10-Q 1 epac-20220531.htm 10-Q epac-20220531
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
——————————— 
FORM 10-Q
 ————————————
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 31, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 1-11288 
 ————————————
ENERPAC TOOL GROUP CORP.
(Exact name of registrant as specified in its charter)
 ————————————
Wisconsin 39-0168610
(State of incorporation) (I.R.S. Employer Id. No.)
N86 W12500 WESTBROOK CROSSING
MENOMONEE FALLS, WISCONSIN 53051
Mailing address: P. O. Box 3241, Milwaukee, Wisconsin 53201
(Address of principal executive offices)
(262) 293-1500
(Registrant’s telephone number, including area code)
  ————————————
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTicker Symbol(s)Name of each exchange on which registered
Class A common stock, $0.20 par value per shareEPACNYSE
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated FilerAccelerated Filer
Non-accelerated FilerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.      
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.):    Yes  ¨    No  
The number of shares outstanding of the registrant’s Class A Common Stock as of June 21, 2022 was 58,141,965.


TABLE OF CONTENTS
 
 Page No.
       Item 6—Exhibits

FORWARD-LOOKING STATEMENTS AND CAUTIONARY FACTORS
This quarterly report on Form 10-Q contains certain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties. Such forward-looking statements include statements regarding expected financial results and other planned events, including, but not limited to, anticipated liquidity, anticipated restructuring costs and related savings, anticipated future charges and anticipated capital expenditures. Words such as “may,” “should,” “could,” “anticipate,” “believe,” “estimate,” “expect,” “objective,” “plan,” “project” and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Therefore, actual future events or results may differ materially from these statements. We disclaim any obligation to publicly update or revise any forward-looking statements as a result of new information, future events or any other reason.
The following is a list of factors, among others, that could cause actual results to differ materially from the forward-looking statements:
potential increases in the costs of commodities and raw materials, or substantial decreases in their availability;
heavy reliance on suppliers for components used in the manufacture and sale of our products, including a supply chain interruption due to material and cargo shortages as well as port congestion on the west coast of the United States and concerns about a potential labor strike by those west coast port union workers, the COVID-19 pandemic, political tensions, or other causes;
the decrease in sales and/or increases in costs or reduced availability of commodities and components used in the production of our products due to recent and potential new sanctions and export controls targeting Russia in response to Russia's invasion of Ukraine;
the extent to which the COVID-19 pandemic continues (including new variants of COVID-19 such as the Delta and Omicron variants) to impact our employees, operations, customers and suppliers;
our ability to execute on restructuring actions and on the objectives related to the ASCEND transformation program in order to achieve anticipated incremental operating profit;
the deterioration of, or instability in, the domestic and international economy and/or in our various end markets;
1


decreased demand from customers in the oil & gas industry as a result of significant volatility in oil prices resulting from disruptions in the oil markets;
uncertainty over global tariffs, or the financial impact of tariffs;
failure to collect on accounts receivable, including in certain foreign jurisdictions where sales are concentrated to a limited number of distributors or agents;
a significant failure in our information technology (IT) infrastructure, such as unauthorized access to financial and other sensitive data or cybersecurity threats;
a material disruption at a significant manufacturing facility;
competition in the markets we serve;
currency exchange rate fluctuations, export and import restrictions, transportation disruptions or shortages, and other risks inherent in our international operations;
failure to develop new products and the extent of market acceptance of new products;
our ability to successfully identify, consummate and integrate acquisitions and realize anticipated benefits/results from acquired companies as part of our portfolio management process;
the effects of divestitures and/or discontinued operations, including retained liabilities from, or indemnification obligations with respect to, businesses that we sell;
if the operating performance of our businesses were to fall significantly below normalized levels, the potential for a non-cash impairment charge of goodwill and/or other intangible assets, as they represent a substantial amount of our total assets;
regulatory and legal developments, including litigation, such as product liability and warranty claims;
our ability to comply with the covenants in our debt agreements and fluctuations in interest rates;
our ability to attract, develop, and retain qualified employees;
inadequate intellectual property protection or infringement of the intellectual property of others; and
other matters, including those of a political, economic, business, competitive and regulatory nature contained from time to time in our U.S. Securities and Exchange Commission ("SEC") filings, including, but not limited to, those factors listed in the "Risk Factors" section within Item 1A of Part I of our Form 10-K filed with the SEC on October 25, 2021.
When used herein, the terms “we,” “us,” “our” and the “Company” refer to Enerpac Tool Group Corp. and its subsidiaries. Reference to fiscal years, such as "fiscal 2022," are to the fiscal year ending on August 31 of the specified year. Enerpac Tool Group Corp. provides free-of-charge access to its Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments thereto, through its website, www.enerpactoolgroup.com, as soon as reasonably practicable after such reports are electronically filed with the SEC.
2


