costs incurred by the 38 ENERPAC TOOL GROUP CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Company and any prepaid lease payments less any incentives received. Lease expense for operating leases is recognized on a straight-line basis over the lease term or remaining useful life. As most of our leases do not provide the information required to determine the implicit rate, we utilize a consolidated group incremental borrowing rate for all leases as the Company has centralized treasury operations. The incremental borrowing rate is derived through a combination of inputs such as the Company's credit rating, impact of collaborated borrowing capabilities and lease term. Leases with the duration of less than one-year are not recognized on the balance sheet and are expensed on a straight-line basis over the lease term. In addition, we do not separate lease components from non-lease components for all asset classes. Goodwill and Other Intangible Assets: G oodwill and other intangible assets with indefinite lives are not subject to amortization, but are subject to annual impairment testing. Other intangible assets with definite lives, consisting primarily of purchased customer relationships, patents, trademarks and tradenames, are amortized over periods from one to twenty-five years. The Company’s goodwill is tested for impairment annually, during the fourth quarter, or more frequently if events or changes in circumstances indicate that goodwill might be impaired. The Company performs impairment reviews for its reporting units using a fair value method based on management’s judgments and assumptions. In estimating the fair value, the Company utilizes a discounted cash flow model, which is dependent on a number of assumptions, most significantly forecasted revenues and operating profit margins, and the weighted average cost of capital, or a market value approach if appropriate information is available as of the goodwill impairment assessment date. The estimated fair value of the reporting unit is compared to the carrying amount of the reporting unit, including goodwill. If the carrying value of the reporting unit exceeds its fair value, an impairment loss is recorded and should not exceed the total amount of the goodwill allocated to the reporting unit. Indefinite-lived intangible assets are also subject to an annual impairment test. On an annual basis, or more frequently if events or changes in circumstances indicate that the asset might be impaired, the fair value of the indefinite-lived intangible assets are evaluated by the Company to determine if an impairment charge is required. A considerable amount of management judgment is required in performing impairment tests, principally in determining the fair value of each reporting unit and the indefinite-lived intangible assets. Product Warranty Costs : The Company generally offers its customers an assurance warranty on products sold, although warranty periods may vary by pr oduct type and application. The reserve for future warranty claims, which is recorded within the "Other current liabilities" line on the Consolidated Balance Sheets, is based on historical claim rates and current warranty cost experience. The following is a rollforward of the changes in product warranty reserves for fiscal years 2022 and 2021 (in thousands): 2022 2021 Beginning balance $ 1,300 $ 892 Provision for warranties 887 1,580 Warranty payments and costs incurred ( 911 ) ( 1,171 ) Impact of changes in foreign currency rates ( 136 ) ( 1 ) Ending balance $ 1,140 $ 1,300 Revenue from Contracts with Customers: The Company recognizes revenue when it satisfies a performance obligation in a contract by transferring control of a distinct good or service to a customer. A contract’s transaction price is allocated to each distinct performance obligation and revenue is measured based on the consideration that the Company expects to be entitled to in exchange for the goods or services transferred. When contracts include multiple products or services to be delivered to the customer, the consideration for each element is generally allocated on the standalone transaction prices of the separate performance obligations, using the adjusted market assessment approach. Under normal circumstances, the Company invoices the customer once transfer of control has occurred and has a right to payment. The typical payment terms vary based on the customer and the types of goods and services in the contract. The period of time between invoicing and when payment is due is not significant, as our standard payment terms are less than one year. Amounts billed and due from customers are classified as receivables on the Consolidated Balance Sheets. Customer sales are recorded net of allowances for returns and discounts, which are recognized as a deduction from sales at the time of sale. The Company commits to one-time or on-going trade discounts and promotions with customers that require the Company to estimate and accrue the ultimate costs of such programs. The Company generally does not require collateral or other security for receivables and provides for an allowance for doubtful accounts based on historical experience and a review of its existing receivables. Accounts receivable are stated net of an allowance for doubtful accounts of $ 17.5 million and $ 4.2 million at August 31, 2022 and 2021, respectively. Taxes Collected: Taxes collected by the Company from a customer concurrent with revenue-producing activities are excluded from "Net sales" within the Consolidated Statements of Earnings. 39 ENERPAC TOOL GROUP CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Shipping and Handling Costs: The Company records costs associated with shipping its products after control over a product has transferred to a customer and are accounted for as fulfillment costs. These costs are reported in the Consolidated Statements of Earnings in "Cost of products sold." Research and Development Costs: Research and development costs consist primarily of engineering and development resources and are expensed as incurred. Such costs incurred in the development of new products or significant improvements to existing products were $ 7.3 million, $ 7.4 million and $ 7.3 million in fiscal 2022, 2021 and 2020, respectively. The Company also incurs significant costs in connection with fulfilling custom orders and developing solutions for unique customer needs which are not included in these research and development expense totals. Other Income/Expense: Other income and expense primarily consists of net foreign currency exchange transaction losses of $ 1.5 million, $ 1.8 million and $ 2.6 million in fiscal 2022, 2021 and 2020, respectively. In addition, as a result of the EC&S divestiture and the transition services agreement entered into with the buyer, the Company recorded $4.9 million of other income from providing the agreed upon services in fiscal 2020. Financing Costs: Financing costs represent interest expense, financing fees and amortization of debt issuance costs, net of interest income. Interest income was $ 1.3 million, $ 0.7 million and $ 0.8 million for fiscal 2022, 2021 and 2020, respectively. Income Taxes: T he provision for income taxes includes federal, state, local and non-U.S. taxes on income. Tax credits, primarily for non-U.S. earnings, are recognized as a reduction of the provision for income taxes in the year in which they are available for U.S. tax purposes. Deferred taxes are provided on temporary differences between assets and liabilities for financial and tax reporting purposes as measured by enacted tax rates expected to apply when temporary differences are settled or realized. Future tax benefits are recognized to the extent that realization of those benefits is considered to be more likely than not. A valuation allowance is established for deferred tax assets for which realization is not more likely than not of being realized. The Company has not provided for any residual U.S. income taxes on unremitted earnings of non-U.S. subsidiaries, as such earnings are intended to be indefinitely reinvested to the extent the remittance does not result in an incremental U.S. tax liability. The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense and treats any taxes due on future U.S. inclusions in taxable income under the Global Intangible Low-Taxed Income ("GILTI") provision as a current period tax expense. Foreign Currency Translation: The financial statements of the Company’s foreign operations are translated into U.S. dollars using the exchange rate at each balance sheet date for assets and liabilities and an appropriate weighted average exchange rate for each applicable period within the Consolidated Statements of Earnings. Translation adjustments are reflected in the Consolidated Balance Sheets and Consolidated Statements of Shareholders' Equity caption “Accumulated other comprehensive loss.” Accumulated Other Comprehensive Loss: The following is a summary of the components included within accumulated other comprehensive loss (in thousands): August 31, 2022 2021 Foreign currency translation adjustments $ 116,078 $ 69,986 Pension and other postretirement benefit plans 18,883 22,998 Accumulated other comprehensive loss $ 134,961 $ 92,984 Use of Estimates: Th e preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. The Company regularly evaluates the estimates and assumptions related to the allowance for doubtful accounts, inventory valuation, warranty reserves, goodwill, intangible and long-lived asset valuations, employee benefit plan liabilities, over-time revenue recognition, income tax liabilities, deferred tax assets and related valuation allowances, uncertain tax positions, restructuring reserves, and litigation and other loss contingencies. The Company manages the profitability of its product and service & rental categories on a combined basis given the complexity of the business model. This model includes providing integrated product and service solutions resulting in facilities that generate revenues from both product and service & rental categories, which also have indirect and facility overhead costs included in cost of sales. As such, judgment and estimates are required to disaggregate product and service & rental cost of sales including allocating indirect and facility overhead costs between cost of product sales and the cost of service & rental sales. Changes in these judgments and estimates could materially change the allocation of the indirect and facility overhead costs to the different sales categories and the resulting ratio of cost of sales to net sales by category. Because the sales mix heavily favors the product category, a change in the mix of cost of sales between the sales categories would have a more significant impact on the ratio of cost of sales to net sales for the service & rental category. 