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 Consolidated Statements of Earnings for the years ended August 31, 2023, 2022 and 2021 32 Consolidated Statements of Comprehensive Income (Loss ) for the years ended August 31, 2023, 2022 and 2021 33 Consolidated Balance Sheets as of August 31, 2023 and 2022 34 Consolidated Statements of Cash Flows for the years ended August 31, 2023, 2022 and 2021 35 Consolidated Statements of Shareholders’ Equity for the years ended August 31, 2023, 2022 and 2021 36 Notes to consolidated financial statements 37 INDEX TO FINANCIAL STATEMENT SCHEDULE Schedule II—Valuation and Qualifying Accounts for the years ended August 31, 2023, 2022 and 2021 60 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, 2023 and August 31, 2022, the related consolidated statements of earnings, comprehensive statement of income (loss), shareholders’ equity and cash flows for each of the three years in the period ended August 31, 2023, 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, 2023 and August 31, 2022, and the results of its operations and its cash flows for each of the three years in the period ended August 31, 2023, 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, 2023, 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 20, 2023 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, 2023, the Company’s consolidated goodwill balance was $266.5 million. Goodwill associated with the IT&S segment was $255.3 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 20, 2023 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, 2023, 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, 2023, 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, 2023 and August 31, 2022, and the related consolidated statements of earnings, comprehensive income (loss), shareholders’ equity and cash flows for each of the three years in the period ended August 31, 2023, and the related notes and financial statement schedule listed in the accompanying index at Item 15(a)(2) and our report dated October 20, 2023 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 20, 2023 31 ENERPAC TOOL GROUP CORP. CONSOLIDATED STATEMENTS OF EARNINGS (in thousands, except per share amounts) Year Ended August 31, 2023 2022 2021 Net sales Product $ 490,629 $ 454,126 $ 411,888 Service & rental 107,575 117,097 116,772 Total net sales 598,204 571,223 528,660 Cost of products sold Product 235,403 232,497 216,442 Service & rental 67,762 73,338 69,062 Total cost of products sold 303,165 305,835 285,504 Gross profit 295,039 265,388 243,156 Selling, general and administrative expenses 205,064 216,874 175,277 Amortization of intangible assets 5,112 7,306 8,176 Restructuring charges 7,096 8,135 2,392 Impairment & divestiture (benefit) charges ( 6,155 ) 2,413 6,198 Operating profit 83,922 30,660 51,113 Financing costs, net 12,389 4,386 5,266 Other expense, net 2,635 2,282 1,872 Earnings before income tax expense 68,898 23,992 43,975 Income tax expense 15,249 4,401 3,763 Net earnings from continuing operations 53,649 19,591 40,212 Loss from discontinued operations, net of income taxes ( 7,088 ) ( 3,905 ) ( 2,135 ) Net earnings $ 46,561 $ 15,686 $ 38,077 Earnings per share from continuing operations Basic $ 0.95 $ 0.33 $ 0.67 Diluted $ 0.94 $ 0.33 $ 0.67 Loss per share from discontinued operations Basic $ ( 0.13 ) $ ( 0.07 ) $ ( 0.04 ) Diluted $ ( 0.12 ) $ ( 0.07 ) $ ( 0.04 ) Earnings per share Basic $ 0.82 $ 0.26 $ 0.63 Diluted $ 0.82 $ 0.26 $ 0.63 Weighted average common shares outstanding Basic 56,680 59,538 60,024 Diluted 57,117 59,909 60,403 The accompanying notes are an integral part of these consolidated financial statements. 32 ENERPAC TOOL GROUP CORP. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (in thousands) Year Ended August 31, 2023 2022 2021 Net income $ 46,561 $ 15,686 $ 38,077 Other comprehensive income (loss), net of tax Foreign currency translation adjustments 12,887 ( 46,092 ) 5,910 Cash flow hedges ( 375 ) — — Pension and other postretirement benefit plans 1,239 4,115 1,830 Total other comprehensive income (loss), net of tax 13,751 ( 41,977 ) 7,740 Comprehensive income (loss) $ 60,312 $ ( 26,291 ) $ 45,817 The accompanying notes are an integral part of these consolidated financial statements. 33 ENERPAC TOOL GROUP CORP. CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share amounts) August 31, 2023 2022 A S S E T S Current assets Cash and cash equivalents $ 154,415 $ 120,699 Accounts receivable, net 97,649 106,747 Inventories, net 74,765 83,672 Other current assets 28,811 31,262 Total current assets 355,640 342,380 Property, plant and equipment, net 38,968 41,372 Goodwill 266,494 257,949 Other intangible assets, net 37,338 41,507 Other long-term assets 64,157 74,104 Total assets $ 762,597 $ 757,312 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 $ 50,483 $ 72,524 Accrued compensation and benefits 33,194 21,390 Current maturities of long-term debt 3,750 — Short-term debt — 4,000 Income taxes payable 3,771 4,594 Other current liabilities 56,922 50,680 Total current liabilities 148,120 153,188 Long-term debt, net 210,337 200,000 Deferred income taxes 5,667 7,355 Pension and postretirement benefit liabilities 10,247 11,941 Other long-term liabilities 61,606 66,217 Total liabilities 435,977 438,701 Commitments and contingencies (Note 16) Shareholders’ equity Class A common stock, $0.20 par value per share, authorized 168,000,000 shares, issued 83,760,798 and 83,397,458 shares, respectively 16,752 16,679 Additional paid-in capital 220,472 212,986 Treasury stock, at cost, 28,772,715 and 26,558,965 shares, respectively ( 800,506 ) ( 742,844 ) Retained earnings 1,011,112 966,751 Accumulated other comprehensive loss ( 121,210 ) ( 134,961 ) Stock held in trust ( 3,484 ) ( 3,209 ) Deferred compensation liability 3,484 3,209 Total shareholders' equity 326,620 318,611 Total liabilities and shareholders' equity $ 762,597 $ 757,312 The accompanying notes are an integral part of these consolidated financial statements. 34 ENERPAC TOOL GROUP CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Year Ended August 31, 2023 2022 2021 Operating Activities Net earnings $ 46,561 $ 15,686 $ 38,077 Less: Net loss from discontinued operations ( 7,088 ) ( 3,905 ) ( 2,135 ) Net earnings from continuing operations 53,649 19,591 40,212 Adjustments to reconcile net earnings from continuing operations to net cash provided by operating activities - continuing operations: Impairment & divestiture (benefit) charges, net of tax effect ( 6,155 ) 2,413 5,586 Depreciation and amortization 16,313 19,600 21,611 Stock-based compensation expense 8,574 13,619 9,215 Provision (benefit) for deferred income taxes 460 ( 5,291 ) 9,639 Amortization of debt issuance costs 902 480 480 Provision for bad debts 803 13,856 — Other non-cash charges (benefits) 1,569 ( 344 ) ( 9,172 ) Changes in components of working capital and other, excluding acquisitions and divestitures: Accounts receivable 5,169 ( 23,753 ) ( 19,113 ) Inventories 4,539 ( 16,036 ) ( 5,857 ) Trade accounts payable ( 21,867 ) 9,658 16,695 Prepaid expenses and other assets ( 3,764 ) 12,545 ( 18,812 ) Income tax accounts 9,933 4,022 ( 4,293 ) Accrued compensation and benefits 11,288 1,267 3,631 Other accrued liabilities ( 