epac-20211130

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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FORM 10-Q

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(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, 2021


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File No. 1-11288

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ENERPAC TOOL GROUP CORP.

(Exact name of registrant as specified in its charter)

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Wisconsin						39-0168610
(State of incorporation)						(I.R.S. Employer Id. No.)

N86 W12500 WESTBROOK CROSSING

MENOMONEE FALLS, WISCONSIN 53051

Mailing address: P. O. Box 3241, Milwaukee, Wisconsin 53201

(Address of principal executive offices)

(262) 293-1500

(Registrant’s telephone number, including area code)

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Securities registered pursuant to Section 12(b) of the Act:


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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

☒

Accelerated Filer

☐

Non-accelerated Filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.): Yes ¨ No ☒

The number of shares outstanding of the registrant’s Class A Common Stock as of December 17, 2021 was 60,319,046.

Table of Contents

TABLE OF CONTENTS


			Page No.

Forward-Looking Statements and Cautionary Factors			1

Part I—Financial Information

Item 1—Condensed Consolidated Financial Statements (Unaudited)

Condensed Consolidated Statements of Earnings			3

Condensed Consolidated Statements of Comprehensive Income (Loss)			4

Condensed Consolidated Balance Sheets			5

Condensed Consolidated Statements of Cash Flows			6

Notes to the Condensed Consolidated Financial Statements			7

Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations			17

Item 3—Quantitative and Qualitative Disclosures about Market Risk			21

Item 4—Controls and Procedures			22

Part II—Other Information

Item 2—Unregistered Sales of Equity Securities and Use of Proceeds			23

Item 6—Exhibits			23

FORWARD-LOOKING STATEMENTS AND CAUTIONARY FACTORS

This quarterly report on Form 10-Q contains certain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties. Such forward-looking statements include statements regarding expected financial results and other planned events, including, but not limited to, anticipated liquidity, anticipated restructuring costs and related savings, anticipated future charges and anticipated capital expenditures. Words such as “may,” “should,” “could,” “anticipate,” “believe,” “estimate,” “expect,” “objective,” “plan,” “project” and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Therefore, actual future events or results may differ materially from these statements. We disclaim any obligation to publicly update or revise any forward-looking statements as a result of new information, future events or any other reason.

The following is a list of factors, among others, that could cause actual results to differ materially from the forward-looking statements:

•the extent to which the COVID-19 pandemic continues (including new variants of COVID-19 such as the recent Delta and Omicron variants) to impact our employees, operations, customers and suppliers;

•potential increases in the costs of commodities and raw materials, or substantial decreases in their availability;

•heavy reliance on suppliers for components used in the manufacture and sale of our products, including a supply chain interruption due to material and cargo shortages, the COVID-19 pandemic, political tensions, or other causes;

•the deterioration of, or instability in, the domestic and international economy and/or in our various end markets;

•decreased demand from customers in the oil & gas industry as a result of significant volatility in oil prices resulting from disruptions in the oil markets;

•uncertainty over global tariffs, or the financial impact of tariffs;

•failure to collect on accounts receivable, including in certain foreign jurisdictions where sales are concentrated to a limited number of distributors or agents;

•a significant failure in our information technology (IT) infrastructure, such as unauthorized access to financial and other sensitive data or cybersecurity threats;

•a material disruption at a significant manufacturing facility;

•competition in the markets we serve;

•currency exchange rate fluctuations, export and import restrictions, transportation disruptions or shortages, and other risks inherent in our international operations;

•failure to develop new products and the extent of market acceptance of new products;

•our ability to successfully identify, consummate and integrate acquisitions and realize anticipated benefits/results from acquired companies as part of our portfolio management process;

•the effects of divestitures and/or discontinued operations, including retained liabilities from, or indemnification obligations with respect to, businesses that we sell;

•if the operating performance of our businesses were to fall significantly below normalized levels, the potential for a non-cash impairment charge of goodwill and/or other intangible assets, as they represent a substantial amount of our total assets;

•regulatory and legal developments, including litigation, such as product liability and warranty claims;

•our ability to comply with the covenants in our debt agreements and fluctuations in interest rates;

•our ability to attract, develop, and retain qualified employees;

•inadequate intellectual property protection or infringement of the intellectual property of others; and

•other matters, including those of a political, economic, business, competitive and regulatory nature contained from time to time in our U.S. Securities and Exchange Commission ("SEC") filings, including, but not limited to, those factors listed in the "Risk Factors" section within Item 1A of Part I of our Form 10-K filed with the SEC on October 25, 2021.