40 ENERPAC TOOL GROUP CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Recently Adopted Accounting Pronouncements In December 2019, the Financial Accounting Standards Board ("FASB") issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in this update simplify the accounting for income taxes by removing certain exceptions and amending and clarifying existing guidance. The Company adopted this guidance on September 1, 2021. The adoption did not have a material effect on our consolidated financial statements. Recently Issued Accounting Pronouncements In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which amends ASC 805 to require an acquirer to, at the date of acquisition, recognize and measure contract assets and contract liabilities acquired in accordance with ASU 2014-9, Revenue from Contracts with Customers (Topic 606) as if the entity had originated the contracts. The guidance is effective for fiscal years beginning after December 15, 2022. The Company will adopt this guidance in the event of a business combination subsequent to the effective date of the guidance. In March 2020, the FASB issued ASU 2020-4, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for a limited time to ease the potential burden of accounting for reference rate reform on financial reporting. This guidance applies to contracts, hedging relationships and other transactions affected by the discontinuation of the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates. The guidance is effective beginning on March 12, 2020 through December 31, 2022. In January 2021, the FASB issued ASU 2021-01 allowing entities to apply certain aspects of ASC 848 (previously ASU 2020-4) to all derivative instruments that undergo a modification of the interest rate used for discounting, margining or contract price alignment as a result of the reference reform. The guidance is also effective through December 31, 2022. The Company has not utilized any of the optional expedients or exceptions available under this guidance. The Company will continue to assess whether this guidance is applicable throughout the effective period. 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 rope solutions 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 16, "Business Segment, Geographic and Customer Information" for information regarding our revenue disaggregation by reportable segment and product line. 41 ENERPAC TOOL GROUP CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The following table presents information regarding revenues disaggregated by the timing of when goods and services are transferred (in thousands): Year Ended August 31, 2022 2021 Revenues recognized at point in time $ 442,832 $ 396,457 Revenues recognized over time 128,391 132,203 Total $ 571,223 $ 528,660 Contract Balances The Company's contract assets and liabilities are as follows (in thousands): August 31, 2022 2021 Receivables, which are included in accounts receivable, net $ 106,747 $ 103,233 Contract assets, which are included in other current assets 2,397 8,551 Contract liabilities, which are included in other current liabilities 2,804 3,410 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 will not be collected in the future and records the appropriate provision. The allowance for doubtful accounts was $ 17.5 million and $ 4.2 million at August 31, 2022 and 2021, respectively. As indicated in the "Concentration of Credit Risk" section below, as of August 31, 2022, the Company was exposed to a concentration of credit risk with an agent as a result of its continued payment delinquency. During the year ended August 31, 2022, the Company recorded through bad debt expense (included in SG&A in the Condensed Consolidated Statements of Earnings) a reserve of $ 13.2 million based on the consideration of the factors listed below, which fully reserves for the outstanding account receivable balance for this agent. The allowance for doubtful accounts for this particular agent as of August 31, 2022 represents management's best estimate of the amount probable of collection and considers various factors with respect to this matter, including, but not limited to, (i) the lack of payment by the agent since the fiscal quarter ended February 28, 2021, (ii) our due diligence on balances due to the agent from its end customers related to sales of our services and products and the known markup on those sales from the agent to end customer, (iii) the status of ongoing negotiations with the agent to secure payments and (iv) legal recourse available to secure payment. 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 August 31, 2022 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 10.6 % of the Company's outstanding accounts receivable. 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 August 31, 2022, 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 the $ 2.8 million will be recognized in net sales from satisfying those performance obligations within the next twelve months with an immaterial amount recognized in periods thereafter. 42 ENERPAC TOOL GROUP CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 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 new transformation program focused on driving accelerated earnings growth and efficiency across the business with the goal of delivering an incremental $ 40 to $ 50 million of annual operating profit once fully implemented. 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 by better leveraging resources to create a more efficient and agile organization. The Company is implementing the program and anticipates investing approximately $ 60 to $ 65 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. Total program expenses were approximately $ 17 million for the year ended August 31, 2022, of which $ 14 million were recorded within SG&A expenses and were largely comprised of third party support costs and $ 3 million were recorded within restructuring expenses (see Note 4, "Restructuring Charges," below). 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. During fiscal 2019, the Company announced a restructuring plan focused on (i) the integration of the Enerpac and Hydratight businesses (IT&S segment), (ii) the strategic exit of certain commodity-type services in our North America Services operations (IT&S segment) and (iii) driving efficiencies within the overall corporate structure. In the third quarter of fiscal 2020, the Company announced the expansion and revision of this plan, which further simplified and flattened the corporate structure through elimination of redundancies between the segment and corporate functions, while enhancing our commercial and marketing processes to become even closer to our customers. Upon assessment of the Company's operating structure by the Company's new President & Chief Executive Officer (hired effective October 2021), the Company recorded $ 5.2 million of charges for the year ended August 31, 2022 in order to further simplify and streamline the organizational structure. Restructuring charges associated the fiscal 2019 plan were $ 2.1 million and $ 6.6 million for the year ended August 31, 2021 and 2020, respectively. The total cumulative charges for the 2019 plan, which ended in the third quarter of fiscal year 2022, were $ 18.0 million . 