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Item 7. Management’s Discussion and Analysis

2024-10-21 compared with 2023-10-20 · 112 added, 82 removed, 202 unchanged (49% of the section changed)

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"Financial Statements and Supplementary Data ".

The Company has one reportable segment, Industrial Tools & Service ("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, as well as providing services and tool rental to the industrial, maintenance, infrastructure, oil & gas, alternative energy and other markets.

The Company has one reportable segment, the Industrial Tools & Service ("IT&S") segment, 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 refinery/petrochemical;

general industrial;

industrial maintenance, repair and operations ("MRO");

machining & manufacturing;

power generation;

infrastructure;

mining and other markets.

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

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

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

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

In addition to organic growth, we also focus on margin expansion through operational efficiency techniques, including lean, continuous improvement and 80/20, to drive productivity and lower costs, as well as optimizing our selling, general and administrative expenses through consolidation and shared service implementation.

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General Business Update

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

In March 2022, the Company announced the start of its ASCEND transformation program (“ASCEND”), initially estimating an incremental $40 to $50 million of annual operating profit once fully implemented.

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

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

Through the end of fiscal 2023, we invested approximately $60 million as part of the program, with operating profit improving by approximately $54 million in fiscal 2023 compared to the prior fiscal year.

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

At the time the company anticipated investing $60 to $65 million through the end of fiscal 2024 to complete these actions.

In June 2022, the Company approved a restructuring plan in connection with the initiatives identified as part of the ASCEND transformation program to drive greater efficiency and productivity in global selling, general and administrative resources.

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

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

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

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

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.

(see Note 4, “Restructuring Charges” in the notes to the consolidated financial statements).

These costs were incorporated into the initial investment of $60 to $65 million.

In September 2022, the Company approved an update to the restructuring plan to a range of $10 to $15 million;

these costs were still incorporated into the initial investment value and the range did not change at that time.

In March 2023, the Company increased the estimated investment range to $70 to $75 million, inclusive of the $10 to $15 million of the previously announced restructuring, over the life of the program.

In October 2023, the Company announced that during fiscal 2023, the Company had realized approximately $54 million of annual operating profit from execution of the ASCEND program and would no longer be breaking out the ASCEND benefit from results going into fiscal 2024.

Through fiscal 2023, the Company invested approximately $60 million as part of the program, both through program charges and restructuring.

Through the end of fiscal 2024 when the ASCEND program concluded, the Company has invested approximately $75 million as part of the program, consisting of $19 million through restructuring and $56 million in ASCEND transformation program charges.

The following summarizes ASCEND transformation charges (in thousands):

Year-Ended August 31,

2024 2023 2022 Program to Date

ASCEND Expense recorded in Cost of products sold 1,018 924 6 1,948

ASCEND Expense recorded in SG&A expenses 6,029 34,495 13,610 54,134

Total ASCEND Expense 7,047 35,419 13,616 56,082

Recorded with Restructuring charges 7,843 7,719 3,050 18,612

Total ASCEND Transformation Charges $ 14,890 $ 43,138 $ 16,666 $ 74,694

Commencing in February 2022, in response to the armed conflict in Ukraine, many countries, including the member countries of NATO, initiated a variety of sanctions and export controls targeting Russia and associated entities.

Approximately 1% of our historical annual sales are to customers and distributors associated with Russia and we had approximately $0.5 million of receivables associated with those customers and distributors as of February 28, 2022.

Approximately 1% of our historical annual sales were to customers and distributors associated with Russia and we had approximately $0.5 million of receivables associated with those customers and distributors as of February 28, 2022.

The sanctions currently in place limit our ability to provide goods to those customers and distributors and banking sanctions effectively negate our ability to collect those receivables;

as such, we recorded a full allowance for doubtful accounts against those receivables as of February 28, 2022 and indefinitely suspended doing business in Russia.

as such, we recorded a full allowance for credit losses against those receivables as of February 28, 2022 and indefinitely suspended doing business in Russia.

We will continue to monitor the situation with Russia to assess when and if we are able to resume business with those customers and distributors, including collection of the outstanding receivables.

We also continue to monitor and manage the ancillary impact of the Russia crisis on our business, which is primarily related to supply chain, increased commodity and energy costs, foreign exchange rate volatility and dealer confidence, particularly in Europe.

