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 February 28, 2021 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 ...

Financial Data and Key Metrics Changes - The second quarter sales increased slightly compared to the first quarter but were down 11% year-over-year [37] - Core tools product sales were down 10%, an improvement from down 14% in the first quarter [37] - Adjusted EBITDA margin for the quarter was 10%, down from 12% in the first quarter and the prior year [38] - Free cash flow was positive for the quarter, marking the first time in over five years [49] - The company ended the quarter with $115 million in cash after paying down $45 million of borrowings [50] Business Line Data and Key Metrics Changes - Core sales declined by 11%, with products down 11% and services down 12% [12] - Cortland sales were down 21%, an improvement from down 35% in the first quarter [37] - Adjusted EBITDA decremental margin was 29%, at the low end of the expected range [13] Market Data and Key Metrics Changes - Sales results varied by region, with Europe and Asia Pacific being the best-performing regions [15] - The Americas showed sequential improvement but were still in the mid-teens decline compared to the prior year [15] - The MENAC region experienced a decline due to border closures, impacting service and product revenue [27] Company Strategy and Development Direction - The company is focusing on long-term strategy execution, including new product development and capital allocation priorities [9] - There is a commitment to recruiting, developing, and retaining employees to ensure successful strategy execution [10] - The company plans to take pricing actions in Q3 to address rising commodity and freight costs [31] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about recovery, expecting to reach near parity with 2019 core sales levels by the end of the fiscal year [51] - The company anticipates accelerated sequential growth in the back half of the year, driven by improving market conditions [52] - Management remains cautious about potential COVID-19 resurgences but is optimistic due to vaccine distribution [52] Other Important Information - The company is navigating complexities of operating during the pandemic while maintaining safety and quality commitments [30] - There is a focus on managing supply chain and inventory levels to meet increasing demand [32] - The company is winding down temporary COVID cost actions, resulting in savings [48] Q&A Session Summary Question: What are the key drivers for the 19% sequential improvement in the second half? - Management highlighted the recovery in vertical markets, particularly civil construction and alternative energy, as key drivers for growth [57][58] Question: What are the cost headwinds and tailwinds affecting EBITDA margins in the second half? - The biggest tailwind is expected to be improving product volume, with some incremental bonus expenses anticipated [60] Question: How are you managing airfreight and manufacturing variances in the second half? - Management acknowledged that airfreight is a significant factor due to rising demand and is working to minimize it over time [63][64] Question: Can you provide insights on the impact of extreme weather in Texas? - The weather caused approximately $1 million in missed revenue, with expectations for recovery in Q3 [82][84] Question: What is the outlook for cash flow in Q3? - Management indicated that cash flow would depend on inventory management and demand timing, making it difficult to predict [80]

Financial Performance - Sales reached $121 million, with an 11% core sales decline (11% product decrease and 12% service decrease)[7] - Adjusted EBITDA decremental margins were 29%, excluding currency impacts, outperforming the target range of 35%-45%[7] - Adjusted Diluted EPS was $0.06[7] - The company paid down $45 million in debt, bringing leverage to 2.1x[3, 7] - Free Cash Flow generated $1 million, compared to a $9 million usage in the prior year period[7] Market Trends and Regional Performance - IT&S product core sales declines improved sequentially to 10% in Q2 from 14% in Q1[5] - Asia Pacific experienced a low single-digit (LSD) decline in core sales[8] - Europe saw a mid-single-digit (MSD) decline in core sales[8] - The Middle East faced a low double-digit (LDD) decline in core sales[8] - Americas also experienced a low double-digit (LDD) decline in core sales, but showed sequential improvement[8, 9] Outlook and Strategy - The company anticipates net sales returning to pre-COVID levels by the end of the fiscal year[24] - Incremental EBITDA margins are expected to be at the high end of 35%-45%, excluding currency impacts[24, 27] - Sales for the second half of fiscal year 2021 are projected to be between $280 million and $290 million[27]

[Forward-Looking Statements and Cautionary Factors](index=3&type=section&id=Forward-Looking%20Statements%20and%20Cautionary%20Factors) This section outlines forward-looking statements on financial results, liquidity, and restructuring, noting inherent risks and uncertainties - This report contains forward-looking statements regarding expected financial results, liquidity, restructuring costs, and capital expenditures, which involve risks and uncertainties[19](index=19&type=chunk) - Key factors that could cause actual results to differ materially include the impact of the COVID-19 pandemic, economic instability, decreased demand from the oil & gas industry, commodity cost increases, global tariffs, supply chain disruptions, competition, currency fluctuations, regulatory developments, litigation, and the ability to develop new products and integrate acquisitions[20](index=20&type=chunk)[22](index=22&type=chunk) [Part I—Financial Information](index=5&type=section&id=Part%20I%E2%80%94Financial%20Information) This part presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis [Item 1—Condensed Consolidated Financial Statements (Unaudited)](index=5&type=section&id=Item%201%E2%80%94Condensed%20Consolidated%20Financial%20Statements%20(Unaudited)) This section presents unaudited condensed consolidated financial statements, including operations, comprehensive income, balance sheets, cash flows, and detailed notes [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This statement provides a summary of the company's revenues, expenses, and net earnings over a specific period Condensed Consolidated Statements of Operations | Metric | Three Months Ended Nov 30, 2020 ($ thousands) | Three Months Ended Nov 30, 2019 ($ thousands) | | :-------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Net sales | 119,430 | 146,674 | | Gross profit | 55,264 | 68,688 | | Operating profit | 9,069 | 14,369 | | Net earnings from continuing operations | 4,822 | 6,372 | | Net earnings | 4,598 | 2,121 | | Diluted EPS from continuing operations | $0.08 | $0.11 | | Diluted EPS | $0.08 | $0.03 | [Condensed Consolidated Statements of Comprehensive Income](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) This statement details net earnings and other comprehensive income components, reflecting changes in equity from non-owner sources Condensed Consolidated Statements of Comprehensive Income | Metric | Three Months Ended Nov 30, 2020 ($ thousands) | Three Months Ended Nov 30, 2019 ($ thousands) | | :------------------------------------------------------------------ | :-------------------------------------------- | :-------------------------------------------- | | Net earnings | 4,598 | 2,121 | | Foreign currency translation adjustments | 1,400 | 8,492 | | Recognition of foreign currency translation losses from divested businesses | — | 51,994 | | Pension, other postretirement benefit plans, and cash flow hedges | 229 | 441 | | Total other comprehensive income, net of tax | 1,629 | 60,927 | | Comprehensive income | 6,227 | 63,048 | [Condensed Consolidated Balance Sheets](index=7&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This statement presents the company's financial position, including assets, liabilities, and equity, at specific points in time Condensed Consolidated Balance Sheets | Metric | November 30, 2020 ($ thousands) | August 31, 2020 ($ thousands) | | :----------------------------------- | :------------------------------ | :---------------------------- | | Total current assets | 357,815 | 341,132 | | Total assets | 838,575 | 824,294 | | Total current liabilities | 109,704 | 105,522 | | Total liabilities | 470,629 | 465,068 | | Total shareholders' equity | 367,946 | 359,226 | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This statement reports on cash generated and used by operating, investing, and financing activities over a period Condensed Consolidated Statements of Cash Flows | Metric | Three Months Ended Nov 30, 2020 ($ thousands) | Three Months Ended Nov 30, 2019 ($ thousands) | | :------------------------------------------------ | :-------------------------------------------- | :-------------------------------------------- | | Cash provided by (used in) operating activities | 8,667 | (22,927) | | Cash (used in) provided by investing activities | (1,858) | 213,342 | | Cash used in financing activities | (1,818) | (195,222) | | Net increase (decrease) in cash and cash equivalents | 6,398 | (4,371) | | Cash and cash equivalents - end of period | 158,568 | 206,780 | [Notes to the Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) These notes provide detailed explanations and additional information supporting the condensed consolidated financial statements [Note 1. Basis of Presentation](index=9&type=section&id=Note%201.%20Basis%20of%20Presentation) This note describes the company's operating segments, accounting policy adoptions, and the impact of the COVID-19 pandemic - Enerpac Tool Group Corp. operates with two segments: Industrial Tools & Service (IT&S), which is the only reportable segment, and Other[38](index=38&type=chunk) - The company adopted ASU 2016-13 (CECL model) on September 1, 2020, with **no impact on financial statements**[39](index=39&type=chunk) - The COVID-19 pandemic has negatively impacted, and is expected to continue to negatively impact, the global economy and the Company's operating results and financial position[38](index=38&type=chunk) Accumulated Other Comprehensive Loss Component | Accumulated Other Comprehensive Loss Component | November 30, 2020 ($ thousands) | August 31, 2020 ($ thousands) | | :--------------------------------------------- | :------------------------------ | :---------------------------- | | Foreign currency translation adjustments | 74,496 | 75,896 | | Pension and other postretirement benefit plans, net of tax | 24,545 | 24,750 | | Unrecognized losses on cash flow hedges | 54 | 78 | | Total Accumulated other comprehensive loss | 99,095 | 100,724 | [Note 2. Revenue from Contracts with Customers](index=10&type=section&id=Note%202.%20Revenue%20from%20Contracts%20with%20Customers) This note details the company's revenue recognition policies for product sales and service & rental sales - Revenue is generated from product sales (recognized at a point in time, or over time for customized products) and service & rental sales (recognized over time)[43](index=43&type=chunk) Revenue Recognition Timing | Revenue Recognition Timing | Three Months Ended Nov 30, 2020 ($ thousands) | Three Months Ended Nov 30, 2019 ($ thousands) | | :------------------------- | :-------------------------------------------- | :-------------------------------------------- | | At point in time | 86,780 | 104,812 | | Over time | 32,650 | 41,862 | | Total | 119,430 | 146,674 | Contract Balance Component | Contract Balance Component | November 30, 2020 ($ thousands) | August 31, 2020 ($ thousands) | | :------------------------- | :------------------------------ | :---------------------------- | | Receivables, net | 90,531 | 84,170 | | Contract assets | 5,108 | 6,145 | | Contract liabilities | 3,193 | 2,145 | [Note 3. Restructuring Charges](index=11&type=section&id=Note%203.%20Restructuring%20Charges) This note outlines the company's restructuring initiatives, including workforce reductions and facility consolidations, and associated charges - The company is executing restructuring initiatives to integrate businesses, exit certain services, and drive corporate efficiencies, involving workforce reductions and facility consolidations[48](index=48&type=chunk) Restructuring Charges | Restructuring Charges | Three Months Ended Nov 30, 2020 ($ thousands) | Three Months Ended Nov 30, 2019 ($ thousands) | | :-------------------- | :-------------------------------------------- | :-------------------------------------------- | | Total charges | 210 | 1,972 | Restructuring Reserve | Restructuring Reserve | November 30, 2020 ($ thousands) | August 31, 2020 ($ thousands) | | :-------------------- | :------------------------------ | :---------------------------- | | IT&S segment | 1,073 | 1,443 | | Corporate | 38 | 267 | [Note 4. Acquisitions](index=12&type=section&id=Note%204.%20Acquisitions) This note details the acquisition of HTL Group, its strategic benefits, and its impact on net sales and asset allocation - On January 7, 2020, the Company acquired HTL Group for **$33.3 million**, enhancing its bolting products and European rental capabilities[52](index=52&type=chunk) - The HTL acquisition generated **$2.4 million in net sales** for the three months ended November 30, 2020, reported within the IT&S segment[52](index=52&type=chunk) - The final purchase price allocation included **$11.3 million of goodwill** and **$16.1 million of intangible assets**[52](index=52&type=chunk) [Note 5. Discontinued Operations and Other Divestiture Activities](index=12&type=section&id=Note%205.%20Discontinued%20Operations%20and%20Other%20Divestiture%20Activities) This note describes the sale of the EC&S segment and other divestiture activities, including their financial impact - The Company completed the sale of its former EC&S segment on October 31, 2019, for **$215.8 million**, as part of a strategic shift to become a pure-play industrial tools and services company[53](index=53&type=chunk) Net Loss from Discontinued Operations | Metric | Three Months Ended Nov 30, 2020 ($ thousands) | Three Months Ended Nov 30, 2019 ($ thousands) | | :-------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Net loss from discontinued operations | (224) | (4,251) | - Other divestiture activities included the sale of the UNI-LIFT product line for **$6.0 million** (resulting in a **$4.6 million benefit**) and the Connectors product line for **$2.7 million** (resulting in a **$1.3 million benefit**) in the three months ended November 30, 2019[56](index=56&type=chunk) [Note 6. Goodwill, Intangible Assets and Long-Lived Assets](index=14&type=section&id=Note%206.%20Goodwill,%20Intangible%20Assets%20and%20Long-Lived%20Assets) This note provides details on the company's goodwill, other intangible assets, and estimated amortization expenses Goodwill and Other Intangible Assets | Asset Category | November 30, 2020 ($ thousands) | August 31, 2020 ($ thousands) | | :----------------------- | :------------------------------ | :---------------------------- | | Goodwill | 280,977 | 281,154 | | Other intangible assets, net | 60,097 | 62,382 | - Estimated amortization expense for intangible assets is **$6.0 million** for the remaining nine months of fiscal 2021 and **$7.3 million** for fiscal 2022[58](index=58&type=chunk) [Note 7. Product Warranty Costs](index=14&type=section&id=Note%207.