What changed in this filing

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Item 1. Business

2023-10-20 compared with 2022-10-25 · 67 added, 81 removed, 107 unchanged (58% of the section changed)

Enerpac Tool Group Corp.

is a premier industrial tools and services company serving a broad and diverse set of customers in more than 100 countries.

The Company is a global leader in the engineering and manufacturing of high pressure hydraulic tools, controlled force products and solutions for precise positioning of heavy loads that help customers safely and reliably tackle some of the most challenging jobs around the world.

is a premier industrial tools, services, technology and solutions company serving a broad and diverse set of customers in more than 100 countries.

Enerpac Tool Group's businesses are global leaders of high pressure hydraulic tools, controlled force products and solutions for precise positioning of heavy loads that help customers around the world safely, reliably and efficiently tackle some of the most challenging, complex, and often hazardous jobs.

The Company was founded in 1910 and is headquartered in Menomonee Falls, Wisconsin.

The Company has six operating segments, Industrial Tools & Service ("IT&S") Americas, IT&S Europe/Sub Sahara Africa/India (“IT&S ESSAI”), IT&S Asia Pacific/Australia/China (“IT&S APAC”), IT&S Middle East/North Africa/Caspian (“IT&S MENAC”), Cortland Industrial and Cortland Medical.

In accordance with generally accepted accounting principles in the United States (“US GAAP”), the IT&S operating segments met the criterion for aggregation and have been aggregated into IT&S, our only reportable segment.

The Company has one reportable segment, the Industrial Tools & Services Segment ("IT&S").

The IT&S segment is primarily engaged in the design, manufacture and distribution of branded hydraulic and mechanical tools and in providing services and tool rental to the industrial, maintenance, infrastructure, oil & gas, alternative energy and other markets.

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

Our businesses provide an array of products and services across multiple markets and geographies, which results in significant diversification.

The IT&S segment and the Company are well-positioned to drive shareholder value through a sustainable business strategy built on well-established brands, broad global distribution and end markets, with a clear focus on the core tools and services business, and disciplined capital deployment.

During the fourth quarter of fiscal 2019, we entered into a Securities Purchase Agreement ("SPA") to sell the remaining businesses within our legacy Engineered Components & Systems ("EC&S") segment.

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The divestiture of the EC&S segment was a strategic shift to become a pure-play industrial tools and services company.

As such, the results of the EC&S segment are considered discontinued operations in all periods presented herein.

As such, retained liabilities associated with the former EC&S segment are considered discontinued operations in all periods presented herein.

Our Business Model

Our long-term goal is to create shareholder value and best in class returns through growth of our core businesses, driving efficiency and profitability, generating strong cash flow, and being disciplined in the deployment of our capital.

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

Our plan is to accomplish organic growth through a combination of market share capture and product innovation, as well as market expansion into new vertical markets, emerging industries and new geographic regions.

In addition to organic growth, we also focus on profit margin expansion by utilizing continuous improvement techniques to drive productivity and lower costs and by enacting routine pricing initiatives to generate price realization and offset cost increases, such as commodity and tariff increases and general inflation.

Finally, cash flow generation is critical to achieving our financial

and long-term strategic objectives.

We expect to achieve strong cash flow generation by maximizing returns on assets and minimizing primary working capital needs.

The cash flow that results from efficient asset management and improved profitability is used to fund internal growth opportunities, strategic acquisitions, paydown of debt and opportunistic returns to shareholders.

Our long-term goal is to create sustainable returns for our shareholders through above-market growth in our core business, expanding our margins, generating strong cash flow, and being disciplined in the deployment of our capital.

We intend to grow through execution of our organic growth strategy, focused on key vertical markets that benefit from long-term macro trends, driving customer driven innovation, expansion of our digital ecosystem to acquire and engage customers, and an expansion in emerging markets such as Asia Pacific.

In addition to organic growth, we also focus on margin expansion through operational efficiency techniques, including lean, continuous improvement and 80/20, to drive productivity and lo wer costs, as well as

optimizing our selling, general and administrative expenses through consolidation and shared service implementation .

We also apply these techniques and pricing actions to offset commodity increases and inflationary pricing.

Finally, cash flow generation is critical to achieving our financial and long-term strategic objectives.

We believe driving profitable growth and margin expansion will result in cash flow generation, which we seek to supplement through minimizing primary working capital.

We intend to allocate the cash flow that results from the execution of our strategy in a disciplined way toward investment in our businesses, maintaining our strong balance sheet, disciplined M&A and opportunistically returning capital to shareholders.

We anticipate the compounding effect of reinvesting in our business will fuel further growth and profitable returns.