2,840 ) 619 5,038 Cash provided by operating activities - continuing operations 78,573 52,246 54,860 Cash used in operating activities - discontinued operations ( 970 ) ( 510 ) ( 677 ) Cash provided by operating activities 77,603 51,736 54,183 Investing Activities Capital expenditures ( 9,400 ) ( 8,417 ) ( 12,019 ) Proceeds from sale of property, plant and equipment 685 1,176 22,409 Proceeds from company owned life insurance policies — — 2,911 Proceeds from sale of business, net of transaction costs 20,057 — — Cash provided by (used in) investing activities - continuing operations 11,342 ( 7,241 ) 13,301 Cash provided by (used in) investing activities 11,342 ( 7,241 ) 13,301 Financing Activities Borrowings on revolving credit facility 69,000 85,000 10,000 Principal repayments on revolving credit facility ( 53,000 ) ( 60,000 ) ( 90,000 ) Swingline (repayments) borrowings, net ( 4,000 ) 4,000 — Principal repayments on term loan ( 1,250 ) — — Proceeds from issuance of term loan 200,000 — — Payment for redemption of revolver ( 200,000 ) — — Payment of debt issuance costs ( 2,486 ) — — Purchase of treasury shares ( 57,662 ) ( 75,112 ) — Stock options, taxes paid related to the net share settlement of equity awards & other ( 1,458 ) ( 3,681 ) 128 Payment of cash dividend ( 2,274 ) ( 2,409 ) ( 2,394 ) Cash used in financing activities - continuing operations ( 53,130 ) ( 52,202 ) ( 82,266 ) Cash provided by financing activities - discontinued operations — — 750 Cash used in financing activities ( 53,130 ) ( 52,202 ) ( 81,516 ) Effect of exchange rate changes on cash ( 2,099 ) ( 11,946 ) 2,214 Net increase (decrease) from cash and cash equivalents 33,716 ( 19,653 ) ( 11,818 ) Cash and cash equivalents - beginning of period 120,699 140,352 152,170 Cash and cash equivalents - end of period $ 154,415 $ 120,699 $ 140,352 The accompanying notes are an integral part of these consolidated financial statements. 35 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, 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 Net earnings — — — — 46,561 — — — 46,561 Other comprehensive income, net of tax — — — — — 13,751 — — 13,751 Stock contribution to employee benefit plans and other 9 2 191 — — — — — 193 Vesting of equity awards 273 54 ( 54 ) — — — — — — Cash dividend ($0.04 per share) — — — — ( 2,200 ) — — — ( 2,200 ) Treasury stock repurchases — — — ( 57,662 ) — — — — ( 57,662 ) Stock based compensation expense — — 8,699 — — — — — 8,699 Stock option exercises 43 8 965 — — — — — 973 Tax effect related to net share settlement of equity awards — — ( 2,624 ) — — — — — ( 2,624 ) Stock issued to, acquired for and distributed from rabbi trust 39 9 309 — — — ( 275 ) 275 318 Balance at August 31, 2023 83,761 $ 16,752 $ 220,472 $ ( 800,506 ) $ 1,011,112 $ ( 121,210 ) $ ( 3,484 ) $ 3,484 $ 326,620 The accompanying notes are an integral part of these consolidated financial statements. 36 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 premier industrial tools, services, technology and solutions company serving a broad and diverse set of customers in more than 100 countries. The Company has one reportable segment, Industrial Tools & Services ("IT&S"), and an Other operating segment, which does not meet the criteria to be considered a reportable segment. The 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 infrastructure, industrial maintenance, repair and operations, oil & gas, mining, alternative and renewable energy, civil construction and other 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. The terms the "Company," "we," and "our" refer to Enerpac Tool Group Corp. and its subsidiaries, unless the context requires that such terms refer only to Enerpac Tool Group Corp. Reference to fiscal years, such as "fiscal 2023," are to the fiscal year ending on August 31 of the specified year. On October 31, 2019, as part of our overall strategy to become a pure-play industrial tools and services company, the Company completed the sale of the businesses comprising its former Engineered Components & Systems ("EC&S") segment.This divestiture represented a strategic shift in our operations,and accordingly the results of the former EC&S 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. On July 11, 2023, the Company completed the sale of the Cortland Industrial business, which had been included in the Other operating segment. Cash Equivalents: The Company considers all highly liquid investments with orig inal maturities of 90 days or less to be cash equivalents. Inventories: Inventories are comprised of material, direct labor and manufacturing overhead. A portion 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 ( 48.1 % and 51.7 % of total inventories as of August 31, 2023 and 2022, respectively). If the LIFO method were not used, inventory balances would be higher than reported amounts in the consolidated balance sheets by $ 17.6 million and $ 19.0 million at August 31, 2023 and 2022, 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 the 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 $ 11.2 million, $ 12.3 million and $ 13.4 million for the years ended August 31, 2023, 2022 and 2021, respectively. The following is a summary of the Company's components of property, plant and equipment (in thousands): August 31, 2023 2022 Land, buildings and improvements $ 14,070 $ 14,121 Machinery and equipment 136,566 141,571 Gross property, plant and equipment 150,636 155,692 Less: Accumulated depreciation ( 111,668 ) ( 114,320 ) Property, plant and equipment, net $ 38,968 $ 41,372 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. 37 ENERPAC TOOL GROUP CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 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 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 roll-forward of the changes in product warranty reserves for fiscal 2023 and 2022 (in thousands): 2023 2022 Beginning balance $ 1,140 $ 1,300 Provision for warranties 418 887 Warranty payments and costs incurred ( 723 ) ( 911 ) Warranty activity for divested businesses ( 10 ) — Impact of changes in foreign currency rates 31 ( 136 ) Ending balance $ 856 $ 1,140 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 38 ENERPAC TOOL GROUP CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) of its existing receivables. Accounts receivable are stated net of an allowance for doubtful accounts of $ 16.8 million and $ 17.5 million at August 31, 2023 and 2022, 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. 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 $ 9.0 million, $ 7.3 million and $ 7.4 million in fiscal 2023, 2022 and 2021, 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 $ 2.1 million, $ 1.5 million and $ 1.8 million in fiscal 2023, 2022 and 2021, respectively. Financing Costs: Financing costs represent interest expense, financing fees and amortization of debt issuance costs, net of interest income. Interest income was $ 2.6 million, $ 1.3 million and $ 0.7 million for fiscal 2023, 2022 and 2021, 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, 2023 2022 Foreign currency translation adjustments $ 102,268 $ 116,078 Pension and other postretirement benefit plans 18,394 18,883 Cash flow hedges 548 — Accumulated other comprehensive loss $ 121,210 $ 134,961 Use of Estimates: Th e preparation of financial statements in conformity with generally accepted accounting principles in the United States ("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 39 ENERPAC TOOL GROUP CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 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. 