When used herein, the terms “we,” “us,” “our” and the “Company” refer to Enerpac Tool Group Corp. and its subsidiaries. Reference to fiscal years, such as "fiscal 2022," are to the fiscal year ending on August 31 of the specified year. Enerpac Tool Group Corp. provides free-of-charge access to its Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments thereto, through its website, www.enerpactoolgroup.com, as soon as reasonably practicable after such reports are electronically filed with the SEC.

PART I—FINANCIAL INFORMATION

Item 1—Financial Statements

ENERPAC TOOL GROUP CORP.

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(In thousands, except per share amounts)

(Unaudited)


	Three Months Ended November 30,
	2021		2020
Net sales	$	130,903	$	119,430
Cost of products sold	71,277		64,166
Gross profit	59,626		55,264

Selling, general and administrative expenses	48,477		43,710
Amortization of intangible assets	2,005		2,136
Restructuring charges	2,737		210
Impairment & divestiture charges	—		139
Operating profit	6,407		9,069
Financing costs, net	961		1,716
Other expense, net	480		273
Earnings before income tax expense	4,966		7,080
Income tax expense	1,781		2,258
Net earnings from continuing operations	3,185		4,822
Loss from discontinued operations, net of income taxes	(397)		(224)
Net earnings	$	2,788	$	4,598

Earnings per share from continuing operations
Basic	$	0.05	$	0.08
Diluted	$	0.05	$	0.08

Loss per share from discontinued operations
Basic	$	(0.01)	$	(0.00)
Diluted	$	(0.01)	$	(0.00)

Earnings per share*
Basic	$	0.05	$	0.08
Diluted	$	0.05	$	0.08

Weighted average common shares outstanding
Basic	60,261		59,811
Diluted	60,621		60,092

*The total of Earnings per share from continuing operations and Loss per share from discontinued operations may not equal Earnings per share due to rounding.

The accompanying notes are an integral part of these condensed consolidated financial statements.

ENERPAC TOOL GROUP CORP.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(In thousands)

(Unaudited)


	Three Months Ended November 30,
	2021		2020
Net earnings	$	2,788	$	4,598
Other comprehensive (loss) income, net of tax
Foreign currency translation adjustments	(10,380)		1,400
Pension, other postretirement benefit plans, and cash flow hedges	336		229
Total other comprehensive (loss) income, net of tax	(10,044)		1,629
Comprehensive (loss) income	$	(7,256)	$	6,227

The accompanying notes are an integral part of these condensed consolidated financial statements.

ENERPAC TOOL GROUP CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

(Unaudited)


	November 30, 2021		August 31, 2021
ASSETS
Current assets
Cash and cash equivalents	$	126,533	$	140,352
Accounts receivable, net	112,293		103,233
Inventories, net	83,614		75,347
Other current assets	38,649		38,503
Total current assets	361,089		357,435
Property, plant and equipment, net	47,732		48,590
Goodwill	273,297		277,593
Other intangible assets, net	51,400		54,545
Other long-term assets	78,950		82,084
Total assets	$	812,468	$	820,247
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Trade accounts payable	$	63,474	$	61,958
Accrued compensation and benefits	17,712		21,597
Income taxes payable	5,378		5,674
Other current liabilities	45,072		45,535
Total current liabilities	131,636		134,764
Long-term debt, net	175,000		175,000
Deferred income taxes	4,354		4,397
Pension and postretirement benefit liabilities	17,356		17,783
Other long-term liabilities	74,316		76,105
Total liabilities	402,662		408,049
Commitments and contingencies (Note 13)
Shareholders’ equity
Class A common stock, $0.20 par value per share, authorized 168,000,000 shares, issued 83,092,053 and 83,021,654 shares, respectively	16,622		16,604
Additional paid-in capital	207,817		202,971
Treasury stock, at cost, 22,799,230 shares	(667,732)		(667,732)
Retained earnings	956,127		953,339
Accumulated other comprehensive loss	(103,028)		(92,984)
Stock held in trust	(3,092)		(3,067)
Deferred compensation liability	3,092		3,067
Total shareholders' equity	409,806		412,198
Total liabilities and shareholders’ equity	$	812,468	$	820,247

The accompanying notes are an integral part of these condensed consolidated financial statements.