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 costs of this updated plan (which includes the amounts for the plan approved in June) are estimated at $ 10 to $ 15 million. These costs are expected to be incurred over the expected duration of the transformation program, ending in the fourth quarter of fiscal year 43 ENERPAC TOOL GROUP CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 2024. For the year ended August 31, 2022, the Company recorded $ 3.0 million of restructuring charges associated with the ASCEND transformation program. The following summarizes restructuring reserve activity (which for the year ended August 31, 2022 excludes $ 0.8 million and $ 0.5 million of charges associated with the 2019 Plan for IT&S and Corporate, respectively, associated with the accelerated vesting of equity awards which has no impact on the restructuring reserve) for the IT&S segment and Corporate (in thousands): Year Ended August 31, 2022 2019 Plan ASCEND Plan IT&S Corporate IT&S Corporate Balance as of August 31, 2021 $ 1,737 $ 26 $ — $ — Restructuring charges 2,812 1,052 2,228 824 Cash payments ( 4,212 ) ( 1,072 ) ( 220 ) ( 27 ) Impact of changes in foreign currency rates ( 125 ) — — — Balance as of August 31, 2022 $ 212 $ 6 $ 2,008 $ 797 Year Ended August 31, 2021 2019 Plan IT&S Corporate Balance as of August 31, 2020 $ 1,443 $ 267 Restructuring charges 2,096 9 Cash payments ( 1,791 ) ( 250 ) Impact of changes in foreign currency rates ( 11 ) — Balance as of August 31, 2021 $ 1,737 $ 26 Total restructuring charges (inclusive of the Other segment) being reported in "Restructuring charges" were $ 8.1 million and $ 2.4 million for the years ended August 31, 2022 and 2021, respectively. There was a restructuring benefit of less than $ 0.1 million related to the Other Segment in the year ended August 31, 2022 and restructuring charges of $ 0.3 million in the year ended August 31, 2021 . Restructuring reserves for the Other Segment were negligible for both the years ended August 31, 2022 and 2021. Note 5. Acquisitions On January 7, 2020 , the Company acquired 100% of the stock of HTL Group ("HTL"), a provider of controlled bolting products, calibration and repair services, and tool rental services. The acquisition of HTL provided the Company with a complete line of bolting products and enhanced our European rental capabilities. The Company acquired all of the assets and assumed certain liabilities of HTL for a final purchase price of $ 33.3 million. The final purchase price allocation resulted in $ 11.3 million of goodwill (which is not deductible for tax purposes), $ 16.1 million of intangible assets, and $ 6.7 million of property, plant and equipment. The intangible assets were comprised of $ 3.3 million of indefinite-lived tradenames, $ 12.1 million of amortizable customer relationships and $ 0.7 million of amortizable patents. The impact on the remaining balance sheet line items was not material. This acquisition generated net sales of $ 11.0 million, $ 13.6 million and $ 6.3 million for the year ended August 31, 2022, 2021 and 2020, respectively, which are reported within the IT&S reportable segment. This acquisition does not meet the significance tests to require pro forma financial information otherwise required for acquisitions. Note 6. Discontinued Operations and Other Divestiture Activities Discontinued Operations 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 EC&S segment to wholly owned subsidiaries of BRWS Parent LLC, a Delaware limited liability company and affiliate of One Rock Capital Partners II, LP, for a sales price of approximately $ 215.8 million, inclusive of $ 1.3 million of purchase price from the customary finalization of working capital negotiations. Approximately $ 3.0 million of the purchase price was to be paid in four equal quarterly installments after closing, of which $ 0.7 million was received in the year ended August 31, 2021 (this final payment was received greater than one year from the divestiture date and, as such, is reflected in "Cash provided by financing activities - discontinued operations" within 44 ENERPAC TOOL GROUP CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) the Consolidated Statements of Cash Flows). In connection with the completion of the sale and after consideration of working capital adjustments, the Company recorded, in fiscal 2020, a net loss of $ 4.7 million comprised of a loss of $ 23.0 million representing the excess of the net assets (exclusive of deferred tax assets and liabilities associated with subsidiaries of the Company whose stock was sold as part of the transaction) as compared to the purchase price less costs to sell and the recognition in earnings of the cumulative effect of foreign currency exchange gains and losses during the year largely offset by an income tax benefit of $ 18.3 million associated with the write off of the net deferred tax liability on subsidiaries of the EC&S segment for which the stock was divested. The Company also recognized in conjunction with the completion of the sale an additional $ 3.3 million of impairment & divestiture costs associated with the accelerated vesting of restricted stock awards associated with employees terminated as part of the transaction and $ 2.7 million of additional divestiture charges which were necessary to complete the transaction. The Company maintains financial exposure associated with this divestiture due to certain retained liabilities of which said activity is recorded in "loss from discontinued operations, net of income taxes" within the Consolidated Statements of Earnings for the periods subsequent to the divestiture. The following represents the detail of "Loss from discontinued operations, net of income taxes" within the Consolidated Statements of Earnings (in thousands): Year Ended August 31, 2022 2021 2020 * Net sales $ — $ — $ 67,010 Cost of products sold — — 49,749 Gross profit — — 17,261 Selling, general and administrative expenses 4,842 1,456 11,561 Restructuring benefit — — ( 11 ) Impairment & divestiture charges — — 28,972 Operating loss ( 4,842 ) ( 1,456 ) ( 23,261 ) Financing costs, net — — 14 Other income, net — — ( 104 ) Loss before income tax (benefit) expense ( 4,842 ) ( 1,456 ) ( 23,171 ) Income tax (benefit) expense ( 937 ) 679 ( 18,337 ) Net loss from discontinued operations $ ( 3,905 ) $ ( 2,135 ) $ ( 4,834 ) * "Loss from discontinued operations, net of income taxes" for the year ended August 31, 2020 presented in the table above includes the results of the EC&S segment for the two months ended October 31, 2019 (the divestiture date) as well as the ancillary impacts from certain retained liabilities subsequent to the divestiture. As a result of the classification of the segment as assets and liabilities held for sale for the two months ended October 31, 2019, the Company did not record amortization or depreciation expense in the results of operations in accordance with US GAAP. Furthermore, the Company excluded EC&S segment employees from the fiscal 2020 bonus compensation plan, accordingly there are no expenses associated with the plan for that period. Other Divestiture Activities On September 20, 2019 , the Company completed the sale of the UNI-LIFT product line, a component of our Milwaukee Cylinder business (IT&S segment), for net cash proceeds of $ 7.5 million (inclusive of the settlement of working capital adjustments and the buyer achieving certain criteria which met the requirement for payment of $ 1.5 million of contingent proceeds). The transaction resulted in an impairment & divestiture benefit of $ 6.3 million for the year ended August 31, 2020 recorded as an "Impairment & divestiture benefit" within the Consolidated Statements of Earnings. After the sale of the UNI-LIFT product line, the Company determined that the remaining Milwaukee Cylinder business was a non-core asset, did not align with the strategic objectives of the Company and, as a result, the Company committed to a plan to sell this business. The Company completed the divestiture of the Milwaukee Cylinder business on December 2, 2019 for a negligible amount. The Company recorded impairment & divestiture charges of $ 4.5 million for the year ended August 31, 2020 comprised of impairment charges of $ 2.5 million representing the excess of net assets held for sale compared to the anticipated proceeds less costs to sell, $ 1.7 million associated with our withdrawal from the multi-employer pension plan associated with that business and $ 0.3 million of other divestiture related charges and true-ups of retained liabilities. 45 ENERPAC TOOL GROUP CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The historical results of the Milwaukee Cylinder business, inclusive of the UNI-LIFT product line, (which had net sales of $ 2.9 million in the year ended August 31, 2020) are not material to the consolidated financial results. On October 22, 2019 , the Company completed the sale of the Connectors product line (IT&S segment) for net cash proceeds of $ 2.7 million, which resulted in an impairment & divestiture benefit of $ 1.0 million in the year ended August 31, 2020. The historical results of the Connectors product line (which had net sales of $ 0.2 million for the year ended August 31, 2020) are not material to the consolidated financial results. Note 7. 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 years ended August 31, 2022 and 2021 by operating segment are as follows (in thousands): IT&S Other Total Balance as of August 31, 2020 $ 263,537 $ 17,617 $ 281,154 Impairment charge — ( 5,656 ) ( 5,656 ) Impact of changes in foreign currency rates 1,550 545 2,095 Balance as of August 31, 2021 265,087 12,506 277,593 Impairment charge — ( 1,297 ) ( 1,297 ) Impact of changes in foreign currency rates ( 18,347 ) — ( 18,347 ) Balance as of August 31, 2022 $ 246,740 $ 11,209 $ 257,949 The gross carrying value and accumulated amortization of the Company’s intangible assets are as follows (in thousands): Weighted Average Amortization Period (Year) August 31, 2022 August 31, 2021 Gross Accumulated Amortization Net Book Value Gross Accumulated Amortization Net Book Value Amortizable intangible assets: Customer relationships 14 $ 135,101 $ 117,275 $ 17,826 $ 142,453 $ 114,463 $ 27,990 Patents 11 13,708 13,104 604 14,492 13,688 804 Trademarks and tradenames 12 3,132 2,329 803 3,307 2,391 916 Indefinite lived intangible assets: Tradenames N/A 22,274 — 22,274 24,835 — 24,835 $ 174,215 $ 132,708 $ 41,507 $ 185,087 $ 130,542 $ 54,545 The Company estimates that amortization expense for future years is estimated to be: $ 5.2 million in fiscal 2023, $ 3.6 million in fiscal 2024, $ 3.0 million in fiscal 2025, $ 1.8 million in fiscal 2026, $ 1.7 million in fiscal 2027 and $ 4.0 million in aggregate 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. Fiscal 