%20Product%20Warranty%20Costs) This note outlines the activity and balances of the company's product warranty reserve over the reporting periods Product Warranty Reserve Activity | Warranty Reserve Activity | Three Months Ended Nov 30, 2020 ($ thousands) | Three Months Ended Nov 30, 2019 ($ thousands) | | :------------------------ | :-------------------------------------------- | :-------------------------------------------- | | Beginning balance | 892 | 1,145 | | Provision for warranties | 464 | 211 | | Warranty payments | (399) | (206) | | Ending balance | 959 | 1,125 | [Note 8. Debt](index=15&type=section&id=Note%208.%20Debt) This note details the company's debt structure, including its revolving credit facility, repayments, and covenant compliance Long-Term Debt | Debt Component | November 30, 2020 ($ thousands) | August 31, 2020 ($ thousands) | | :---------------------- | :------------------------------ | :---------------------------- | | Long-term debt, net | 255,000 | 255,000 | - The Senior Credit Facility includes a **$400 million revolving line of credit**, with **$255.0 million borrowed** and **$139.9 million available** as of November 30, 2020[62](index=62&type=chunk) - The Company repaid its **$200 million term loan** in November 2019 and redeemed all **$300 million of 5.625% Senior Notes** in June 2020 to reduce interest costs[62](index=62&type=chunk)[63](index=63&type=chunk) - The Company was in compliance with all financial covenants at November 30, 2020, after proactively amending its interest coverage ratio covenant due to COVID-19[62](index=62&type=chunk) [Note 9. Fair Value Measurements](index=15&type=section&id=Note%209.%20Fair%20Value%20Measurements) This note discusses the fair value of financial instruments, including cash, receivables, debt, and derivative instruments - The fair value of cash, receivables, payables, and variable-rate long-term debt approximated book value due to their short-term nature or market rates[64](index=64&type=chunk) - Foreign currency exchange contracts were a **net asset of less than $0.1 million** (Nov 30, 2020) and **$0.2 million** (Aug 31, 2020)[66](index=66&type=chunk) - The interest rate swap was a **net liability of $0.1 million** at both November 30, 2020, and August 31, 2020[66](index=66&type=chunk) [Note 10. Derivatives](index=16&type=section&id=Note%2010.%20Derivatives) This note explains the company's use of foreign currency exchange contracts and interest rate swaps to manage market risks - The Company uses foreign currency exchange contracts to manage exchange rate risk, with a **notional value of $16.5 million** at November 30, 2020[67](index=67&type=chunk) Foreign Currency Loss, Net | Metric | Three Months Ended Nov 30, 2020 ($ thousands) | Three Months Ended Nov 30, 2019 ($ thousands) | | :---------------------- | :-------------------------------------------- | :-------------------------------------------- | | Foreign currency loss, net | (49) | (270) | - An interest rate swap fixes the LIBOR-based index on **$100.0 million of variable-rate borrowings** at **0.259%**, expiring in August 2021, qualifying as a cash flow hedge[67](index=67&type=chunk) [Note 11. Earnings per Share and Shareholders' Equity](index=16&type=section&id=Note%2011.%20Earnings%20per%20Share%20and%20Shareholders'%20Equity) This note provides details on basic and diluted earnings per share, share repurchase activities, and total shareholders' equity Earnings Per Share (EPS) | EPS Metric | Three Months Ended Nov 30, 2020 | Three Months Ended Nov 30, 2019 | | :------------------------------------------ | :------------------------------ | :------------------------------ | | Basic EPS from continuing operations | $0.08 | $0.11 | | Diluted EPS from continuing operations | $0.08 | $0.11 | | Basic EPS | $0.08 | $0.04 | | Diluted EPS | $0.08 | $0.03 | - The Company did not repurchase shares in the three months ended November 30, 2020, but repurchased **839,789 shares** for **$17.8 million** in the prior-year period[68](index=68&type=chunk) Total Shareholders' Equity | Shareholders' Equity Component | November 30, 2020 ($ thousands) | August 31, 2020 ($ thousands) | | :----------------------------- | :------------------------------ | :---------------------------- | | Total Shareholders' Equity | 367,946 | 359,226 | [Note 12. Income Taxes](index=18&type=section&id=Note%2012.%20Income%20Taxes) This note details income tax expense, effective tax rates, and the impact of tax regulations and the CARES Act Income Tax Metrics | Income Tax Metric | Three Months Ended Nov 30, 2020 | Three Months Ended Nov 30, 2019 | | :------------------------------------ | :------------------------------ | :------------------------------ | | Earnings before income tax expense | $7,080 | $7,322 | | Income tax expense | $2,258 | $950 | | Effective income tax rate | 31.9% | 13.0% | - The effective tax rate increased to **31.9%** from **13.0%** primarily due to prior-year non-recurring benefits related to proposed tax regulations in the United States[74](index=74&type=chunk) - The CARES Act did not have a material impact on consolidated financial statements for the three months ended November 30, 2020[74](index=74&type=chunk) [Note 13. Segment Information](index=18&type=section&id=Note%2013.%20Segment%20Information) This note provides financial information for the company's reportable segment, Industrial Tools & Service (IT&S), and other operating segments - The Industrial Tools & Service (IT&S) segment is the Company's only reportable segment, engaged in the design, manufacture, and distribution of hydraulic and mechanical tools, and providing services and tool rental[75](index=75&type=chunk) Segment Net Sales | Segment Financials (Net Sales) | Three Months Ended Nov 30, 2020 ($ thousands) | Three Months Ended Nov 30, 2019 ($ thousands) | | :----------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Industrial Tools & Services | 112,175 | 135,592 | | Other Operating Segment | 7,255 | 11,082 | | Total Net Sales | 119,430 | 146,674 | Segment Operating Profit | Segment Financials (Operating Profit) | Three Months Ended Nov 30, 2020 ($ thousands) | Three Months Ended Nov 30, 2019 ($ thousands) | | :------------------------------------ | :-------------------------------------------- | :-------------------------------------------- | | Industrial Tools & Services | 17,157 | 26,055 | | Other Operating Segment | (1,809) | (255) | | General Corporate | (6,279) | (11,431) | | Total Operating Profit | 9,069 | 14,369 | [Note 14. Commitments and Contingencies](index=19&type=section&id=Note%2014.%20Commitments%20and%20Contingencies) This note outlines the company's outstanding letters of credit, contingent lease liabilities, and potential regulatory penalties - The Company had outstanding letters of credit totaling **$11.9 million** at November 30, 2020, primarily for commercial contracts and self-insured workers' compensation programs[79](index=79&type=chunk) - The Company is contingently liable for **$6.5 million** in future lease payments from previously divested businesses, extending to fiscal 2025[79](index=79&type=chunk) - An expense was recorded for an estimated financial penalty related to potential violations of Crimea sanctions laws, though no material adverse effect on financial position is expected[81](index=81&type=chunk) [Note 15. Leases](index=20&type=section&id=Note%2015.%20Leases) This note describes the company's operating lease arrangements for real estate, vehicles, and equipment, and associated costs - The Company has operating leases for real estate, vehicles, and equipment, typically ranging from 3 to 15 years with renewal options[82](index=82&type=chunk) Lease Costs | Lease Cost Component | Three Months Ended Nov 30, 2020 ($ thousands) | Three Months Ended Nov 30, 2019 ($ thousands) | | :------------------- | :-------------------------------------------- | :-------------------------------------------- | | Operating lease cost | 3,706 | 4,254 | | Short-term lease cost | 413 | 455 | | Variable lease cost | 882 | 469 | Cash Flow from Leases | Cash Flow from Leases | Three Months Ended Nov 30, 2020 ($ thousands) | Three Months Ended Nov 30, 2019 ($ thousands) | | :-------------------- | :-------------------------------------------- | :-------------------------------------------- | | Operating cash flows | 3,705 | 4,262 | [Item 2—Management's Discussion and Analysis of Financial Condition and Results of Operations](index=20&type=section&id=Item%202%E2%80%94Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's analysis of financial condition and results, covering COVID-19 impact, strategic initiatives, and key financial metrics [General Business Overview](index=20&type=section&id=General%20Business%20Overview) This overview describes Enerpac Tool Group Corp. as a premier industrial tools and services company with a focus on shareholder value - Enerpac Tool Group Corp. is a premier industrial tools and services company, a global leader in high-pressure hydraulic tools and solutions, with the Industrial Tools & Service (IT&S) segment as its sole reportable segment[83](index=83&type=chunk) - The company aims to drive shareholder value through established brands, global distribution, focus on core tools and services, and disciplined capital deployment[83](index=83&type=chunk) [COVID-19 Update](index=20&type=section&id=COVID-19%20Update) This section discusses the significant negative financial impacts of the COVID-19 pandemic and implemented cost-saving measures - The COVID-19 pandemic has caused significant negative financial impacts, particularly on demand, though manufacturing facilities continue to operate with safety precautions[84](index=84&type=chunk) - Temporary cost-saving measures, including reductions in capital expenditures and deferral of tax payments, have been implemented, with some eliminated due to sequential business improvement[86](index=86&type=chunk) - The ultimate impact of the pandemic on the business, results of operations, and financial condition remains uncertain[86](index=86&type=chunk) [General Business Update](index=21&type=section&id=General%20Business%20Update) This update covers the EC&S segment sale, restructuring plans for efficiency, and the favorable impact of foreign currency changes - The sale of the EC&S segment was completed on October 31, 2019, for approximately **$216 million**[87](index=87&type=chunk) - Restructuring plans, focused on integrating Enerpac and Hydratight businesses and driving corporate efficiencies, are expected to yield annual savings of **$12-15 million** from the first phase and an additional **$12-15 million** from expansion[87](index=87&type=chunk) - Changes in foreign currency exchange rates, particularly a weakening U.S. dollar, favorably impact sales, cash flow, and earnings, as over half of sales are international[87](index=87&type=chunk) [Results of Operations](index=21&type=section&id=Results%20of%20Operations) This section analyzes consolidated net sales, gross profit, and operating profit, highlighting key drivers of change Consolidated Results of Operations | Metric | Three Months Ended Nov 30, 2020 ($ millions) | Three Months Ended Nov 30, 2019 ($ millions) | | :-------------------------------------- | :------------------------------------------- | :------------------------------------------- | | Net sales | 119 | 147 | | Gross profit | 55 | 69 | | Operating profit | 9 | 14 | | Net earnings from continuing operations | 5 | 6 | | Diluted EPS from continuing operations | $0.08 | $0.11 | - Consolidated net sales decreased by **$28 million (19%)** year-over-year, primarily due to an **18% decline in core sales** from the COVID-19 pandemic and oil price volatility, partially offset by the HTL Group acquisition and favorable foreign currency[89](index=89&type=chunk)[90](index=90&type=chunk) - Gross profit margins decreased by **1%** due to under-absorption of fixed costs, partially offset by a favorable mix of product and service sales[90](index=90&type=chunk) [Segment Results](index=22&type=section&id=Segment%20Results) This section analyzes the financial performance of the IT&S segment, including net sales and operating profit percentage IT&S Segment Performance | IT&S Segment Metric | Three Months Ended Nov 30, 2020 ($ millions) | Three Months Ended Nov 30, 2019 ($ millions) | | :------------------ | :------------------------------------------- | :------------------------------------------- | | Net sales | 112 | 136 | | Operating profit | 17 | 26 | | Operating profit % | 15.3% | 19.2% | - IT&S segment net sales decreased by **$24 million (17.3%)**, driven by a **17% decline in core sales** due to the COVID-19 pandemic, partially offset by a **$2 million increase** from the HTL Group acquisition and a **2% favorable impact** from foreign currency[91](index=91&type=chunk) - Operating profit percentage for IT&S decreased by **3.9%** due to reduced volumes and under-absorption, partially offset by lower selling, administrative, and engineering (SAE) costs from restructuring savings and reduced discretionary spending[91](index=91&type=chunk) [Corporate](index=22&type=section&id=Corporate) This section details the decrease in corporate expenses, driven by restructuring savings and reduced discretionary spending - Corporate expenses decreased by **$5 million**, from **$11 million** in the prior year to **$6 million**, primarily due to savings from restructuring actions, lower annual bonus program expenses, and reductions in discretionary spending[92](index=92&type=chunk) [Financing Costs, net](index=22&type=section&id=Financing%20Costs,%20net) This section explains the significant decrease in net financing costs due to debt repayments and interest rate savings Net Financing Costs | Metric | Three Months Ended Nov 30, 2020 ($ millions) | Three Months Ended Nov 30, 2019 ($ millions) | | :------------------ | :------------------------------------------- | :------------------------------------------- | | Financing costs, net | 2 | 7 | - Net financing costs decreased significantly due to the payoff of the outstanding term loan in November 2019 and interest rate savings from the retirement of **5.625% Senior Notes** in Q4 fiscal 2020[93](index=93&type=chunk) [Income Tax Expense](index=23&type=section&id=Income%20Tax%20Expense) This section analyzes the company's income tax expense and the increase in the effective tax rate compared to the prior year Income Tax Metrics | Income Tax Metric | Three Months Ended Nov 30, 2020 | Three Months Ended Nov 30, 2019 | | :------------------------------------ | :------------------------------ | :------------------------------ | | Earnings before income tax expense | $7 | $7 | | Income tax expense | $2 | $1 | | Effective income tax rate | 31.9% | 13.0% | - The effective tax rate for the three months ended November 30, 2020, was **31.9%**, up from **13.0%** in the prior-year period, primarily due to non-recurring benefits in the prior year[95](index=95&type=chunk) [Cash Flows and Liquidity](index=23&type=section&id=Cash%20Flows%20and%20Liquidity) This section reviews cash flows from operating, investing, and financing activities, and assesses the company's liquidity position Cash Flow Activities | Cash Flow Activity | Three Months Ended Nov 30, 2020 ($ millions) | Three Months Ended Nov 30, 2019 ($ millions) | | :---------------------------------- | :------------------------------------------- | :------------------------------------------- | | Net cash provided by operating activities | 9 | (23) | | Net cash (used in) provided by investing activities | (2) | 213 | | Net cash used in financing activities | (2) | (195) | | Net increase (decrease) in cash | 6 | (4) | - Cash and cash equivalents totaled **$159 million** at November 30, 2020, with **$142 million** held by foreign subsidiaries[96](index=96&type=chunk) - The Company had **$140 million available for borrowing** under its revolving line of credit at November 30, 2020, and believes its liquidity is adequate for the foreseeable future[100](index=100&type=chunk)[101](index=101&type=chunk) [Primary Working Capital Management](index=24&type=section&id=Primary%20Working%20Capital%20Management) This section provides an overview of the company's primary working capital components, including receivables, inventory, and payables Primary Working Capital | Working Capital Metric | November 30, 2020 ($ millions) | PWC% | August 31, 2020 ($ millions) | PWC% | | :------------------------ | :----------------------------- | :--- | :--------------------------- | :--- | | Accounts receivable, net | 91 | 19% | 84 | 19% | | Inventory, net | 71 | 15% | 69 | 16% | | Accounts payable | (47) | (10)%| (45) | (10)%| | Net primary working capital | 115 | 24% | 108 | 25% | [Commitments and Contingencies](index=24&type=section&id=Commitments%20and%20Contingencies) This section details outstanding letters of credit, contingent lease liabilities, and potential legal and regulatory matters - The Company is contingently liable for **$7 million** in future lease payments from previously divested businesses, extending to fiscal 2025[102](index=102&type=chunk) - Outstanding letters of credit totaled **$12 million** at November 30, 2020, for commercial contracts and workers' compensation programs[102](index=102&type=chunk) - The Company is subject to legal and regulatory matters, including a potential financial penalty related to Crimea sanctions, but expects no material adverse effect[102](index=102&type=chunk) [Contractual Obligations](index=24&type=section&id=Contractual%20Obligations) This section states that contractual obligations have not materially changed from the prior fiscal year's annual report - Contractual obligations have not materially changed in fiscal 2021 from what was disclosed in the Annual Report on Form 10-K for the year ended August 31, 2020[103](index=103&type=chunk) [Critical Accounting Estimates](index=24&type=section&id=Critical%20Accounting%20Estimates) This section affirms the reasonableness of accounting estimates and refers to the annual report for detailed policy information - Management believes the accounting estimates used in the condensed consolidated financial statements are reasonable and appropriate[104](index=104&type=chunk) - Detailed information on critical accounting policies, methodology, and assumptions can be found in the fiscal 2020 Annual Report on Form 10-K[104](index=104&type=chunk) [Item 3—Quantitative and Qualitative Disclosures about Market Risk](index=24&type=section&id=Item%203%E2%80%94Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section outlines the company's exposure to financial and market risks, including interest rate, foreign currency, and commodity cost, and mitigation strategies [Interest Rate Risk](index=24&type=section&id=Interest%20Rate%20Risk) This section describes how the company manages interest rate risk using variable-rate debt and fixed-interest-rate swaps - The Company manages interest expense using a mixture of variable-rate debt and fixed-interest-rate swaps[105](index=105&type=chunk) - As of November 30, 2020, long-term debt included **$255 million of variable-rate borrowing** under the revolving line of credit[105](index=105&type=chunk) - The Company is the fixed-rate payor on an interest-rate swap that effectively fixes the LIBOR-based index on **$100 million of its revolving credit facility borrowings**[105](index=105&type=chunk) [Foreign Currency Risk](index=25&type=section&id=Foreign%20Currency%20Risk) This section details the company's exposure to foreign currency fluctuations and its use of exchange contracts for mitigation - The Company has significant non-U.S. operations in Australia, the Netherlands, the United Kingdom, United Arab Emirates, and China, exposing it to foreign currency risk[108](index=108&type=chunk) - Foreign currency exchange contracts are used to mitigate exchange rate risk, not for speculative purposes[108](index=108&type=chunk) - A hypothetical **10% decrease** in all foreign exchange rates against the U.S. dollar would result in a **$6 million reduction in quarterly sales**, a **$1 million reduction in operating profit**, and a **$37 million reduction to equity**[108](index=108&type=chunk) [Commodity Cost Risk](index=25&type=section&id=Commodity%20Cost%20Risk) This section addresses the company's exposure to raw material price fluctuations and strategies to pass on cost increases - The Company is exposed to commodity cost risk from raw materials like steel and plastic resin, which are subject to price fluctuations[108](index=108&type=chunk) - The Company strives to pass along commodity price increases to customers to avoid profit margin erosion[108](index=108&type=chunk) [Item 4—Controls and Procedures](index=25&type=section&id=Item%204%E2%80%94Controls%20and%20Procedures) This section details the evaluation of disclosure controls and procedures and reports on changes in internal control over financial reporting [Evaluation of Disclosure Controls and Procedures](index=25&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) This section confirms the effectiveness of the company's disclosure controls and procedures as of November 30, 2020 - The Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of November 30, 2020[110](index=110&type=chunk) [Changes in Internal Control Over Financial Reporting](index=25&type=section&id=Changes%20in%20Internal%20Control%20Over%20Financial%20Reporting) This section reports no material changes in internal control over financial reporting during the quarter - There were no changes in internal control over financial reporting during the quarter ended November 30, 2020, that materially affected or are reasonably likely to materially affect the Company's internal control over financial reporting[110](index=110&type=chunk) [Part II—Other Information](index=26&type=section&id=Part%20II%E2%80%94Other%20Information) This part includes information on unregistered sales of equity securities and a list of exhibits filed with the report [Item 2—Unregistered Sales of Equity Securities and Use of Proceeds](index=26&type=section&id=Item%202%E2%80%94Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section reports on the company's share repurchase program and any unregistered sales of equity securities - The Company's Board of Directors has authorized a share repurchase program, with **5,200,770 shares remaining for purchase** as of November 30, 2020[112](index=112&type=chunk) - No shares were repurchased during the three months ended November 30, 2020[112](index=112&type=chunk) [Item 6—Exhibits](index=26&type=section&id=Item%206%E2%80%94Exhibits) This section lists all exhibits filed as part of the Form 10-Q, including certifications and financial data in XBRL format - Exhibits include certifications from the Chief Executive Officer and Chief Financial Officer (31.1, 31.2, 32.1, 32.2) as required by the Sarbanes-Oxley Act of 2002[113](index=113&type=chunk) - The report includes financial statements formatted in Inline Extensible Business Reporting Language (Inline XBRL) as Exhibit 101[113](index=113&type=chunk)

Financial Data and Key Metrics Changes - The first quarter sales increased by 7% compared to the fourth quarter of fiscal 2020 but were down 19% year-over-year [40] - Core tools product sales were down 14%, an improvement from down 20% in the fourth quarter [40] - Adjusted EBITDA margin for the quarter was 12%, up 300 basis points from the fourth quarter [41] - EPS was reported at $0.09 per share, marking an improvement over the fourth quarter [16] Business Line Data and Key Metrics Changes - Core sales declined by 18% year-over-year, with products down 16% and services down 24% [15] - Service sales improved sequentially, down 24% year-over-year compared to a decline of 45% in the previous quarters [30] - The Cortland business experienced a 35% decline year-over-year, an improvement from 39% in the previous quarter [37] Market Data and Key Metrics Changes - European operations were the best-performing region, showing moderate growth compared to fiscal 2020 [17] - The Americas saw a decline in the high teens but showed sequential improvement during the quarter [18] - Asia-Pacific declined in the low 20% range, affected by pandemic shutdowns in Southeast Asia, while China showed recovery [26] Company Strategy and Development Direction - The company remains focused on cost management and driving the highest possible margins while maintaining a strong balance sheet [59] - Continued investment in R&D and commercial processes is emphasized to support organic growth [60] - The company is committed to launching new products, maintaining a 10% new product objective [11] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about a gradual return to normal business conditions, contingent on the pandemic's trajectory [13] - The advent of the COVID vaccine has fostered optimism within the distribution channel, although guidance remains suspended due to market unpredictability [58] - The company expects to see continued sequential improvement in cash flow generation as the year progresses [69] Other Important Information - The company generated approximately $7 million in free cash flow during the quarter, with a $6 million increase in accounts receivable [56] - The net leverage ratio was reported at 1.9 times trailing 12 EBITDA, indicating a healthy financial position [57] - The company has implemented a new product development launch strategy to enhance customer engagement and distributor participation [28] Q&A Session Summary Question: Readiness to handle increased orders and inflation - Management indicated they have improved their sales and operations planning process to predict influxes of new orders and maintain a positive on-time delivery rate [64][66] Question: Cash flow expectations for the second quarter - Management does not anticipate a reversal in cash flow for the second quarter, expecting continued improvement as the year progresses [69] Question: Dependency on air freight and transportation costs - Air freight is used on an exception basis, and management is monitoring its impact closely [72] Question: Changes in compensation and bonus accruals - The reinstatement of the bonus plan will be reflected in quarterly results, with no furloughs planned for the remainder of the year [79] Question: Backlog status and visibility - Management confirmed that the backlog is up year-over-year and is optimistic about continued sequential improvement [100][102]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K Title of each class Ticker Symbol(s) Name of each exchange on which registered Class A common stock, $0.20 par value per share EPAC NYSE (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended August 31, 2020 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition period from to to Commission File No. 1- ...

Enerpac Tool Group Corp. (NYSE:EPAC) Q4 2020 Earnings Conference Call September 30, 2020 11:00 AM ET Company Participants Bobbi Belstner - Director of Investor Relations and Strategy Randy Baker - President and Chief Executive Officer Rick Dillon - Chief Financial Officer Jeff Schmaling - Chief Operating Officer Barb Bolens - Chief Strategy, Officer Fab Rasetti - General Counsel Bryan Johnson - Chief Accounting Officer Conference Call Participants Allison Poliniak - Wells Fargo Stanley Elliott - Stifel Mig ...

Part I—Financial Information [Item 1—Condensed Consolidated Financial Statements (Unaudited)](index=3&type=section&id=Item%201%E2%80%94Condensed%20Consolidated%20Financial%20Statements%20(Unaudited)) This section presents unaudited condensed consolidated financial statements and detailed notes for periods ended May 31, 2020 and 2019 [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) The company reported a net loss of $5.0 million for the three months ended May 31, 2020, driven by a 43% sales decrease Condensed Consolidated Statements of Operations (in thousands, except per share amounts) | Metric | Three Months Ended May 31, 2020 (in thousands) | Three Months Ended May 31, 2019 (in thousands) | Nine Months Ended May 31, 2020 (in thousands) | Nine Months Ended May 31, 2019 (in thousands) | |:---|:---|:---|:---|:---| | Net sales | $101,879 | $178,095 | $381,939 | $496,435 | | Gross profit | $41,947 | $81,954 | $172,728 | $223,582 | | Operating (loss) profit | $(1,998) | $38,179 | $20,938 | $42,066 | | Net (loss) earnings | $(4,999) | $32,418 | $(716) | $17,719 | | Diluted (loss) earnings per share | $(0.08) | $0.52 | $(0.01) | $0.29 | - Net sales decreased by **43%** for the three months and **23%** for the nine months ended May 31, 2020, compared to the prior year, significantly impacting profitability[12](index=12&type=chunk) [Condensed Consolidated Statements of Comprehensive (Loss) Income](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20(Loss)%20Income) Comprehensive loss of $11.6 million for three months ended May 31, 2020, due to net loss and currency adjustments Condensed Consolidated Statements of Comprehensive (Loss) Income (in thousands) | Metric | Three Months Ended May 31, 2020 (in thousands) | Three Months Ended May 31, 2019 (in thousands) | Nine Months Ended May 31, 2020 (in thousands) | Nine Months Ended May 31, 2019 (in thousands) | |:---|:---|:---|:---|:---|\ | Net (loss) earnings | $(4,999) | $32,418 | $(716) | $17,719 | | Foreign currency translation adjustments | $(6,779) | $(14,000) | $(1,533) | $(14,744) | | Total other comprehensive (loss) income, net of tax | $(6,586) | $(13,800) | $51,289 | $20,693 | | Comprehensive (loss) income | $(11,585) | $18,618 | $50,573 | $38,412 | - Foreign currency translation adjustments contributed to a comprehensive loss in the three-month period, while a significant recognition of foreign currency translation losses from divested businesses positively impacted the nine-month comprehensive income in 2020[14](index=14&type=chunk) [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets decreased to $851.5 million at May 31, 2020, primarily due to discontinued operations divestiture Condensed Consolidated Balance Sheets (in thousands) | Metric | May 31, 2020 (in thousands) | August 31, 2019 (in thousands) | |:---|:---|:---|\ | Cash and cash equivalents | $163,603 | $211,151 | | Total current assets | $379,828 | $730,325 | | Total assets | $851,535 | $1,124,274 | | Total current liabilities | $122,539 | $300,401 | | Long-term debt, net | $286,497 | $452,945 | | Total liabilities | $515,253 | $823,095 | | Total shareholders' equity | $336,282 | $301,179 | - The decrease in total assets and liabilities is primarily attributable to the divestiture of assets and liabilities from discontinued operations, which were **$285.6 million** and **$143.8 million**, respectively, at August 31, 2019[17](index=17&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Cash used in operations was $15.7 million for nine months ended May 31, 2020, with significant investing inflows Condensed Consolidated Statements of Cash Flows (in thousands) | Activity | Nine Months Ended May 31, 2020 (in thousands) | Nine Months Ended May 31, 2019 (in thousands) | |:---|:---|:---|\ | Cash (used in) provided by operating activities | $(15,703) | $1,191 | | Cash provided by investing activities | $175,935 | $13,789 | | Cash used in financing activities | $(206,398) | $(62,523) | | Net decrease in cash and cash equivalents | $(47,548) | $(49,156) | - Investing activities saw a substantial increase in cash provided, driven by **$208.4 million** from discontinued operations in 2020, compared to **$25.2 million** in 2019[20](index=20&type=chunk) - Financing activities included a **$175 million** principal repayment on the term loan and **$27.5 million** in treasury share purchases in 2020[20](index=20&type=chunk) [Notes to the Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) Detailed notes explain accounting policies, estimates, new pronouncements, and specific financial line items [Note 1. Basis of Presentation](index=9&type=section&id=Note%201.