PART I—FINANCIAL INFORMATION
Item 1—Financial Statements
ENERPAC TOOL GROUP CORP.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended May 31,Nine Months Ended May 31,
 2022202120222021
Net sales $151,894 $143,149 $419,395 $383,233 
Cost of products sold79,847 76,302 227,741 206,346 
Gross profit72,047 66,847 191,654 176,887 
Selling, general and administrative expenses63,095 40,468 162,240 130,061 
Amortization of intangible assets1,792 2,061 5,678 6,333 
Restructuring charges517 1,571 5,086 2,430 
Impairment & divestiture charges  1,116 539 
Operating profit6,643 22,747 17,534 37,524 
Financing costs, net951 1,340 2,668 4,395 
Other expense, net254 540 1,004 1,598 
Earnings before income tax expense (benefit)5,438 20,867 13,862 31,531 
Income tax expense (benefit)1,377 (4,390)4,495 (2,132)
Net earnings from continuing operations4,061 25,257 9,367 33,663 
Loss from discontinued operations, net of income taxes(2,418)(226)(3,715)(852)
Net earnings$1,643 $25,031 $5,652 $32,811 
Earnings per share from continuing operations
Basic$0.07 $0.42 $0.16 $0.56 
Diluted$0.07 $0.42 $0.15 $0.56 
Loss per share from discontinued operations
Basic$(0.04)$(0.00)$(0.06)$(0.01)
Diluted$(0.04)$(0.00)$(0.06)$(0.01)
Earnings per share*
Basic$0.03 $0.42 $0.09 $0.55 
Diluted$0.03 $0.41 $0.09 $0.54 
Weighted average common shares outstanding
Basic60,227 60,144 60,292 59,964 
Diluted60,610 60,574 60,640 60,312 
*The total of Earnings per share from continuing operations and Loss per share from discontinued operations may not equal Earnings per share due to rounding.
The accompanying notes are an integral part of these condensed consolidated financial statements.
3


ENERPAC TOOL GROUP CORP.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(Unaudited)
 Three Months Ended May 31,Nine Months Ended May 31,
 2022202120222021
Net earnings$1,643 $25,031 $5,652 $32,811 
Other comprehensive (loss) income, net of tax
Foreign currency translation adjustments(16,397)6,373 (25,258)16,807 
Pension, other postretirement benefit plans, and cash flow hedges367 165 928 517 
Total other comprehensive (loss) income, net of tax(16,030)6,538 (24,330)17,324 
Comprehensive (loss) income$(14,387)$31,569 $(18,678)$50,135 
The accompanying notes are an integral part of these condensed consolidated financial statements.

4


ENERPAC TOOL GROUP CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)
May 31, 2022August 31, 2021
ASSETS
Current assets
Cash and cash equivalents$123,705 $140,352 
Accounts receivable, net117,029 103,233 
Inventories, net86,897 75,347 
Other current assets38,657 38,503 
Total current assets366,288 357,435 
Property, plant and equipment, net44,400 48,590 
Goodwill267,199 277,593 
Other intangible assets, net45,163 54,545 
Other long-term assets74,249 82,084 
Total assets$797,299 $820,247 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Trade accounts payable$65,741 $61,958 
Accrued compensation and benefits21,227 21,597 
Income taxes payable3,892 5,674 
Other current liabilities43,666 45,535 
Total current liabilities134,526 134,764 
Long-term debt, net205,000 175,000 
Deferred income taxes6,586 4,397 
Pension and postretirement benefit liabilities16,179 17,783 
Other long-term liabilities68,736 76,105 
Total liabilities431,027 408,049 
Commitments and contingencies (Note 14)
Shareholders’ equity
Class A common stock, $0.20 par value per share, authorized 168,000,000 shares, issued 83,349,611 and 83,021,654 shares, respectively16,670 16,604 
Additional paid-in capital211,952 202,971 
Treasury stock, at cost, 24,554,305 and 22,799,230 shares, respectively(704,027)(667,732)
Retained earnings958,991 953,339 
Accumulated other comprehensive loss(117,314)(92,984)
Stock held in trust(3,148)(3,067)
Deferred compensation liability3,148 3,067 
Total shareholders' equity366,272 412,198 
Total liabilities and shareholders’ equity$797,299 $820,247 
The accompanying notes are an integral part of these condensed consolidated financial statements.
5