2022 Impairment Charges The carryover effects from the COVID-19 pandemic coupled with current year labor, supply chain and inflation challenges had a more than anticipated effect on the Cortland Industrial business. Therefore, in conjunction with our annual goodwill impairment assessment , the Company recognized a $ 1.3 million goodwill impairment charge associated with the Cortland Industrial reporting unit (Other Segment) within "Impairment & divestiture charges (benefit)" in the Consolidated Statements of Earnings. In addition, during fiscal 2022, the Company recorded "Impairment & divestiture charges" of $ 1.1 million on indefinite lived intangible assets; $ 0.8 million was related to a customer relationship intangible asset whereby the Company ceased operations in the country associated with said customers and $ 0.3 million was related to tradename intangible asset on a discontinued secondary brand. Fiscal 2021 Impairment Charges In the fourth quarter of fiscal 2021, the Cortland Industrial business lagged behind our IT&S segment with respect to recovery in demand from the COVID-19 pandemic. Further, though volumes did increase from previous quarters, it became clear that the business was not on track to realize the annual savings from the prior years' footprint optimization actions at the 46 ENERPAC TOOL GROUP CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) pace initially projected. Therefore, in conjunction with our annual goodwill impairment assessment , the Company recognized a $ 5.7 million goodwill impairment charge associated with the Cortland Industrial reporting unit (Other Segment) within "Impairment & divestiture charges (benefit)" in the Consolidated Statements of Earnings. Note 8. Debt The following is a summary of the Company’s indebtedness (in thousands): August 31, 2022 2021 Short-term debt $ 4,000 $ — Senior Credit Facility Revolver 200,000 175,000 Total Debt $ 204,000 $ 175,000 Senior Credit Facility In March 2019, the Company entered into a senior credit facility (the "Senior Credit Facility") with a syndicate of banks, to among other things, (i) expand the multi-currency revolving line of credit from $ 300 million to $ 400 million, (ii) extend the maturity of the Company's Senior Credit Facility from May 2020 to March 2024 (no required principal payments prior to maturity) and (iii) modify certain other provisions of the credit agreement including a reduction in pricing. The Senior Credit Facility was initially comprised of a $ 400 million revolving line of credit and a $ 200 million term loan. At August 31, 2022, there were $ 200 million borrowings under the revolving line of credit and $ 190.8 million of available borrowing capacity under the revolving line of credit. Additionally, at August 31, 2022, there was $ 4 million borrowings against our Credit Facility swingline, which has been reflected as "Short-term debt" on the Consolidated Balance Sheets. The Senior Credit Facility provided the option for future expansion, subject to certain conditions, through a $ 300 million accordion and/or a $ 200 million incremental term loan. Borrowings under the Senior Credit Facility bore interest at a variable rate based on LIBOR or a base rate, ranging from 1.125 % to 2.00 % in the case of loans bearing interest at LIBOR and from 0.125 % to 1.00 % in the case of loans bearing interest at the base rate. In addition, a non-use fee was 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. The Senior Credit Facility contained two financial covenants which are a maximum leverage ratio of 3.75 :1 and a m inimum interest coverage ratio of 3.5 :1. The Senior Credit Facility provided for adjustments to the underlying ratios in connection with certain transaction, including an increase to the leverage ratio from 3.75 to 4.25 during the four fiscal quarters after a significant acquisition. The Company was in compliance with all financial covenants at August 31, 2022. Borrowings under the Senior Credit Facility were secured by substantially all personal property assets of the Company and its domestic subsidiary guarantors and certain equity interests owned by the foreign law pledgors. On September 9, 2022, the Company refinanced the 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. See Note 18, "Subsequent Event" in the notes to the consolidated financial statements for further details. Cash Paid for Interest The Company made cash interest payments of $ 3.1 million, $ 3.7 million and $ 18.7 million in fiscal 2022, 2021 and 2020, respectively. 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 August 31, 2022 and 2021 due to their short-term nature and the fact that the interest rates approximated market rates. Foreign currency exchange contracts and interest rate swaps are recorded at fair value. 47 ENERPAC TOOL GROUP CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The fair value of the Company's foreign currency exchange contracts was a net asset of less than $ 0.1 million at August 31, 2022 and a net liability of less than $ 0.1 million at August 31, 2021. The fair value of the foreign currency exchange contracts were based on quoted inactive market prices and therefore classified as Level 2 within the valuation hierarchy. As discussed in Note 5, "Acquisitions" , the Company acquired HTL Group in the year ended August 31, 2020 and recorded the assets acquired and liabilities assumed at fair value, of which the most significant judgments were associated with intangible assets (including tradenames, customer relationships and patents) and property, plant and equipment. As discussed in Note 7, “Goodwill, Intangible Assets and Long-Lived Assets” , the Company recorded impairments to goodwill in the years ended August 31, 2022 and 2021. The fair value of the goodwill, tradenames, customer relationships and patents acquired and/or impaired were determined utilizing generally accepted valuation techniques, specifically, forecasting future revenues and/or using a market royalty rate. The fair value of property, plant and equipment were also determined utilizing generally accepted valuation techniques, specifically utilizing an approach of assessing the replacement/reproduction cost of a new asset and adjusting for the asset's current physical deterioration. These valuations represent Level 3 assets measured at fair value on a nonrecurring basis. 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 (income) expense" in the Consolidated Statements of Earnings). The U.S. dollar equivalent notional value of these short duration foreign currency exchange contracts was $ 16.7 million and $ 16.0 million at August 31, 2022 and 2021, respectively. The fair value of outstanding foreign currency exchange contracts was an asset less than $ 0.1 million at August 31, 2022 and a liability of less than $ 0.1 million at August 31, 2021. Net foreign currency losses (included in "Other expense (income)" in the Consolidated Statements of Earnings) related to these derivative instruments are as follows (in thousands): Year Ended August 31, 2022 2021 2020 Foreign Currency losses $ ( 319 ) $ ( 63 ) $ ( 594 ) The Company was the fixed-rate payor on an interest rate swap contract that fixed the LIBOR-based index used to determine the interest rates charged on a total of $ 100.0 million of the Company's LIBOR-based variable rate borrowings on the revolving line of credit. The contract carried a fixed rate of 0.259 % and expired in August 2021. The swap agreement qualified as a hedging instrument and was designated as a cash flow hedge of forecasted LIBOR-based interest payments. The change in the fair value of the interest rate swap, a gain of $ 0.1 million in the year ended August 31, 2021 was recorded in other comprehensive income. Note 11. Leases As of August 31, 2022, the Company ha d operating leases for real estate, vehicles, manufacturing equipment, IT equipment and office equipment. The Company did not have significant finance leases during the year ended August 31, 2022 . Our leases typically range in term from 3 to 15 years and may contain renewal options for periods up to 5 years at our discretion. Our leases generally contain payments that are primarily fixed; however, certain lease arrangements contain variable payments, which are expensed as incurred and not included in the measurement of ROU assets and lease liabilities. These amounts include payments affected by changes in the Consumer Price Index and executory costs (such as real estate taxes, utilities and common-area maintenance), which are based on usage or performance. In addition, our leases generally do not include material residual value guarantees or material restrictive covenants. During the year ended August 31, 2021, the Company sold and subsequently leased back a portion of its manufacturing facility in China as part of a global footprint rationalization initiative. In connection with the transaction, the Company recognized a gain of $ 10.0 million. The gain is recorded in "Selling, general and administrative expenses" within the Consolidated Statements of Earnings and in "Other non-cash (benefits) charges" within the Consolidated Statements of Cash 48 ENERPAC TOOL GROUP CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Flows. The Company also incurred $ 4.6 million of closing related costs and value-added and land taxes associated with this transaction also included in "Selling, general and administrative expenses" within the Consolidated Statements of Earnings. The components of lease expense for the year ended August 31, 2022 and 2021 were as follows (in thousands): Year Ended August 31, 2022 2021 Lease Cost: Operating lease cost $ 14,316 $ 15,170 Short-term lease cost 1,714 1,611 Variable lease cost 3,609 3,086 Supplemental cash flow and other information related to leases for the year ended August 31, 2022 and 2021 were as follows (in thousands): Year Ended August 31, 2022 2021 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 14,166 $ 15,240 Right-of-use assets obtained in exchange for new lease liabilities: Operating leases 4,584 9,197 Supplemental balance sheet information related to leases at August 31, 2022 and 2021 were as follows (in thousands): August 31, 2022 August 31, 2021 Operating leases: Other long-term assets $ 43,273 $ 51,589 Other current liabilities 10,709 11,917 Other long-term liabilities 33,477 40,568 Total operating lease liabilities $ 44,186 $ 52,485 Weighted Average Remaining Lease Term: Operating leases 6.4 years 6.7 years Weighted Average Discount Rate: Operating leases 4.4 % 4.3 % A summary of the future minimum lease payments due under operating leases with terms of more than one year at August 31, 2022 is as follows (in thousands): Operating Leases 2023 $ 12,283 2024 10,273 2025 8,131 2026 5,531 2027 3,195 Thereafter 11,569 Total minimum lease payments 50,982 Less imputed interest ( 6,796 ) Present value of net minimum lease payments $ 44,186 49 ENERPAC TOOL GROUP CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Note 12. Employee Benefit Plans U.S. Defined Benefit Pension Plans All of the U.S. defined benefit pension plans are frozen, and as a result, plan participants no longer earn additional benefits. The following table provides detail of changes in the projected benefit obligations, the fair value of plan assets and the funded status of the Company’s U.S. defined benefit pension plans as of the respective August 31 measurement date (in thousands): 2022 2021 Reconciliation of benefit obligations: Benefit obligation at beginning of year $ 47,147 $ 49,640 Interest cost 1,165 1,156 Actuarial (gain) loss ( 8,197 ) ( 729 ) Benefits paid ( 2,980 ) ( 2,920 ) Benefit obligation at end of year $ 37,135 $ 47,147 Reconciliation of plan assets: Fair value of plan assets at beginning of year $ 39,696 $ 39,935 Actual return on plan assets ( 5,658 ) 1,990 Company contributions 108 691 Benefits paid from plan assets ( 2,980 ) ( 2,920 ) Fair value of plan assets at end of year 31,166 39,696 Funded status of the plans (underfunded) $ ( 5,969 ) $ ( 7,451 ) The following table provides detail on the Company’s domestic net periodic benefit expense (in thousands): Year ended August 31, 2022 2021 2020 Interest cost $ 1,165 $ 1,156 $ 1,331 Expected return on assets (2,060) (1,610) (1,770) Amortization of actuarial loss 1,219 1,322 1,212 Net periodic benefit expense $ 324 $ 868 $ 773 As of August 31, 2022 and 2021, $ 18.3 million and $ 19.5 million, respectively, of pension plan actuarial losses, which have not yet been recognized in net periodic benefit cost, were included in accumulated other comprehensive loss, net of income taxes. During fiscal 2023, $ 0.9 million of these actuarial losses are expected to be recognized in net periodic benefit cost. Weighted-average assumptions used to determine U.S. pension plan obligations as of August 31 and weighted-average assumptions used to determine net periodic benefit cost for the years ended August 31 are as follows: 2022 2021 2020 Assumptions for benefit obligations: Discount rate 4.75 % 2.55 % 2.40 % Assumptions for net periodic benefit cost: Discount rate 2.55 % 2.40 % 2.90 % Expected return on plan assets 5.45 % 4.20 % 4.60 % The Company's objective for its pension plan is to achieve an asset and liability duration match so that interim fluctuations in funded status should be limited by increasing the correlation between assets and liabilities. As such, the plan assets are invested to maintain funded ratios over the long term, while managing the risk that funded ratios fall meaningfully below 100%. In fiscal 2022, the plan assets were invested in a mix of 50 % duration-matched fixed income securities and 50 % equity securities. During fiscal 2021, the plan portfolio was invested in 70 % fixed income securities and 30 % equity securities. Cash balances are maintained at levels adequate to meet near-term plan expenses and benefit payments. Investment risk is measured and monitored on an ongoing basis. At August 31, 2022, the Company’s overall expected long-term rate of return for assets in U.S. pension plans was 5.70 %. The expected long-term rate of return is based on the portfolio as a whole and not on the sum of the returns on individual asset categories. The target return is based on historical returns adjusted to reflect the current view of the long-term investment market and our updated 50% investment mix between fixed income and equity securities. 50 ENERPAC TOOL GROUP CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The U.S. pension plan investment allocations by asset category were as follows (dollars in thousands): Year Ended August 31, 2022 % 2021 % Cash and cash equivalents $ — — % $ — — % Income receivable 31 0.1 49 0.1 Fixed income securities: U.S. Treasury Securities 4,852 15.6 4,825 12.2 Corporate Bonds — — — — Mutual funds 11,395 36.6 23,564 59.3 16,247 52.2 28,389 71.5 Equity securities: Mutual funds 14,888 47.7 11,258 28.4 Total plan assets $ 31,166 100.0 % $ 39,696 100.0 % The fair value of mutual funds are based on unadjusted quoted market prices and therefore are classified as Level 1 within the fair value hierarchy under US GAAP. U.S. Treasury Securities and Corporate Bonds are valued using Level 2 inputs, as defined in Note 9, “Fair Value Measurements.” Projected benefit payments from plan assets to participants in the Company’s U.S. pension plans are $ 3.0 million for fiscal 2023 and $ 3.1 million per year for each of the next four years and $ 14.1 million in aggregate for the following five years. The Company made a contribution of $ 0.1 million to the U.S. pension plans in September of fiscal 2022. The Company does not plan to make a contribution to the plan in fiscal 2023. Foreign Defined Benefit Pension Plans The Company has eight significant foreign defined benefit pension plans which cover certain existing and former employees of businesses outside the U.S. Most of the participants in the foreign defined benefit pension plans are inactive and no longer earning additional benefits. The following table provides detail of changes in the projected benefit obligations, the fair value of plan assets and the funded status of the Company’s significant foreign defined benefit pension plans as of the respective August 31 measurement date (in thousands): 2022 2021 Reconciliation of benefit obligations: Benefit obligation at beginning of year $ 14,421 $ 14,297 Employer service costs 90 116 Interest cost 159 198 Actuarial (gain)/loss ( 3,859 ) 51 Benefits paid ( 200 ) ( 293 ) Settlements ( 480 ) — Currency impact ( 2,114 ) 52 Benefit obligation at end of year $ 8,017 $ 14,421 Reconciliation of plan assets: Fair value of plan assets at beginning of year $ 9,396 $ 8,980 Actual return on plan assets ( 1,159 ) 532 Company contributions 44 56 Benefits paid from plan assets ( 680 ) ( 293 ) Currency impact ( 1,393 ) 121 Fair value of plan assets at end of year 6,208 9,396 Funded status of the plans (underfunded) $ ( 1,808 ) $ ( 5,025 ) 51 ENERPAC TOOL GROUP CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The following table provides detail on the Company’s foreign net periodic benefit expense (in thousands): Year ended August 31, 2022 2021 2020 Employer service costs $ 90 $ 116 $ 284 Interest cost 159 198 171 Expected return on assets (316) (347) (357) Amortization of net prior service credit 3 4 ( 18 ) Amortization of net loss 112 139 205 Settlement 145 — — Income of special events — — ( 728 ) Net periodic benefit expense (income) $ 193 $ 110 $ ( 443 ) The weighted average discount rate utilized for determining the benefit obligation at August 31, 2022 and 2021 was 3.6 % and 1.3 %, respectively. The plan assets of these foreign pension plans consist primarily of participating units in fixed income and equity securities and insurance contracts. The Company’s overall expected long-term rate of return on these investments is 3.9 %. During fiscal 2023, the Company does not anticipate contributing to these pension plans. In fiscal 2020, the Company moved certain employees in a foreign pension plan into a multi-employer pension plan which triggered a curtailment. The curtailment resulted in a reduction to the projected benefit obligation of that plan of $ 1.7 million, of which $ 0.7 million was recorded as a component of Other expense (income), net within the Consolidated Statements of Earnings and the remaining $ 1.0 million was recorded through Other comprehensive income on the Consolidated Statements of Comprehensive Income (Loss). Projected benefit payments to participants in the these foreign plans are $ 0.3 million in fiscal 2023, $ 0.2 million in each fiscal 2024, 2025 and 2026, $ 0.3 million in fiscal 2027 and $ 1.8 million in aggregate for the following five years. Other Postretirement Health Benefit Plans The Company provides other postretirement health benefits (“OPEB”) to certain existing and former employees of domestic businesses it acquired, who were entitled to such benefits prior to acquisition. These unfunded plans had a benefit obligation of $ 1.9 million and $ 2.3 million at August 31, 2022 and 2021, respectively. These obligations are determined utilizing assumptions consistent with those used for our U.S. pension plans and a health care cost trend rate of 6.3 %, trending downward to 5.0 % by the year 2026, and remaining level thereafter. Net