%20Basis%20of%20Presentation) Financial statements prepared under GAAP, with estimates impacted by COVID-19 and new lease accounting standards - The COVID-19 pandemic's full impact on the business, results of operations, and financial condition is highly uncertain and could be materially adverse, requiring management to make estimates that may change[23](index=23&type=chunk) - Adoption of ASU 2016-02 (Leases) on September 1, 2019, led to the recognition of a **$60.8 million** Right-of-Use (ROU) asset and operating lease liability on the balance sheet[24](index=24&type=chunk) - ASU 2018-02 (Income Statement-Reporting Comprehensive Income) adoption resulted in a **$3.7 million** increase to retained earnings with an offsetting increase in accumulated other comprehensive loss[24](index=24&type=chunk) [Note 2. Revenue Recognition](index=10&type=section&id=Note%202.%20Revenue%20Recognition) Revenue from product sales (point in time) and service/rental (over time) declined significantly in 2020 - Product sales revenue is generally recognized at a point in time when control is transferred, typically upon shipment, while service and rental sales are recognized over time as customers simultaneously receive and consume benefits[28](index=28&type=chunk) Disaggregated Revenue by Timing of Transfer (in thousands) | Revenue Type | Three Months Ended May 31, 2020 (in thousands) | Three Months Ended May 31, 2019 (in thousands) | Nine Months Ended May 31, 2020 (in thousands) | Nine Months Ended May 31, 2019 (in thousands) | |:---|:---|:---|:---|:---|\ | Revenues recognized at point in time | $73,412 | $117,175 | $275,413 | $335,314 | | Revenues recognized over time | $28,467 | $60,920 | $106,526 | $161,121 | | Total | $101,879 | $178,095 | $381,939 | $496,435 | [Note 3. Restructuring Charges](index=11&type=section&id=Note%203.%20Restructuring%20Charges) Restructuring charges of $2.5 million and $5.6 million incurred for business integration and corporate efficiency - Restructuring charges for the three and nine months ended May 31, 2020, were **$2.5 million** and **$5.6 million**, respectively, significantly higher than the **$1.1 million** in the prior year periods[33](index=33&type=chunk) - The restructuring plan focuses on integrating Enerpac and Hydratight businesses, strategically exiting certain commodity services, and simplifying the corporate structure to enhance commercial and marketing processes[33](index=33&type=chunk) Restructuring Reserve Activity (in thousands) | Metric | Industrial Tools & Services (9 Months Ended May 31, 2020, in thousands) | Corporate (9 Months Ended May 31, 2020, in thousands) | |:---|:---|:---|\ | Balance as of August 31, 2019 | $2,912 | $0 | | Restructuring charges | $4,019 | $1,590 | | Cash payments | $(4,265) | $(871) | | Balance as of May 31, 2020 | $2,087 | $235 | [Note 4. Acquisitions](index=12&type=section&id=Note%204.%20Acquisitions) Acquisition of HTL Group for $33.3 million on January 7, 2020, added $10.1 million goodwill and $17.5 million intangibles - The acquisition of HTL Group on January 7, 2020, for **$33.3 million**, enhances the company's bolting products and European rental capabilities[35](index=35&type=chunk) - The preliminary purchase price allocation for HTL Group included **$10.1 million** in goodwill and **$17.5 million** in intangible assets (tradenames, customer relationships, patents)[35](index=35&type=chunk) - HTL Group contributed **$1.9 million** and **$3.9 million** in net sales for the three and nine months ended May 31, 2020, respectively, reported within the IT&S segment[35](index=35&type=chunk) [Note 5. Discontinued Operations and Other Divestiture Activities](index=13&type=section&id=Note%205.%20Discontinued%20Operations%20and%20Other%20Divestiture%20Activities) Sale of EC&S segment for $214.5 million resulted in a $4.2 million net loss, aligning with divestiture strategy - The sale of the EC&S segment on October 31, 2019, for approximately **$214.5 million**, resulted in a net loss of **$4.2 million**, including a **$22.4 million** loss on net assets offset by an **$18.2 million** income tax benefit[37](index=37&type=chunk) Net (Loss) Earnings from Discontinued Operations (in thousands) | Metric | Three Months Ended May 31, 2020 (in thousands) | Three Months Ended May 31, 2019 (in thousands) | Nine Months Ended May 31, 2020 (in thousands) | Nine Months Ended May 31, 2019 (in thousands) | |:---|:---|:---|:---|:---|\ | Net sales | $0 | $117,171 | $67,010 | $363,270 | | Operating (loss) earnings | $(85) | $9,181 | $(22,994) | $12,331 | | Net (loss) earnings from discontinued operations | $(69) | $5,560 | $(6,076) | $6,518 | - Other divestitures in fiscal 2020 included the UNI-LIFT product line (generating a **$4.6 million** benefit) and the Milwaukee Cylinder business (resulting in **$4.6 million** impairment charges)[40](index=40&type=chunk) [Note 6. Goodwill, Intangible Assets and Long-Lived Assets](index=15&type=section&id=Note%206.%20Goodwill%2C%20Intangible%20Assets%20and%20Long-Lived%20Assets) Goodwill increased to $271.2 million due to HTL Group acquisition; intangible assets rose to $62.8 million Changes in Goodwill (in thousands) | Segment | August 31, 2019 (in thousands) | HTL Group Acquisition (in thousands) | Foreign Currency Impact (in thousands) | May 31, 2020 (in thousands) | |:---|:---|:---|:---|:---|\ | Industrial Tools & Services | $242,873 | $10,087 | $658 | $253,618 | | Other | $17,542 | $0 | $9 | $17,551 | | Total | $260,415 | $10,087 | $667 | $271,169 | Intangible Assets, Net (in thousands) | Asset Type | May 31, 2020 Net Book Value (in thousands) | August 31, 2019 Net Book Value (in thousands) | |:---|:---|:---|\ | Customer relationships | $36,405 | $29,412 | | Patents | $1,153 | $951 | | Trademarks and tradenames (amortizable) | $1,083 | $1,592 | | Tradenames (indefinite lived) | $24,192 | $20,420 | | Total | $62,833 | $52,375 | - Estimated amortization expense for future years is **$8.0 million** in fiscal 2021, **$7.2 million** in fiscal 2022, **$5.7 million** in fiscal 2023, **$4.0 million** in fiscal 2024, **$3.3 million** in fiscal 2025, and **$8.3 million** cumulatively thereafter[43](index=43&type=chunk) [Note 7. Product Warranty Costs](index=16&type=section&id=Note%207.%20Product%20Warranty%20Costs) Product warranty reserve decreased to $738 thousand at May 31, 2020, due to lower provisions and payments Product Warranty Reserve Activity (in thousands) | Metric | Nine Months Ended May 31, 2020 (in thousands) | Nine Months Ended May 31, 2019 (in thousands) | |:---|:---|:---|\ | Beginning balance | $1,145 | $931 | | Provision for warranties | $354 | $1,099 | | Warranty payments and costs incurred | $(735) | $(806) | | Ending balance | $738 | $1,202 | [Note 8. Debt](index=16&type=section&id=Note%208.%20Debt) Senior indebtedness decreased to $287.6 million due to term loan repayment and subsequent Senior Notes redemption Long-Term Indebtedness (in thousands) | Debt Type | May 31, 2020 (in thousands) | August 31, 2019 (in thousands) | |:---|:---|:---|\ | Senior Credit Facility (Term Loan) | $0 | $175,000 | | 5.625% Senior Notes | $287,559 | $287,559 | | Total Senior Indebtedness | $287,559 | $462,559 | | Total long-term debt, net | $286,497 | $452,945 | - The **$200 million** term loan under the Senior Credit Facility was fully repaid in November 2019 using proceeds from the EC&S segment sale[48](index=48&type=chunk) - On June 15, 2020, the company borrowed **$295 million** under its revolving credit facility to redeem all outstanding **5.625%** Senior Notes, aiming to reduce interest costs[52](index=52&type=chunk) [Note 9. Fair Value Measurement](index=18&type=section&id=Note%209.%20Fair%20Value%20Measurement) Fair value of short-term assets/liabilities approximated book value; derivatives and Senior Notes are Level 2 - The fair value of foreign currency exchange contracts was a net asset of less than **$0.1 million** at both May 31, 2020, and August 31, 2019, classified as Level 2[53](index=53&type=chunk) - The fair value of the outstanding Senior Notes was **$287.9 million** at May 31, 2020, also classified as Level 2[53](index=53&type=chunk) [Note 10. Derivatives](index=18&type=section&id=Note%2010.%20Derivatives) Foreign currency exchange contracts manage market risk, with net foreign currency losses increasing significantly in 2020 Net Foreign Currency Loss from Derivatives (in thousands) | Metric | Three Months Ended May 31, 2020 (in thousands) | Three Months Ended May 31, 2019 (in thousands) | Nine Months Ended May 31, 2020 (in thousands) | Nine Months Ended May 31, 2019 (in thousands) | |:---|:---|:---|:---|:---|\ | Foreign currency loss, net | $(842) | $(114) | $(1,393) | $(115) | - Foreign currency forward exchange contracts designated as net investment hedges had a notional value of **$31.6 million** as of May 31, 2020, with gains recorded in accumulated other comprehensive income[56](index=56&type=chunk) [Note 11. Earnings per Share and Shareholders' Equity](index=19&type=section&id=Note%2011.%20Earnings%20per%20Share%20and%20Shareholders%27%20Equity) Share repurchases totaled $27.5 million for nine months; shareholders' equity increased to $336.3 million - The company repurchased **503,873 shares** for **$9.7 million** in the three months and **1,343,662 shares** for **$27.5 million** in the nine months ended May 31, 2020, under its share repurchase programs[57](index=57&type=chunk) Earnings Per Share Reconciliation (in thousands, except per share amounts) | Metric | Three Months Ended May 31, 2020 (in thousands, except per share amounts) | Three Months Ended May 31, 2019 (in thousands, except per share amounts) | Nine Months Ended May 31, 2020 (in thousands, except per share amounts) | Nine Months Ended May 31, 2019 (in thousands, except per share amounts) | |:---|:---|:---|:---|:---|\ | Net (loss) earnings | $(4,999) | $32,418 | $(716) | $17,719 | | Weighted average common shares outstanding - basic | 59,826 | 61,422 | 60,012 | 61,232 | | Diluted (loss) earnings per common share | $(0.08) | $0.52 | $(0.01) | $0.29 | Changes in Shareholders' Equity (in thousands) | Metric | August 31, 2019 (in thousands) | May 31, 2020 (in thousands) | |:---|:---|:---|\ | Total Shareholders' Equity | $301,179 | $336,282 | | Retained Earnings | $915,466 | $918,623 | | Accumulated Other Comprehensive Loss | $(171,672) | $(124,050) | | Treasury Stock | $(640,212) | $(667,732) | [Note 12. Income Taxes](index=22&type=section&id=Note%2012.%20Income%20Taxes) Effective income tax rate was 7.6% (3 months) and 20.1% (9 months), influenced by profitability and tax benefits Income Tax Data (in thousands) | Metric | Three Months Ended May 31, 2020 (in thousands) | Three Months Ended May 31, 2019 (in thousands) | Nine Months Ended May 31, 2020 (in thousands) | Nine Months Ended May 31, 2019 (in thousands) | |:---|:---|:---|:---|:---|\ | (Loss) earnings before income tax (benefit) expense | $(5,337) | $31,820 | $6,709 | $20,231 | | Income tax (benefit) expense | $(407) | $4,962 | $1,349 | $9,030 | | Effective income tax rate | 7.6% | 15.6% | 20.1% | 44.6% | - Excluding one-time charges/benefits, the effective tax rate was **12.8%** for the three months and **14.5%** for the nine months ended May 31, 2020, impacted by decreased profitability and non-recurring tax benefits[63](index=63&type=chunk) - The CARES Act, enacted in March 2020, did not have a material impact on the consolidated financial statements for the three or nine months ended May 31, 2020[63](index=63&type=chunk) [Note 13. Segment Information](index=22&type=section&id=Note%2013.%20Segment%20Information) IT&S segment sales and profit declined significantly in 2020 due to COVID-19 and volatile oil prices Net Sales by Reportable Segment & Product Line (in thousands) | Segment/Product Line | Three Months Ended May 31, 2020 (in thousands) | Three Months Ended May 31, 2019 (in thousands) | Nine Months Ended May 31, 2020 (in thousands) | Nine Months Ended May 31, 2019 (in thousands) | |:---|:---|:---|:---|:---|\ | IT&S Product | $67,957 | $115,067 | $257,685 | $323,420 | | IT&S Service & Rental | $24,908 | $51,665 | $106,526 | $161,121 | | Total IT&S Segment | $92,865 | $166,732 | $351,819 | $464,908 | | Other Operating Segment | $9,014 | $11,363 | $30,120 | $31,527 | | Consolidated Total | $101,879 | $178,095 | $381,939 | $496,435 | Operating Profit (Loss) by Segment (in thousands) | Segment | Three Months Ended May 31, 2020 (in thousands) | Three Months Ended May 31, 2019 (in thousands) | Nine Months Ended May 31, 2020 (in thousands) | Nine Months Ended May 31, 2019 (in thousands) | |:---|:---|:---|:---|:---|\ | Industrial Tools & Services Segment | $7,639 | $34,877 | $54,263 | $87,797 | | Other Operating Segment | $(790) | $13,072 | $(2,017) | $(13,336) | | General Corporate | $(8,847) | $(9,770) | $(31,308) | $(32,395) | | Consolidated Total | $(1,998) | $38,179 | $20,938 | $42,066 | Assets by Segment (in thousands) | Segment | May 31, 2020 (in thousands) | August 31, 2019 (in thousands) | |:---|:---|:---|\ | Industrial Tools & Services Segment | $622,113 | $553,615 | | Other Operating Segment | $62,105 | $54,484 | | General Corporate | $167,317 | $230,597 | | Consolidated Total | $851,535 | $838,696 | [Note 14. Commitments and Contingencies](index=23&type=section&id=Note%2014.%20Commitments%20and%20Contingencies) Outstanding letters of credit total $11.9 million; contingent lease liabilities are $7.3 million - Outstanding letters of credit were **$11.9 million** at May 31, 2020, primarily for commercial contracts and self-insured workers' compensation programs[67](index=67&type=chunk) - The company is contingently liable for **$7.3 million** in future lease payments for previously divested businesses, extending to fiscal 2025, though it does not believe it will be required to satisfy these obligations[67](index=67&type=chunk) - An ongoing investigation by Netherlands authorities into sales to an Estonian customer for potential sanctions violations is not expected to have a material adverse effect on the company's financial position[71](index=71&type=chunk) [Note 15. Leases](index=24&type=section&id=Note%2015.