ENERPAC TOOL GROUP CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 Nine Months Ended May 31,
 20222021
Operating Activities
Net earnings$5,652 $32,811 
Less: Net loss from discontinued operations(3,715)(852)
Net earnings from continuing operations9,367 33,663 
Adjustments to reconcile net earnings to net cash (used in) provided by operating activities - continuing operations:
Impairment & divestiture charges1,116 482 
Depreciation and amortization14,983 16,438 
Stock-based compensation expense12,117 7,385 
Provision for deferred income taxes1,568 7,475 
Amortization of debt issuance costs360 360 
Receivable reserve13,856  
Other non-cash (benefits)(466)(9,135)
Changes in components of working capital and other:
Accounts receivable(31,153)(26,692)
Inventories(15,913)(3,667)
Trade accounts payable1,611 14,095 
Prepaid expenses and other assets5,760 (13,795)
Income tax accounts(3,208)(8,639)
Accrued compensation and benefits396 3,875 
Other accrued liabilities(2,879)3,524 
Cash provided by operating activities - continuing operations7,515 25,369 
Cash used in operating activities - discontinued operations(319)(480)
Cash provided by operating activities7,196 24,889 
Investing Activities
Capital expenditures(6,970)(9,504)
Proceeds from sale of property, plant and equipment1,158 22,401 
Proceeds from company owned life insurance policies 2,911 
Cash (used in) provided by investing activities - continuing operations(5,812)15,808 
Cash (used in) provided by investing activities (5,812)15,808 
Financing Activities
Borrowings on revolving credit facility45,000 10,000 
Principal repayments on revolving credit facility(15,000)(70,000)
Purchase of treasury shares(36,295) 
Taxes paid related to the net share settlement of equity awards(3,378)(2,337)
Stock option exercises & other217 2,305 
Payment of cash dividend(2,409)(2,394)
Cash used in financing activities - continuing operations(11,865)(62,426)
Cash provided by financing activities - discontinued operations 750 
Cash used in financing activities (11,865)(61,676)
Effect of exchange rate changes on cash(6,166)5,088 
Net decrease in cash and cash equivalents(16,647)(15,891)
Cash and cash equivalents - beginning of period140,352 152,170 
Cash and cash equivalents - end of period$123,705 $136,279 
The accompanying notes are an integral part of these condensed consolidated financial statements.
6


NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of Presentation
General
Enerpac Tool Group Corp. ("Company") is a premier industrial tools and services company serving a broad and diverse set of customers in more than 100 countries. 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 accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with United States generally accepted accounting principles ("GAAP") for interim financial reporting and with the instructions of Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The condensed consolidated balance sheet data as of August 31, 2021 was derived from the Company’s audited financial statements but does not include all disclosures required by GAAP. For additional information, including the Company’s significant accounting policies, refer to the consolidated financial statements and related footnotes in the Company’s fiscal 2021 Annual Report on Form 10-K.
In the opinion of management, all adjustments considered necessary for a fair statement of financial results have been made. Such adjustments consist of only those of a normal recurring nature. Operating results for the three and nine months ended May 31, 2022 are not necessarily indicative of the results that may be expected for the entire fiscal year ending August 31, 2022. The COVID-19 pandemic has negatively impacted, and is likely to continue to negatively impact to varying extents, the global economy. The Company's operating results and financial position will continue to be subject to the general economic conditions created by the pandemic, including the current supply chain and logistics environment caused by the sharp increase in demand as global economies recover. The Company also has historically sold products to companies located in or associated with Russia. In response to Russia's invasion of Ukraine, many countries, including the countries that are members of the North Atlantic Treaty Organization ("NATO"), including the United States, have initiated sanctions and export controls targeting Russia and entities associated with Russia which significantly limits our ability to serve certain customers and collect on our outstanding receivables. The duration and extent to which the pandemic and trade sanctions against Russia effect the Company's business will depend on future developments which still remain uncertain.
Recently Adopted Accounting Pronouncements
In December 2019, the Financial Accounting Standards Board ("FASB") issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in this update simplify the accounting for income taxes by removing certain exceptions and amending and clarifying existing guidance. The Company adopted this guidance on September 1, 2021. The adoption did not have a material effect on our consolidated financial statements.
Recently Issued Accounting Pronouncements
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which amends ASC 805 to require an acquirer to, at the date of acquisition, recognize and measure contract assets and contract liabilities acquired in accordance with ASU 2014-9, Revenue from Contracts with Customers (Topic 606) as if the entity had originated the contracts. The guidance is effective for fiscal years beginning after December 15, 2022. The Company will adopt this guidance in the event of a business combination subsequent to the effective date of the guidance.
In March 2020, the FASB issued ASU 2020-4, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for a limited time to ease the potential burden of accounting for reference rate reform on financial reporting. This guidance applies to contracts, hedging relationships and other transactions affected by the discontinuation of the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates. The guidance is effective beginning on March 12, 2020 through December 31, 2022. In January 2021, the FASB issued ASU 2021-01 allowing entities to apply certain aspects of ASC 848 (previously ASU 2020-4) to all derivative instruments that undergo a modification of the interest rate used for discounting, margining or contract price alignment as a result of the reference reform. The guidance is also effective through December 31, 2022. The Company has not utilized any of the optional expedients or exceptions available under this guidance. The Company will continue to assess whether this guidance is applicable throughout the effective period.
7