ENERPAC TOOL GROUP CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Three Months Ended November 30,
	2021		2020
Operating Activities
Net earnings	$	2,788	$	4,598
Less: Net loss from discontinued operations	(397)		(224)
Net earnings from continuing operations	3,185		4,822
Adjustments to reconcile net earnings to net cash (used in) provided by operating activities - continuing operations:
Impairment & divestiture charges, net of tax effect	—		139
Depreciation and amortization	5,175		5,458
Stock-based compensation expense	6,147		2,581
Provision for (benefit from) deferred income taxes	423		(264)
Amortization of debt issuance costs	120		120
Other non-cash (benefits) charges	(13)		226
Changes in components of working capital and other:
Accounts receivable	(10,801)		(6,268)
Inventories	(9,823)		(1,387)
Trade accounts payable	2,358		1,847
Prepaid expenses and other assets	140		(6,297)
Income tax accounts	682		2,466
Accrued compensation and benefits	(3,509)		379
Other accrued liabilities	1,975		5,070
Cash (used in) provided by operating activities - continuing operations	(3,941)		8,892
Cash used in operating activities - discontinued operations	(785)		(225)
Cash (used in) provided by operating activities	(4,726)		8,667

Investing Activities
Capital expenditures	(3,293)		(1,905)
Proceeds from sale of property, plant and equipment	133		47
Cash used in investing activities - continuing operations	(3,160)		(1,858)
Cash provided by investing activities - discontinued operations	—		—
Cash used in investing activities	(3,160)		(1,858)

Financing Activities
Borrowings on revolving credit facility	5,000		10,000
Principal repayments on revolving credit facility	(5,000)		(10,000)
Taxes paid related to the net share settlement of equity awards	(1,393)		(275)
Stock option exercises & other	85		101
Payment of cash dividend	(2,409)		(2,394)
Cash used in financing activities - continuing operations	(3,717)		(2,568)
Cash provided by financing activities - discontinued operations	—		750
Cash used in financing activities	(3,717)		(1,818)

Effect of exchange rate changes on cash	(2,216)		1,407
Net (decrease) increase in cash and cash equivalents	(13,819)		6,398
Cash and cash equivalents - beginning of period	140,352		152,170
Cash and cash equivalents - end of period	$	126,533	$	158,568

The accompanying notes are an integral part of these condensed consolidated financial statements.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Basis of Presentation

General

Enerpac Tool Group Corp. ("Company") is a premier industrial tools and services company serving a broad and diverse set of customers in more than 100 countries. The Company has two operating segments, Industrial Tools & Service ("IT&S") and Other, with the IT&S segment representing the only reportable segment.

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with United States generally accepted accounting principles ("GAAP") for interim financial reporting and with the instructions of Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The condensed consolidated balance sheet data as of August 31, 2021 was derived from the Company’s audited financial statements but does not include all disclosures required by GAAP. For additional information, including the Company’s significant accounting policies, refer to the consolidated financial statements and related footnotes in the Company’s fiscal 2021 Annual Report on Form 10-K.

In the opinion of management, all adjustments considered necessary for a fair statement of financial results have been made. Such adjustments consist of only those of a normal recurring nature. Operating results for the three months ended November 30, 2021 are not necessarily indicative of the results that may be expected for the entire fiscal year ending August 31, 2022. The COVID-19 pandemic has negatively impacted, and is likely to continue to negatively impact to varying extents, the global economy. The Company's operating results and financial position will continue to be subject to the general economic conditions created by the pandemic, including the current supply chain and logistics environment caused by the sharp increase in demand as global economies recover. The duration and extent to which the pandemic's effects impact the Company's business will depend on future developments which still remain uncertain.