%20Leases) ASC 842 adoption led to $50.9 million ROU assets and $52.1 million lease liabilities at May 31, 2020 Components of Lease Expense (in thousands) | Lease Cost | Three Months Ended May 31, 2020 (in thousands) | Nine Months Ended May 31, 2020 (in thousands) | |:---|:---|:---|\ | Operating lease cost | $3,818 | $11,966 | | Short-term lease cost | $343 | $1,108 | | Variable lease cost | $447 | $1,480 | | Total Lease Cost | $4,608 | $14,554 | Supplemental Balance Sheet Information Related to Leases (in thousands) | Metric | May 31, 2020 (in thousands) | |:---|:---|\ | Operating lease ROU assets (Other long-term assets) | $50,911 | | Total operating lease liabilities | $52,142 | | Weighted Average Remaining Lease Term | 7.6 years | | Weighted Average Discount Rate | 4.36% | Future Minimum Lease Payments (in thousands) | Fiscal Year | Operating Leases (in thousands) | |:---|:---|\ | 2020 (remaining) | $3,910 | | 2021 | $13,268 | | 2022 | $9,454 | | 2023 | $7,480 | | 2024 | $5,955 | | Thereafter | $21,862 | | Total minimum lease payments | $61,928 | | Less imputed interest | $(9,786) | | Present value of net minimum lease payments | $52,142 | [Item 2—Management's Discussion and Analysis of Financial Condition and Results of Operations](index=27&type=section&id=Item%202%E2%80%94Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial condition, operations, COVID-19 impact, restructuring, cash flows, and liquidity [Company Overview](index=27&type=section&id=Company%20Overview) Enerpac Tool Group is a global leader in industrial tools and services, operating through its IT&S segment - Enerpac Tool Group Corp. is a premier industrial tools and services company, founded in 1910, headquartered in Menomonee Falls, Wisconsin[75](index=75&type=chunk) - The company's sole reportable segment is Industrial Tools & Service (IT&S), which designs, manufactures, and distributes hydraulic and mechanical tools, and provides services and tool rental[75](index=75&type=chunk) [COVID-19 Update](index=27&type=section&id=COVID-19%20Update) COVID-19 significantly impacted demand; company implemented cost savings and debt covenant amendments - The COVID-19 pandemic has caused a substantial negative impact on global demand for products and services, though key facilities remain open due to servicing essential industries[76](index=76&type=chunk) - Mitigation measures include canceling the fiscal 2020 bonus plan, employee furloughs, reducing capital expenditures, applying for governmental assistance, and cutting discretionary spending[76](index=76&type=chunk) - The company proactively amended debt covenants and prepaid Senior Notes to improve future liquidity and reduce interest expense[76](index=76&type=chunk) [General Business Update](index=27&type=section&id=General%20Business%20Update) EC&S segment sold for $215 million; expanded restructuring targets $12-15 million annual savings per phase - The sale of the EC&S segment was completed on October 31, 2019, for approximately **$215 million**, with final working capital negotiations concluded in Q3 fiscal 2020[77](index=77&type=chunk) - An expanded restructuring plan, focused on IT&S integration and corporate efficiency, incurred **$2 million** and **$6 million** in charges for the three and nine months ended May 31, 2020, respectively, and is expected to yield **$12 million to $15 million** in annual savings from each phase[77](index=77&type=chunk) - Changes in foreign currency exchange rates significantly impact financial results, with a weakening U.S. dollar favorably affecting sales, cash flow, and earnings due to over half of sales being generated outside the U.S[77](index=77&type=chunk)[79](index=79&type=chunk) [Results of Operations](index=28&type=section&id=Results%20of%20Operations) Consolidated net sales decreased by 43% in Q3 and 23% for nine months due to COVID-19 and oil prices Consolidated Results of Continuing Operations (in millions, except per share amounts) | Metric | Three Months Ended May 31, 2020 (in millions, except per share amounts) | Three Months Ended May 31, 2019 (in millions, except per share amounts) | Nine Months Ended May 31, 2020 (in millions, except per share amounts) | Nine Months Ended May 31, 2019 (in millions, except per share amounts) | |:---|:---|:---|:---|:---|\ | Net sales | $102 | $178 | $382 | $496 | | Gross profit | $42 | $82 | $173 | $223 | | Operating (loss) profit | $(2) | $38 | $21 | $42 | | Net (loss) earnings from continuing operations | $(5) | $27 | $5 | $11 | | Diluted (loss) earnings per share from continuing operations | $(0.08) | $0.43 | $0.09 | $0.18 | - Core sales decreased by **38%** in the third quarter and **17%** for the nine months, driven by reduced sales volume due to the COVID-19 pandemic and volatility in oil prices, impacting both product and service sales[80](index=80&type=chunk) - Gross profit margins decreased by **5%** in the third quarter due to under absorption, product mix, and restructuring charges, but remained flat year-to-date due to benefits from divesting low-profit-margin product lines[80](index=80&type=chunk) [Segment Results](index=29&type=section&id=Segment%20Results) IT&S segment net sales decreased by 44% in Q3 and 24% year-to-date due to COVID-19 and oil prices IT&S Segment Results (in millions) | Metric | Three Months Ended May 31, 2020 (in millions) | Three Months Ended May 31, 2019 (in millions) | Nine Months Ended May 31, 2020 (in millions) | Nine Months Ended May 31, 2019 (in millions) | |:---|:---|:---|:---|:---|\ | Net sales | $93 | $167 | $352 | $465 | | Operating profit | $8 | $35 | $54 | $88 | | Operating profit % | 8.2% | 20.9% | 15.4% | 18.9% | - Core sales for the IT&S segment decreased by **39%** in the third quarter and **18%** year-over-year, driven by demand impacts from COVID-19, volatile oil pricing, and anticipated service declines[82](index=82&type=chunk)[84](index=84&type=chunk) - Operating profit percentage for IT&S decreased by **12.7%** in the third quarter due to reduced volumes and under absorption, despite lower SAE costs from restructuring and COVID-19 responses[83](index=83&type=chunk) [Corporate](index=29&type=section&id=Corporate) Corporate expenses decreased by $1.0 million (3 months) and $1.1 million (9 months) due to cost savings - Corporate expenses decreased to **$8.8 million** for the three months and **$31.3 million** for the nine months ended May 31, 2020, from **$9.8 million** and **$32.4 million** in the prior year periods, respectively[86](index=86&type=chunk) - The decrease was driven by positive medical claims experience, reduced legal and consulting expenses, and cost savings measures related to the COVID-19 pandemic, partially offset by restructuring charges and business development costs[86](index=86&type=chunk) [Financing Costs, net](index=29&type=section&id=Financing%20Costs%2C%20net) Net financing costs decreased to $5 million (3 months) and $16 million (9 months) due to lower debt balances - Net financing costs decreased due to lower outstanding balances on the Senior Credit Facility, resulting from the early payoff of the term loan in November 2019 after the EC&S segment divestiture[87](index=87&type=chunk) - The benefit from lower cash interest expense was partially offset by expensing **$0.6 million** of remaining capitalized debt issuance costs upon the term loan repayment[87](index=87&type=chunk) [Income Tax Expense](index=30&type=section&id=Income%20Tax%20Expense) Effective income tax rate was 7.6% (3 months) and 20.1% (9 months), influenced by profitability and tax benefits Income Tax Data (in millions) | Metric | Three Months Ended May 31, 2020 (in millions) | Three Months Ended May 31, 2019 (in millions) | Nine Months Ended May 31, 2020 (in millions) | Nine Months Ended May 31, 2019 (in millions) | |:---|:---|:---|:---|:---|\ | (Loss) earnings before income tax expense | $(5) | $32 | $7 | $20 | | Income tax (benefit) expense | $0 | $5 | $1 | $9 | | Effective income tax rate | 7.6% | 15.6% | 20.1% | 44.6% | - Excluding one-time charges/benefits, the effective tax rate was **12.8%** for the three months and **14.5%** for the nine months ended May 31, 2020, primarily due to decreased profitability from COVID-19 and non-recurring tax benefits[89](index=89&type=chunk) - The CARES Act did not have a material impact on the consolidated financial statements for the three or nine months ended May 31, 2020[89](index=89&type=chunk) [Cash Flows and Liquidity](index=30&type=section&id=Cash%20Flows%20and%20Liquidity) Operating cash flow used $16 million; investing provided $176 million; financing used $206 million, with adequate liquidity Summary of Cash Flows (in millions) | Activity | Nine Months Ended May 31, 2020 (in millions) | Nine Months Ended May 31, 2019 (in millions) | |:---|:---|:---|\ | Net cash (used in) provided by operating activities | $(16) | $1 | | Net cash provided by investing activities | $176 | $14 | | Net cash used in financing activities | $(206) | $(63) | | Net decrease in cash and cash equivalents | $(48) | $(49) | - Investing activities were significantly boosted by **$209 million** in proceeds from the sale of the EC&S segment and **$10 million** from non-core product lines in fiscal 2020[92](index=92&type=chunk) - Financing activities included a **$175 million** early repayment of the term loan and **$28 million** in share repurchases in fiscal 2020[92](index=92&type=chunk) - The company had **$395 million** available under its revolving credit facility at May 31, 2020, and believes it has adequate liquidity for the foreseeable future[92](index=92&type=chunk)[93](index=93&type=chunk) [Primary Working Capital Management](index=31&type=section&id=Primary%20Working%20Capital%20Management) Primary working capital as a percentage of sales increased to 29% at May 31, 2020 Primary Working Capital (in millions) | Metric | May 31, 2020 (in millions) | PWC% | August 31, 2019 (in millions) | PWC% | |:---|:---|:---|:---|:---|\ | Accounts receivable, net | $94 | 23% | $126 | 20% | | Inventory, net | $79 | 19% | $77 | 12% | | Accounts payable | $(52) | (13)% | $(77) | (12)% | | Net primary working capital | $121 | 29% | $126 | 20% | [Commitments and Contingencies](index=31&type=section&id=Commitments%20and%20Contingencies) Contingent lease liabilities are $7 million; outstanding letters of credit total $12 million - The company is contingently liable for **$7 million** in lease payments for previously divested businesses, with payments extending to fiscal 2025[94](index=94&type=chunk) - Outstanding letters of credit totaled **$12 million** at May 31, 2020[94](index=94&type=chunk) [Critical Accounting Estimates](index=31&type=section&id=Critical%20Accounting%20Estimates) Management deems accounting estimates reasonable and appropriate, recognizing their critical impact on financial results - Management considers estimates related to allowance for doubtful accounts, inventory valuation, warranty reserves, fair value of stock-based awards, goodwill, intangible and long-lived asset valuations, and income tax liabilities as critical[23](index=23&type=chunk)[99](index=99&type=chunk) [Item 3—Quantitative and Qualitative Disclosures about Market Risk](index=32&type=section&id=Item%203%E2%80%94Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company manages interest rate, foreign currency, and commodity risks, using derivatives for currency exposure - The company manages interest rate risk through a mixture of fixed-rate and variable-rate debt, with no variable-rate debt outstanding at May 31, 2020, but **$295 million** borrowed on June 15, 2020[100](index=100&type=chunk) - Foreign currency risk is managed using foreign currency exchange contracts; a hypothetical **10%** decrease in all foreign exchange rates against the U.S. dollar would result in a **$4 million** lower quarterly sales, **$2 million** lower operating profit, and a **$44 million** reduction to equity[100](index=100&type=chunk) - Commodity cost risk, particularly for steel and plastic resin, is managed by striving to pass price increases to customers to avoid profit margin erosion[100](index=100&type=chunk) [Item 4—Controls and Procedures](index=32&type=section&id=Item%204%E2%80%94Controls%20and%20Procedures) Disclosure controls and procedures were effective as of May 31, 2020, with no material changes in internal control - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of May 31, 2020[102](index=102&type=chunk) - No changes in internal control over financial reporting occurred during the quarter ended May 31, 2020, that materially affected or are reasonably likely to materially affect internal control over financial reporting[102](index=102&type=chunk) Part II—Other Information [Item 1A.—Risk Factors](index=33&type=section&id=Item%201A.%E2%80%94Risk%20Factors) Significant risks from COVID-19 pandemic and volatile oil markets adversely impact demand and operations - The COVID-19 pandemic is adversely affecting the business through reduced demand for products and services, potential supply chain interruptions, and operational inefficiencies from employee protection measures[104](index=104&type=chunk) - The recent disruption in global oil markets and substantial price decline have negatively impacted the company's business, especially customers in the oil & gas industry[104](index=104&type=chunk) [Item 2—Unregistered Sales of Equity Securities and Use of Proceeds](index=33&type=section&id=Item%202%E2%80%94Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Company repurchased 503,873 shares for $9.7 million in March 2020; 5,200,770 shares remain authorized Share Repurchases (Three Months Ended May 31, 2020) | Period | Shares Repurchased | Average Price Paid per Share ($) | |:---|:---|:---|\ | March 1 to March 30, 2020 | 503,873 | $19.25 | | April 1 to April 30, 2020 | — | — | | May 1 to May 31, 2020 | — | — | | Total | 503,873 | $19.25 | - As of May 31, 2020, the maximum number of shares that may yet be purchased under the programs is **5,200,770 shares**[106](index=106&type=chunk)[107](index=107&type=chunk) [Item 6—Exhibits](index=34&type=section&id=Item%206%E2%80%94Exhibits) Exhibits include CEO/CFO certifications (Sarbanes-Oxley Act) and Inline XBRL financial data - Key exhibits include Certifications of the Chief Executive Officer and Chief Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[107](index=107&type=chunk) - The report also includes Inline Extensible Business Reporting Language (Inline XBRL) formatted financial statements and notes[107](index=107&type=chunk)