During the year ended August 31, 2022, the Company recorded through bad debt expense (included in "Selling, general and administrative expenses" in the Condensed Consolidated Statements of Earnings) a reserve of $13 million to fully reserve for the outstanding accounts receivable balance for an agent in our Middle East/North Africa/Caspian ("MENAC") region.

The allowance for doubtful accounts for this particular agent remains unchanged during fiscal 2023 and represents management's best estimate of the probable amount 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 customers, (iii) the status of ongoing negotiations with the agent to secure payments and (iv) legal recourse available to us to secure payment.

The allowance for credit losses for this particular agent remains unchanged during fiscal 2024 and represents management's best estimate of the probable amount 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 customers, (iii) the status of ongoing negotiations with the agent to secure payments, (iv) legal recourse available to us to secure payment, and (v) the agent is currently in bankruptcy proceedings.

Actual collections from the agent may differ from the Company's estimate.

We have completely ceased our relationship with this agent and have transitioned to serving our regional customers through recently created direct operations within the region.

On October 31, 2019, the Company completed the sale of its former EC&S segment to wholly owned subsidiaries of BRWS Parent LLC, a Delaware limited liability company and affiliate of One Rock Capital Partners II, LP, for a purchase price of approximately $216 million (inclusive of final working capital adjustments), with approximately $3 million which was due in four equal quarterly installments, the last of which was received in the first quarter of fiscal 2021.

The EC&S segment is treated as discontinued operations in our financial statements for all periods.

The EC&S segment is treated as discontinued operations in our financial statements for all periods included therein.

On July 11, 2023, the Company completed the sale of the Cortland Industrial business, for net proceeds of $20 million.

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(1) Results are from continuing operations and exclude the financial results of previously divested businesses reported as discontinued operations.

Except per share amounts, the summation of the individual components may not equal the total due to rounding.

The summation of the individual components may not equal the total due to rounding.

Fiscal 2024 compared to Fiscal 2023

C onsolidated net sales for fiscal 2024 were $590 million, 1% lower than the prior-year sales of $598 million.

The impact of foreign currency rates was nearly flat year-over-year, while the divestiture of the Cortland Industrial business during the fourth quarter of fiscal 2023 unfavorably impacted fiscal 2024 sales by approximately $23 million, or 4%.

Management refers to sales adjusted to exclude the impact of these items, foreign currency changes and recent acquisitions and divestitures, as "organic sales", which we formerly referred to as "core sales".

Product sales declined 3% compared to prior fiscal year to $474 million, with foreign currency impact of less than 1% and the Cortland Industrial divestiture unfavorably impacting sales by 5%, resulting in a 1% improvement in Product organic sales.

The increase in Product organic sales was driven by pricing actions and mix within the IT&S product offerings;

however, this was partially offset by a decrease in organic sales in the Cortland Medical business due to softness in demand related to certain surgical procedures utilizing Cortland Biomedical products.

Service sales were $116 million, an increase of 7% compared to the prior fiscal year.

Foreign currency impact was nearly flat, resulting in a 7% increase in organic Service sales over the prior fiscal year.

The organic sales increase in the Service business was due to strong growth within our EMEA region from increased work scopes, higher maintenance activity in the North Sea and projects delayed from the prior fiscal year taking place during fiscal 2024.

Gross profit as a percentage of sales was approximately 51% in fiscal 2024, 2% higher than fiscal 2023.

The increase in gross profit is primarily attributed to operational improvements from the ASCEND transformation program, as well as pricing actions and the disposition of Cortland Industrial.

Operating profit for fiscal 2024 was $122 million, approximately $38 million higher than the prior fiscal year of $84 million.

Operating profit was impacted by the increased gross profit noted above, as well as a reduction of Selling, general & administrative ("SG&A") expense of $36 million compared to the prior fiscal year.

The SG&A decrease was primarily due to lower ASCEND transformation program charges ($28 million), M&A charges ($1 million) and leadership transition charges ($1 million), as well as reduced incentive compensation expense.

Fiscal 2023 compared to Fiscal 2022

C onsolidated net sales for fiscal 2023 were $598 million, 5% higher than the prior-year sales of $571 million.