Recently Adopted Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board ("FASB") issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in this update simplify the accounting for income taxes by removing certain exceptions and amending and clarifying existing guidance. The Company adopted this guidance on September 1, 2021. The adoption did not have a material effect on our consolidated financial statements.

Recently Issued Accounting Pronouncements

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which amends ASC 805 to require an acquirer to, at the date of acquisition, recognize and measure contract assets and contract liabilities acquired in accordance with ASU 2014-9, Revenue from Contracts with Customers (Topic 606) as if the entity had originated the contracts. The guidance is effective for fiscal years beginning after December 15, 2022. The Company will adopt this guidance in the event of a business combination subsequent to the effective date of the guidance.

In March 2020, the FASB issued ASU 2020-4, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for a limited time to ease the potential burden of accounting for reference rate reform on financial reporting. This guidance applies to contracts, hedging relationships and other transactions affected by the discontinuation of the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates. The guidance is effective beginning on March 12, 2020 through December 31, 2022. In January 2021, the FASB issued ASU 2021-01 allowing entities to apply certain aspects of ASC 848 (previously ASU 2020-4) to all derivative instruments that undergo a modification of the interest rate used for discounting, margining or contract price alignment as a result of the reference reform. The guidance is also effective through December 31, 2022. The Company has not utilized any of the optional expedients or exceptions available under this guidance. The Company will continue to assess whether this guidance is applicable throughout the effective period.

Accumulated Other Comprehensive Loss

The following is a summary of the Company's accumulated other comprehensive loss (in thousands):


	November 30, 2021		August 31, 2021
Foreign currency translation adjustments	$	80,366	$	69,986
Pension and other postretirement benefit plans, net of tax	22,662		22,998
Accumulated other comprehensive loss	$	103,028	$	92,984

Property Plant and Equipment

The following is a summary of the Company's components of property, plant and equipment (in thousands):


	November 30, 2021		August 31, 2021
Land, buildings and improvements	$	16,488	$	16,617
Machinery and equipment	145,458		145,541
Gross property, plant and equipment	161,946		162,158
Less: Accumulated depreciation	(114,214)		(113,568)
Property, plant and equipment, net	$	47,732	$	48,590

Note 2. Revenue from Contracts with Customers

Nature of Goods and Services

The Company generates its revenue under two principal activities, which are discussed below:

Product Sales: Sales of tools, heavy-lifting solutions, and rope and cable solutions are recorded when control is transferred to the customer (i.e., performance obligation has been satisfied). For the majority of the Company’s product sales, revenue is recognized at a point in time when control of the product is transferred to the customer, which generally occurs when the product is shipped from the Company to the customer. For certain other products that are highly customized and have a limited alternative use, and for which the Company has an enforceable right of reimbursement for performance completed to date, revenue is recognized over time. We consider the input measure (efforts-expended or cost-to-cost) or output measure as a fair measure of progress for the recognition of over-time revenue associated with these custom products. For a majority of the Company’s custom products, machine hours and labor hours (efforts-expended measurement) are used as a measure of progress.

Service & Rental Sales: Service contracts consist of providing highly trained technicians to perform bolting, technical services, machining and joint-integrity work for our customers. These revenues are recognized over time as our customers simultaneously receive and consume the benefits provided by the Company. We consider the input measure (efforts-expended or cost-to-cost) or output measure as a fair measure of progress for the recognition of over-time revenue associated with service contracts. For a majority of the Company’s service contracts, labor hours (efforts-expended measurement) is used as the measure of progress when it is determined to be a better depiction of the transfer of control to the customer due to the timing and pattern of labor hours incurred. Revenue from rental contracts (less than a year and non-customized products) is generally recognized ratably over the contract term, depicting the customer’s consumption of the benefit related to the rental equipment.

Disaggregated Revenue and Performance Obligations

The Company disaggregates revenue from contracts with customers by reportable segment and product line and by the timing of when goods and services are transferred. See Note 12, "Segment Information" for information regarding our revenue disaggregation by reportable segment and product line.