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 these customized 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 one 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 15, "Business Segment, Geographic and Customer Information" for information regarding our revenue disaggregation by reportable segment and product line. The following table presents information regarding revenues disaggregated by the timing of when goods and services are transferred (in thousands): Year Ended August 31, 2023 2022 2021 Revenues recognized at point in time $ 482,506 $ 442,832 $ 396,457 Revenues recognized over time 115,698 128,391 132,203 Total $ 598,204 $ 571,223 $ 528,660 Contract Balances The Company's contract assets and liabilities are as follows (in thousands): August 31, 2023 2022 Receivables, which are included in accounts receivable, net $ 97,649 $ 106,747 Contract assets, which are included in other current assets 3,989 2,397 Contract liabilities, which are included in other current liabilities 2,927 2,804 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 receiva bles 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 40 ENERPAC TOOL GROUP CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) amount of receivables that will not be collected in the future and records the appropriate provision. The allowance for doubtful accounts was $ 16.8 million and $ 17.5 million at August 31, 2023 and 2022, respectively. As indicated in the "Concentration of Credit Risk" section below, as of August 31, 2023 and 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 "Selling, general and administrative expenses" ("SG&A expenses") 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, 2023 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, 2023 the Company was exposed to a concentration of credit risk as a result of the payment delinquency of one of our agents whose accounts receivable represent 11.3 % of the Company's outstanding accounts receivable. As of August 31, 2023, the Company has fully reserved for the amounts due from this agent. Contract Assets: Contract assets relate to the Company’s rights to consideration for work completed but not billed as of the reporting date on contracts with customers. The contract assets are transferred to receivables when the rights become unconditional. The Company has contract assets on contracts that are generally long-term and have revenues that are recognized over time. Contract Liabilities: As of August 31, 2023, the Company had certain contracts where there were unsatisfied performance obligations and the Company had received cash consideration from customers before the performance obligations were satisfied . The majority of these contracts relate to long-term customer contracts (project durations of greater than three months) and are recognized over time. The Company estimates that the $ 2.9 million will be recognized in net sales from satisfying those performance obligations within the next twelve months. Timing of Performance Obligations Satisfied at a Point in Time: The Company evaluates when the customer obtains control of the product based on shipping terms, as control will transfer, depending upon such terms, at different points between the Company's manufacturing facility or warehouse and the customer’s location. The Company considers control to have transferred upon shipment or delivery because (i) the Company has a present right to payment at that time; (ii) the legal title has been transferred to the customer; (iii) the Company has transferred physical possession of the product to the customer; and (iv) the customer has significant risks and rewards of ownership of the product. Variable Consideration: The Company estimates whether it will be subject to variable consideration under the terms of the contract and includes its estimate of variable consideration in the transaction price based on the expected value method when it is deemed probable of being realized based on historical experience and trends. Types of variable consideration may include rebates, incentives and discounts, among others, which are recorded as a reduction to net sales at the time when control of a performance obligation is transferred to the customer. Practical Expedients & Exemptions: The Company elected to expense the incremental cost to obtaining a contract when the amortization period for such contracts would be one year or less. The Company does not disclose the value of unperformed obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which it recognizes revenue at the amount to which it has the right to invoice for services performed. 41 ENERPAC TOOL GROUP CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 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 estimated incremental $ 40 to $ 50 million of annual operating profit once fully implemented. In March 2023, the Company announced this estimate had been revised to an incremental $ 50 to $ 60 million of annual operating profit as a result of additional ASCEND initiatives and high success rate. As part of ASCEND, the Company is focusing on the following key initiatives: (i) accelerating organic growth go-to-market strategies, (ii) improving operational excellence and production efficiency by utilizing a lean approach and (iii) driving greater efficiency and productivity in SG&A expenses by better leveraging resources to create a more efficient and agile organization. The Company is implementing the program and originally anticipated investing approximately $ 60 to $ 65 million and in March 2023 anticipated that this investment would increase to $ 70 to $ 75 million (as disclosed in Note 4, "Restructuring Charges," approximately $ 10 to $ 15 million of these investments will be in the form of restructuring charges) over the life of the program, which is expected to be finalized as we exit fiscal 2024. Elements of these investments could include such cash costs as capital expenditures, restructuring costs, third-party support, and incentive costs (which incentives are not available for the senior management team). Total program expenses were approximately $ 43.1 million and $ 16.7 million for the year ended August 31, 2023 and 2022. Of the total ASCEND program expenses for the year ended August 31, 2023, $ 34.5 million were recorded within SG&A expenses and $ 0.9 million recorded within cost of goods sold and $ 7.7 million were recorded within restructuring expenses (see Note 4, "Restructuring Charges," below). Of the total ASCEND program expenses for the year ended August 31, 2022, $ 13.6 million were recorded within SG&A expenses and $ 3.1 million were recorded within restructuring expenses (see Note 4, "Restructuring Charges," below). For fiscal 2024, we expect to incur $ 10 to $ 15 million of ASCEND transformation program costs, this range is inclusive of $ 3 to $ 5 million of restructuring costs. Note 4. Restructuring Charges The Company has undertaken or committed to various restructuring initiatives, including workforce reductions, leadership changes, plant consolidations to reduce manufacturing overhead, satellite office closures, the continued movement of production and product sourcing to low-cost alternatives and the centralization and standardization of certain administrative functions. Liabilities for severance are generally to be paid within twelve months, while future lease payments related to facilities vacated as a result of restructuring are to be paid over the underlying remaining lease terms. 