The impact of foreign currency rates unfavorably impacted fiscal 2023 sales by approximately $11 million or 2% and the divestiture of the Cortland Industrial business during the fourth quarter of fiscal 2023 unfavorably impacted sales by approximately $6 million or 1%, management refers to sales adjusted for these items as "core sales".

The impact of foreign currency rates unfavorably impacted fiscal 2023 sales by approximately $11 million, or 2%, and the divestiture of the Cortland Industrial business during the fourth quarter of fiscal 2023 unfavorably impacted sales by approximately $6 million, or 1%.

Product sales growth was 8%, with foreign currency and the divestiture of the Cortland Industrial business both unfavorably impacting sales by $9 million, or 3%, and $6 million, or 1%, respectively.

The Product sales growth was primarily due to pricing actions, with some volume contribution.

Service sales declined 8%, unfavorably impacted by $2 million or 1% of foreign currency and our reduced activity in the MENAC region following implementation of an 80/20 analysis that drove a more selective process for quoting projects, with a focus on more differentiated solutions.

Service sales declined 8%, unfavorably impacted by $2 million, or 1%, due to foreign currency and our reduced activity in the EMEA region following implementation of an 80/20 analysis that drove a more selective process for quoting projects, with a focus on more differentiated solutions.

Gross profit as a percentage of sales was approximately 49% in fiscal 2023, 3% higher than fiscal 2022.

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Operating profit for fiscal 2023 was $84 million, approximately $53 million higher than the prior fiscal year of $31 million.

Operating profit was impacted by the increased gross profit noted above, as well as a reduction of Selling, general & administrative ("SG&A") expense of $12 million compared to the prior year.

The SG&A decrease was primarily due to personnel savings from the actions taken in the ASCEND transformation program, as well as prior-year charges including MENAC agent specific reserve ($13 million) and leadership transition charges ($7 million), reduction of business review charges related to external support for the deep dive holistic business review ($3 million).

These reductions were partially offset by increased incentive compensation expense and expense from the ASCEND transformation program ($21 million) compared to the prior year.

Operating profit was impacted by the increased gross profit noted above, as well as a reduction of Selling, general & administrative ("SG&A") expense of $12 million compared to the prior fiscal year.

The SG&A decrease was primarily due to personnel savings from the actions taken in the ASCEND transformation program, as well as prior-fiscal-year charges including the EMEA agent specific reserve ($13 million) and leadership transition charges ($7 million), and a reduction of business review charges related to external support for the deep dive holistic business review ($3 million).

These reductions were partially offset by increased incentive compensation expense and expense from the ASCEND transformation program ($21 million) compared to the prior fiscal year.

Restructuring charges in fiscal 2023 decreased by $1 million to $7 million compared to fiscal 2022.

Impairment and divestitures charges (benefit) improved by $9 million due to the gain on sale recorded from the Cortland Industrial divestiture in the fourth quarter of fiscal 2023.

Fiscal 2022 compared to Fiscal 2021

Consolidated net sales from continuing operations in fiscal 2022 were $571 million, 8% higher than the prior-year sales of $529 million.

The impact from foreign currency rates unfavorably impacted sales by roughly $15 million or 3%.

Sales growth was from product pricing actions that the Company took beginning in late fiscal 2021 and during fiscal 2022 in response to significant inflationary pressures on commodities, freight and energy costs coupled with year-over-year product volume growth largely in the first half of fiscal 2022, as prior year fiscal 2021 fir st half sales were still impacted by the COVID-19 pandemic, were the primary drivers of the increase in net sales.

Gross profit as a percentage of net sales in fiscal 2022 of 46% remained relatively flat with fiscal 2021, with improved gross profit margins on product sales primarily due to the aforementioned pricing actions outweighing the impact of inflation and improved productivity in our manufacturing facilities being offset by lower service gross profit margins due to lower service utilization as a result of the Russia-Ukraine conflict and the mix of service work performed year-over-year.

Operating profit was $20 million lower in fiscal 2022 as compared to fiscal 2021 predominantly due to $42 million of incremental SG&A expenses offset by a $22 million increase in gross profit, as described above.