The following table presents information regarding revenues disaggregated by the timing of when goods and services are transferred (in thousands):


	Three Months Ended November 30,
	2021		2020
Revenues recognized at point in time	$	100,174	$	86,780
Revenues recognized over time	30,729		32,650
Total	$	130,903	$	119,430

Contract Balances

The Company's contract assets and liabilities are as follows (in thousands):


	November 30, 2021		August 31, 2021
Receivables, which are included in accounts receivable, net	$	112,293	$	103,233
Contract assets, which are included in other current assets	2,428		8,551
Contract liabilities, which are included in other current liabilities	3,939		3,410

Receivables: The Company performs its obligations under a contract with a customer by transferring goods or services in exchange for consideration from the customer. The Company typically invoices its customers as soon as control of an asset is

transferred and a receivable for the Company is established. Accounts receivable, net is recorded at face amount of customer receivables less an allowance for doubtful accounts. The Company maintains an allowance for doubtful accounts for expected losses as a result of customers’ inability to make required payments. Management evaluates the aging of customer receivable balances, the financial condition of its customers, historical trends and the time outstanding of specific balances to estimate the amount of receivables that may not be collected in the future and records the appropriate provision. The allowance for doubtful accounts was $4.3 million and $4.2 million at at November 30, 2021 and August 31, 2021, respectively. As indicated in the "Concentration of Credit Risk" section below, the Company continues to negotiate terms to secure payment with an agent whose continued payment delinquency has created a concentration of credit risk. The allowance for doubtful accounts as of November 30, 2021 represents management's best estimate of the amount probable of collection and considers various factors including, but not limited to, (i) the lack of payment in the nine-month period ended November 30, 2021, (ii) our due diligence on balances due to our agents from their end customers related to sales of our services and products and the known markup on those sales from agent to end customer, (iii) the status of ongoing negotiations with the agent to secure payments and (iv) legal recourse available to secure payment. Actual collections from the agent may differ from the Company's estimate.

Contract Assets: Contract assets relate to the Company’s rights to consideration for work completed but not billed as of the reporting date on contracts with customers. The contract assets are transferred to receivables when the rights become unconditional. The Company has contract assets on contracts that are generally long-term and have revenues that are recognized over time.

Contract Liabilities: As of November 30, 2021, the Company had certain contracts where there were unsatisfied performance obligations and the Company had received cash consideration from customers before the performance obligations were satisfied. The majority of these contracts relate to long-term customer contracts (project durations of greater than three months) and are recognized over time. The Company estimates that the $3.9 million will be recognized in net sales from satisfying those performance obligations within the next twelve months, with an immaterial amount recognized in periods after.

Concentration of Credit Risk: The Company sells products and services through distributors and agents. In certain jurisdictions, those third parties represent a significant portion of our sales in their respective country which can pose a concentration of credit risk if these larger distributors or agents are not timely in their payments. As of November 30, 2021, the Company was exposed to a concentration of credit risk as a result of the continued payment delinquency of one of our agents with whom we continue to negotiate a plan to secure payments. This agent's accounts receivable represent 10.6% of the Company's outstanding accounts receivable.

Timing of Performance Obligations Satisfied at a Point in Time: The Company evaluates when the customer obtains control of the product based on shipping terms, as control will transfer, depending upon such terms, at different points between the Company's manufacturing facility or warehouse and the customer’s location. The Company considers control to have transferred upon shipment or delivery because (i) the Company has a present right to payment at that time; (ii) the legal title has been transferred to the customer; (iii) the Company has transferred physical possession of the product to the customer; and (iv) the customer has significant risks and rewards of ownership of the product.

Variable Consideration: The Company estimates whether it will be subject to variable consideration under the terms of the contract and includes its estimate of variable consideration in the transaction price based on the expected value method when it is deemed probable of being realized based on historical experience and trends. Types of variable consideration may include rebates, incentives and discounts, among others, which are recorded as a reduction to net sales at the time when control of a performance obligation is transferred to the customer.

Practical Expedients & Exemptions: The Company elected to expense the incremental cost to obtaining a contract when the amortization period for such contracts would be one year or less. The Company does not disclose the value of unperformed obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which it recognizes revenue at the amount to which it has the right to invoice for services performed.