[FORM 10-Q Filing Information](index=1&type=section&id=FORM%2010-Q) This section provides basic identification details for Enerpac Tool Group Corp.'s Form 10-Q filing for the quarterly period ended February 29, 2020 [Registrant Information](index=1&type=section&id=Registrant%20Information) Details Enerpac Tool Group Corp.'s identification, incorporation, and stock listing for its Form 10-Q filing - Enerpac Tool Group Corp. is a Wisconsin-incorporated company with Commission File No. 1-11288, filing a Quarterly Report on Form 10-Q for the period ended February 29, 2020[1](index=1&type=chunk) Registrant Status | Status | Indication | | :---------------------- | :--------- | | Large Accelerated Filer | ☒ | | Accelerated Filer | ☐ | | Non-accelerated Filer | ☐ | | Smaller reporting company | ☐ | | Emerging growth company | ☐ | | Shell company | No ☒ | - The company's Class A common stock, with a **$0.20 par value per share**, is traded on the NYSE under the ticker symbol EPAC. As of March 20, 2020, there were **59,748,495 shares** of Class A Common Stock outstanding[2](index=2&type=chunk)[3](index=3&type=chunk) [Table of Contents](index=2&type=section&id=Table%20of%20Contents) This section lists all major parts and items included in the Form 10-Q filing, providing an organizational overview of the report [Forward-Looking Statements and Cautionary Factors](index=2&type=section&id=FORWARD-LOOKING%20STATEMENTS%20AND%20CAUTIONARY%20FACTORS) This section outlines the nature of forward-looking statements within the report and identifies key risk factors that could cause actual results to differ materially [Nature of Forward-Looking Statements](index=2&type=section&id=Nature%20of%20Forward-Looking%20Statements) This section clarifies that the report contains forward-looking statements, identified by specific linguistic cues, which are not guarantees of future performance and involve inherent risks - Forward-looking statements in this report involve risks and uncertainties, and actual future events or results may differ materially from those projected[7](index=7&type=chunk) [Key Risk Factors](index=2&type=section&id=Key%20Risk%20Factors) The company identifies various factors that could cause actual results to differ materially from forward-looking statements, including economic instability, global pandemics, and operational challenges - Factors that could cause actual results to differ materially include deterioration of the domestic and international economy, potential impact from global pandemics (e.g., COVID-19), challenging end markets, and the ability to execute restructuring actions[7](index=7&type=chunk) - Other significant risks include competition, failure to develop new products, reliance on suppliers, operating margin risks due to costs, uncertainty over global tariffs, and special risks associated with international operations like currency fluctuations[7](index=7&type=chunk) - Further risks encompass regulatory and legal developments, successful integration of acquisitions, effects of divestitures, potential non-cash asset impairment charges (especially goodwill and intangible assets), IT infrastructure failures, litigation, attracting and retaining employees, intellectual property protection, and compliance with debt agreements[12](index=12&type=chunk) [PART I—FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%E2%80%94FINANCIAL%20INFORMATION) This section presents the unaudited condensed consolidated financial statements and management's discussion and analysis for the reporting period [Item 1—Condensed Consolidated Financial Statements (Unaudited)](index=4&type=section&id=Item%201%E2%80%94Condensed%20Consolidated%20Financial%20Statements%20(Unaudited)) This section presents the unaudited condensed consolidated financial statements, including the Statements of Operations, Comprehensive (Loss) Income, Balance Sheets, and Cash Flows [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Provides unaudited consolidated statements of operations, detailing net sales, gross profit, operating profit, and net earnings for the specified periods Condensed Consolidated Statements of Operations (Three Months Ended) | Metric | Feb 29, 2020 ($ thousands) | Feb 28, 2019 ($ thousands) | | :----------------------------------------- | :------------------------- | :------------------------- | | Net sales | 133,386 | 159,788 | | Cost of products sold | 71,293 | 88,473 | | Gross profit | 62,093 | 71,315 | | Operating profit | 8,567 | 12,439 | | Earnings (loss) before income tax expense | 4,724 | 4,767 | | Income tax expense | 806 | 4,002 | | Net earnings (loss) from continuing operations | 3,918 | 765 | | (Loss) earnings from discontinued operations, net of income taxes | (1,756) | 1,988 | | Net earnings (loss) | 2,162 | 2,753 | | Basic EPS from continuing operations | 0.07 | 0.01 | | Diluted EPS from continuing operations | 0.06 | 0.01 | | Basic EPS | 0.04 | 0.04 | | Diluted EPS | 0.04 | 0.04 | Condensed Consolidated Statements of Operations (Six Months Ended) | Metric | Feb 29, 2020 ($ thousands) | Feb 28, 2019 ($ thousands) | | :----------------------------------------- | :------------------------- | :------------------------- | | Net sales | 280,060 | 318,340 | | Cost of products sold | 149,278 | 176,712 | | Gross profit | 130,782 | 141,628 | | Operating profit | 22,937 | 3,887 | | Earnings (loss) before income tax expense | 12,046 | (11,589) | | Income tax expense | 1,756 | 4,068 | | Net earnings (loss) from continuing operations | 10,290 | (15,657) | | (Loss) earnings from discontinued operations, net of income taxes | (6,007) | 958 | | Net earnings (loss) | 4,283 | (14,699) | | Basic EPS from continuing operations | 0.17 | (0.26) | | Diluted EPS from continuing operations | 0.17 | (0.26) | | Basic EPS | 0.07 | (0.24) | | Diluted EPS | 0.07 | (0.24) | [Condensed Consolidated Statements of Comprehensive (Loss) Income](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20(Loss)%20Income) Presents unaudited consolidated statements of comprehensive (loss) income, including net earnings and other comprehensive income components Condensed Consolidated Statements of Comprehensive (Loss) Income (Three Months Ended) | Metric | Feb 29, 2020 ($ thousands) | Feb 28, 2019 ($ thousands) | | :------------------------------------------------------------------------ | :------------------------- | :------------------------- | | Net earnings (loss) | 2,162 | 2,753 | | Other comprehensive (loss) income, net of tax | | | | Foreign currency translation adjustments | (3,246) | 7,433 | | Recognition of foreign currency translation losses from divested businesses | — | 34,909 | | Pension and other postretirement benefit plans | 194 | 95 | | Total other comprehensive (loss) income, net of tax | (3,052) | 42,437 | | Comprehensive (loss) income | (890) | 45,190 | Condensed Consolidated Statements of Comprehensive (Loss) Income (Six Months Ended) | Metric | Feb 29, 2020 ($ thousands) | Feb 28, 2019 ($ thousands) | | :------------------------------------------------------------------------ | :------------------------- | :------------------------- | | Net earnings (loss) | 4,283 | (14,699) | | Other comprehensive (loss) income, net of tax | | | | Foreign currency translation adjustments | 5,246 | (743) | | Recognition of foreign currency translation losses from divested businesses | 51,994 | 34,909 | | Pension and other postretirement benefit plans | 635 | 327 | | Total other comprehensive (loss) income, net of tax | 57,875 | 34,493 | | Comprehensive (loss) income | 62,158 | 19,794 | [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Details the unaudited consolidated balance sheets, outlining assets, liabilities, and shareholders' equity as of the reporting dates Condensed Consolidated Balance Sheets (As of) | Asset/Liability/Equity | Feb 29, 2020 ($ thousands) | Aug 31, 2019 ($ thousands) | | :------------------------------------- | :------------------------- | :------------------------- | | **ASSETS** | | | | Cash and cash equivalents | 163,437 | 211,151 | | Accounts receivable, net | 113,294 | 125,883 | | Inventories, net | 78,046 | 77,187 | | Assets from discontinued operations | — | 285,578 | | Total current assets | 398,163 | 730,325 | | Property, plant and equipment, net | 63,065 | 56,729 | | Goodwill | 271,828 | 260,415 | | Other intangible assets, net | 66,501 | 52,375 | | Total assets | 879,342 | 1,124,274 | | **LIABILITIES AND SHAREHOLDERS' EQUITY** | | | | Trade accounts payable | 62,291 | 76,914 | | Liabilities from discontinued operations | — | 143,763 | | Total current liabilities | 129,561 | 300,401 | | Long-term debt, net | 286,367 | 452,945 | | Total liabilities | 524,977 | 823,095 | | Total shareholders' equity | 354,365 | 301,179 | | Total liabilities and shareholders' equity | 879,342 | 1,124,274 | [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Provides unaudited consolidated statements of cash flows, categorizing cash activities into operating, investing, and financing sections Condensed Consolidated Statements of Cash Flows (Six Months Ended) | Activity | Feb 29, 2020 ($ thousands) | Feb 28, 2019 ($ thousands) | | :------------------------------------------------ | :------------------------- | :------------------------- | | Net earnings (loss) | 4,283 | (14,699) | | Net cash used in operating activities | (28,741) | (51,314) | | Cash provided by investing activities | 176,581 | 20,544 | | Cash used in financing activities | (196,399) | (50,397) | | Effect of exchange rate changes on cash | 845 | 1,065 | | Net decrease in cash and cash equivalents | (47,714) | (80,102) | | Cash and cash equivalents - beginning of period | 211,151 | 250,490 | | Cash and cash equivalents - end of period | 163,437 | 170,388 | [Notes to the Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed notes to the unaudited condensed consolidated financial statements, offering explanations on accounting policies and significant financial events [Note 1. Basis of Presentation](index=9&type=section&id=Note%201.%20Basis%20of%20Presentation) Explains the basis for preparing the unaudited interim financial statements and details the adoption of new accounting pronouncements - The unaudited condensed consolidated financial statements are prepared in accordance with GAAP for interim financial reporting and Form 10-Q instructions, not including all disclosures required for complete financial statements[30](index=30&type=chunk) - The Company adopted ASU 2016-02, Leases, on September 1, 2019, using a modified retrospective approach, resulting in the recognition of a **$60.8 million ROU asset** and operating lease liability on the balance sheet at adoption[31](index=31&type=chunk) - The Company also adopted ASU 2018-02, Income Statement-Reporting Comprehensive Income, on September 1, 2019, recording a **$3.7 million increase to retained earnings** with an offsetting increase in accumulated other comprehensive loss[31](index=31&type=chunk) Accumulated Other Comprehensive Loss (in thousands) | Component | Feb 29, 2020 | Aug 31, 2019 | | :------------------------------------------------- | :----------- | :----------- | | Foreign currency translation adjustments | $93,875 | $151,115 | | Pension and other postretirement benefit plans, net of tax | 23,589 | 20,557 | | Accumulated other comprehensive loss | $117,464 | $171,672 | [Note 2. Revenue Recognition](index=10&type=section&id=Note%202.%20Revenue%20Recognition) Describes the company's revenue recognition policies, disaggregating revenue by timing of transfer and detailing contract balances - Revenue is generated from two principal activities: Product Sales (tools, heavy-lifting, rope/cable solutions) recognized at a point in time upon shipment, and Service & Rental Sales (technical services, machining, joint integrity, rentals) recognized over time as benefits are consumed[36](index=36&type=chunk) Revenues Disaggregated by Timing of Transfer (in thousands) | Timing of Revenue Recognition | Three Months Ended Feb 29, 2020 ($ thousands) | Three Months Ended Feb 28, 2019 ($ thousands) | Six Months Ended Feb 29, 2020 ($ thousands) | Six Months Ended Feb 28, 2019 ($ thousands) | | :---------------------------- | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | Recognized at point in time | $109,883 | $109,883 | $202,001 | $218,139 | | Recognized over time | 49,905 | 49,905 | 78,059 | 100,201 | | Total | $159,788 | $159,788 | $280,060 | $318,340 | Contract Balances (in thousands) | Contract Balance Component | Feb 29, 2020 ($ thousands) | Aug 31, 2019 ($ thousands) | | :------------------------- | :------------------------- | :------------------------- | | Receivables, net | $113,294 | $125,883 | | Contract assets | 5,177 | 3,747 | | Contract liabilities | 1,334 | 3,707 | [Note 3. Restructuring Charges](index=11&type=section&id=Note%203.%20Restructuring%20Charges) Details the company's restructuring plan, including the nature of activities and the associated charges and reserve movements - The Company initiated a new restructuring plan in fiscal 2019, focusing on integrating Enerpac and Hydratight businesses, exiting certain commodity services in North America, and driving corporate efficiencies[43](index=43&type=chunk) - Total restructuring charges for this plan were **$1.7 million** for the three months and **$3.1 million** for the six months ended February 29, 2020[43](index=43&type=chunk) Restructuring Reserve Activity (in thousands) | Activity | Industrial Tools & Services (Feb 29, 2020, $ thousands) | Corporate (Feb 29, 2020, $ thousands) | | :---------------------------------------- | :------------------------------------------------------ | :------------------------------------ | | Balance as of August 31, 2019 | $2,912 | $— | | Restructuring charges | 2,189 | 939 | | Cash payments | (2,693) | (628) | | Other non-cash uses of reserve | (406) | (302) | | Impact of changes in foreign currency rates | (4) | — | | Balance as of February 29, 2020 | $1,998 | $9 | [Note 4. Acquisitions](index=12&type=section&id=Note%204.%20Acquisitions) Provides information on recent acquisition activities, including the purchase of HTL Group and its financial impact - On January 7, 2020, Enerpac Tool Group Corp. acquired 100% of HTL Group, a provider of controlled bolting products and services, for **$33.4 million**, net of cash acquired[45](index=45&type=chunk) - The acquisition enhances the Company's bolting product line and European rental capabilities, with preliminary purchase price allocation including **$8.6 million in goodwill** and **$18.0 million in intangible assets**[45](index=45&type=chunk) - HTL Group generated **$2.0 million in net sales** for the three months ended February 29, 2020, reported within the IT&S segment[45](index=45&type=chunk) [Note 5. Discontinued Operations and Other Divestiture Activities](index=12&type=section&id=Note%205.%20Discontinued%20Operations%20and%20Other%20Divestiture%20Activities) Details the sale of the EC&S segment and other divestiture activities, including their impact on the consolidated financial statements - On October 31, 2019, the Company completed the sale of its former Engineered Components & Systems (EC&S) segment for approximately **$214.5 million**, resulting in a net loss of **$4.2 million** from the sale[46](index=46&type=chunk) - The results of operations for divested businesses (EC&S, Precision Hayes, Cortland Fibron) are recorded as 'Loss from discontinued operations' in the Condensed Consolidated Statements of Operations[48](index=48&type=chunk) Net (Loss) Earnings from Discontinued Operations (in thousands) | Metric | Three Months Ended Feb 29, 2020 ($ thousands) | Three Months Ended Feb 28, 2019 ($ thousands) | Six Months Ended Feb 29, 2020 ($ thousands) | Six Months Ended Feb 28, 2019 ($ thousands) | | :---------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | Net sales | $— | $112,119 | $67,010 | $246,099 | | Operating (loss) earnings | (933) | 3,914 | (22,909) | 3,150 | | Net (loss) earnings from discontinued operations | (1,756) | 1,988 | (6,007) | 958 | - Other divestiture activities include the sale of the UNI-LIFT product line for **$6.0 million** (resulting in a **$4.6 million benefit**) and the Milwaukee Cylinder business for a negligible amount, and the Connectors product line for **$2.7 million** (resulting in a **$1.3 million benefit**)[50](index=50&type=chunk)[52](index=52&type=chunk) [Note 6. Goodwill, Intangible Assets and Long-Lived Assets](index=14&type=section&id=Note%206.