Accumulated Other Comprehensive Loss
The following is a summary of the Company's accumulated other comprehensive loss (in thousands):
May 31, 2022August 31, 2021
Foreign currency translation adjustments$95,244 $69,986 
Pension and other postretirement benefit plans, net of tax22,070 22,998 
Accumulated other comprehensive loss$117,314 $92,984 
Property Plant and Equipment
The following is a summary of the Company's components of property, plant and equipment (in thousands):
May 31, 2022August 31, 2021
Land, buildings and improvements$14,664 $16,617 
Machinery and equipment144,987 145,541 
Gross property, plant and equipment159,651 162,158 
Less: Accumulated depreciation(115,251)(113,568)
Property, plant and equipment, net$44,400 $48,590 
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 and cable solutions are recorded when control is transferred to the customer (i.e., performance obligation has been satisfied). For the majority of the Company’s product sales, revenue is recognized at a point in time when control of the product is transferred to the customer, which generally occurs when the product is shipped from the Company to the customer. For certain other products that are highly customized and have a limited alternative use, and for which the Company has an enforceable right of reimbursement for performance completed to date, revenue is recognized over time. We consider the input measure (efforts-expended or cost-to-cost) or output measure as a fair measure of progress for the recognition of over-time revenue associated with these custom products. For a majority of the Company’s custom products, machine hours and labor hours (efforts-expended measurement) are used as a measure of progress.
Service & Rental Sales: Service contracts consist of providing highly trained technicians to perform bolting, technical services, machining and joint-integrity work for our customers. These revenues are recognized over time as our customers simultaneously receive and consume the benefits provided by the Company. We consider the input measure (efforts-expended or cost-to-cost) or output measure as a fair measure of progress for the recognition of over-time revenue associated with service contracts. For a majority of the Company’s service contracts, labor hours (efforts-expended measurement) is used as the measure of progress when it is determined to be a better depiction of the transfer of control to the customer due to the timing and pattern of labor hours incurred. Revenue from rental contracts (less than a year and non-customized products) is generally recognized ratably over the contract term, depicting the customer’s consumption of the benefit related to the rental equipment.
Disaggregated Revenue and Performance Obligations
The Company disaggregates revenue from contracts with customers by reportable segment and product line and by the timing of when goods and services are transferred. See Note 13, "Segment 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):
Three Months Ended May 31,Nine Months Ended May 31,
2022202120222021
Revenues recognized at point in time$117,156 $107,316 $322,247 $284,823 
Revenues recognized over time34,738 35,833 97,148 98,410 
Total$151,894 $143,149 $419,395 $383,233 
8