Note 3. Restructuring Charges

The Company has undertaken or committed to various restructuring initiatives, including workforce reductions, leadership changes, plant consolidations to reduce manufacturing overhead, satellite office closures, the continued movement of production and product sourcing to low-cost alternatives and the centralization and standardization of certain administrative functions. Liabilities for severance are generally to be paid within twelve months, while future lease payments related to facilities vacated as a result of restructuring are to be paid over the underlying remaining lease terms. During fiscal 2019, the Company announced a restructuring plan focused on (i) the integration of the Enerpac and Hydratight businesses (IT&S segment), (ii) the strategic exit of certain commodity-type services in our North America Services operations (IT&S segment) and (iii) driving efficiencies within the overall corporate structure. In the third quarter of fiscal 2020, the Company announced the expansion and revision of this plan, which further simplified and flattened the corporate structure through elimination of redundancies between the segment and corporate functions, while enhancing our commercial and marketing processes to become even closer to our customers. In November 2021, upon assessment of the the Company's operating structure by the Company's new President & Chief Executive Officer, the Company recorded $2.7 million of charges in the three months ended November 30, 2021 in order to further simplify and streamline the organizational structure. Restructuring charges associated with expansion of the fiscal 2019 plan were $0.1 million in the three months ended November 30, 2020.

The following summarizes restructuring reserve activity (which excludes $0.7 million and $0.5 million of charges for IT&S and Corporate, respectively, associated with the accelerated vesting of equity awards which has no impact on the restructuring reserve) for the IT&S segment and Corporate (in thousands):


	Three Months Ended November 30, 2021
	IT&S		Corporate
Balance as of August 31, 2021	$	1,737	$	26
Restructuring charges	874		695
Cash payments	(609)		(8)
Impact of changes in foreign currency rates	(46)		—
Balance as of November 30, 2021	$	1,956	$	713


	Three Months Ended November 30, 2020
	IT&S		Corporate
Balance as of August 31, 2020	$	1,443	$	267
Restructuring charges	66		—
Cash payments	(432)		(229)

Impact of changes in foreign currency rates	(4)		—
Balance as of November 30, 2020	$	1,073	$	38

Total restructuring charges (inclusive of the Other segment) were $2.7 million and $0.2 million in the three months ended November 30, 2021 and 2020, respectively, being reported in "Restructuring charges."

There were no restructuring charges related to Cortland U.S. (Other segment) in three months ended November 30, 2021. Restructuring expenses for Cortland U.S. were $0.1 million in the three months ended November 30, 2020. Restructuring reserves for Cortland U.S. were $0.1 million as of November 30, 2021 and August 31, 2021, respectively.

Note 4. Discontinued Operations

On October 31, 2019, as part of our overall strategy to become a pure-play industrial tools and services company, the Company completed the sale of the businesses comprising its former Engineered Components & Systems ("EC&S") segment. This divestiture was considered part of our strategic shift to become a pure-play industrial tools and services company, and therefore, the results of operations are recorded as a component of "Loss from discontinued operations, net of income taxes" in the Condensed Consolidated Statements of Operations for all periods presented. A component of the purchase price was payable in four quarterly installments of which the final $0.7 million was received in the three months ended November 30, 2020 (this final payment was received greater than one year from the divestiture date and, as such, is reflected in "Cash provided by financing activities - discontinued operations" within the Condensed Consolidated Statements of Cash Flows). All other discontinued operations activity included within the Condensed Consolidated Statements of Operations and the Condensed Consolidated Statements of Cash Flows for the periods presented relate to impacts from certain retained liabilities.