%20Goodwill,%20Intangible%20Assets%20and%20Long-Lived%20Assets) Presents information on changes in goodwill, details of intangible assets, and estimated amortization expenses Changes in Goodwill (in thousands) | Activity | Industrial Tools & Services ($ thousands) | Other ($ thousands) | Total ($ thousands) | | :---------------------------------------- | :---------------------------------------- | :------------------ | :------------------ | | Balance as of August 31, 2019 | $242,873 | $17,542 | $260,415 | | Acquisition of HTL Group (Note 4) | 8,595 | — | 8,595 | | Impact of changes in foreign currency rates | 2,815 | 3 | 2,818 | | Balance as of February 29, 2020 | $254,283 | $17,545 | $271,828 | Intangible Assets (in thousands) | Intangible Asset Type | Weighted Average Amortization Period (Years) | Gross Carrying Value (Feb 29, 2020, $ thousands) | Accumulated Amortization (Feb 29, 2020, $ thousands) | Net Book Value (Feb 29, 2020, $ thousands) | | :-------------------------- | :------------------------------------------- | :----------------------------------------------- | :--------------------------------------------------- | :----------------------------------------- | | Customer relationships | 14 | $140,239 | $100,895 | $39,344 | | Patents | 12 | 14,068 | 12,723 | 1,345 | | Trademarks and tradenames* | 12 | 3,202 | 2,019 | 1,183 | | Indefinite lived tradenames | N/A | 24,629 | — | 24,629 | | Total | | $182,138 | $115,637 | $66,501 | - The Company estimates amortization expense to be **$4.5 million** for the remaining six months of fiscal 2020, and **$8.0 million, $7.3 million, $5.8 million, $4.2 million, $3.4 million** for fiscal years 2021-2025 respectively[54](index=54&type=chunk) [Note 7. Product Warranty Costs](index=15&type=section&id=Note%207.%20Product%20Warranty%20Costs) Explains the company's product warranty policies and provides a reconciliation of the product warranty reserve activity - The Company provides assurance warranties on products, with reserves based on historical claim rates and current costs, recorded within 'Other current liabilities'[57](index=57&type=chunk) Product Warranty Reserve Activity (in thousands) | Activity | Six Months Ended Feb 29, 2020 ($ thousands) | Six Months Ended Feb 28, 2019 ($ thousands) | | :---------------------------------------- | :------------------------------------------ | :------------------------------------------ | | Beginning balance | $1,145 | $931 | | Provision for warranties | 135 | 807 | | Warranty payments and costs incurred | (418) | (525) | | Warranty activity for divested businesses | (27) | — | | Reclass of liabilities held for sale | — | (33) | | Impact of changes in foreign currency rates | — | (9) | | Ending balance | $835 | $1,171 | [Note 8. Debt](index=15&type=section&id=Note%208.%20Debt) Details the company's long-term indebtedness, including senior credit facilities and senior notes, and compliance with financial covenants Long-Term Indebtedness (in thousands) | Debt Component | Feb 29, 2020 ($ thousands) | Aug 31, 2019 ($ thousands) | | :---------------------------------- | :------------------------- | :------------------------- | | Senior Credit Facility - Revolver | $— | $— | | Senior Credit Facility - Term Loan | — | 175,000 | | Total Senior Credit Facility | — | 175,000 | | 5.625% Senior Notes | 287,559 | 287,559 | | Total Senior Indebtedness | 287,559 | 462,559 | | Less: Current maturities of long-term debt | — | (7,500) | | Debt issuance costs | (1,192) | (2,114) | | Total long-term debt, net | $286,367 | $452,945 | - The Company's **$600 million Senior Credit Facility** includes a **$400 million revolving line of credit** and previously a **$200 million term loan**. The term loan was paid off in November 2019 using proceeds from the EC&S segment sale[59](index=59&type=chunk)[62](index=62&type=chunk) - The Senior Credit Facility has financial covenants: a maximum leverage ratio of **3.75:1** and a minimum interest coverage ratio of **3.5:1**. The Company was in compliance with all financial covenants at February 29, 2020[60](index=60&type=chunk)[61](index=61&type=chunk) - The Company has **$287.6 million of 5.625% Senior Notes** due 2022 outstanding, requiring semiannual interest payments[64](index=64&type=chunk) [Note 9. Fair Value Measurement](index=16&type=section&id=Note%209.%20Fair%20Value%20Measurement) Describes the company's fair value measurement hierarchy and the fair values of financial instruments - The Company uses a three-tier hierarchy (Level 1, 2, 3) for fair value measurement. Cash and cash equivalents, accounts receivable, and accounts payable approximated book value due to their short-term nature[65](index=65&type=chunk) - The fair value of foreign currency exchange contracts was a net liability of **$0.1 million** at February 29, 2020, and a net asset of less than **$0.1 million** at August 31, 2019, classified as Level 2[65](index=65&type=chunk) - The fair value of the outstanding Senior Notes was **$289.8 million** at February 29, 2020, and **$291.5 million** at August 31, 2019, also classified as Level 2[65](index=65&type=chunk) [Note 10. Derivatives](index=16&type=section&id=Note%2010.%20Derivatives) Explains the company's use of foreign currency exchange contracts to manage market risk and their impact on financial results - The Company uses foreign currency exchange contracts to manage market risk from foreign currency fluctuations, not for speculative purposes, with changes in value recorded in earnings[66](index=66&type=chunk) Net Foreign Currency (Loss) Gain (in thousands) | Period | Feb 29, 2020 ($ thousands) | Feb 28, 2019 ($ thousands) | | :----------------- | :------------------------- | :------------------------- | | Three Months Ended | $(376) | $227 | | Six Months Ended | $(551) | $(2) | - Foreign currency forward exchange contracts are also used to hedge net investments in non-U.S. subsidiaries, with changes in value recorded in accumulated other comprehensive income (loss)[67](index=67&type=chunk) [Note 11. Earnings per Share and Shareholders' Equity](index=17&type=section&id=Note%2011.%20Earnings%20per%20Share%20and%20Shareholders'%20Equity) Provides a reconciliation of earnings per share and details changes in shareholders' equity, including share repurchase activities - The Company's Board of Directors authorized share repurchase programs, under which **22,295,357 shares** totaling **$658.0 million** have been repurchased since fiscal 2012. During the six months ended February 29, 2020, **839,789 shares** were repurchased for **$17.8 million**[69](index=69&type=chunk) Earnings (Loss) Per Share Reconciliation (in thousands, except per share amounts) | Metric | Three Months Ended Feb 29, 2020 ($ thousands) | Three Months Ended Feb 28, 2019 ($ thousands) | Six Months Ended Feb 29, 2020 ($ thousands) | Six Months Ended Feb 28, 2019 ($ thousands) | | :------------------------------------------------------------------ | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | Net earnings (loss) from continuing operations | $3,918 | $765 | $10,290 | $(15,657) | | Net (loss) earnings from discontinued operations | (1,756) | 1,988 | (6,007) | 958 | | Net earnings (loss) | 2,162 | 2,753 | 4,283 | (14,699) | | Weighted average common shares outstanding - basic | 60,130 | 61,243 | 60,106 | 61,137 | | Weighted average common shares outstanding - diluted | 60,513 | 61,607 | 60,557 | 61,137 | | Diluted EPS from continuing operations | $0.06 | $0.01 | $0.17 | $(0.26) | | Diluted EPS from discontinued operations | $(0.03) | $0.03 | $(0.10) | $0.02 | | Diluted EPS | $0.04 | $0.04 | $0.07 | $(0.24) | - Shareholders' equity increased from **$301,179 thousand** at August 31, 2019, to **$354,365 thousand** at February 29, 2020, driven by net earnings, other comprehensive income, and stock-based compensation, partially offset by treasury stock repurchases[72](index=72&type=chunk) [Note 12. Income Taxes](index=20&type=section&id=Note%2012.%20Income%20Taxes) Presents income tax information, including effective tax rates and factors influencing tax expense for the reporting periods Income Tax Information (in thousands) | Metric | Three Months Ended Feb 29, 2020 ($ thousands) | Three Months Ended Feb 28, 2019 ($ thousands) | Six Months Ended Feb 29, 2020 ($ thousands) | Six Months Ended Feb 28, 2019 ($ thousands) | | :---------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | Earnings (loss) from continuing operations before income tax expense | $4,724 | $4,767 | $12,046 | $(11,589) | | Income tax expense | 806 | 4,002 | 1,756 | 4,068 | | Effective income tax rate | 17.1% | 84.0% | 14.6% | (35.1)% | - The effective income tax rates for both current and prior years were impacted by impairment & divestiture charges and accelerated debt issuance costs. Excluding these, the effective tax rate for the three months ended February 29, 2020, was **14.6%** (vs. **48.2%** prior year) and **13.4%** for the six months (vs. **26.4%** prior year)[75](index=75&type=chunk) - The lower income tax expense in fiscal 2020, excluding special charges, is attributed to valuation allowance releases due to operational improvements and the ability to utilize tax attributes[75](index=75&type=chunk) [Note 13. Segment Information](index=20&type=section&id=Note%2013.%20Segment%20Information) Provides financial information disaggregated by the company's reportable segment, Industrial Tools & Service (IT&S), and other operating segments - Enerpac Tool Group Corp. operates primarily through one reportable segment, Industrial Tools & Service (IT&S), which designs, manufactures, and distributes hydraulic and mechanical tools and provides related services and rentals[76](index=76&type=chunk) Net Sales by Reportable Segment & Product Line (in thousands) | Segment & Product Line | Three Months Ended Feb 29, 2020 ($ thousands) | Three Months Ended Feb 28, 2019 ($ thousands) | Six Months Ended Feb 29, 2020 ($ thousands) | Six Months Ended Feb 28, 2019 ($ thousands) | | :------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | Industrial Tools & Services Segment: | | | | | | Product | $93,364 | $105,584 | $189,727 | $208,353 | | Service & Rental | 29,997 | 43,937 | 69,226 | 89,824 | | Total IT&S | 123,361 | 149,521 | 258,953 | 298,177 | | Other Operating Segment | 10,025 | 10,267 | 21,107 | 20,163 | | Total Net Sales | $133,386 | $159,788 | $280,060 | $318,340 | Operating Profit (Loss) by Segment (in thousands) | Segment & Product Line | Three Months Ended Feb 29, 2020 ($ thousands) | Three Months Ended Feb 28, 2019 ($ thousands) | Six Months Ended Feb 29, 2020 ($ thousands) | Six Months Ended Feb 28, 2019 ($ thousands) | | :------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | Industrial Tools & Services Segment | $20,570 | $26,546 | $46,624 | $52,920 | | Other Operating Segment | (972) | (2,447) | (1,227) | (26,408) | | General Corporate | (11,031) | (11,660) | (22,460) | (22,625) | | Total Operating Profit | $8,567 | $12,439 | $22,937 | $3,887 | [Note 14. Commitments and Contingencies](index=21&type=section&id=Note%2014.%20Commitments%20and%20Contingencies) Details the company's outstanding letters of credit, legal proceedings, and contingent liabilities related to divested businesses - The Company had outstanding letters of credit of **$13.8 million** at February 29, 2020, primarily for commercial contracts and self-insured workers' compensation programs[81](index=81&type=chunk) - The Company is party to various legal proceedings, including product liability and contract disputes, for which reserves are recorded when a loss is probable and estimable. Management believes resolution will not materially adversely affect financial position[81](index=81&type=chunk) - The Company remains contingently liable for **$7.7 million** in lease payments for previously divested businesses, extending to fiscal 2025, but does not believe it will be required to satisfy these obligations[83](index=83&type=chunk) - OFAC issued a Cautionary Letter regarding self-disclosed sales to Iranian distributors and potential diversions to Crimea, concluding the matter with no adverse financial impact. An investigation by Dutch authorities for the Estonian customer is ongoing[83](index=83&type=chunk) [Note 15. Leases](index=22&type=section&id=Note%2015.%20Leases) Explains the impact of adopting ASC 842 on leases, including lease expense components and balance sheet information - The Company adopted ASC 842 on September 1, 2019, recognizing operating leases for real estate, vehicles, and equipment as ROU assets and lease liabilities on the balance sheet[84](index=84&type=chunk) Components of Lease Expense (in thousands) | Lease Cost Component | Three Months Ended Feb 29, 2020 ($ thousands) | Six Months Ended Feb 29, 2020 ($ thousands) | | :------------------- | :-------------------------------------------- | :------------------------------------------ | | Operating lease cost | $3,894 | $8,147 | | Short-term lease cost | 310 | 765 | | Variable lease cost | 564 | 1,033 | Supplemental Balance Sheet Information Related to Leases (in thousands) | Metric | Feb 29, 2020 ($ thousands) | | :-------------------------------------- | :------------------------- | | Operating leases: | | | Other long-term assets | $53,555 | | Other current liabilities | 13,131 | | Other long-term liabilities | 42,105 | | Total operating lease liabilities | $55,236 | | Weighted Average Remaining Lease Term | 7.7 years | | Weighted Average Discount Rate | 4.33% | Future Minimum Lease Payments (in thousands) | Fiscal Year | Operating Leases ($ thousands) | | :---------- | :----------------------------- | | 2020 | $7,929 | | 2021 | 13,133 | | 2022 | 9,232 | | 2023 | 7,120 | | 2024 | 5,746 | | Thereafter | 22,507 | | Total minimum lease payments | 65,667 | | Less imputed interest | (10,431) | | Present value of net minimum lease payments | $55,236 | [Note 16. Subsequent Events](index=24&type=section&id=Note%2016.