Contract Balances
The Company's contract assets and liabilities are as follows (in thousands):
May 31, 2022August 31, 2021
Receivables, which are included in accounts receivable, net$117,029 $103,233 
Contract assets, which are included in other current assets3,727 8,551 
Contract liabilities, which are included in other current liabilities3,348 3,410 
Receivables: The Company performs its obligations under a contract with a customer by transferring goods or services in exchange for consideration from the customer. The Company typically invoices its customers as soon as control of an asset is transferred and a receivable for the Company is established. Accounts receivable, net is recorded at face amount of customer receivables less an allowance for doubtful accounts. The Company maintains an allowance for doubtful accounts for expected losses as a result of customers’ inability to make required payments. Management evaluates the aging of customer receivable balances, the financial condition of its customers, historical trends and the time outstanding of specific balances to estimate the amount of receivables that may not be collected in the future and records the appropriate provision. The allowance for doubtful accounts was $18.3 million and $4.2 million at May 31, 2022 and August 31, 2021, respectively. As indicated in the "Concentration of Credit Risk" section below, as of May 31, 2022, the Company was exposed to a concentration of credit risk with an agent as a result of its continued payment delinquency. During the three months ended May 31, 2022, the Company recorded through bad debt expense (included in "Selling, general and administrative expenses" in the Condensed Consolidated Statements of Operations) an additional reserve of $10.8 million based on the updated consideration of the factors listed below, which now fully reserves for the outstanding account receivable balance for this agent. The allowance for doubtful accounts for this particular agent as of May 31, 2022 represents management's best estimate of the amount probable of collection and considers various factors with respect to this matter, including, but not limited to, (i) the lack of payment by the agent in the nine-month period ended May 31, 2022, (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.
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 and those amounts are invoiced. The Company has contract assets on contracts that are generally long-term and have revenues that are recognized over time.
Contract Liabilities: As of May 31, 2022, the Company had certain contracts where there were unsatisfied performance obligations and the Company had received cash consideration from customers before the performance obligations were satisfied. The majority of these contracts relate to longer-term customer contracts (project durations of greater than three months) and are recognized over time. The Company estimates that the $3.3 million will be recognized in net sales from satisfying those performance obligations within the next twelve months, with an immaterial amount recognized in periods after.
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 May 31, 2022, the Company was exposed to a concentration of credit risk as a result of the continued payment delinquency of one of our agents. This agent's accounts receivable, prior to consideration of the allowance for doubtful accounts, represent 9.7% of the Company's outstanding accounts receivable.
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.
9


Note 3. ASCEND Transformation Program
On March 23, 2022, the Company announced the launch of ASCEND, a new transformation program focused on driving accelerated earnings growth and efficiency across the business with the goal of delivering an incremental $40 to $50 million of annual operating profit once fully implemented. As part of ASCEND, the Company will focus 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 Selling, General and Administrative ("SG&A") by better leveraging resources to create a more efficient and agile organization.
The Company is currently developing plans for the implementation of this program and continues to anticipate investing approximately $60 to $65 million (as disclosed in Note 16, "Subsequent Event," $6 to $10 million, of these investments relate to the ASCEND restructuring plan). Elements of these investments could include such cash costs as capital expenditures, restructuring costs, third-party support, and incentive costs. We do not anticipate significant non-cash costs to be incurred as part of the ASCEND program. Total program expenses were approximately $3.9 million for the three months ended May 31, 2022, which were recorded within SG&A expenses and were largely comprised of third-party support 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 $0.6 million and $5.2 million of charges in the three and nine months ended May 31, 2022 in order to further simplify and streamline the organizational structure. Restructuring charges associated the fiscal 2019 plan were $1.5 million and $2.2 million in the three and nine months ended May 31, 2021. The total cumulative charges for the 2019 plan, which ended in the third quarter of fiscal year 2022, were $18.0 million.
The following summarizes restructuring reserve activity (which for the nine months ended May 31, 2022 excludes $0.8 million and $0.5 million of charges for IT&S and Corporate, respectively, and for the nine months ended May 31, 2021 excludes less than $0.1 million of charges for IT&S, associated with the accelerated vesting of equity awards which has no impact on the restructuring reserve) for the IT&S segment and Corporate (in thousands):
Nine Months Ended May 31, 2022
IT&SCorporate
Balance as of August 31, 2021$1,737 $26 
Restructuring charges2,818 1,050 
Cash payments(3,385)(1,069)
Impact of changes in foreign currency rates(79) 
Balance as of May 31, 2022$1,091 $7 
Nine Months Ended May 31, 2021
IT&SCorporate
Balance as of August 31, 2020$1,443 $267 
Restructuring charges2,166 9 
Cash payments(1,444)(250)
Impact of changes in foreign currency rates49  
Balance as of May 31, 2021$2,214 $26 
Total restructuring charges (inclusive of the Other segment) were $0.5 million and $5.1 million in the three and nine months ended May 31, 2022, respectively, and $1.6 million and $2.4 million in the three and nine months ended May 31, 2021, respectively, being reported in "Restructuring charges."
10