In March 2022, the Company announced the start of its ASCEND transformation program (“ASCEND”).

ASCEND’s key initiatives include accelerating organic growth go-to-market strategies, improving operational excellence and production efficiency by utilizing a Lean approach, and driving greater efficiency and productivity in selling, general and administrative expense by better leveraging resources to create a more efficient and agile organization.

The Company expects that it will deliver an incremental $40-$50 million of annual operating profit from the execution of ASCEND, with the full run rate of operating profit expected to be reflected in its results as it exits fiscal 2024 and fully incorporated into its fiscal 2025 projections.

Enerpac anticipates investing approximately $60-$65 million over the life of the program to support the ASCEND initiatives.

ASCEND’s key initiatives include accelerating organic growth strategies, improving operational excellence and production efficiency by utilizing a Lean approach, and driving greater efficiency and productivity in selling, general and administrative expense by better leveraging resources to create a more efficient and agile organization.

In support of the ASCEND initiatives, the Company anticipates investing approximately $70-$75 million over the life of the program, which is expected to be fully implemented by the end of the fourth quarter of fiscal 2024, with an expected annual operating profit improvement from the program in the range of $50-$60 million.

Through the end of fiscal 2023, the Company has realized approximately $54 million of annual operating profit from the execution of the ASCEND program and had invested approximately $60 million as part of the program.

In June 2022, the Company approved a restructuring plan in connection with the initiatives identified as part of the ASCEND transformation program (see Note 3, “ASCEND Transformation Program” in the notes to the consolidated financial statements) to drive greater efficiency and productivity in global selling, general and administrative resources.

The total costs of this plan were then estimated at $6 to $10 million, constituting predominately severance and other employee-related costs to be incurred as cash expenditures and impacting both IT&S and Corporate.

On September 23, 2022, the Company approved an updated restructuring plan.

The costs of this updated plan (which includes the amounts for the plan approved in June 2022) are estimated at $10 to $15 million.

These costs are expected to be incurred over the expected duration of the transformation program, ending in the fourth quarter of fiscal 2024.

Description of Business Segments

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

Examples of our products include high-forc e hydraulic and mechanical tools (cylinders, pumps, valves and specialty tools), which are designed to allow users to apply controlled force and motion to increase productivity, reduce labor costs and make work safer and easier to perform, bolt tensioners and other miscellaneous products.

Examples of our products include high-forc e hydraulic and mechanical tools (cylinders, pumps, valves, bolt tensioners, specialty tools and other miscellaneous products), which are designed to allow users to apply controlled force and motion to increase productivity, reduce labor costs and make work safer and easier to perform.

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

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

We also provide rental capabilities for certain of our products.

We also provide rental services for certain of our products.

Our branded tools and services are primarily marketed through the Enerpac, Hydratight, Larzep and Simplex brand names.

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Other Operating Segment

The Cortland Industrial and Medical operating segments, which primarily design and manufacture high performance synthetic ropes and biomedical textiles, respectively, do not meet the quantitative or qualitative thresholds, individually or collectively, to be considered reportable segments, and together represent the Other operating segment.

The Cortland Industrial and Medical operating segments, which primarily design and manufacture high performance synthetic ropes and biomedical textiles, do not meet the quantitative or qualitative thresholds to be considered reportable segments, and together represent the Other operating segment.

Therefore, the results are not disclosed separately as would be required if the Other operating segment were considered a reportable segment, and as the business is not closely related to the IT&S segment, results are not aggregated to be included in the results of the IT&S reportable segment.

Certain information related to the Other operating segment is disclosed within Note 1 6 , "Business Segment, Geographic, and Customer Information" in order to comply with US GAAP requirements to reconcile certain required disclosures to the Consolidated Financial Statements.

On July 11, 2023, the Company completed the sale of the Cortland Industrial business ( see Note 5, "Discontinued Operations and Other Divestiture Activities" in the notes to the consolidated financial statements).

C ertain information related to the Other operating segment is disclosed within Note 15, "Business Segment, Geographic, and Customer Information" in the notes to the consolidated financial

statements in order to comply with requirements under generally accepted accounting principles in the United States ("US GAAP") to reconcile certain required disclosures to the Consolidated Financial Statements.

Acquisitions and Divestitures

For a summary of recent acquisition and divestiture transactions impacting continuing operations, see Note 5, "Acquisitions" and Note 6, "Discontinued Operations and Other Divestiture Activities" in the notes to the consolidated financial statements.

For a summary of recent divestiture transactions impacting continuing operations, see Note 5, "Discontinued Operations and Other Divestiture Activities" in the notes to the consolidated financial statements.