The increase in SG&A was due to ASCEND transformation program charges of $14 million related primarily to the use of external services for the support in the design, development and execution of the program;

discrete bad debt charges of approximately $14 million associated with the significant delinquency in payments from a MENAC region agent and for Russian customers and distributors;

incremental leadership transition charges of $8 million;

charges of $3 million related to external support for the deep-dive holistic business review prior to the launch of the ASCEND program;

and roughly $3 million of higher travel and entertainment costs tied to more commercial and leadership travel as we exited the COVID-19 pandemic.

Restructuring charges increased $6 million as compared to the prior period as a result of charges to streamline and flatten the organizational structure ($3 million), as well as ASCEND-related restructuring expenses ($3 million).

Segment Results

The IT&S segment is a global supplier of branded hydraulic and mechanical tools and services to a broad array of end markets, including infrastructure, industrial maintenance, repair, and operations, oil & gas, mining, alternative and renewable energy, and civil construction markets.

The IT&S segment is a global supplier of branded hydraulic and mechanical tools and services to a broad array of end markets, including refinery/petrochemical;

general industrial;

industrial MRO;

machining & manufacturing;

power generation;

infrastructure;

mining and other markets.

Its primary products include branded tools, cylinders, pumps, hydraulic torque wrenches, highly engineered heavy lifting technology solutions and other tools (Product product line).

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Fiscal 2024 compared to Fiscal 2023

Fiscal 2023 net sales were $555 million, an increase of 5% or $28 million from fiscal 2022 sales of $527 million, with foreign currency rates unfavorably impacting sales by approximately $11 million or 3%.

The increase in sales was predominately driven by growth in the product business primarily due to pricing actions, with some volume contribution, which were partially offset by the decline in the service business due to the implementation of 80/20 analysis and a more selective process for quoting projects in the MENAC region, with a focus on more differentiated solutions in the MENAC region.

Fiscal 2024 net sales were $571 million, an increase of $16 million, or 3% from fiscal 2023 sales of $555 million.

Organic sales also increased by 3%, as the impact of foreign currency was nearly flat.

The increase in sales was predominately driven by our Service business which had strong growth within our EMEA region from increased work scopes, higher maintenance activity in the North Sea and projects delayed from the prior fiscal year taking place during fiscal 2024.

Sales in the Product business also increased, but not to the extent of the Service business.

The growth in Product business sales was driven by pricing actions and product mix within the IT&S product offerings.

Fiscal 2024 operating profit increased $17 million to $153 million.

This increase was driven by the aforementioned pricing actions, with some volume contribution and a reduction in SG&A expenses.

The reduction of SG&A expense was a result of $13 million of discrete bad debt charges in fiscal 2022 from our MENAC agent and personnel savings from ASCEND actions, which were partially offset by increased incentive compensation expense and higher costs for the ASCEND transformation program in fiscal 2023.

The reduction of SG&A expense was from reduced ASCEND Transformation Program charges ($4 million) and lower incentive compensation expense, partially offset by slightly higher restructuring charges ($1 million) for this segment.

Fiscal 2023 compared to Fiscal 2022

Fiscal 2022 IT&S segment net sales increased by $34 million (7%) from fiscal 2021 to $527 million , which included a $15 million or 3% unfavorable impact on sales due to changes in foreign currency exchange rates.

The increase in sales was predominantly attributable to the continued global market recovery from the COVID-19 pandemic resulting in incremental product volume growth largely in the first half of fiscal 2022 coupled with the impact from pricing actions taken in late fiscal 2021 and during fiscal 2022 due to the significant inflation affecting commodity, freight and energy costs.

Fiscal 2022 operating profit decreased $3 million (4%) from the prior year.

The operating profit decrease was a result of a $14 million increase in SG&A expense primarily due to discrete bad debt charges of approximately $14 million associated with the significant delinquency in payments from a MENAC region agent and for Russian customers and distributors offset by a $15 million increase in gross profit due to pricing actions outweighing the impact of inflation and improved productivity in our manufacturing facilities being offset by lower service gross profit margins due to lower service utilization as a result of the Russia-Ukraine conflict and the mix of service work performed year over year.