There was a restructuring benefit of less than $0.1 million related to Cortland U.S. (Other segment) in the three and nine months ended May 31, 2022. Restructuring expenses for Cortland U.S. were less than $0.1 million and $0.3 million in the three and nine months ended May 31, 2021, respectively. For Cortland U.S. there were no restructuring reserves as of May 31, 2022 and restructuring reserves were $0.1 million as of August 31, 2021.
Note 5. 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 Engineered Components & Systems ("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 Operations for all periods presented. A component of the purchase price was payable in four quarterly installments of which the final $0.7 million was received in the nine months ended May 31, 2021 (this final payment was received greater than one year from the divestiture date and, as such, is reflected in "Cash provided by financing activities - discontinued operations" within the Condensed Consolidated Statements of Cash Flows). All other discontinued operations activity included within the Condensed Consolidated Statements of Operations and the Condensed Consolidated Statements of Cash Flows for the periods presented relate to impacts from certain retained liabilities.
The following represents the detail of "Loss from discontinued operations, net of income taxes" within the Condensed Consolidated Statements of Operations (in thousands) :
Three Months Ended May 31,Nine Months Ended May 31,
2022202120222021
Selling, general and administrative expenses$2,944 $102 $4,605 $956 
Operating loss(2,944)(102)(4,605)(956)
Other loss, net    
Loss before income tax benefit(2,944)(102)(4,605)(956)
Income tax expense (benefit)(526)124 (890)(104)
Loss from discontinued operations, net of income taxes$(2,418)$(226)$(3,715)$(852)
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 nine months ended May 31, 2022 are as follows (in thousands):
IT&SOtherTotal
Balance as of August 31, 2021$265,087 $12,506 $277,593 
Impact of changes in foreign currency rates(10,394) (10,394)
Balance as of May 31, 2022$254,693 $12,506 $267,199 
The gross carrying value and accumulated amortization of the Company’s intangible assets are as follows (in thousands):
 May 31, 2022August 31, 2021
Weighted Average
Amortization
Period (Years)
Gross
Carrying
Value
Accumulated
Amortization
Net
Book
Value
Gross
Carrying
Value
Accumulated
Amortization
Net
Book
Value
Amortizable intangible assets:
Customer relationships14$138,234 $117,850 $20,384 $142,453 $114,463 $27,990 
Patents1114,026 13,353 673 14,492 13,688 804 
Trademarks and tradenames123,204 2,374 830 3,307 2,391 916 
Indefinite lived intangible assets:
TradenamesN/A23,276  23,276 24,835  24,835 
$178,740 $133,577 $45,163 $185,087 $130,542 $54,545 
11


The Company estimates that amortization expense will be $1.7 million for the remaining three months of fiscal 2022. Amortization expense for future years is estimated to be: $5.4 million in fiscal 2023, $3.8 million in fiscal 2024, $3.1 million in fiscal 2025, $1.9 million in fiscal 2026, $1.8 million in fiscal 2027 and $4.2 million cumulatively thereafter. The future amortization expense amounts represent estimates and may be impacted by future acquisitions, divestitures, or changes in foreign currency exchange rates, among other causes.
In the nine months ended May 31, 2022, the Company recorded "Impairment & divestiture charges" of $1.1 million; $0.8 million related to a customer relationship intangible asset whereby the Company no longer intends to operate in the country associated with said customers and $0.3 million associated with an indefinite lived tradename intangible asset on a secondary brand whereby the Company plans to sunset its use over the remainder of the fiscal year.
Note 7. Product Warranty Costs
The Company generally offers its customers an assurance warranty on products sold, although warranty periods may vary by product type and application. The reserve for future warranty claims, which is recorded within the "Other current liabilities" line in the Condensed Consolidated Balance Sheets, is based on historical claim rates and current warranty cost experience. The following summarizes the changes in product warranty reserves for the nine months ended May 31, 2022 and 2021, respectively (in thousands):
 Nine Months Ended May 31,
 20222021
Beginning balance$1,300 $892 
Provision for warranties727 1,151 
Warranty payments and costs incurred(629)(893)
Impact of changes in foreign currency rates(81)30 
Ending balance$1,317 $1,180 
Note 8. Debt
The following is a summary of the Company’s long-term indebtedness (in thousands):
May 31, 2022August 31, 2021
Senior Credit Facility
Revolver$205,000 $175,000 
Total long-term debt, less current maturities$205,000 $175,000 