International Business

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In fiscal 2023, we derived 39% of our net sales from the United States, 25% from Europe, 14% from the Middle East, 12% from Asia and 10% from other geographic areas.

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

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

Financial information related to the Company's

geographic footprint of our continuing operations is included in Note 16, "Business Segment, Geographic and Customer Information" in the notes to the consolidated financial statements.

Financial information related to the Company's geographic footprint of our continuing operations is included in Note 15, "Business Segment, Geographic and Customer Information" in the notes to the consolidated financial statements.

Product Development and Engineering

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Research and development ("R&D") costs are expensed as incurred.

R&D costs were $7.3 million in fiscal 2022, a decrease of 1% from $7.4 million in fiscal 2021 and an increase of 1% from $7.3 million in fiscal 2020.

R&D costs were $9 million in fiscal 2023, $7 million in fiscal 2022 and $7 million in fiscal 2021.

The Company holds numerous patents and trademarks.

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

While no individual patent is believed to be of such importance that its termination would have a material adverse effect on our business, the termination of certain of our trademarks, including ENERPAC®, SIMPLEX®, HYDRATIGHT® and LARZEP & DESIGN®, could have a material adverse effect on our business.

The markets for our products are highly competitive.

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We have implemented single piece flow processes in most of our plants, which reduces inventory levels, lowers re-work costs and shortens lead times to customers.

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

Components are built to our highly engineered specifications by a variety of suppliers in best-cost locations including various countries in Asia.

We have built strong relationships with our key suppliers and, while we single source certain of our components, in many cases there are several qualified alternative sources.

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We had order backlogs of $54 million and $72 million at August 31, 2023 and 2022, respectively.

The increase in our order backlog year over year was primarily due to a combination of strong orders and supply chain challenges putting pressure on past due backlog.

The supply chain challenges, including logistical constraints, are a result of the demand surge following the lessening of the COVID-19 pandemic at the end of fiscal 2021.

Exclusive of further deterioration of our supply chain, substantially all of the backlog at August 31, 2022 is expected to be filled within twelve months.

The decrease in our order backlog during the fiscal year was primarily due to alleviated pressure on the supply chain.

Assuming no significant supply chain constraints arise after the date of this report, substantially all of the backlog at August 31, 2023 is expected to be filled within twelve months.

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

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The goal of human capital management strategy and practices is for Enerpac to be considered an employer of choice, and our initiatives and programs are predicated on making this objective a reality.

The talent and skills of our workforce (approximately 2,200 employees as of August 31, 2022) are critical to our future success and ability to deliver shareholder value.

Our development framework starts with robust performance management.

Together with their leaders, employees establish annual goals and objectives that clearly align with our organizational commitments.

We monitor progress throughout the year, with candid and frequent dialogue encouraged along the way.

Annually, our senior leadership team reviews the skills we require to execute our corporate strategy and key roles to identify development opportunities for our emerging talent and perform succession planning.

We promote a longer-term view by inviting employees to work with leaders to create their own unique individual development plan.

Training programs in many different manners are available for all levels throughout Enerpac, addressing a wide variety of skills and competencies, both general and technical.

We believe in coaching and the sharing of perspectives and facilitate mentorship opportunities for the benefit of our workforce.

We are committed to devoting the time, resources and planning necessary to maximize the potential of our employees.

The talent that makes up our workforce (approximately 2,100 employees as of August 31, 2023) is critical to the success of our company and the ability to deliver shareholder value.

Our talent development framework is built around a robust performance management and development structure.

Together with their leaders, employees establish annual goals and objectives that align directly with our organizational commitments.

We monitor progress throughout the year, with candid and frequent dialogue encouraged along the way, and, new for fiscal 2024, a formal check-in process to facilitate a clear understanding of goals and the status of progress toward achieving those goals.

Bi-annually, our Executive Leadership Team ("ELT") reviews the skills we require to execute our corporate strategy and key role requirements to identify development opportunities for our emerging talent.

Annually, we conduct performance review and succession planning, and we promote a long-term career development view by encouraging the creation of unique individual development plans.

Training opportunities for all levels of the organization are available and focus on skill, competency and leadership development.

We believe in coaching and the sharing of perspectives, and we facilitate mentorship opportunities for the benefit of our workforce.

We are committed to devoting the time, resources and planning necessary to maximize the potential of our employees' career development, as well as address the future skill needs of our organization.

We offer competitive compensation and benefits tailored to the geographical markets and industries in which we operate.