%20Subsequent%20Events) Discloses significant events occurring after the balance sheet date, specifically the impact of the COVID-19 pandemic and oil price decline - In March 2020, the COVID-19 pandemic and a substantial decline in oil prices occurred. These events are expected to negatively impact the Company's results of operations and financial condition, though the full extent cannot be reasonably estimated due to uncertainties[89](index=89&type=chunk) [Item 2—Management's Discussion and Analysis of Financial Condition and Results of Operations](index=25&type=section&id=Item%202%E2%80%94Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the Company's financial condition and results of operations, discussing overall performance, segment results, and cash flows - Enerpac Tool Group Corp. is a global leader in high-pressure hydraulic tools and solutions, serving industrial, maintenance, infrastructure, oil & gas, and energy markets through its Industrial Tools & Service (IT&S) segment[91](index=91&type=chunk) - The Company is executing a strategy to drive best-in-class returns, demonstrated by the acquisition of HTL Group. However, the COVID-19 pandemic and volatile oil pricing have created market interruptions, preventing specific fiscal 2020 financial estimates[92](index=92&type=chunk) - Cost savings actions are being taken to achieve a targeted EBITDA margin run rate of **20%** for the remainder of fiscal 2020[92](index=92&type=chunk) - The sale of the EC&S segment was completed on October 31, 2019, for approximately **$215 million**, aligning with the strategy to become a pure-play industrial tools and services company[93](index=93&type=chunk) [Results of Operations](index=26&type=section&id=Results%20of%20Operations) Analyzes the consolidated results of continuing operations, including net sales, gross profit, operating profit, and diluted EPS Consolidated Results of Continuing Operations (in millions) | Metric | Three Months Ended Feb 29, 2020 ($ millions) | Three Months Ended Feb 28, 2019 ($ millions) | Six Months Ended Feb 29, 2020 ($ millions) | Six Months Ended Feb 28, 2019 ($ millions) | | :----------------------------------------- | :------------------------------------------- | :------------------------------------------- | :----------------------------------------- | :----------------------------------------- | | Net sales | $133 | $160 | $280 | $318 | | Gross profit | 62 | 71 | 131 | 142 | | Operating profit | 9 | 12 | 23 | 4 | | Net earnings (loss) from continuing operations | 4 | 1 | 10 | (16) | | Diluted EPS from continuing operations | $0.06 | $0.01 | $0.17 | $(0.26) | - Consolidated net sales for the second quarter of fiscal 2020 decreased by **$27 million (17%)** year-over-year, with core sales down **10%** after adjusting for divestitures and the HTL Group acquisition[98](index=98&type=chunk) - Gross profit margins increased by **3%** in the second quarter and **2%** year-to-date, primarily due to divested product lines and strategic exits[98](index=98&type=chunk) - Operating profit was lower in Q2 fiscal 2020 due to decreased volumes and increased restructuring charges, partially offset by lower SAE costs and decreased impairment & divestiture charges[98](index=98&type=chunk) [Segment Results](index=26&type=section&id=Segment%20Results) Discusses the financial performance of the Industrial Tools & Service (IT&S) segment and corporate expenses IT&S Segment Results (in millions) | Metric | Three Months Ended Feb 29, 2020 ($ millions) | Three Months Ended Feb 28, 2019 ($ millions) | Six Months Ended Feb 29, 2020 ($ millions) | Six Months Ended Feb 28, 2019 ($ millions) | | :----------------- | :------------------------------------------- | :------------------------------------------- | :----------------------------------------- | :----------------------------------------- | | Net sales | $123 | $150 | $259 | $298 | | Operating profit | 21 | 27 | 47 | 53 | | Operating profit % | 16.7% | 17.8% | 18.0% | 17.7% | - IT&S segment net sales decreased by **$27 million (17%)** in Q2 fiscal 2020, with core sales down **11%** due to global economic uncertainty and lower service sales from non-repeating large projects[102](index=102&type=chunk) - Year-to-date IT&S net sales decreased by **$39 million (13%)**, with core sales down **6%**, primarily due to global economic uncertainty and significantly lower service sales[104](index=104&type=chunk) - Corporate expenses decreased by **$0.6 million** in Q2 and **$0.2 million** year-to-date, driven by positive medical claims experience, reduced travel, and lower legal costs, partially offset by restructuring charges and business development costs[106](index=106&type=chunk) [Financing Costs, net](index=27&type=section&id=Financing%20Costs,%20net) Explains the changes in net financing costs, primarily due to debt repayment and associated expenses Net Financing Costs (in millions) | Period | Feb 29, 2020 ($ millions) | Feb 28, 2019 ($ millions) | | :----------------- | :------------------------ | :------------------------ | | Three Months Ended | $4.6 | $7.2 | | Six Months Ended | $11.4 | $14.5 | - Financing costs decreased due to lower outstanding balances on the Senior Credit Facility, particularly the early payoff of the term loan in November 2019. This benefit was partially offset by expensing **$0.6 million** of capitalized debt issuance costs[107](index=107&type=chunk) [Income Tax Expense](index=27&type=section&id=Income%20Tax%20Expense) Analyzes the income tax expense and effective tax rates, highlighting factors influencing year-over-year changes Income Tax Expense and Effective Rate (in millions) | Metric | Three Months Ended Feb 29, 2020 ($ millions) | Three Months Ended Feb 28, 2019 ($ millions) | Six Months Ended Feb 29, 2020 ($ millions) | Six Months Ended Feb 28, 2019 ($ millions) | | :---------------------------------------------- | :------------------------------------------- | :------------------------------------------- | :----------------------------------------- | :----------------------------------------- | | Earnings (loss) from continuing operations before income tax expense | $5 | $5 | $12 | $(12) | | Income tax expense | 1 | 4 | 2 | 4 | | Effective income tax rate | 17.1% | 84.0% | 14.6% | (35.1)% | - The effective tax rate for the three months ended February 29, 2020, was **17.1%** (down from **84.0%** in prior year) and **14.6%** for the six months (up from **-35.1%** in prior year), influenced by impairment & divestiture benefits and accelerated debt issuance costs[109](index=109&type=chunk) - Excluding these charges, the effective tax rate was **14.6%** for the three months and **13.4%** for the six months ended February 29, 2020, benefiting from valuation allowance releases and improved tax attribute utilization[109](index=109&type=chunk) [Cash Flows and Liquidity](index=28&type=section&id=Cash%20Flows%20and%20Liquidity) Reviews the company's cash flow activities from operations, investing, and financing, and assesses its liquidity position - At February 29, 2020, the Company had **$163 million** in cash and cash equivalents, with **$154 million** held by foreign subsidiaries and **$9 million** domestically[110](index=110&type=chunk) Summary of Cash Flows (in millions) | Activity | Six Months Ended Feb 29, 2020 ($ millions) | Six Months Ended Feb 28, 2019 ($ millions) | | :---------------------------------------- | :----------------------------------------- | :----------------------------------------- | | Net cash used in operating activities | $(29) | $(51) | | Net cash provided by investing activities | 177 | 21 | | Net cash used in financing activities | (196) | (50) | | Net decrease in cash and cash equivalents | $(48) | $(80) | - The decrease in cash used in operating activities in fiscal 2020 was due to improved working capital management, the benefit from the EC&S segment divestiture, and decreased bonus compensation[110](index=110&type=chunk) - Net cash provided by investing activities increased by **$156 million**, primarily from the sale of the EC&S segment (**$209 million**) and non-core product lines (**$9 million**), partially offset by the HTL Group acquisition (**$33 million**)[110](index=110&type=chunk) - Net cash used in financing activities increased to **$196 million**, mainly due to the early payoff of the **$175 million term loan** and **$18 million** in treasury share repurchases[110](index=110&type=chunk) - The Company believes its revolving line of credit (**$395 million unused** at Feb 29, 2020), existing cash, and anticipated operating cash flows will be adequate for future funding requirements[112](index=112&type=chunk)[113](index=113&type=chunk) [Primary Working Capital Management](index=29&type=section&id=Primary%20Working%20Capital%20Management) Discusses the company's management of primary working capital, a key metric for operational efficiency - Primary working capital (PWC) as a percentage of sales is a key metric, defined as net accounts receivable plus net inventory minus accounts payable, divided by annualized past three months' sales[114](index=114&type=chunk) Primary Working Capital (in millions) | Component | Feb 29, 2020 ($ millions) | PWC% (Feb 29, 2020) | Aug 31, 2019 ($ millions) | PWC% (Aug 31, 2019) | | :---------------------------- | :------------------------ | :------------------ | :------------------------ | :------------------ | | Accounts receivable, net | $113 | 21% | $126 | 20% | | Inventory, net | 78 | 15% | 77 | 12% | | Accounts payable | (62) | (12)% | (77) | (12)% | | Net primary working capital | $129 | 24% | $126 | 20% | [Commitments and Contingencies](index=29&type=section&id=Commitments%20and%20Contingencies) Outlines the company's contingent liabilities, outstanding letters of credit, and legal matters - The Company is contingently liable for **$8 million** in lease payments for previously divested businesses, with payments extending to fiscal 2025, but does not anticipate being required to satisfy these obligations[115](index=115&type=chunk) - Outstanding letters of credit totaled **$14 million** at February 29, 2020, mainly for commercial contracts and workers' compensation programs[115](index=115&type=chunk) - Legal and regulatory matters are not expected to have a material adverse effect on the Company's financial results[115](index=115&type=chunk) [Contractual Obligations](index=29&type=section&id=Contractual%20Obligations) Notes material changes in contractual obligations, particularly related to lease commitments, following the EC&S segment divestiture - Contractual obligations have materially changed in fiscal 2020 due to the divestiture of the EC&S segment, particularly regarding lease commitments[116](index=116&type=chunk) [Supplemental Guarantor Financial Information](index=29&type=section&id=Supplemental%20Guarantor%20Financial%20Information) Provides summarized financial information for the parent company and its guarantor subsidiaries regarding outstanding Senior Notes - Enerpac Tool Group Corp. (Parent) has **$288 million of Senior Notes** outstanding, fully and unconditionally guaranteed by certain material, domestic wholly owned subsidiaries (Guarantors) on a joint and several basis[117](index=117&type=chunk) - The guarantees are senior unsecured obligations, effectively subordinated to any secured debt of the Guarantor. Non-Guarantor subsidiaries do not guarantee the Senior Notes[117](index=117&type=chunk)[120](index=120&type=chunk) Summarized Statements of Operations (Parent and Guarantors, Feb 29, 2020, in millions) | Metric | Amount ($ millions) | | :-------------------------------------- | :------------------ | | Net sales | $98 | | Gross profit | 65 | | Earnings (loss) from continuing operations* | (3) | | Loss from discontinued operations | (4) | | Net loss | $(7) | Summarized Balance Sheet (Parent and Guarantors, in millions) | Asset/Liability/Equity | Feb 29, 2020 ($ millions) | Aug 31, 2019 ($ millions) | | :----------------------------- | :------------------------ | :------------------------ | | **ASSETS** | | | | Current assets | 90 | 272 | | Long-term assets | 167 | 138 | | **LIABILITIES & SHAREHOLDERS' EQUITY** | | | | Current liabilities | 43 | 98 | | Long-term liabilities* | 795 | 926 | [Critical Accounting Estimates](index=31&type=section&id=Critical%20Accounting%20Estimates) Identifies key accounting estimates that require significant management judgment and could impact financial results - Management has evaluated and believes the accounting estimates used in the condensed consolidated financial statements are reasonable and appropriate, with certain estimates considered critical for understanding judgments and potential impacts on financial results[124](index=124&type=chunk) [Item 3—Quantitative and Qualitative Disclosures about Market Risk](index=31&type=section&id=Item%203%E2%80%94Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section discusses the Company's exposure to various financial and market risks, including interest rate risk, foreign currency risk, and commodity cost risk, and how these are managed - The Company manages interest expense through a mix of fixed-rate (Senior Notes) and variable-rate debt (revolving line of credit), though no variable-rate debt was outstanding at February 29, 2020[125](index=125&type=chunk) - Foreign currency risk is managed using hedging transactions (primarily foreign currency exchange contracts) to mitigate adverse impacts from exchange rate fluctuations, particularly given over half of sales are non-U.S. dollar denominated[125](index=125&type=chunk) - A hypothetical **10% decrease** in all foreign exchange rates against the U.S. dollar would result in a **$5 million lower quarterly sales** and **$2 million lower operating profit** for the three months ended February 29, 2020, and a **$39 million reduction to equity**[125](index=125&type=chunk) - Commodity cost risk, primarily from steel and plastic resin, is managed by striving to pass price increases to customers to maintain profit margins[125](index=125&type=chunk) [Item 4—Controls and Procedures](index=31&type=section&id=Item%204%E2%80%94Controls%20and%20Procedures) This section details the evaluation of the Company's disclosure controls and procedures and reports on any changes in internal control over financial reporting - As of February 29, 2020, the Company's chief executive officer and chief financial officer concluded that disclosure controls and procedures were effective[126](index=126&type=chunk) - There have been no changes in internal control over financial reporting during the quarter ended February 29, 2020, that have materially affected or are reasonably likely to materially affect the Company's internal control over financial reporting[127](index=127&type=chunk) [PART II—OTHER INFORMATION](index=33&type=section&id=PART%20II%E2%80%94OTHER%20INFORMATION) This section contains additional information not covered in Part I, including risk factors, equity sales, and exhibits [Item 1A.—Risk Factors](index=33&type=section&id=Item%201A.%E2%80%94Risk%20Factors) This section highlights specific risk factors that could adversely affect the Company's business, particularly focusing on global public health epidemics and disruptions in oil markets - The Company's business and financial condition may be adversely affected by global public health epidemics, including COVID-19, which can disrupt employee, vendor, and customer activities[130](index=130&type=chunk) - The substantial decline in oil prices, resulting from weakened demand due to COVID-19 and political tensions, poses a material adverse impact, as a significant portion of the Company's revenues are derived from the oil & gas industry[130](index=130&type=chunk) [Item 2—Unregistered Sales of Equity Securities and Use of Proceeds](index=33&type=section&id=Item%202%E2%80%94Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section provides information on the Company's share repurchase programs and activity during the reporting period - Since fiscal 2012, the Company has repurchased **22,295,357 shares** of common stock for **$658.0 million** under publicly announced programs[130](index=130&type=chunk) - As of February 29, 2020, **5,704,643 shares** may still be purchased under the programs. No shares were repurchased in the three months ended February 29, 2020[130](index=130&type=chunk) [Item 6—Exhibits](index=33&type=section&id=Item%206%E2%80%94Exhibits

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 November 30, 2019 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No. 1-11288 ———————————— ACTUANT CORPORATION (Exact name of registrant as specified in its charter) ———————————— Wisconsin 39-0168610 (State of i ...