Senior Credit Facility
In March 2019, the Company entered into a senior credit facility (the “Senior Credit Facility”) with a syndicate of banks, to among other things, (i) expand the multi-currency revolving line of credit from $300 million to $400 million, (ii) extend the maturity of the Company's Senior Credit Facility from May 2020 to March 2024 (no required principal payments prior to maturity) and (iii) modify certain other provisions of the credit agreement including a reduction in pricing. The Senior Credit Facility was initially comprised of a $400 million revolving line of credit and a $200 million term loan.
At May 31, 2022, there was $205.0 million of borrowings under the revolving line of credit and $189.8 million of available borrowing capacity under the revolving line of credit after reduction for $5.2 million of outstanding letters of credit issued under the Senior Credit Facility.
The Senior Credit Facility also provides the option for future expansion, subject to certain conditions, through a $300 million accordion and/or a $200 million incremental term loan. Borrowings under the Senior Credit Facility bear 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 is payable quarterly on the average unused amount of the revolving line of credit ranging from 0.15% to 0.3% per annum, based on the Company's net leverage.
The Senior Credit Facility contains two financial covenants, which are a maximum leverage ratio of 3.75:1 and a minimum interest coverage ratio of 3.5:1. Certain transactions lead to 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.
The Company was in compliance with all financial covenants at May 31, 2022. Borrowings under the Senior Credit Facility are secured by substantially all personal property assets of the Company and its domestic subsidiary guarantors and certain equity interests owned by the foreign law pledgors.
12


Note 9. Fair Value Measurements
The Company assesses the inputs used to measure the fair value of financial assets and liabilities using a three-tier hierarchy. Level 1 inputs include unadjusted quoted prices for identical instruments and are the most observable. Level 2 inputs include quoted prices for similar assets and observable inputs such as interest rates, foreign currency exchange rates, commodity rates and yield curves. Level 3 inputs are not observable in the market and include management’s own judgments about the assumptions market participants would use in pricing an asset or liability.
The fair value of the Company’s cash and cash equivalents, accounts receivable, accounts payable and variable rate long-term debt approximated book value at both May 31, 2022 and August 31, 2021 due to their short-term nature and/or 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 May 31, 2022 and August 31, 2021. The fair value of the foreign currency exchange and interest rate swap contracts were based on quoted inactive market prices and therefore classified as Level 2 within the valuation hierarchy.
Note 10. Derivatives
All derivatives are recognized in the balance sheet at their estimated fair value. The Company does not enter into derivatives for speculative purposes. Changes in the fair value of derivatives (not designated as hedges) are recorded in earnings along with the gain or loss on the hedged asset or liability.
The Company is exposed to market risk for changes in foreign currency exchange rates due to the global nature of its operations. In order to manage this risk, the Company utilizes foreign currency exchange contracts to reduce the exchange rate risk associated with recognized non-functional currency balances. The effects of changes in exchange rates are reflected concurrently in earnings for both the fair value of the foreign currency exchange contracts and the related non-functional currency asset or liability. These derivative gains and losses offset foreign currency gains and losses from the related revaluation of non-functional currency assets and liabilities (amounts included in "Other (income) expense" in the Condensed Consolidated Statements of Operations). The U.S. dollar equivalent notional value of these short-duration foreign currency exchange contracts was $15.2 million and $16.0 million at May 31, 2022 and August 31, 2021, respectively. The fair value of outstanding foreign currency exchange contracts was a net liability of less than $0.1 million at both May 31, 2022 and August 31, 2021. Net foreign currency (loss) gain (included in "Other (income) expense" in the Condensed Consolidated Statements of Operations) related to these derivative instruments were as follows (in thousands):
 Three Months Ended May 31,Nine Months Ended May 31,
 2022202120222021
Foreign currency (loss) gain, net$(196)$7 $(324)$67 
The Company was a fixed-rate payor on an interest rate swap contract that fixed the LIBOR-based index used to determine the interest rates charged on a total of $100.0 million of the Company's LIBOR-based variable rate borrowings on the revolving line of credit. The contract carried a fixed rate of 0.259% and expired in August 2021. The swap agreement qualified as a hedging instrument and was designated as a cash flow hedge of forecasted LIBOR-based interest payments. The change in the fair value of the interest rate swap, a gain of less than $0.1 million in both the three and nine months ended May 31, 2021 was recorded in other comprehensive income (loss).
Note 11. Earnings per Share and Shareholders' Equity
The Company's Board of Directors has authorized the repurchase of shares of the Company's common stock under publicly announced share repurchase programs. Since the inception of the initial share repurchase program in fiscal 2012, the Company has repurchased 24,554,305 shares of common stock for $704.0 million. The Company suspended the share repurchase program in response to the COVID-19 pandemic in the third quarter of fiscal 2020 and, accordingly, did not repurchase shares in the nine months ended May 31, 2021. Subsequently, in the three months ended May 31, 2022, the Company started repurchasing shares in market transactions following the Company's Board of Directors rescinding its prior share repurchase authorization and authorizing the repurchase of a total of 10,000,000 shares. The Company repurchased 1,755,075 shares for $36.3 million during the three months ended May 31, 2022. As of May 31, 2022, the maximum number of shares that may yet be purchased under the programs is 8,244,925 shares.
13