The following represents the detail of "Loss from discontinued operations, net of income taxes" within the Condensed Consolidated Statements of Operations (in thousands) :


	Three Months Ended November 30,
	2021		2020
Selling, general and administrative expenses	$	503	$	295
Operating loss	(503)		(295)
Other loss, net	—		—
Loss before income tax benefit	(503)		(295)
Income tax benefit	(106)		(71)
Loss from discontinued operations, net of income taxes	$	(397)	$	(224)

Note 5. Goodwill, Intangible Assets and Long-Lived Assets

Changes in the gross carrying value of goodwill and intangible assets result from changes in foreign currency exchange rates, business acquisitions, divestitures and impairment charges. The changes in the carrying amount of goodwill for the three months ended November 30, 2021 are as follows (in thousands):


	IT&S		Other		Total
Balance as of August 31, 2021	$	265,087	$	12,506	$	277,593
Impact of changes in foreign currency rates	(4,296)		—		(4,296)
Balance as of November 30, 2021	$	260,791	$	12,506	$	273,297

The gross carrying value and accumulated amortization of the Company’s intangible assets are as follows (in thousands):


		November 30, 2021						August 31, 2021
	Weighted Average Amortization Period (Years)	Gross Carrying Value		Accumulated Amortization		Net Book Value		Gross Carrying Value		Accumulated Amortization		Net Book Value
Amortizable intangible assets:
Customer relationships	14	$	140,576	$	115,162	$	25,414	$	142,453	$	114,463	$	27,990
Patents	12	14,252		13,497		755		14,492		13,688		804
Trademarks and tradenames	12	3,255		2,373		882		3,307		2,391		916
Indefinite lived intangible assets:
Tradenames	N/A	24,349		—		24,349		24,835		—		24,835
		$	182,432	$	131,032	$	51,400	$	185,087	$	130,542	$	54,545

The Company estimates that amortization expense will be $5.4 million for the remaining nine months of fiscal 2022. Amortization expense for future years is estimated to be: $5.8 million in fiscal 2023, $4.1 million in fiscal 2024, $3.4 million in fiscal 2025, $2.0 million in fiscal 2026, $1.9 million in fiscal 2027 and $4.5 million cumulatively thereafter. The future amortization expense amounts represent estimates and may be impacted by future acquisitions, divestitures, or changes in foreign currency exchange rates, among other causes.

Note 6. Product Warranty Costs

The Company generally offers its customers an assurance warranty on products sold, although warranty periods may vary by product type and application. The reserve for future warranty claims, which is recorded within the "Other current liabilities" line in the Condensed Consolidated Balance Sheets, is based on historical claim rates and current warranty cost experience. The following summarizes the changes in product warranty reserves for the three months ended November 30, 2021 and 2020, respectively (in thousands):


	Three Months Ended November 30,
	2021		2020
Beginning balance	$	1,300	$	892
Provision for warranties	395		464
Warranty payments and costs incurred	(230)		(399)
Impact of changes in foreign currency rates	(31)		2
Ending balance	$	1,434	$	959

Note 7. Debt

The following is a summary of the Company’s long-term indebtedness (in thousands):


	November 30, 2021		August 31, 2021
Senior Credit Facility
Revolver	$	175,000	$	175,000
Total long-term debt, less current maturities	$	175,000	$	175,000

Senior Credit Facility

In March 2019, the Company entered into a senior credit facility (the “Senior Credit Facility”) with a syndicate of banks, to among other things, (i) expand the multi-currency revolving line of credit from $300 million to $400 million, (ii) extend the maturity of the Company's Senior Credit Facility from May 2020 to March 2024 (no required principal payments prior to maturity) and (iii) modify certain other provisions of the credit agreement including a reduction in pricing. The Senior Credit Facility was initially comprised of a $400 million revolving line of credit and a $200 million term loan.

At November 30, 2021, there was $175.0 million of borrowings under the revolving line of credit and $219.8 million of available borrowing capacity under the revolving line of credit after reduction for $5.2 million of outstanding letters of credit issued under the Senior Credit Facility.

The Senior Credit Facility also provides the option for future expansion, subject to certain conditions, through a $300 million accordion and/or a $200 million incremental term loan. Borrowings under the Senior Credit Facility bear interest at a variable rate based on LIBOR or a base rate, ranging from 1.125% to 2.00% in the case of loans bearing interest at LIBOR and from 0.125% to 1.00% in the case of loans bearing interest at the base rate. In addition, a non-use fee is payable quarterly on the average unused amount of the revolving line of credit ranging from 0.15% to 0.3% per annum, based on the Company's net leverage.