periodic benefit costs for other postretirement benefits was income of $ 0.1 million, $ 0.2 million and $ 0.3 million for the year ended August 31, 2022, 2021 and 2020, respectively. Benefit payments from the plan are funded through participant contributions and Company contributions. Benefit payments are projected to be $ 0.2 million in fiscal 2023. Defined Contribution Benefit Plans The Company maintains a 40 1(k) plan for substantially all full time U.S. employees (the “401(k) Plan”). Under plan provisions, the Company can fund either cash or issue new shares of Class A common stock for its contributions. Amounts are allocated to accounts set aside for each employee’s retirement. Employees generally may contribute up to 50 % of their compensation to individual accounts within the 401(k) Plan. While contributions vary, the Company's match contribution is $ 0.50 for every $ 1 contributed by employees, up to 8 % of the employees' eligible pay. These match contributions are made on every payroll run, meaning the contribution is immediately 100% vested. In response to the COVID-19 pandemic, the Company temporarily suspended its 401(k) match in May 2020 (fiscal 2020) and reinstated the 401(k) match in January 2021 (fiscal 2021). In addition, the Company may make an annual, discretionary contribution of up to 3 % of employees' eligible pay to employees employed as of the end of the plan year. The discretionary contribution has a three-year vesting period. The Company elected not to provide a discretionary contribution for the year ended August 31, 2022. The Company also maintains a Restoration Plan that allows eligible highly compensated employees (as defined by the Internal Revenue Code) to receive a core contribution as if no IRS limits were in place. Company contributions to the Restoration Plan are made in the form of its Class A common stock and contributed into each eligible participant’s deferred compensation plan. The Company has not contributed in fiscal 2022, 2021 or fiscal 2020. Expense recognized related to the 401(k) plan totaled $ 2.2 million, $ 1.1 million and $ 1.4 million for the year ended August 31, 2022, 2021 and 2020, respectively. In addition to the 401(k) plan, the Company sponsors a non-qualified supplemental executive retirement plan (“the SERP Plan”). The SERP Plan is an unfunded defined contribution plan that covers certain current and former executive employees 52 ENERPAC TOOL GROUP CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) and has an annual contribution formula based on age and years of service (with Company contributions ranging from 3 % to 6 % of eligible wages). This unfunded plan had a $ 1.1 million and $ 1.3 million obligation at August 31, 2022 and 2021, respectively . Expense recognized for the SERP Plan was $ 0.2 million, $ 0.1 million and $ 0.3 million for fiscal 2022, 2021 and 2020, respectively. Deferred Compensation Plan The Company maintains a deferred compensation plan to allow eligible U.S. employees to defer receipt of current cash compensation and restricted stock units vesting in order to provide future savings benefits. Eligibility is limited to employees who earn compensation that exceeds certain pre-defined levels. Participants have the option to invest their deferrals in a fixed income investment, a defined set of mutual funds, and/or, with respect to deferrals of restricted stock units, in Company common stock. The fixed income and mutual fund portion of the plan is unfunded, and therefore all compensation deferred under the plan is held by the Company and commingled with its general assets. Liabilities of $ 12.9 million and $ 14.5 million are included in the Consolidated Balance Sheets at August 31, 2022 and 2021, respectively, to reflect the unfunded portion of the deferred compensation liability. The Company recorded expense in "Financing costs, net" of $ 0.7 million, $ 1.2 million and $ 1.1 million for the years ended August 31, 2022, 2021 and 2020, respectively, for the non-funded return on participant deferrals. Company common stock contributions to fund the plan are held in a rabbi trust, accounted for in a manner similar to treasury stock and are recorded at cost in “Stock held in trust” within shareholders’ equity on the Consolidated Balance Sheets with the corresponding deferred compensation liability also recorded within shareholders’ equity on the Consolidated Balance Sheets. Because no investment diversification is permitted within the trust, changes in fair value of Enerpac Tool Group common stock are not recognized. Note 13. Income Taxes Earnings (loss) before income taxes from continuing operations, are summarized as follows (in thousands): Year Ended August 31, 2022 2021 2020 Domestic $ 10,176 $ 1,292 $ ( 9,058 ) Foreign 13,816 42,683 16,907 $ 23,992 $ 43,975 $ 7,849 Both domestic and foreign pre-tax earnings from continuing operations are impacted by changes in operating earnings, acquisition and divestiture activities, restructuring charges and the related benefits, growth investments, debt levels and the impact of changes in foreign currency exchange rates. In fiscal 2022, domestic and foreign earnings included non-cash impairment and other divestiture charges of $ 1.3 million and $ 1.1 million, respectively. In fiscal 2021, domestic and foreign earnings included non-cash impairment and other divestiture charges of $ 4.7 million and $ 1.5 million, respectively. In fiscal 2020, domestic and foreign earnings included $( 2.6 ) million and $( 0.6 ) million of non-cash impairment and other divestiture benefits. Income tax expense from continuing operations is summarized as follows (in thousands): Year ended August 31, 2022 2021 2020 Currently payable: Federal $ 1,765 $ ( 18,243 ) $ ( 35 ) Foreign 7,824 12,441 10,004 State 164 539 142 9,753 ( 5,263 ) 10,111 Deferred: Federal 1,580 9,677 ( 7,791 ) Foreign ( 7,538 ) 185 ( 1,632 ) State 606 ( 836 ) 1,604 ( 5,352 ) 9,026 ( 7,819 ) Income tax expense $ 4,401 $ 3,763 $ 2,292 53 ENERPAC TOOL GROUP CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Income tax expense from continuing operations recognized in the accompanying consolidated statements of earnings differs from the amounts computed by applying the federal income tax rate to earnings from continuing operations before income tax expense. A reconciliation of income taxes at the federal statutory rate to the effective tax rate is summarized in the following table: Year ended August 31, 2022 2021 2020 Federal statutory rate 21.0 % 21.0 % 21.0 % State income taxes, net of Federal effect 2.3 ( 0.2 ) ( 0.6 ) Tax on foreign earnings (1) 1.3 2.8 38.7 Foreign derived intangible income deduction ( 4.5 ) ( 3.2 ) — Compensation adjustment 6.6 3.1 6.6 Impairment and other divestiture charges (2) 1.1 1.6 3.3 Valuation allowance additions and releases (3) 2.1 7.1 ( 8.1 ) Changes in liability for unrecognized tax benefits 3.4 ( 18.5 ) ( 5.3 ) U.S. legislative changes, net impact — ( 9.8 ) ( 32.5 ) Taxable liquidation of subsidiaries (4) ( 11.4 ) — 52.6 Foreign non-deductible expenses 8.5 1.2 7.4 Changes in tax rates ( 3.6 ) ( 3.4 ) ( 9.0 ) Audits and adjustments (5) ( 6.7 ) 8.0 ( 27.4 ) Research and development tax credit ( 2.5 ) ( 1.8 ) ( 11.5 ) Other items 0.7 0.7 ( 6.0 ) Effective income tax rate 18.3 % 8.6 % 29.2 % (1) The Company generated $ 1.3 million, $ 1.7 million and $ 5.4 million of withholding tax expense for fiscal 2022, 2021 and 2020, respectively, and $ 2.3 million, $ 4.6 million and $ 4.0 million of foreign-derived tax credits for fiscal 2022, 2021 and 2020, respectively. (2) Fiscal 2022, 2021 and 2020 pretax earnings include $ 2.4 million, $ 6.2 million and $( 3.2 ) million, respectively, in impairment & divestiture charges (benefits) related to goodwill, intangible assets, tangible assets and the cumulative effect of foreign currency rate changes of which $ 1.3 million, $ 3.5 million and $ 0.3 million, respectively, are not deductible for income tax purposes. (3) Incremental valuation allowances of $ 0.9 million and $ 4.9 million and $ 9.4 million were recorded in fiscal 2022, 2021 and 2020, respectively, due to uncertainty regarding realization of tax assets, which were offset by a reduction of $ 5.5 million, $ 9.1 million and $ 12.3 million of valuation allowances for fiscal 2022, 2021 and 2020, respectively. (4) During fiscal 2022 and 2020, the Company generated a net benefit of $ 2.7 million and a net expense of $ 4.1 million, respectively, as a result of taxable liquidations of subsidiaries. (5) During fiscal 2022, the Company generated $ 1.6 million of tax benefit related to audits and adjustments as compared to a tax expense of $ 3.5 million in fiscal 2021 and a tax benefit of $ 2.2 million in fiscal 2020. 