Fiscal 2023 net sales were $555 million, an increase of $28 million, or 5%, from fiscal 2022 sales of $527 million, with foreign currency rates unfavorably impacting sales by approximately $11 million, or 3%.

The increase in sales was predominately driven by growth in the Product business primarily due to pricing actions, with some volume contribution, which was partially offset by the decline in the Service business due to the implementation of 80/20 analysis and a more selective process for quoting projects in the EMEA region, with a focus on more differentiated solutions in the EMEA region.

Fiscal 2023 operating profit increased $57 million to $136 million.

This increase was driven by the aforementioned pricing actions, with some volume contribution and a reduction in SG&A expenses.

The reduction of SG&A expense was a result of a $13 million EMEA agent specific reserve and personnel savings from ASCEND actions, which were partially offset by increased incentive compensation expense and higher costs for the ASCEND transformation program in fiscal 2023.

Corporate consists of selling, general and administrative costs and expenses, including executive, legal, finance, human resources, and information technology, that are not allocated to the segments based on their nature.

Corporate expenses were $63 million in fiscal 2023 which is $14 million higher than the fiscal 2022 expenses of $49 million.

Corporate expenses were $36 million in fiscal 2024, which was $27 million lower than the fiscal 2023 expenses of $63 million.

This decrease was primarily due to a reduction in ASCEND transformation program charges in fiscal 2024 ($25 million).

Corporate expenses were $63 million in fiscal 2023 which was $14 million higher than the fiscal 2022 expenses of $49 million.

This increase was primarily from ASCEND transformation program expenses ($15 million) and incentive compensation expense.

Additional expense was offset by a decrease in leadership transition charges ($7 million) and external support for the deep dive-holistic business review ($3 million).

Corporate expenses were $49 million in fiscal 2022 compared to $20 million in fiscal 2021.

The increase of $29 million is a result of th e ASCEND transformation program charges ( $13 million ), business review charges related to external support for the deep dive-holistic business review prior to the launch of ASCEND ( $3 million ), leadership transition & board search charges ( $8 million ) and an increase in restructuring charges to streamline and flatten the corporate structure ($1 million), as well as ASCEND-related restructuring expenses ($1 million).

The increase in expense was partially offset by decreases in leadership transition charges ($7 million) and in external support for the deep dive-holistic business review ($3 million).

Net financing costs were $14 million, $12 million and $4 million in fiscal years 2024, 2023 and 2022, respectively.

The increase in net financing costs in fiscal 2023 as compared to fiscal 2022 was due to the year-over-year increase in interest rates and debt mix during the year.

The decrease in net financing costs in fiscal 2022 as compared to fiscal 2021 was due to the year-over-year increase in interest income due to greater short-term investment of excess cash in fiscal 2022.

The increase in net financing costs for both fiscal 2023 to fiscal 2024 and fiscal 2022 to fiscal 2023 was due to the year-over-year increase in interest rates and debt levels during each succeeding fiscal year.

Income Tax Expense

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Effective income tax rate 22.1 % 22.1 % 18.3 %

The comparability of pre-tax earnings, income tax expense and the related effective income tax rates are impacted by impairment and other divestiture charges and benefits as well as the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), which was enacted on March 27, 2020.

Fiscal 2023 results included a $6 million impairment and divestiture benefit, whereas fiscal 2022 and fiscal 2021 results included $2 million and $6 million of impairment and divestiture charges, respectively.

The comparability of pre-tax earnings, income tax expense and the related effective income tax rates are impacted by impairment and other divestiture charges and benefits.

Fiscal 2024 results included less than $1 million of impairment and divestiture charges, whereas fiscal 2023 results included $6 million of impairment and divestiture benefits and fiscal 2022 results included $2 million of impairment and divestiture charges.

A substantial portion of these charges (benefits) do not result in a tax expense or benefit.

The fiscal 2023 tax provision included a tax benefit of $2 million related to global tax planning initiatives.

The fiscal 2022 tax provision included a tax benefit of $3 million related to global tax planning initiatives resulting from certain prior-year business losses for which no benefits were previously recognized as compared to a $3 million and $4 million benefit in fiscal 2021 related to the lapse of statute of limitations on uncertain tax positions and the net operating loss carryback provision of the CARES Act, respectively.