The Senior Credit Facility contains two financial covenants, which are a maximum leverage ratio of 3.75:1 and a minimum interest coverage ratio of 3.5:1. Certain transactions lead to adjustments to the underlying ratios, including an increase to the leverage ratio from 3.75 to 4.25 during the four fiscal quarters after a significant acquisition.

The Company was in compliance with all financial covenants at November 30, 2021. Borrowings under the Senior Credit Facility are secured by substantially all personal property assets of the Company and its domestic subsidiary guarantors and certain equity interests owned by the foreign law pledgors.

Note 8. Fair Value Measurements

The Company assesses the inputs used to measure the fair value of financial assets and liabilities using a three-tier hierarchy. Level 1 inputs include unadjusted quoted prices for identical instruments and are the most observable. Level 2 inputs include quoted prices for similar assets and observable inputs such as interest rates, foreign currency exchange rates, commodity rates and yield curves. Level 3 inputs are not observable in the market and include management’s own judgments about the assumptions market participants would use in pricing an asset or liability.

The fair value of the Company’s cash and cash equivalents, accounts receivable, accounts payable and variable rate long-term debt approximated book value at both November 30, 2021 and August 31, 2021 due to their short-term nature and/or the fact that the interest rates approximated market rates. Foreign currency exchange contracts and interest rate swaps are recorded at fair value. The fair value of the Company's foreign currency exchange contracts was a net liability of less than $0.1 million at both November 30, 2021 and August 31, 2021. The fair value of the foreign currency exchange and interest rate swap contracts were based on quoted inactive market prices and therefore classified as Level 2 within the valuation hierarchy.

Note 9. Derivatives

All derivatives are recognized in the balance sheet at their estimated fair value. The Company does not enter into derivatives for speculative purposes. Changes in the fair value of derivatives (not designated as hedges) are recorded in earnings along with the gain or loss on the hedged asset or liability.

The Company is exposed to market risk for changes in foreign currency exchange rates due to the global nature of its operations. In order to manage this risk, the Company utilizes foreign currency exchange contracts to reduce the exchange rate risk associated with recognized non-functional currency balances. The effects of changes in exchange rates are reflected concurrently in earnings for both the fair value of the foreign currency exchange contracts and the related non-functional currency asset or liability. These derivative gains and losses offset foreign currency gains and losses from the related revaluation of non-functional currency assets and liabilities (amounts included in "Other (income) expense" in the Condensed Consolidated Statements of Operations). The U.S. dollar equivalent notional value of these short duration foreign currency exchange contracts was $13.6 million and $16.0 million at November 30, 2021 and August 31, 2021, respectively. The fair value of outstanding foreign currency exchange contracts was a net liability of less than $0.1 million at both November 30, 2021 and August 31, 2021. Net foreign currency gain (loss) (included in "Other (income) expense" in the Condensed Consolidated Statements of Operations) related to these derivative instruments were as follows (in thousands):


	Three Months Ended November 30,
	2021		2020
Foreign currency loss, net	$	(181)	$	(49)

The Company was a fixed-rate payor on an interest rate swap contract that fixed the LIBOR-based index used to determine the interest rates charged on a total of $100.0 million of the Company's LIBOR-based variable rate borrowings on the revolving line of credit. The contract carried a fixed rate of 0.259% and expired in August 2021. The swap agreement qualified as a hedging instrument and was designated as a cash flow hedge of forecasted LIBOR-based interest payments. The change in the fair value of the interest rate swap, a gain of less than $0.1 million in the three months ended November 30, 2020 was recorded in other comprehensive income (loss).

Note 10. Earnings per Share and Shareholders' Equity

The Company's Board of Directors has authorized the repurchase of shares of the Company's common stock under publicly announced share repurchase programs. Since the inception of the initial share repurchase program in fiscal 2012, the Company has repurchased 22,799,230 shares of common stock for $667.7 million. As of November 30, 2021, the maximum number of shares that may yet be purchased under the programs is 5,200,770 shares. The Company did not repurchase shares in either of the three months ended November 30, 2021 or 2020.

The reconciliation between basic and diluted earnings per share is as follows (in thousands, except per share amounts):


	Three Months Ended November 30,
	2021	2020
Numerator:

SEC Form 10-Q filed by Enerpac Tool Group Corp.