54 ENERPAC TOOL GROUP CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Temporary differences and carryforwards that gave rise to deferred tax assets and liabilities include the following items (in thousands): August 31, 2022 2021 Deferred income tax assets: Operating loss and tax credit carryforwards $ 78,717 $ 77,691 Compensation related liabilities 6,002 6,110 Postretirement benefits 5,995 8,364 Inventory 2,780 3,177 Lease liabilities 9,637 11,609 Book reserves and other items 9,873 11,471 Total deferred income tax assets 113,004 118,422 Valuation allowance ( 61,630 ) ( 66,155 ) Net deferred income tax assets 51,374 52,267 Deferred income tax liabilities: Depreciation and amortization ( 30,149 ) ( 29,444 ) Lease assets ( 9,637 ) ( 11,609 ) Other items ( 1,024 ) ( 781 ) Deferred income tax liabilities ( 40,810 ) ( 41,834 ) Net deferred income tax asset (1) $ 10,564 $ 10,433 (1) The net deferred income tax asset is reflected on the balance sheet in two categories: an asset of $ 17.9 million and $ 14.8 million for fiscal 2022 and 2021, respectively, is included in "Other long-term assets" and a liability of $ 7.3 million and $ 4.4 million for fiscal 2022 and 2021, respectively, is included in "Deferred income taxes". The Company has $ 72.7 million and $ 2.5 million of gross state net operating loss and credit carryforwards, respectively, which are available to reduce future state tax liabilities. These state net operating loss carryforwards expire at various times through 2041. The Company also has $ 93.4 million and $ 6.7 million of foreign loss and credit carryforwards, respectively, and $ 2.5 million of U.S. credit carryforwards which are available to reduce certain future foreign and U.S. tax liabilities. Over half of the foreign loss carryforwards are not subject to any expiration dates, while the other balances expire at various ti mes through 2032. The U.S. credit carryforwards expire at various times through 2032. The valuation allowance represents a reserve for deferred tax assets, including loss carryforwards and foreign tax credits, for which utilization is uncertain. The Company’s policy is to remit earnings from foreign subsidiaries only to the extent the remittance does not result in an incremental U.S. tax liability. The Company does not currently provide for the additional U.S. and foreign income taxes which would become payable upon remission of undistributed earnings of foreign subsidiaries. If all undistributed earnings were remitted, an additional income tax provision of $ 3.5 million would have been necessary as of August 31, 2022. Changes in the Company’s gross liability for unrecognized tax benefits, excluding interest and penalties, are as follows (in thousands): 2022 2021 2020 Beginning balance $ 15,658 $ 23,205 $ 24,167 Increases based on tax positions related to the current year 433 381 869 Increase for tax positions taken in a prior period 1,084 7 304 Decrease for tax positions taken in a prior period ( 57 ) — — Decrease due to lapse of statute of limitations ( 1,271 ) ( 7,931 ) ( 2,334 ) Decrease due to settlements ( 31 ) — — Changes in foreign currency exchange rates ( 436 ) ( 4 ) 199 Ending balance $ 15,380 $ 15,658 $ 23,205 Substantially all of these unrecognized tax benefits, if recognized, would impact the effective income tax rate. As of August 31, 2022, 2021 and 2020, the Company recognized $ 4.5 million, $ 3.9 million and $ 4.5 million, respectively, for interest and penalties related to unrecognized tax benefits. The Company recognizes interest and penalties related to underpayment of income taxes as a component of income tax expense. With few exceptions, the Company is no longer subject to U.S. federal, state and foreign income tax examinations by tax authorities in major tax jurisdictions for years prior to fiscal 2010. The 55 ENERPAC TOOL GROUP CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Company believes it is reasonably possible that the total amount of unrecognized tax benefits could decrease by up to $ 2.2 million throughout fiscal 2023. Cash paid for income taxes, net of refunds, totaled $ 5.7 million, $ 7.8 million and $ 13.2 million during the years ended August 31, 2022, 2021 and 2020, respectively. Note 14. Capital Stock and Share Repurchases The authorized common stock of the Company as of August 31, 2022 consisted of 168,000,000 shares of Class A common stock, $ 0.20 par value, of which 83,397,458 and 56,838,493 shares were issued and outstanding, respectively; 1,500,000 shares of Class B common stock, $ 0.20 par value, none of which are outstanding; and 160,000 shares of cumulative preferred stock, $ 1.00 par value (“preferred stock”), none of which have been issued. Holders of both classes of the Company’s common stock are entitled to dividends, as the Company’s Board of Directors may declare out of funds legally available, subject to any contractual restrictions on the payment of dividends or other distributions on the common stock. If the Company were to issue any of its preferred stock, no dividends could be paid or set apart on shares of common stock, unless paid in common stock, until dividends on all of the issued and outstanding shares of preferred stock had been paid or set apart for payment and provision had been made for any mandatory sinking fund payments. The Company's Board of Directors approved four separate authorizations (September 2011, March 2014, October 2014 and March 2015) to repurchase up to 7,000,000 shares each of the Company’s outstanding common stock. The Company suspended the initial share repurchase program in response to the COVID-19 pandemic in the third quarter of fiscal 2020 and, accordingly, did not repurchase shares during the year ended August 31, 2021. 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 has repurchased 3,759,735 shares for $ 75.1 million during the year ended August 31, 2022. As of August 31, 2022, the maximum number of shares that may yet be purchased under this new program is 6,240,265 . Since the inception of the initial share repurchase program in fiscal 2012, the Company has repurchased 26,558,965 shares of common stock for $ 742.8 million. 56 ENERPAC TOOL GROUP CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Earnings Per Share The reconciliation between basic and diluted earnings per share is as follows (in thousands, except per share amounts): Year Ended August 31, 2022 2021 2020 Numerator: Net earnings from continuing operations $ 19,591 $ 40,212 $ 5,557 Net loss from discontinued operations ( 3,905 ) ( 2,135 ) ( 4,834 ) Net earnings $ 15,686 $ 38,077 $ 723 Denominator: Weighted average common shares outstanding - basic 59,538 60,024 59,952 Net effect of dilutive securities - stock based compensation plans 371 379 317 Weighted average common shares outstanding - diluted 59,909 60,403 60,269 Earnings per common share from continuing operations: Basic $ 0.33 $ 0.67 $ 0.09 Diluted $ 0.33 $ 0.67 $ 0.09 Loss per common share from discontinued operations: Basic $ ( 0.07 ) $ ( 0.04 ) $ ( 0.08 ) Diluted $ ( 0.07 ) $ ( 0.04 ) $ ( 0.08 ) Earnings per common share: Basic $ 0.26 $ 0.63 $ 0.01 Diluted $ 0.26 $ 0.63 $ 0.01 Anti-dilutive securities- stock based compensation plans (excluded from earnings per share calculation) 946 880 1,532 Note 15. Stock Plans Share based awards may be granted to key employees and directors under the Enerpac Tool Group Corp. 2017 Omnibus Incentive Plan (as amended and restated November 9, 2020) (the “Plan”). At August 31, 2022, 7,825,000 shares of Class A common stock were authorized for issuance under the Plan (including 3,500,000 shares that were authorized for issuance at the January 2021 annual meeting) plus an additional 1,800,000 shares being registered to cover shares, if any, that become issuable, pursuant to the terms of the Plan, upon the expiration, cancellation or forfeiture of existing awards under our previously registered stock plans. At August 31, 2022, 3,569,579 shares were available for future award grants. The Plan permits the Company to grant share-based awards, including stock options, restricted stock, restri cted stock units and performance shares (the "Performance Shares") to employees and directors. Options generally have a maximum term of ten years , an exercise price equal to 100 % of the fair market value of the Company’s common stock at the date of grant and generally vest 50 % after three years and 100 % after five years. The Company’s restricted stock grants prior to 2017 generally have similar vesting provisions as options, while grants thereafter generally vest in equal installments over a three-year period. The Performance Shares include a three -year performance period. For Performance Shares issued prior to the year ended August 31, 2021, the awards were based 50 % on achievement of an absolute free cash flow conversion target and 50 % on the Company’s total shareholder return ("TSR") relative to the S&P 600 SmallCap Industrial index. For the year ended August 31, 2021, all Performance Shares issued were based on the relative TSR metric. For the year ended August 31, 2022, the awards were based 50 % on the relative TSR metric and 50 % on the Company's three-year average return on invested capital. The provisions of share-based awards may vary by individual grant with respect to vesting period, dividend and voting rights, performance conditions and forfeitures. 