The fiscal 2024 tax provision included a tax benefit of $4 million related to the lapse of the statute of limitations on uncertain tax positions and global tax planning initiatives.

The fiscal 2023 tax provision included a tax benefit of $2 million related to global tax planning initiatives, whereas the fiscal 2022 tax provision included a tax benefit of $3 million related to global tax planning initiatives resulting from certain prior-year business losses for which no benefits were previously recognized.

Both the fiscal 2024 and prior-year income tax provisions were impacted by the mix of earnings in foreign jurisdictions with income tax rates different than the U.S.

federal income tax rate and income tax benefits from global tax planning initiatives.

The fiscal 2023 effective tax rate was 22.1%, which is higher than the fiscal 2022 effective tax rate of 18.3% primarily due to one-time benefits in fiscal 2022.

The fiscal 2024 and 2023 effective tax rate were both 22.1%.

The fiscal 2024 effective tax rate was slightly higher than the statutory 21% primarily as a result of state income taxes and taxes in foreign jurisdictions with rates higher than the U.S.

which were partially offset by one-time tax benefits related to global tax planning initiatives that will not repeat in future periods due to certain tax attributes that are no longer available.

which were partially offset by one-time tax benefits related to the lapse of the statute of limitations on uncertain tax positions and global tax planning initiatives that will not repeat in future periods due to certain tax attributes that are no longer available.

Liquidity and Capital Resources

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Cash provided by operating activities $ 81 $ 78 $ 52

Cash provided by (used in) investing activities 11 (7) 13

Cash (used in) provided by investing activities (14) 11 (7)

Cash used in financing activities (56) (53) (52)

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Cash flow provided by operations was $81 million for fiscal 2024 and $78 million for fiscal 2023.

The $26 million increase in cash flow from operations was primarily the result of $34 million of higher earnings from continuing operations offset by increases in incentive compensation of $10 million.

The $3 million increase in cash flow from operations was primarily the result of $29 million of higher earnings from continuing operations, partially offset by decreases in accrued compensation and benefits, principally due to lower incentive compensation expense, of $18 million, with the remainder due to a decrease in other accrued liabilities principally from reduced costs associated with ASCEND.

We had approximately $14 million of cash used in investing activities from continuing operations, which is a $25 million decrease from the prior fiscal year, due principally to the $20 million in proceeds from the sale of the Cortland Industrial business in the fourth qu arter of fiscal 2023, net of the $1 million in working capital adjustments settled during fiscal 2024 (see Note 5, "Discontinued Operations and Other Divestiture Activities" in the notes to the consolidated financial statements for further detail on the divestiture).

The remaining variance is due to higher capital expenditures in fiscal 2024 relating to build-out costs for the company's new headquarters location in Milwaukee, with an anticipated fiscal 2025 move-in date, and purchase of the business assets of Track Tools during the first quarter of fiscal 2024.

Cash flow provided by operations was $78 million for fiscal 2023 and $52 million for fiscal 2022.

The $26 million increase in cash flow from operations was primarily the result of $34 million of higher earnings from continuing operations, partially offset by an increase in accrued compensation and benefits, principally for incentive compensation, of $10 million.

We had approximately $11 million of cash provided by investing activities from continuing operations due to the proceeds from the sale of the Cortland Industrial business in the fourth quarter of fiscal 2023 (see Note 5, "Discontinued Operations and Other Divestiture Activities" in the notes to the consolidated financial statements for further detail on the divestiture), as year-over-year cash used for investing in capital expenditures was nearly flat.

Cash used in financing activities was $53 million, nearly flat to prior year use of $52 million;

Cash used in financing activities was $53 million, nearly flat compared to the use of $52 million in the prior fiscal year;

however the mix of usage in each fiscal year was different.

In fiscal 2023 we entered into a new debt agreement (see Note 7, "Debt" in the notes to the consolidated financial statements for further details of the senior credit facility) resulting in a change of debt mix with the repayment of our outstanding revolver and proceeds received from the issuance of a term loan.

In fiscal 2023 we had lower treasury share purchases than the prior year.

In fiscal 2023, the amount for our repurchases of shares of our Class A common stock was lower than the prior fiscal year.

During fiscal 2023, we paid $1 million on our term loan.