In the U.S., employees who work more than 30 hours per week are eligible for a comprehensive menu of benefits, including paid time off, healthcare (health, dental, and vision), short and long-term disability, life and accidental disability insurance, a 401(k) retirement plan with a Company match, access to our Employee Assistance Program, an annual bonus program with broad participation, equity incentive programs, an Employee Stock Ownership Plan that allows employees to buy company shares at a discount, flexible work arrangements and up to 12 weeks of paternal leave.

We also offer annual tuition reimbursement of up to $3,500 for undergraduate programs and $5,000 for graduate programs for all U.S.

full-time employees and $1,000 for part-time employees who work more than 20 hours per month.

During 2022, we expanded paid parental leave, adoption assistance, medical coverage for fertility treatments and expanded short-term disability benefits for hourly employees.

In the U.S., employees who work more than 30 hours per week are eligible for a comprehensive menu of benefits, including paid time off, healthcare (health, dental, and vision) coverage, short and long-term disability, life and accidental disability insurance, a 401(k) retirement plan with a Company match and immediate vesting, access to our employee assistance program, an annual bonus program with broad participation, equity incentive programs, an employee stock ownership plan that allows employees to buy company shares at a discount, flexible work arrangements, and up to 12 weeks of parental leave, of which six weeks are paid at an employee's full salary.

In fiscal 2023, we increased our tuition reimbursement to $5,250 for associate and undergraduate programs and $7,500 for graduate programs, while also offering the same level of reimbursement to part time workers as full-time workers.

During fiscal 2023, we expanded our supplemental life and spousal insurance offering.

We continue to evaluate enhancements to our compensation and benefit programs in all locations to ensure we remain competitive and meet the needs of our employees.

Consistent with this desire, we are enhancing or adding several benefits for our U.S.

employees beginning in calendar 2023, including enriching our tuition reimbursement programs and adding voluntary benefits including critical illness, accident insurance, identity protection and certain legal services.

Diversity, Equity, & Inclusion.

Our senior leadership team and management at all levels are dedicated to creating a culture of inclusion and belonging and a workplace where all employees can thrive and do their best work, and senior management reports to the Board on the Company’s progress in these areas on a regular basis.

Over the past year, we have significantly enhanced our focus on Diversity, Equity & Inclusion ("DE&I") and have incorporated these objectives into our core strategy.

Our DE&I objectives include:

(i) a focus on our culture, (ii) supporting education for disadvantaged groups in our communities, and (iii) broadening our recruiting efforts to reach and attract more diverse employees.

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

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

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

In 2023, we will be adding further employee resource groups, including a multicultural resource group.

We also believe diversity at the executive and Board level is key to the long-term success of the Company and to promote diversity and inclusion in our workplace.

At the end of fiscal 2022, our executive officers included one female (17% of the membership of that committee).

At the end of fiscal 2022, our board of directors included two females (25%) and one racially diverse individual (13%).

We believe that valuing diversity as part of our core strategy will provide greater opportunity for Enerpac to attract and retain talent, benefit from diverse points of view and ultimately assist in achieving our goals to drive shareholder value creation.

Diversity, Equity, Inclusion & Belonging.

Diversity, Equity, Inclusion & Belonging ("DEIB") remains a core tenet of our organizational ethos, championed by our ELT and management at all levels.

Our unwavering commitment to fostering an inclusive culture of belonging is reflected in our four key DEIB pillars:

prioritize cultivating a diverse and inclusive workplace culture, support education and skill building opportunities for our employees, broaden our talent acquisition efforts to attract diversity, and empower employees through employee resource groups ("ERGs").

We include diverse representation in our slates for all positions and will continue to do so.

At the end of fiscal 2023, our board of directors includes three female (30%) and one racially diverse (10%) individual.

We firmly believe that embedding diversity into our core strategy not only aligns with our values but also provides a competitive advantage, attracting exceptional talent, leveraging diverse perspectives, and ultimately driving value creation for our shareholders.

Employee Safety .

The safety, health, and well-being of our employees, contractors, and visitors at our sites globally is our top priority and a principle that is deeply embedded in our culture.

Our health, safety, security, environment, and quality

(“HSSEQ”) programs are fully embraced by our leaders and employees at all levels and translate into an enterprise-wide obligation to provide healthy, safe and productive work environments for our employees and deliver high standards of safety and quality in the products, services and solutions for our customers and end-users.

Our leaders and employees at all levels embrace our health,

safety, security, environment, and quality (“HSSEQ”) programs, which translates into an enterprise-wide obligation to provide healthy, safe and productive work environments for our employees and deliver high standards of safety and quality in the products, services and solutions for our customers and end-users.