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 a benefit of less than $ 0.1 million and $ 5.2 million of charges for the year ended August 31, 2023, and 2022, respectively, in order to further simplify and streamline the organizational structure. Restructuring charges associated with the fiscal 2019 plan were $ 2.1 million for the year ended August 31, 2021. The total cumulative charges for the 2019 plan, which ended in the third quarter of fiscal 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 $ 10.0 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 2024. For the year ended August 31, 2023 and 2022 , the Company recorded $ 7.7 million and $ 3.1 million of restructuring charges associated with the ASCEND transformation program. 42 ENERPAC TOOL GROUP CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The following summarizes restructuring reserve activity for the IT&S segment and Corporate (which for the year ended August 31, 2023 excludes $ 0.6 million of charges associated with ASCEND transformation plan for Corporate, and 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) (in thousands): Year Ended August 31, 2023 2019 Plan ASCEND Plan IT&S Corporate IT&S Corporate Balance as of August 31, 2022 $ 212 $ 6 $ 2,008 $ 797 Restructuring charges ( 32 ) ( 6 ) 6,035 1,054 Cash payments ( 99 ) — ( 5,453 ) ( 1,779 ) Other non-cash uses of reserve ( 84 ) — ( 498 ) — Impact of changes in foreign currency rates 3 — 146 2 Balance as of August 31, 2023 $ — $ — $ 2,238 $ 74 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 Total restructuring charges (inclusive of the Other operating segment) for the year ended August 31, 2023 were $ 7.7 million which included approximately $ 0.6 million of charges being reported in the Consolidated Statements of Operations in "Cost of products sold," with the balance of the charges reported on "Restructuring charges." Total restructuring charges (inclusive of the Other operating segment) being reported in "Restructuring charges" were $ 8.1 million and $ 2.4 million for the year ended August 31, 2022 and 2021, respectively . Note 5. 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. This divestiture was considered part of our strategic shift to become a pure-play industrial tools and services company, and therefore, the results of operations are recorded as a component of "Loss from discontinued operations, net of income taxes" in the Condensed Consolidated Statements of Earnings for all periods presented. All discontinued operations activity included within the Condensed Consolidated Statements of Earnings and the Condensed Consolidated Statements of Cash Flows for the periods presented relate to impacts from certain retained liabilities. 43 ENERPAC TOOL GROUP CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 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, 2023 2022 2021 Selling, general and administrative expenses 10,069 4,842 1,456 Impairment & divestiture benefit ( 1,530 ) — — Operating loss ( 8,539 ) ( 4,842 ) ( 1,456 ) Other income, net 372 — — Loss before income tax benefit ( 8,911 ) ( 4,842 ) ( 1,456 ) Income tax (benefit) loss ( 1,823 ) ( 937 ) 679 Loss from discontinued operations, net of income taxes $ ( 7,088 ) $ ( 3,905 ) $ ( 2,135 ) Other Divestiture Activities On July 11, 2023 , the Company completed the sale of the Cortland Industrial business, which had been included in the Other operating segment, for net cash proceeds of $ 20.1 million. In connection with the completion of the sale, the Company recorded a net gain of $ 6.2 million. The historical results of the Cortland Industrial business (which had net sales of $ 22.7 million, $ 26.2 million, and $ 23.7 million for the year ended August 31, 2023, 2022 and 2021, respectively) are not material to the consolidated financial results. Note 6. Goodwill, Intangible Assets and Long-Lived Assets Changes in the gross carrying value of goodwill and intangible assets result from changes in foreign currency exchange rates, business acquisitions, divestitures and impairment charges. The changes in the carrying amount of goodwill for the years ended August 31, 2023 and 2022 by operating segment are as follows (in thousands): IT&S Other Total 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 Impact of changes in foreign currency rates 8,546 — 8,546 Balance as of August 31, 2023 $ 255,285 $ 11,209 $ 266,494 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, 2023 August 31, 2022 Gross Accumulated Amortization Net Book Value Gross Accumulated Amortization Net Book Value Amortizable intangible assets: Customer relationships 14 $ 108,292 $ 95,395 $ 12,897 $ 135,101 $ 117,275 $ 17,826 Patents 13 9,769 9,210 559 13,708 13,104 604 Trademarks and tradenames 14 2,734 2,197 537 3,132 2,329 803 Indefinite lived intangible assets: Tradenames N/A 23,345 — 23,345 22,274 — 22,274 $ 144,140 $ 106,802 $ 37,338 $ 174,215 $ 132,708 $ 41,507 The Company estimates amortization expense for future years to be: $ 3.3 million in fiscal 2024, $ 2.9 million in fiscal 2025, $ 1.9 million in fiscal 2026, $ 1.8 million in fiscal 2027, $ 1.6 million in fiscal 2028 and $ 2.5 million in aggregate thereafter. T he future amortization expense amounts represent estimates and may be impacted by future acquisitions, divestitures or changes in foreign currency exchange rates, among other causes. 44 ENERPAC TOOL GROUP CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Fiscal 2023 Impairment Charges In conjunction with our annual goodwill impairment assessment , the Company did not record any charges in fiscal 2023. 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 operating segment) within "Impairment & divestiture (benefit) charges" in the Consolidated Statements of Earnings. In addition, during fiscal 2022, the Company recorded an impairment charge of $ 1.1 million on indefinite lived intangible assets; $ 0.8 million of which was related to a customer relationship intangible asset whereby the Company ceased operations in the country associated with said customers and $ 0.3 million of which was related to tradename intangible asset on a discontinued secondary brand. Note 7. Debt The following is a summary of the Company’s indebtedness (in thousands): August 31, 2023 2022 Previous Senior Credit Facility Short-term debt $ — $ 4,000 Revolver — 200,000 New Senior Credit Facility Revolver 16,000 — Term Loan 198,750 — Total Senior Indebtedness 214,750 204,000 Less: Current maturities of long-term debt ( 3,750 ) — Short-term debt — ( 4,000 ) Debt issuance costs ( 663 ) — Total long-term debt, less current maturities $ 210,337 $ 200,000 Senior Credit Facility On September 9, 2022, the Company refinanced its previous senior credit facility with a new $ 600 million senior credit facility, comprised of a $ 400 million revolving line of credit and a $ 200 million term loan, which will mature in September 2027. The Company has the option to request up to $ 300 million of additional revolving commitments and/or term loans under the new facility, subject to customary conditions, including the commitment of the participating lenders. 