Cash flow provided by operations was $52 million and $54 million in fiscal 2022 and 2021, respectively.

The decrease of $2 million in cash flow provided by operations was the result of $19 million lower net earnings from continuing operations offset by approximately $14 million of incremental receivable reserves to reconcile net earnings from continuing operations to net cash provided by operating activities.

We used $7 million of cash in investing activities in fiscal 2022 as compared to $13 million cash provided by investing activities in fiscal 2021.

The cash used in fiscal 2022 was primarily used for capital expenditures.

The cash provided by investing activities in fiscal 2021 was largely generated due to the receipt of proceeds from the sale of our manufacturing facility in China ($22 million) and the death benefit for life insurance on legacy officers of the Company ($3 million), offset by approximately $12 million of capital expenditures.

In fiscal 2022, our cash used in financing activities was primarily from the purchase of treasury shares of $75 million and the paydown of principal on our revolving credit facility of $60 million partially offset by the borrowing on the revolving credit facility of $85 million.

The cash used in financing activities in fiscal 2021 was primarily for the paydown of $90 million of principal on our outstanding credit facility with cash provided by operating activities and excess cash on hand.

During fiscal 2023, the Company refinanced its credit facility resulting in an updated senior credit facility (the "Senior Credit Facility") of $600 million, comprised of a $400 million revolving line of credit and a $200 million term loan, which will mature in September 2027.

Prior to this, the Company's senior credit facility was comprised of a $400 million revolving line of credit and a $200 million term loan which were scheduled to mature in March 2024.

The Senior Credit Facility contains restrictive covenants and financial covenants see Note 7, "Debt" in the notes to the consolidated financial statements for further details of the Senior Credit Facility.

The Senior Credit Facility contains restrictive covenants and financial covenants.

See Note 7, "Debt" in the notes to the consolidated financial statements for further details of the Senior Credit Facility.

The Company was in compliance with all covenants, including the financial covenants, under the Senior Credit facility at August 31, 2024.

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Total primary working capital was $134 million at August 31, 2024, which increased from $122 million at August 31, 2023.

The primary working capital increase related to decreased accounts receivable from increased collections during fiscal 2023 and due to $9 million of lower inventory as we continue to work through SKU rationalization.

This decrease as well as payment s related to our ASCEND transformation program was the driver of the $22 million decrease in accounts payable as of August 31, 2023 compared to August 31, 2022 .

The primary working capital increase related to increased accounts receivable from timing of sales during the fourth quarter, with a higher proportion of those sales being current at quarter-end and therefore not collectable within the fiscal year.

The decrease in inventory is due to continued work on inventory levels around the world.

The reduction in payables is related to the decrease in our ASCEND transformation program charges.

Capital Expenditures

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Capital expenditures associated with continuing operations were $11 million, $9 million and $8 million in fiscal 2024, 2023 and 2022, respectively.

During fiscal 2024 we began the build-out of a new downtown Milwaukee location for Enerpac Tool Group.

We expect to relocate our corporate headquarters to the building during fiscal 2025.

Commitments and Contingencies

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Many of our leases include provisions that enable us to renew the leases at contractually agreed rates or, less commonly, based upon market rental rates on the date of expiration of the initial leases.

We had outstanding letters of credit totaling $9 million and $11 million at August 31, 2023 and 2022, respectively, the majority of which relate to commercial contracts and self-insured workers' compensation programs.

We had outstanding commercial letters of credit of $4 million and surety bonds of $4 million at August 31, 2024, while we had $9 million of outstanding letters of credit at August 31, 2023.

Most of these instruments relate to commercial contracts and self-insured workers’ compensation programs.

Additional detail regarding contingencies is included in Note 16, "Commitments and Contingencies" in the notes to the consolidated financial statements, which is incorporated by reference.

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We pay interest monthly based on prevailing interest rates at the time and the balance outstanding on our revolving line of credit.

Our lease contracts are primarily for real estate leases, vehicle leases, IT and manufacturing leases, information technology services and telecommunications services.

Our lease contracts are primarily for real estate, vehicles, and manufacturing equipment.

See Note 10, "Leases" in the notes to the consolidated financial statements for future minimum lease payments associated with our lease portfolio.