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

We continually track and report our performance, including through reviews of incidents, near-misses, and quality issues;

We continually track and report our performance, including thorough reviews of incidents, near-misses, and quality issues;

and management accountability and discussion of these improvement opportunities is a cornerstone of all business reviews.

We finished the year with a total case incident rate (TCIR) of 0.64.

This is up slightly year over year as fiscal year 2021 had a TCIR of 0.56.

This puts us right at the top quartile performance (less than 0.6) in comparison to the BLS NAICS bracket for Machinery Manufacturing (333) for companies with greater than 1,000 employees.

This is up slightly year-over-year as fiscal 2022 had a TCIR of 0.61.

This puts our performance in the top quartile in comparison to the BLS NAICS bracket for Machinery Manufacturing (333) for companies with greater than 1,000 employees.

Executive Officers of the Registrant

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Sternlieb 51 President and Chief Executive Officer

Bolens 61 Executive Vice President and Chief Strategy Officer

Colucci 53 Executive Vice President and Chief Financial Officer

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Topercer 46 Executive Vice President and Chief Human Resource Officer

Scott Vuchetich 53 Executive Vice President, Marketing and President - Americas

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

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Sternlieb was Group President, Global Cooking in the Food Equipment Group at Illinois Tool Works since 2014.

He served as a Vice President ("VP") & General Manager with Danaher from 2011 to 2014.

He served as a Vice President & General Manager with Danaher from 2011 to 2014.

Before Danaher, he held management roles with the H.J.

Heinz Company, a leading food production company and was a consultant with McKinsey & Company.

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

Prior to joining the Company, Ms.

Bolens spent over six years at Komatsu Mining Corporation (formerly Joy Global Inc.) as its Vice President and Treasurer.

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

Anthony Colucci, EVP and Chief Financial Officer ("CFO"), joined the Company in that capacity in May of 2022, and leads global Finance and IT.

Anthony Colucci, EVP and Chief Financial Officer, joined the Company in that capacity in May of 2022, and leads global Finance and Information Technology.

From June 2020 until joining the Company, Mr.

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Before joining Leica Camera, Mr.

Limberger served as Head of Production from August 2007 to January 2008 and then as Managing Director until December 2010 of Uwe Weller Feinwerktechnik

GmbH, a metal processing company.

Limberger served as Head of Production from August 2007 to January 2008 and then as Managing Director until December 2010 of Uwe Weller Feinwerktechnik GmbH, a metal processing company.

Prior to that, he held operations, logistics and dispatching management positions with a number of other manufacturing firms.

His background includes a strong focus on operational excellence and in developing and executing operations strategies to achieve sustained improvements in performance, with extensive experience in Lean and continuous improvement principles.

Benjamin Topercer, EVP and Chief Human Resource Officer, joined the Company in February 2022 and leads the global HR function, including our global Health, Safety, Security, Environment, and Quality (HSSEQ) organization, as well as the Diversity, Equity, and Inclusion (DE&I) initiatives.

On September 26, 2023, Mr.

Limberger resigned his position as Executive Vice President, Operations effective December 1, 2023, when by mutual agreement he will be placed on leave but will continue as an employee, at the same salary with the same benefits, through his contractual notice period until March 31, 2024.

Benjamin Topercer, EVP and Chief Human Resource Officer, joined the Company in February 2022 and leads the global human resources function, including our global HSSEQ organization, as well as our DEIB initiatives and communications function.

From June 2016 until he joined Enerpac, Mr.

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Prior to that, he served in positions of progressive responsibility in the human resources group of Henkel Corporation from September 2004 to July 2011 and at Rexam Sussex from March 2000 to September 2004.

Scott Vuchetich, EVP, Marketing and President - Americas, joined the Company in December 2021.

Prior to joining Enerpac, he served Brady Corporation, a global manufacturer of safety, identification and compliance products, in roles of progressive responsibility from January 2015, including as Vice President & General Manager of the People ID division from April 2018 until December 2021.

Prior to joining Brady Corporation, he was an independent operations, strategy, diligence and restructuring consultant providing both project support and interim executive services to a variety of corporate clients from August 2012 to December 2014 and also from September 2007 to October 2009.

He served as Senior Vice President and General Manager, Food Systems of Tate & Lyle from May 2010 to July 2012 and as Senior Vice President, Policy, Planning & Analysis of Swift & Company from July 2005 to July 2007.

Earlier in his career, Mr.

Vuchetich was a consultant with Bain & Company, Inc.

for approximately six years.

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

What changed 10-K

Item 1. Business