57 ENERPAC TOOL GROUP CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) A summary of restricted stock units and performance shares activity during fiscal 2022 is as follows: Number of Shares Weighted-Average Fair Value at Grant Date (Per Share) Outstanding on August 31, 2021 1,017,658 $ 23.27 Granted 896,217 19.39 Forfeited ( 263,234 ) 22.09 Vested ( 552,615 ) 22.34 Outstanding on August 31, 2022 1,098,026 $ 20.73 A summary of stock option activity during fiscal 2022 is as follows: Shares Weighted-Average Exercise Price (Per Share) Weighted-Average Remaining Contractual Term Aggregate Intrinsic Value Outstanding on September 1, 2021 989,468 $ 26.69 Granted — — Exercised — — Forfeited — — Expired ( 41,661 ) 22.90 Outstanding on August 31, 2022 947,807 $ 26.85 2.3 $ — Exercisable on August 31, 2022 947,807 $ 26.85 2.3 $ — Intrinsic value is the difference between the market value of the stock at August 31, 2022 and the exercise price which is aggregated for all options outstanding and exercisable. A summary of the total intrinsic value of options exercised and cash receipts from options exercised is summarized below (in thousands, except per share amounts) : Year Ended August 31, 2022 2021 2020 Intrinsic value of options exercised $ — $ 587 $ 803 Cash receipts from exercise of options — 2,208 2,631 The Company generally records compensation expense over the vesting period for restricted stock unit awards based on the market value of the Company's Class A common stock on the grant date and utilized an expected forfeiture rate of 12 % for both the years ended for the years ended August 31, 2022 and 2021 and 8 % for the year ended August 31, 2020. The fair value of Performance Shares with market vesting conditions is determined utilizing a Monte Carlo simulation model. As of August 31, 2022, there was $ 10.6 million of total unrecognized compensation cost related to share-based awards, including stock options, restricted stock, restricted stock units and performance shares, which will be recognized over a weighted average period of 1.9 years. The total fair value of share-based awards that vested during the fiscal years ended August 31, 2022 and 2021 was $ 11.8 million and $ 9.7 million, respectively. Note 16. Business Segment, Geographic and Customer Information The Company is a global manufacturer of a broad range of industrial products and solutions. The IT&S reportable segment is primarily engaged in the design, manufacture and distribution of branded hydraulic and mechanical tools and in providing services and tool rental to the infrastructure, industrial maintenance, repair and operations, oil & gas, mining, alternative and renewable energy, civil construction and other markets. The Other segment is included for purposes of reconciliation of the respective balances below to the consolidated financial statements. 58 ENERPAC TOOL GROUP CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The following tables summarize financial information by reportable segment and product line (in thousands): Year Ended August 31, 2022 2021 2020 Net Sales by Reportable Segment & Product Line IT&S Segment Product $ 410,245 $ 376,353 $ 341,470 Service & Rental 117,097 116,772 113,393 527,342 493,125 454,863 Other Segment 43,881 35,535 38,429 $ 571,223 $ 528,660 $ 493,292 Operating Profit (Loss) IT&S $ 78,735 $ 81,683 $ 65,549 Other Segment 729 ( 10,420 ) ( 3,420 ) General Corporate ( 48,804 ) ( 20,150 ) ( 37,948 ) $ 30,660 $ 51,113 $ 24,181 Depreciation and Amortization: IT&S $ 14,498 $ 15,856 $ 14,854 Other Segment 3,664 3,568 3,620 General Corporate 1,438 2,187 2,246 $ 19,600 $ 21,611 $ 20,720 Capital Expenditures: IT&S $ 7,139 $ 10,918 $ 7,282 Other Segment 710 768 2,625 General Corporate 568 333 2,146 $ 8,417 $ 12,019 $ 12,053 August 31, 2022 2021 Assets: IT&S $ 618,412 $ 641,256 Other Segment 46,428 52,745 General Corporate 92,472 126,246 $ 757,312 $ 820,247 In addition to the impact of changes in foreign currency exchange rates, the comparability of segment and product line information is impacted by acquisition/divestiture activities, impairment and divestiture charges, restructuring costs and related benefits. Corporate assets, which are not allocated, principally represent cash and cash equivalents, property, plant, and equipment, ROU assets, capitalized debt issuance costs and deferred income taxes. 59 ENERPAC TOOL GROUP CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The following tables summarize net sales and property, plant and equipment by geographic region (in thousands): Year Ended August 31, 2022 2021 2020 Net Sales: United States $ 226,020 $ 188,070 $ 185,279 United Kingdom 29,316 39,896 24,033 Germany 28,004 28,456 24,401 Australia 26,667 24,990 19,332 Saudi Arabia 20,892 16,715 19,787 Canada 19,651 17,348 15,924 Brazil 16,517 13,937 16,413 China 15,434 16,927 15,058 All other 188,722 182,321 173,065 $ 571,223 $ 528,660 $ 493,292 August 31, 2022 2021 Property, Plant and Equipment, net: United States $ 16,743 $ 18,942 United Kingdom 8,212 11,818 UAE 4,407 6,448 Brazil 2,873 2,248 Netherlands 1,965 2,625 Spain 1,413 1,506 Kazakhstan 1,028 1,552 All other 4,731 3,451 $ 41,372 $ 48,590 The Company’s largest customer accounted for approximat ely 3 % of sales in each of the last three fiscal years. Export sales from domestic operatio ns were 9.8 %, 7.2 % and 7.3 % of total net sales from continuing operations in fiscal 2022, 2021 and 2020, respectively. Note 17. Commitments and Contingencies The Company had outstanding letters of credit of $ 10.7 million and $ 11.9 million at August 31, 2022 and 2021, respectively, the majority of which relate to commercial contracts and self-insured workers' compensation programs. As part of the Company's global sourcing strategy, we have entered into agreements with certain suppliers that require the supplier to maintain minimum levels of inventory to support certain products for which we require a short lead time to fulfill customer orders. We have the ability to notify the supplier that they no longer need maintain the minimum level of inventory should we discontinue manufacturing of a product during the contract period; however, we must purchase the remaining minimum inventory levels the supplier was required to maintain within a defined period of time. The Company is a party to various legal proceedings that have arisen in the normal course of business. These legal proceedings include regulatory matters, product liability, breaches of contract, employment, personal injury and other disputes. The Company has recorded reserves for loss contingencies based on the specific circumstances of each case. Such reserves are recorded when it is probable a loss has been incurred and can be reasonably estimated. The Company maintains a policy to exclude from such reserves an estimate of legal defense costs. In the opinion of management, resolution of these contingencies is not expected to have a material adverse effect on the Company’s financial position, results of operations or cash flows. The Company remains contingently liable for lease payments under leases of businesses that it previously divested or spun-off in the event that such businesses are unable to fulfill their future lease payment obligations; however, the Company does not believe it is probable that it will be required to satisfy these obligations. Future minimum lease payments for these leases at August 31, 2022 were $ 3.7 million associated with monthly payments extending to fiscal 2025. 60 ENERPAC TOOL GROUP CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The Company has facilities in numerous geographic locations that are subject to environmental laws and regulations. Environmental expenditures over the past 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, have provided environmental indemnifications for certain divested businesses and retain responsibility for certain potential environmental liabilities. Management believes that such costs will not have a material adverse effect on the Company’s financial position, results of operations or cash flows. Additionally, in fiscal 2019, the Company provided voluntary self-disclosures to both Dutch and U.S. authorities related to sales of products and services linked to the Crimea region of Ukraine, which sales potentially violated European Union and U.S. sanctions provisions. Although the U.S. investigation closed without further implication, the Dutch investigation continued. The Dutch Investigator concluded his investigation in March 2022 and provided the results to the Public Prosecutor’s office for review. Specifically, the Investigator concluded that the sales transactions violated EU sanctions. The conclusion in the Investigator's report was consistent with the Company's understanding of what could be stated in the report and was the basis to record an expense in the fiscal year ended August 31, 2021, representing the low end of a reasonable range of financial penalties the Company may incur as no other point within the range was deemed more probable. The Company has not adjusted its estimate of financial penalties as a result of the completion of the investigation in the year ended August 31, 2022. While there can be no assurance of the ultimate outcome of the matter, the Company currently believes that there will be no material adverse effect on the Company's financial position, results of operations or cash flows from this matter. Note 18. Subsequent Event On September 9, 2022, the Company refinanced its credit facility resulting in a new $ 600 million senior credit facility, comprised of a $ 400 million revolving line of credit and a $ 200 million term loan, which will mature in September 2027. 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. The new 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. Borrowings under the new facility initially bear interest at adjusted term SOFR plus 1.125 % per annum. In addition, the new 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 testing 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 new 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. 61 ENERPAC TOOL GROUP CORP. SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS (in thousands) Additions Deductions Balance at Beginning of Period Charged to Costs and Expenses (Income) Acquisition/ (Divestiture) Accounts Written Off Less Recoveries Other Balance at End of Period Allowance for losses—Trade accounts receivable August 31, 2022 $ 4,235 $ 14,277 $ — $ ( 350 ) $ ( 658 ) $ 17,504 August 31, 2021 4,991 8 — ( 845 ) 81 4,235 August 31, 2020 5,141 682 ( 1 ) ( 726 ) ( 105 ) 4,991 Valuation allowance—Income taxes August 31, 2022 $ 66,155 $ 925 $ — $ ( 5,450 ) $ — $ 61,630 August 31, 2021 70,414 4,886 — ( 9,145 ) — 66,155 August 31, 2020 73,255 9,383 — ( 12,337 ) 113 70,414 62 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.