The reconciliation between basic and diluted earnings per share is as follows (in thousands, except per share amounts):
 Three Months Ended May 31,Nine Months Ended May 31,
 2022202120222021
Numerator:
Net earnings from continuing operations$4,061 $25,257 $9,367 $33,663 
Net loss from discontinued operations(2,418)(226)(3,715)(852)
Net earnings$1,643 $25,031 5,652 32,811 
Denominator:
Weighted average common shares outstanding - basic60,227 60,144 60,292 59,964 
Net effect of dilutive securities - stock based compensation plans383 430 348 348 
Weighted average common shares outstanding - diluted60,610 60,574 60,640 60,312 
Earnings per common share from continuing operations:
Basic$0.07 $0.42 $0.16 $0.56 
Diluted$0.07 $0.42 $0.15 $0.56 
Loss per common share from discontinued operations:
Basic$(0.04)$(0.00)$(0.06)$(0.01)
Diluted$(0.04)$(0.00)$(0.06)$(0.01)
Earnings per common share:*
Basic$0.03 $0.42 $0.09 $0.55 
Diluted$0.03 $0.41 $0.09 $0.54 
Anti-dilutive securities from stock based compensation plans (excluded from earnings per share calculation)951 548 945 990 
*The total of Earnings per share from continuing operations and Loss per share from discontinued operations may not equal Earnings per share due to rounding.
14



The following table illustrates the changes in the balances of each component of shareholders' equity for the nine months ended May 31, 2022 (in thousands):
 Common StockAdditional
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, 202183,022 $16,604 $202,971 $(667,732)$953,339 $(92,984)$(3,067)$3,067 $412,198 
Net earnings— — — — 2,788 — — — 2,788 
Other comprehensive loss, net of tax— — — — — (10,044)— — (10,044)
Stock contribution to employee benefit plans and other2 1 84 — — — — — 85 
Vesting of equity awards67 17 (17)— — — — —  
Stock based compensation expense— — 6,147 — — — — — 6,147 
Tax effect related to net share settlement of equity awards— — (1,393)— — — — — (1,393)
Stock issued to, acquired for and distributed from rabbi trust1  25 — — — (25)25 25 
Balance at November 30, 202183,092 $16,622 $207,817 $(667,732)$956,127 $(103,028)$(3,092)$3,092 $409,806 
Net earnings— — — — 1,221 — — — 1,221 
Other comprehensive income, net of tax— — — — — 1,744 — — 1,744 
Stock contribution to employee benefit plans and other5 1 64 — — — — — 65 
Vesting of equity awards247 46 (46)— — — — —  
Stock based compensation expense— — 2,142 — — — — — 2,142 
Tax effect related to net share settlement of equity awards— — (1,980)— — — — — (1,980)
Stock issued to, acquired for and distributed from rabbi trust1 — 25 — — — 3 (3)25 
Balance at February 28, 202283,345 $16,669 $208,022 $(667,732)$957,348 $(101,284)$(3,089)$3,089 $413,023 
Net earnings— — — — 1,643 — — — 1,643 
Other comprehensive loss, net of tax— — — — — (16,030)— — (16,030)
Stock contribution to employee benefit plans and other4 1 65 — — — — — 66 
Treasury stock repurchases— — — (36,295)— — — — (36,295)
Stock based compensation expense— — 3,828 — — — — — 3,828 
Tax effect related to net share settlement of equity awards— — (3)— — — — — (3)
Stock issued to, acquired for and distributed from rabbi trust— 40 — — — (59)59 40 
Balance at May 31, 202283,350 $16,670 $211,952 $(704,027)$958,991 $(117,314)$(3,148)$3,148 $366,272 
15


The following table illustrates the changes in the balances of each component of shareholders' equity for the nine months ended May 31, 2021 (in thousands):
 Common StockAdditional
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, 202082,594 $16,519 $193,492 $(667,732)$917,671 $(100,724)$(