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. In addition, a non-use fee is pa yable quarterly on the average unused amount of the revolving line of credit under the previous senior credit facility ranging from 0.15 % to 0.3 % pe r annum, based on the Company's net leverage. Borrowings under the new facility initially bore interest at adjusted term SOFR plus 1.125 % per annum. 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 covenants period during which certain material acquisitions occur and the next succeeding four testing periods) or (ii) the interest coverage ratio, determined as of the end of each of its fiscal quarters, to be less than 3.00 to 1.00 . Borrowings under the 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. The Company was in compliance with all financial covenants under the new facility at August 31, 2023. The previous senior credit facility provided the option for future expansion, subject to certain conditions, through a $ 300 million accordion. Borrowi ngs under the previous 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 under the previous senior credit facility ranging from 0.15 % to 0.3 % per annum, based on the Company's net leverage. 45 ENERPAC TOOL GROUP CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) At August 31, 2023, under the new senior credit facility, there were $ 200 million in borrowings outstanding under the term l oans, $ 16.0 million in borrowings outstanding under the revolving line of credit and $ 381.5 million available for borrowing under the revolving line of credi t facility after reduction for $ 2.5 million of outstanding letters of credit issued under the facility. Prior to this refinancing, the Company's previous senior credit facility matured in March 2024, and provided a $ 400 million revolving line of credit, a $ 200 million term loan and the option for expansion, subject to certain conditions, through a $ 300 million accordion. Borrowings 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 previous senior credit facility contained two financial covenants, which were a maximum leverage ratio of 3.75 :1 and a minimum interest coverage ratio of 3.5 :1. Certain transactions resulted in adjustments to the underlying ratios, including an increase to the leverage ratio from 3.75 to 4.25 during the four fiscal quarters after a significant acquisition. Cash Paid for Interest The Company made cash interest payments of $ 10.6 million , $ 3.1 million and $ 3.7 million in fiscal 2023, 2022 and 2021, respectively. Note 8. 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, 2023 and 2022 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. The fair value of the Company's foreign currency exchange contracts was a net liability of less than $ 0.1 million at both August 31, 2023 and 2022 . The fair value of the Company's interest rate swap (see Note 9, “Derivatives” , for further information on the Company's interest rate swap) was an asset of $ 0.7 million at August 31, 2023. The fair value of the Company's net investment hedge (see Note 9, “Derivatives” for further information on the Company's net investment hedge) was a liability of $ 1.2 million at August 31, 2023. The fair value of all derivative contracts were based on quoted inactive market prices and therefore classified as Level 2 within the valuation hierarchy. As discussed in Note 6, “Goodwill, Intangible Assets and Long-Lived Assets” , the Company recorded impairments to intangibles and goodwill in the years ended August 31, 2023 and 2022 . 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 9. 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 incl uded in "Other expense, net" in the Consolidated Statements of Earnings). The U.S. dollar equivalent notional value of these short duration foreign currenc y exchange contracts was $ 13.8 million and $ 16.7 million at August 31, 2023 and 2022, respectively. The fair value of outstanding foreign currency exchange contracts was a net liability of less than $ 0.1 million at August 31, 2023 and 2022 . Net foreign currency loss (gain) 46 (included in "Other expense, net" in the Consolidated Statements of Earnings) related to these derivative instruments are as follows (in thousands): Year Ended August 31, 2023 2022 2021 Foreign Currency loss (gain) $ 945 $ ( 319 ) $ ( 63 ) During December 2022, the Company entered into an interest rate swap for the notional amount of $ 60.0 million at a fixed interest rate of 4.022 % to hedge the floating interest rate of the Company's term loan with a maturity date of November 30, 2025. The interest rate swap was designated and qualified as a cash flow hedge. The Company uses the interest rate swap for the management of interest rate risk exposure, as an interest rate swap effectively converts a portion of the Company's debt from a floating to a fixed rate. The Company records the fair value of the interest rate swap as an asset or liability on its balance sheet. The change in the fair value of the interest rate swap, a net gain of $ 0.5 million for the year ended August 31, 2023 , is recorded in other comprehensive income (loss). The Company also uses interest-rate derivatives to hedge portions of our net investments in non-U.S. subsidiaries (net investment hedge) against the effect of exchange rate fluctuations on the translation of foreign currency balances to the U.S. dollar. For derivatives that are designated and qualify as a net investment hedge in a foreign operation the net gains or losses attributable to the hedge changes are recorded in other comprehensive income (loss) where they offset gains and losses recorded on our net investments where the entity has non-U.S. dollar functional currency. As of August 31, 2023 , the notional amount of cross-currency swaps designated as net investment hedges was $ 30.5 million. The change in the fair value of the net investment hedge, a net loss of $ 0.9 million for the year ended August 31, 2023 , is recorded in other comprehensive income (loss). 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 under its prior senior credit facility. 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 (loss). Note 10. Leases As of August 31, 2023, 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, 2023 . 