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We have the ability to notify the supplier that they no longer need to maintain the minimum level of inventory should we discontinue manufacturing 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.

however, we must purchase the remaining minimum inventory levels the supplier was required to maintain within a defined period of time.

These contracts allow for us to terminate with appropriate notice so long as we utilize the remaining inventory on hand at the supplier and there are no overall minimum volumes in these contracts other than what the supplier is required to maintain on hand at any given point in time.

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Accounts receivable, net:

Accounts receivable, net is recorded based on the contractual value of our accounts receivable, net of an estimated allowance for doubtful accounts representing management’s best estimate of the amount of receivables that are not probable of collection.

Accounts receivable, net was $98 million as of August 31, 2023 , which is net of a $17 million allowance for doubtful accounts.

Accounts receivable, net is recorded based on the contractual value of our accounts receivable, net of an estimated allowance for credit losses representing management’s best estimate of the amount of receivables that are not probable of collection.

Accounts receivable, net was $104 million as of August 31, 2024 , which is net of a $16 million allowance for credit losses.

Our customer base generally consists of financially reputable distributors, agents, OEMs, and other customers with whom we have long standing relationships, and historically we have not experienced significant write off of accounts receivables as a percentage of our annual net sales (accounts receivable written off as a percentage of net sales was less than 0.5% for each the years ended August 31, 2024, 2023, and 2022, respectivel y).

As of August 31, 2023, the Company was exposed to a concentration of credit risk with an agent as a result of its continued payment delinquency.

As of August 31, 2024, the Company continued to be exposed to a concentration of credit risk with an agent as a result of its continued payment delinquency.

During the year ended August 31, 2022, the Company recorded through bad debt expense (included in SG&A expenses in the Condensed Consolidated Statements of Earnings) a reserve of $13 million for this agent based on the consideration of the factors listed below, which fully reserves for this agent's outstanding account receivable balance.

The allowance for doubtful accounts for this particular agent remained unchanged as of August 31, 2023 and continues to represent 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.

The allowance for credit losses for this particular agent remained unchanged as of August 31, 2024 and continues to represent 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.

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owned inventory (approximately 49% and 48% of total inventories at August 31, 2024 and 2023, respectively).

If the LIFO method were not used, inventory balances would be higher than amounts presented in the Consolidated Balance Sheet by $18 million and $19 million at August 31, 2023 and 2022, respectively.

If the LIFO method were not used, inventory balances would be higher than amounts presented in the Consolidated Balance Sheet by $18 million at both August 31, 2024 and 2023.

We perform an analysis on historical sales usage of individual inventory items on hand and record a reserve to adjust inventory cost to net realizable value, if necessary.

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Fiscal 2023 Impairment Charges :

In the fourth quarter of fiscal 2022, in conjunction with our annual goodwill impairment assessment, we recorded a $1 million goodwill impairment charge associated with the Cortland Industrial reporting unit.

All other reporting units exceeded the carrying value by more than 60%.

The fiscal 2023 annual review of reporting units performed in the fourth quarter did not result in an impairment.

All reporting units exceeded the carrying value by more than 65%.

Indefinite-lived intangibles (tradenames):

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On an annual basis or more frequently if a triggering event occurs, the fair value of indefinite-lived intangible assets, based on a relief of royalty valuation approach, are evaluated to determine if an impairment charge is required.

No impairment was recorded in fiscal 2023 and no material impairment was recorded in fiscal 2022 as a result of triggering events or the annual impairment review of indefinite-lived intangible assets.

No impairment was recorded in fiscal 2024 or 2023 as a result of triggering events or the annual impairment review of indefinite-lived intangible assets.

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.

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Domestic benefit plan assets consist primarily of participating units in mutual funds with equity based strategies, mutual funds with fixed income based strategies, and U.S treasury securities.

The expected return on domestic benefit plan assets was 5.7% and 5.45% for the fiscal years ended August 31, 2023 and 2022, respectively.

The expected return on domestic benefit plan assets was 5.7% for each of the fiscal years ended August 31, 2024 and 2023.

A 25 basis point change in the assumptions for the discount rate or expected return on plan assets would not have materially changed the fiscal 2024 domestic benefit plan expense.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis