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Item 7. Management’s Discussion and Analysis

2025-10-17 compared with 2024-10-21 · 91 added, 118 removed, 196 unchanged (52% of the section changed)

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

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

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

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

General Business Update

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.

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.

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

ASCEND’s key initiatives included 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 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 ASCEND program was completed as of August 31, 2024, with total program costs of $75 million, of which $19 million related to restructuring charges.

The following summarizes ASCEND transformation charges (in thousands):

Year-Ended August 31,

2024 2023 2022 Program to Date

2024 2023 Program to Completion

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

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Total ASCEND Transformation Charges $ 14,890 $ 43,138 $ 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 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 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 Europe/Middle East/Africa ("EMEA") region.

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).

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.

The Company recorded a net gain of $6 million, see additional discussion in Note 5, "Discontinued Operations and Other Divestiture Activities" in the notes to the consolidated financial statements.

Historical Financial Data

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Statements of Earnings Data:

Net sales $ 590 100 % $ 598 100 % $ 571 100 %

Cost of products sold 288 49 % 303 51 % 306 54 %

Total net sales $ 617 100 % $ 590 100 % $ 598 100 %

Total cost of products sold 305 49 % 288 49 % 303 51 %

Gross profit 312 51 % 301 51 % 295 49 %

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Restructuring charges 6 1 % 7 1 % 7 1 %

Impairment & divestiture (benefit) charges — — % (6) (1) % 2 — %

Impairment & divestiture charges — — % — — % (6) (1) %

Operating profit 133 22 % 122 21 % 84 14 %

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Income tax expense 28 5 % 23 4 % 15 3 %

Net earnings $ 82 14 % $ 54 9 % $ 20 3 %

Net earnings from continuing operations $ 93 15 % $ 82 14 % $ 54 9 %

Other Financial Data:

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Fiscal 2025 Compared to Fiscal 2024

C onsolidated net sales for fiscal 2025 were $617 million, 5% higher than the prior-year sales of $590 million.

The effect of the weakening U.S.

dollar on foreign currency rates compared to the prior-year period favorably impacted sales by $2 million, or 1%, and the inclusion of DTA, acquired in the first quarter of fiscal 2025 favorably impacted sales by $20 million, or 3%.

This resulted in organic consolidated sales growth of approximately 1% in the year.

Management refers to sales adjusted to exclude the impact of these items (foreign currency changes and recent acquisitions and divestitures) as "organic sales".

Product sales increased 6% to $500 million, compared to the prior fiscal year.

Foreign currency rate changes favorably impacted product sales by $2 million, or less than 1%, and the acquisition of DTA favorably impacted product sales by $20 million, or 4%.

This resulted in product organic sales growth of 1%.

This increase in product organic sales was primarily due to growth in the Americas and APAC regions, and the Cortland Medical business.

This was offset by declines in our EMEA region.

Service sales were $117 million, an increase of 1% compared to the prior fiscal year.

Foreign currency impact was nearly flat, resulting in a 1% increase in service organic sales over the prior fiscal year.

The service organic sales increase in the service business was due to strong growth within our Americas region that was partially offset by declines in activity within our EMEA region.

Gross profit as a percentage of sales was approximately 51% in fiscal 2025, remaining consistent with fiscal 2024 .

Operating profit for fiscal 2025 was $133 million, approximately $11 million higher than the prior fiscal year operating profit of $122 million.

The increase in operating profit is primarily due to the flow through of gross profit on the incremental current year sales and lower selling, general & administrative ("SG&A") expense as a percentage of revenue compared to the prior year.

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.

however, this was partially offset by a decrease in product 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.

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

The service organic sales increase 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.

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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.

Operating profit was impacted by the increased gross profit noted above, as well as a reduction of 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%.

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%, 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.

The increased gross profit is primarily attributed to the pricing actions, with some volume contribution noted above and production efficiencies implemented as part of the ASCEND transformation program, partially offset by additional costs associated with the ASCEND transformation program.

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 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.

Segment Results

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Fiscal 2025 net sales were $596 million, an increase of $25 million, or 4% from fiscal 2024 sales of $571 million.

The impact of foreign currency was nearly flat and the first quarter acquisition of DTA favorably impacted sales by $20 million, or 3%, resulting in organic sales growth for the segment of approximately 1%.

The primary driver of this organic sales increase was strong performance in the Americas and APAC regions.

Fiscal 2025 operating profit increased $11 million to $164 million.

This increase was driven by the flow-through impact of the increased sales and lower SG&A expense as a percentage of revenue.

Fiscal 2024 Compared to Fiscal 2023

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.

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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 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 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.

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

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 $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.

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).

Corporate expenses were $36 million in fiscal 2025, which were flat compared to fiscal 2024 expenses.

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

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

Net financing costs were $10 million, $14 million and $12 million in fiscal years 2025, 2024 and 2023, respectively.

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.

The decrease in net financing costs for fiscal 2025 to fiscal 2024 was due to a mix of lower debt balances and lower interest rates.

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

Income Tax Expense

The Company's income tax expense is impacted by a number of factors, including, among others, the amount of taxable earnings generated in foreign jurisdictions with tax rates that are different than the U.S.

The Company's i ncome tax expense is impacted by a number of factors, including, among others, the amount of taxable earnings generated in foreign jurisdictions with tax rates that are different than the U.S.

federal statutory rate, permanent items, state tax rates, changes in tax laws, acquisitions and divestitures and the ability to utilize various tax credits and net operating loss carryforwards.

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Effective income tax rate 23.2 % 22.1 % 22.1 %

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 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 2024 and 2023 effective tax rate were both 22.1%.

The fiscal 2025 and fiscal 2024 effective tax rates were 23.2% and 22.1%, respectively.

The fiscal 2025 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 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.

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

Both the fiscal 2025 and fiscal 2024 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.

On July 4, 2025, H.R.

1, “An Act to provide for reconciliation pursuant to title II of H.

14”, commonly referred to as the "One Big Beautiful Bill Act,” was enacted in the United States.

There are multiple business tax provisions for which further guidance from the U.S.

Treasury and the Internal Revenue Service is needed.

The Company has evaluated the impact of the guidance provided to date and determined that it did not have a material impact related to fiscal 2025.

The Company will continue to evaluate the impact of the various provisions that could affect our income tax payable and deferred tax liability, including changes related to bonus depreciation and the expensing of research and development expenditures, among other topics.

Liquidity and Capital Resources

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Cash provided by operating activities $ 111 $ 81 $ 78

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

Cash (used in) investing activities (46) (14) 11

Cash used in financing activities (81) (56) (53)

Effect of exchange rate changes on cash 1 2 (2)

Net increase (decrease) from cash and cash equivalents $ 13 $ 34 $ (20)

Net (decrease) increase from cash and cash equivalents $ (16) $ 13 $ 34

Cash flow provided by operations was $111 million for fiscal 2025 and $81 million for fiscal 2024.

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.

The $30 million increase in cash flow from operations was primarily the result of higher earnings, lower annual incentive compensation payments made in the first quarter of fiscal 2025 compared to the prior-year period and the non-recurrence of payments and funds received for legal settlements related to discontinued operations.

Net cash used in investing activities was $46 million which is a $32 million increase from the prior fiscal year.

The increased use of cash was due to the payment of $27 million for the acquisition of DTA and increased capital expenditures relating to build-out costs for the Company's new headquarters location in Milwaukee, Wisconsin.

Cash used in financing activities increased to $81 million, for fiscal 2025 compared to $56 million for fiscal 2024.

The $25 million increase is primarily driven by increased expenditures for share repurchases.

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, 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 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, 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.

We had approximately $14 million of cash used in investing activities from continuing operations for fiscal 2024, 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 6, "Discontinued Operations and Other Divestiture Activities" in the notes to the consolidated financial statements for further detail on the divestiture).

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

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.

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Total primary working capital was $142 million at August 31, 2025, which increased from $134 million at August 31, 2024.

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.

The increase in inventory is due to the impact of the incremental tariffs put in place during fiscal 2025.

Capital Expenditures

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Capital expenditures associated with continuing operations were $19 million , $11 million and $9 million in fiscal 2025, 2024 and 2023, 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.

The increase in capital expenditures during fiscal 2025 is primarily related to build-out costs for the Company's new headquarters location in Milwaukee, Wisconsin.

Commitments and Contingencies

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Accounts receivable, net was $106 million as of August 31, 2025 , which is net of a $4 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, 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 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.

expense as a percentage of our annual net sales (bad debt expense as a percentage of net sales was less than 0.5% for each the years ended August 31, 2025, 2024, and 2023 ).

Inventory cost is determined using the last-in, first-out (“LIFO”) method for a portion of U.S.

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however, actual results may differ from these estimates under different assumptions or conditions.

Goodw ill and Indefinite-lived intangibles:

Goodwill Impairment Review and Estimates:

A considerable amount of management judgment is required in performing the impairment tests, principally in determining the fair value of each reporting unit and the indefinite-lived intangible assets.

While we believe our judgments and ass umptions are reasonable, different assumptions could change the estimated fair values and, therefore, impairment charges could be required.

Significant negative industry or economic trends, disruptions to the Company's business, loss of significant customers, inability to effectively integrate acquired businesses, unexpected significant changes or planned changes in use of the assets or in entity structure and divestitures may adversely impact the assumptions used in the valuations and ultimately result in future impairment charges.

In estimating the fair value of a reporting unit, we generally use a discounted cash flow model, which calculates fair value as the sum of the projected discounted cash flows over a discrete six-year period plus an estimated terminal value.

Goodwill and Indefinite-lived intangibles:

Goodwill, trademarks and certain tradenames have indefinite lives and are not amortized.

However, goodwill and intangible assets are tested annually for impairment, and may be tested more frequently if any triggering events occur that would reduce the recoverability of the asset.

In conducting the annual impairment test for goodwill, we have the option to first assess qualitative factors to determine whether it is more likely than not (greater than 50% likelihood) the fair value of any reporting unit is less than its carrying amount.

If a qualitative assessment determines an impairment is more likely than not, we are required to perform a quantitative impairment test.

Otherwise, no further analysis is required.

Alternatively, we may elect to proceed directly to the quantitative impairment test.

In conducting a quantitative assessment for goodwill, we generally use a discounted cash flow model, which calculates fair value as the sum of the projected discounted cash flows over a discrete six-year period plus an estimated terminal value.

Significant assumptions include forecasted revenues, operating profit margins, and discount rates applied to the future cash flows based on the respective reporting unit's estimated weighted average cost of capital.

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If the fair value of a reporting unit is less than its carrying value, an impairment loss is recorded.

The estimated fair value represents the amount we believe a reporting unit could be bought or sold for in a current transaction between willing parties on an arms-length basis.

Fiscal 2024 Impairment Charges :

The fiscal 2024 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 85%.

Fiscal 2023 Impairment Charges :

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):

Indefinite-lived intangible assets are also subject to annual impairment testing.

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 2024 or 2023 as a result of triggering events or the annual impairment review of indefinite-lived intangible assets.

We perform our goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount.

If the carrying amount exceeds the fair value of the reporting unit, an impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit's fair value up to the amount of the recorded goodwill.

During 2025 management performed a qualitative assessment over goodwill and indefinite-lived intangibles and determined quantitative testing was not necessary.

During 2024 management performed a qualitative assessment over goodwill and indefinite-lived intangibles and determined quantitative testing was necessary for one reporting unit.

The quantitative test for the reporting unit resulted in an estimated fair value that exceeded the carrying value by more than 85%.

As such, no impairment charges were recorded during the years ended August 31, 2025 or 2024.

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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Assigning fair market values to the assets acquired and liabilities assumed at the date of an acquisition requires knowledge of current market values and the values of assets in use, and often requires the application of judgment regarding estimates and assumptions.

While the ultimate responsibility resides with management, for certain acquisitions we retain the services of certified valuation specialists to assist with assigning estimated values to certain acquired assets and assumed liabilities, including intangible assets and tangible long-lived assets.

While the ultimate responsibility resides with management, for certain acquisitions we retain the services of certified valuation specialists to assist with assigning estimated values to certain acquired assets, including intangible assets and tangible long-lived assets, and assumed liabilities including earn-out obligations.

Acquired intangible assets, excluding goodwill, are valued using discounted cash flow methodology based on future cash flows specific to the type of intangible asset purchased.

This methodology incorporates various estimates and assumptions, the most significant being projected revenue growth rates, profit margins and forecasted cash flows based on discount rates and terminal growth rates.

Specifically related to the acquisition of DTA, the Company believes the developed technology intangible asset and the potential contingent earn-out liability required the most significant judgment.

The Company used the relief from royalty rate method to value the developed technology intangible.

The significant assumptions used to estimate the value of the developed technology intangible included the survivor curve for attrition of existing technology, revenue growth, royalty charges and the discount rate.

The Company used the Black-Scholes model to determine the fair value of the potential earn-out payment.

significant assumptions used to estimate the value of the potential earn-out included the forecasted gross profit and the discount rate.

These significant assumptions are forward looking and could be affected by future economic and market conditions.

Defined Benefit Plans:

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In estimating the expected return on plan assets, we consider historical returns, forward-looking considerations, inflation assumptions and the asset-allocation strategy in investing such assets.

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.

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 6.2% for each of the fiscal years ended August 31, 2025 and 2024.

16 unchanged sentences

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