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 charges (benefits)" within the Consolidated Statements of Cash 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, 2023 and 2022 were as follows (in thousands): Year Ended August 31, 2023 2022 2021 Lease Cost: Operating lease cost $ 13,155 $ 14,316 $ 15,170 Short-term lease cost 2,318 1,714 1,611 Variable lease cost 4,411 3,609 3,086 47 ENERPAC TOOL GROUP CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Supplemental cash flow and other information related to leases for the year ended August 31, 2023 and 2022 were as follows (in thousands): Year Ended August 31, 2023 2022 2021 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 13,153 $ 14,166 $ 15,240 Right-of-use assets obtained in exchange for new lease liabilities: Operating leases 1,654 4,584 9,197 Supplemental balance sheet information related to leases at August 31, 2023 and 2022 were as follows (in thousands): August 31, 2023 2022 Operating leases: Other long-term assets $ 37,714 $ 43,273 Other current liabilities 9,786 10,709 Other long-term liabilities 29,245 33,477 Total operating lease liabilities $ 39,031 $ 44,186 Weighted Average Remaining Lease Term: Operating leases 6.5 years 6.4 years Weighted Average Discount Rate: Operating leases 5.0 % 4.4 % A summary of the future minimum lease payments due under operating leases with terms of more than one year at August 31, 2023 is as follows (in thousands): Operating Leases 2024 $ 11,368 2025 9,533 2026 6,650 2027 3,687 2028 3,131 Thereafter 11,540 Total minimum lease payments 45,909 Less imputed interest ( 6,878 ) Present value of net minimum lease payments $ 39,031 48 ENERPAC TOOL GROUP CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Note 11. 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): 2023 2022 Reconciliation of benefit obligations: Benefit obligation at beginning of year $ 37,135 $ 47,147 Interest cost 1,694 1,165 Actuarial (gain) loss ( 2,337 ) ( 8,197 ) Benefits paid ( 3,288 ) ( 2,980 ) Benefit obligation at end of year $ 33,204 $ 37,135 Reconciliation of plan assets: Fair value of plan assets at beginning of year $ 31,166 $ 39,696 Actual return on plan assets 545 ( 5,658 ) Company contributions 108 108 Benefits paid from plan assets ( 3,289 ) ( 2,980 ) Fair value of plan assets at end of year 28,530 31,166 Funded status of the plans (underfunded) $ ( 4,674 ) $ ( 5,969 ) The following table provides detail on the Company’s domestic net periodic benefit expense (in thousands): Year ended August 31, 2023 2022 2021 Interest cost $ 1,694 $ 1,165 $ 1,156 Expected return on assets ( 1,984 ) ( 2,060 ) ( 1,610 ) Amortization of actuarial loss 878 1,219 1,322 Net periodic benefit expense $ 588 $ 324 $ 868 As of August 31, 2023 and 2022, $ 16.9 million and $ 18.3 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 2024, $ 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: 2023 2022 2021 Assumptions for benefit obligations: Discount rate 5.40 % 4.75 % 2.55 % Assumptions for net periodic benefit cost: Discount rate 4.75 % 2.55 % 2.40 % Expected return on plan assets 5.70 % 5.45 % 4.20 % 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 2023, the plan assets were invested in a mix of 60 % duration-matched fixed income securities and 40 % equity securities. During fiscal 2022, the plan portfolio was invested in 50 % fixed income securities and 50 % 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, 2023, 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 50% investment mix between fixed income and equity securities. 49 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, 2023 % 2022 % Cash and cash equivalents $ 51 0.2 % $ — — % Income receivable 40 0.1 31 0.1 Fixed income securities: U.S. Treasury Securities 4,659 16.3 4,852 15.6 Corporate Bonds — — — — Mutual funds 11,269 39.5 11,395 36.6 15,928 55.8 16,247 52.2 Equity securities: Mutual funds 12,511 43.9 14,888 47.7 Total plan assets $ 28,530 100.0 % $ 31,166 100.0 % 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 8, “Fair Value Measurements.” Projected benefit payments from plan assets to participants in the Company’s U.S. pension plans are $ 2.9 million for fiscal 2024, $ 3.0 million per year for each of the next three years, $ 2.9 million for fiscal 2028 and $ 13.4 million in aggregate for the following five years. The Company plans to make a contribution of $ 0.4 million to the U.S. pension plans in September of fiscal 2024. The Company did not make a contribution to the plan in fiscal 2023 or fiscal 2022. Foreign Defined Benefit Pension Plans The Company has seven 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): 2023 2022 Reconciliation of benefit obligations: Benefit obligation at beginning of year $ 8,017 $ 14,421 Employer service costs 60 90 Interest cost 306 159 Actuarial gain ( 494 ) ( 3,859 ) Benefits paid ( 256 ) ( 200 ) Settlements ( 213 ) ( 480 ) Currency impact 665 ( 2,114 ) Benefit obligation at end of year $ 8,085 $ 8,017 Reconciliation of plan assets: Fair value of plan assets at beginning of year $ 6,208 $ 9,396 Actual return on plan assets ( 359 ) ( 1,159 ) Company contributions 286 44 Benefits paid from plan assets ( 469 ) ( 680 ) Currency impact 529 ( 1,393 ) Fair value of plan assets at end of year 6,195 6,208 Funded status of the plans (underfunded) $ ( 1,889 ) $ ( 1,808 ) 50 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, 2023 2022 2021 Employer service costs $ 60 $ 90 $ 116 Interest cost 306 159 198 Expected return on assets (245) (316) (347) Amortization of net prior service credit 3 3 4 Amortization of net loss 10 112 139 Settlement 37 145 — Net periodic benefit expense $ 171 $ 193 $ 110 The weighted average discount rate utilized for determining the benefit obligation at August 31, 2023 and 2022 was 4.3 % and 3.6 %, 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 3.7 %. During fiscal 2024, the Company does not anticipate contributing to these pension plans. Projected benefit payments to participants in the these f oreign plans are $ 0.3 million in each fiscal 2024, 2025, 2026 and 2027, $ 0.4 million in fiscal 2028 and $ 2.2 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 o bligation of $ 1.7 million and $ 1.9 million at August 31, 2023 and 2022, 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 7.0 %, 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 in both years ended August 31, 2023 and 2022 and $ 0.2 million for the year ended August 31, 2021. Benefit payments from the plan are funded through participant contributions and Company contributions. Benefit payments are projected to be $ 0.2 million in fiscal 2024. 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 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, 2023. 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. Compan y 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 2023, 2022 or fiscal 2021. Expense recognized related to the 401(k) plan totaled $ 2.1 million, $ 2.2 million and $ 1.1 million for the years ended August 31, 2023, 2022 and 2021, 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 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 $ 1.0 million and $ 1.1 million obli gation at August 31, 2023 and 2022, respectively . Expense recognized for the SERP Plan was $ 0.2 million in each of fiscal 2023 and 2022 and $ 0.1 million in fiscal 2021. 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 51 ENERPAC TOOL GROUP CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 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 $ 11.0 million and $ 12.9 million are included in the Consolidated Balance Sheets at August 31, 2023 and 2022, respectively, to reflect the unfunded portion of the deferred compensation liability. The Company recorded expense in "Financing costs, net" of $ 0.9 million, $ 0.7 million and $ 1.2 million for the years ended August 31, 2023, 2022 and 2021, 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 man ner 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 the Company's common stock are not recognized. Note 12. Income Taxes Earnings before income taxes from continuing operations, are summarized as follows (in thousands): Year Ended August 31, 2023 2022 2021 Domestic $ 26,442 $ 10,176 $ 1,292 Foreign 42,456 13,816 42,683 $ 68,898 $ 23,992 $ 43,975 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 2023, domestic earnings included non-cash impairment and other divestiture benefits of $ 6.2 million. 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 $ 4.7 million and $ 1.5 million of non-cash impairment and other divestiture benefits, respectively. Substantially all of the non-cash impairment and other divestiture charges (benefits) did not result in a tax expense (benefit). Income tax expense from continuing operations is summarized as follows (in thousands): Year ended August 31, 2023 2022 2021 Currently payable: Federal $ 5,181 $ 1,765 $ ( 18,243 ) Foreign 9,240 7,824 12,441 State 319 164 539 14,740 9,753 ( 5,263 ) Deferred: Federal ( 2,935 ) 1,580 9,677 Foreign 3,806 ( 7,538 ) 185 State ( 362 ) 606 ( 836 ) 509 ( 5,352 ) 9,026 Income tax expense $ 15,249 $ 4,401 $ 3,763 52 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, 2023 2022 2021 Federal statutory rate 21.0 % 21.0 % 21.0 % State income taxes, net of Federal effect 0.7 2.3 ( 0.2 ) Tax on foreign earnings (1) 6.0 1.3 2.8 Foreign derived intangible income deduction ( 3.1 ) ( 4.5 ) ( 3.2 ) Compensation adjustment 1.5 6.6 3.1 Impairment and other divestiture charges — 1.1 1.6 Valuation allowance additions and releases ( 0.8 ) 2.1 7.1 Changes in liability for unrecognized tax benefits ( 0.1 ) 3.4 ( 18.5 ) U.S. legislative changes, net impact — — ( 9.8 ) Taxable liquidation of subsidiaries (2) 0.1 ( 11.4 ) — Foreign non-deductible expenses 1.7 8.5 1.2 Changes in tax rates ( 2.0 ) ( 3.6 ) ( 3.4 ) Audits and adjustments (3) ( 2.9 ) ( 6.7 ) 8.0 Research and development tax credit ( 0.7 ) ( 2.5 ) ( 1.8 ) Other items 0.7 0.7 0.7 Effective income tax rate 22.1 % 18.3 % 8.6 % (1) Th e Company generated $ 1.6 million, $ 0.2 million and $ 1.1 million of U.S. tax on non-U.S. earnings, net of foreign tax credits for fiscal 2023, 2022 and 2021, respectively. (2) During fiscal 2022, the Company generated a net benefit of $ 2.7 million as a result of taxable liquidations of subsidiaries. (3) During fiscal 2023 and fiscal 2022, the Company generated $ 2.0 million and $ 1.6 million of tax benefit related to audits and adjustments as compared to a tax expense of $ 3.5 million in fiscal 2021. Temporary differences and carryforwards that gave rise to deferred tax assets and liabilities include the following items (in thousands): August 31, 2023 2022 Deferred income tax assets: Operating loss and tax credit carryforwards $ 70,933 $ 78,717 Compensation related liabilities 7,372 6,002 Postretirement benefits 5,224 5,995 Inventory 1,715 2,780 Lease liabilities 8,594 9,637 Research and development capitalization 4,544 — Book reserves and other items 6,548 9,873 Total deferred income tax assets 104,930 113,004 Valuation allowance ( 61,432 ) ( 61,630 ) Net deferred income tax assets 43,498 51,374 Deferred income tax liabilities: Depreciation and amortization ( 23,844 ) ( 30,149 ) Lease assets ( 8,594 ) ( 9,637 ) Other items ( 1,020 ) ( 1,024 ) Deferred income tax liabilities ( 33,458 ) ( 40,810 ) Net deferred income tax asset (1) $ 10,040 $ 10,564 (1) The net deferred income tax asset is reflected on the balance sheet in two categories: an asset of $ 15.7 million and $ 17.9 million for fiscal 2023 and 2022, respectively, is included in "Other long-term assets" and a liability of $ 5.7 million and $ 7.3 million for fiscal 2023 and 2022, respectively, is included in "Deferred income taxes". The Company has $ 68.6 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 2043. The Company also has $ 79.4 million and $ 7.7 million of foreign loss and credit carryforwards, respectively, and $ 1.8 million of U.S. credit carryforwards which are available to reduce certain future foreign and U.S. tax liabilities. The 53 ENERPAC TOOL GROUP CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) majority of the foreign loss carryforwards are not subject to any expiration dates, while the other balances expire at various times through 2030. The U.S. credit carryforwards expire at various times through 2033. 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 n ot result in an incremental U.S. tax liability. The Company does not currently provide for the additional U.S. and foreign income taxes that would become payable upon remission of undistributed earnings of foreign subsidiaries. If all undistributed earnings were remitted, an additional income tax provision of $ 2.6 million would have been necessary as of August 31, 2023. Changes in the Company’s gross liability for unrecognized tax benefits, excluding interest and penalties, are as follows (in thousands): 2023 2022 2021 Beginning balance $ 15,380 $ 15,658 $ 23,205 Increases based on tax positions related to the current year 279 433 381 Increase for tax positions taken in a prior period — 1,084 7 Decrease for tax positions taken in a prior period ( 56 ) ( 57 ) — Decrease due to lapse of statute of limitations ( 951 ) ( 1,271 ) ( 7,931 ) Decrease due to settlements — ( 31 ) — Changes in foreign currency exchange rates 102 ( 436 ) ( 4 ) Ending balance $ 14,754 $ 15,380 $ 15,658 Substantially all of these unreco gnized tax benefits, if recognized, would impact the effective income tax rate. As of August 31, 2023, 2022 and 2021, the Company recognized $ 5.2 million, $ 4.5 million and $ 3.9 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 2011. The Company believes it is reasonably possible that the total amount of unrecognized tax benefits could decrease by up to $ 3.1 million throughout fiscal 2024. Cash paid for income taxes, net of refunds, totaled $ 2.7 million, $ 5.7 million and $ 7.8 million during the years ended August 31, 2023, 2022 and 2021, respectively. Note 13. Capital Stock and Share Repurchases The authorized common stock of the Company as of August 31, 2023 consisted of 168,000,000 shares of Class A common stock, $ 0.20 par value, of which 83,760,798 and 54,988,083 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. In March 2022, the Company's Board of Directors rescinded its prior share repurchase authorization and approved a new share repurchase program authorizing the repurchase of a total of 10,000,000 shares of the Company's outstanding common stock. The Company repurchased 2,213,750 shares of its common stock for $ 57.7 million during the year ended August 31, 2023. As of August 31, 2023, the maximum number of shares that may yet be purchased under this new program is 4,026,515 . Since the inception of the initial share repurchase program in fiscal 2012, the Company has repurchased 28,772,715 shares of common stock for $ 800.5 million. 54 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, 2023 2022 2021 Numerator: Net earnings from continuing operations $ 53,649 $ 19,591 $ 40,212 Net loss from discontinued operations ( 7,088 ) ( 3,905 ) ( 2,135 ) Net earnings $ 46,561 $ 15,686 $ 38,077 Denominator: Weighted average common shares outstanding - basic 56,680 59,538 60,024 Net effect of dilutive securities - stock based compensation plans 437 371 379 Weighted average common shares outstanding - diluted 57,117 59,909 60,403 Earnings per common share from continuing operations: Basic $ 0.95 $ 0.33 $ 0.67 Diluted $ 0.94 $ 0.33 $ 0.67 Loss per common share from discontinued operations: Basic $ ( 0.13 ) $ ( 0.07 ) $ ( 0.04 ) Diluted $ ( 0.12 ) $ ( 0.07 ) $ ( 0.04 ) Earnings per common share: Basic $ 0.82 $ 0.26 $ 0.63 Diluted $ 0.82 $ 0.26 $ 0.63 Anti-dilutive securities- stock based compensation plans (excluded from earnings per share calculation) 891 946 880 Note 14. 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”). A total of 7,825,000 shares of Class A common stock have been authorized for issuance under the Plan (including 3,500,000 shares that were authorized for issuance at the January 2021 annual meeting) plus shares, if any, that become issuable, pursuant to the terms of the Plan, upon the expiration, cancellation or forfeiture of awards under our previously registered stock plans outstanding at the time the Plan was first approved by the Company's shareholders. At August 31, 2023, 3,365,219 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 fiscal 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 awards of Performance Shares granted in the year ended August 31, 2021, payout under the awards is based on the Company’s total shareholder return ("TSR") relative to the S&P 600 SmallCap Industrial index. For the awards of Performance Shares granted in the year end ed August 31, 2022, payout under the awards is based 50 % on the relative TSR metric and 50 % on the Company's three-year average return on invested capital. For awards of Performance Shares granted in the year ended August 31, 2023, payout under the awards is based 33.3 % on the relative TSR metric, 33.3 % on the Company's adjusted earnings per share and 33.3 % on the Company's three-year average return on invested capital. The p rovisions of share-based awards may vary by individual grant with respect to vesting period, dividend and voting rights, performance conditions and forfeitures. 55 ENERPAC TOOL GROUP CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) A summary of restricted stock units and performance shares activity during fiscal 2023 is as follows: Number of Shares Weighted-Average Fair Value at Grant Date (Per Share) Outstanding on August 31, 2022 1,098,026 $ 20.73 Granted 571,830 25.42 Forfeited ( 218,158 ) 22.18 Vested ( 412,162 ) 20.72 Outstanding on August 31, 2023 1,039,536 $ 22.26 A summary of stock option activity during fiscal 2023 is as follows: Shares Weighted-Average Exercise Price (Per Share) Weighted-Average Remaining Contractual Term Aggregate Intrinsic Value Outstanding on September 1, 2022 947,807 $ 26.85 Granted — — Exercised ( 43,633 ) 22.30 Forfeited — — Expired ( 274,767 ) 26.83 Outstanding on August 31, 2023 629,407 $ 27.18 2.2 $ 950,887 Exercisable on August 31, 2023 629,407 $ 27.18 2.2 $ 950,887 Intrinsic value is the difference between the market value of the stock at August 31, 2023 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, 2023 2022 2021 Intrinsic value of options exercised $ 169 $ — $ 587 Cash receipts from exercise of options 973 — 2,208 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 dat e and utilized an expected forfeiture rate of 12 % for each of the years ended for the years ended August 31, 2023, 2022 and 2021. The fair value of Performance Shares with market vesting conditions, which includes the Performance Shares awarded in fiscal 2023, 2022 and 2021, is determined utilizing a Monte Carlo simulation model. As of August 31, 2023, there was $ 9.4 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 1.6 years. The total fair value of share-based awards that vested during the fiscal years ended August 31, 2023 and 2022 was $ 9.8 million and $ 11.8 million, respectively. Note 15. 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 operating segment is included for purposes of reconciliation of the respective balances below to the consolidated financial statements. 56 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, 2023 2022 2021 Net Sales by Reportable Segment & Product Line IT&S Segment Product $ 447,603 $ 410,245 $ 376,353 Service & Rental 107,575 117,097 116,772 555,178 527,342 493,125 Other Segment 43,026 43,881 35,535 $ 598,204 $ 571,223 $ 528,660 Operating Profit (Loss) IT&S Segment $ 135,883 $ 78,735 $ 81,683 Other Segment 10,954 729 ( 10,420 ) General Corporate ( 62,915 ) ( 48,804 ) ( 20,150 ) $ 83,922 $ 30,660 $ 51,113 Depreciation and Amortization: IT&S Segment $ 12,329 $ 14,498 $ 15,856 Other Segment 3,164 3,664 3,568 General Corporate 820 1,438 2,187 $ 16,313 $ 19,600 $ 21,611 Capital Expenditures: IT&S Segment $ 7,779 $ 7,139 $ 10,918 Other Segment 599 710 768 General Corporate 1,022 568 333 $ 9,400 $ 8,417 $ 12,019 August 31, 2023 2022 Assets: IT&S Segment $ 632,113 $ 618,412 Other Segment 28,127 46,428 General Corporate 102,357 92,472 $ 762,597 $ 757,312 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. 57 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, 2023 2022 2021 Net Sales: United States of America $ 231,093 $ 226,020 $ 188,070 United Kingdom 34,085 29,316 39,896 Germany 29,926 28,004 28,456 Canada 29,643 19,651 17,348 Australia 28,607 26,667 24,990 Saudi Arabia 25,762 20,892 16,715 Brazil 20,523 16,517 13,937 France 14,606 14,854 13,368 China 14,081 15,434 16,927 All Other 169,877 173,868 168,953 $ 598,204 $ 571,223 $ 528,660 August 31, 2023 2022 Property, Plant and Equipment, net: United States $ 15,081 $ 16,743 United Kingdom 7,543 8,212 UAE 4,004 4,407 Brazil 3,197 2,873 Netherlands 2,423 1,965 Spain 1,484 1,413 All other 5,235 5,761 $ 38,968 $ 41,372 The Company’s largest customer accounted for approximately 3 % of sales in each of the last three fiscal years. Export sales from domestic operations were 9.9 %, 9.8 % and 7.2 % of total net sales from continuing operations in fiscal 2023, 2022 and 2021, respectively. Note 16. Commitments and Contingencies The Company had outstanding letters of credit of $ 8.6 million and $ 10.7 million at August 31, 2023 and 2022, 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 sup pliers 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 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 58 ENERPAC TOOL GROUP CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 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 supported the Company 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, 2023. 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. 59 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, 2023 $ 17,504 $ 1,177 $ ( 32 ) $ ( 2,230 ) $ 362 $ 16,781 August 31, 2022 4,235 14,277 — ( 350 ) ( 658 ) 17,504 August 31, 2021 4,991 8 — ( 845 ) 81 4,235 Valuation allowance—Income taxes August 31, 2023 $ 61,630 $ 3,305 $ — $ ( 3,503 ) $ — $ 61,432 August 31, 2022 66,155 925 — ( 5,450 ) — 61,630 August 31, 2021 70,414 4,886 — ( 9,145 ) — 66,155 60 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.