EPAC 10-K & 10-Q changes, risk factors and insider trading

We rely on our supply chain for components and raw materials to manufacture our products and provide services to our customers, and this reliance could have an adverse impact on our business and operating results.customers. We may experience a reduction or interruption in supply due to factors beyond our control, including as a result of geopolitical conflicts and the imposition of international sanctions in response thereto, a significant natural disaster, pandemics, or shortages in global freight capacity. Our vendors may be unable or unwilling to meet our demand for raw materials or components, or significantly increase lead times for deliveries, which we may be unable to offset through alternate sources of supply, Further, vendors may impose significant increases in the price of critical components and raw materials that we may be unable to pass along to our customers. In addition, a failure by us to appropriately forecast or adjust our requirements for components or raw materials based on our business needs and volatility in demand for our products may impact our ability to timely procure raw materials and components necessary to maintain desired productivity in our operations. These supply chain issuesissues, and others, could materially adversely affect our business, operating results, and financial condition and could materially damage customer relationships.

We procure certain components for our products from single or limited suppliers. In the event of supply disruptions from these suppliers, we may not be able to diversify our supply base for such components in a timely manner or may experience quality issues with alternate sources. Further, we procure a significant portion of our components from suppliers located in China, and we are therefore exposed to potential disruptions in deliveries from these suppliers due to political tensions with China, including tariffs and other trade restrictions; geopolitical risks, government-mandated facility closures in China,risks; energy shortages or other causes. Our growth and ability to meet customer demand depend in large part on our ability to obtain timely deliveries of components and raw materials from our suppliers, and significant disruptions in their supply could materially adversely affect our business, operating results, and financial condition and could materially damage customer relationships.

We have in the recent past experienced supply shortages and inflationary pressures for certain components and raw materials that were important to our manufacturing process due to a number of the factors described above.process. Growth in the global economy may exacerbate these pressures on us and our suppliers, and we expect these supply chain challenges and cost impacts may continue to impact us in the future. Although we have generally secured additional supply from existing or alternate suppliers or taken other mitigating actions when such disruptions have occurred in past periods, there is no guarantee we can continue to do so in the future, and our business, results of operations, and financial condition could be adversely affected. When facing component supply-related challenges, we may also increase our inventories and purchase commitments to shorten lead times and increase the likelihood of maintaining adequate inventories to meet customer expectations. If the demand for our products is less than our expectations or if we otherwise fail to anticipate customer demand properly, an oversupply of components could result in inventory levels that could also lead to significant excess and obsolete inventory charges and adversely affect our operating and financial results.

Changes in U.S. domestic and global tariff frameworks have increased our costs of producing goods and resulted in additional risks to our supply chain. We have developed and implemented strategies to mitigate previously implemented and, in some cases, proposed tariff increases, but there is no assurance we will be able to continue to mitigate prolonged tariffs. TheIn outcomethe past year, the U.S. government has imposed significant tariffs impacting a wide variety of goods across multiple countries and indicated that additional tariffs may be imposed in the 2024near U.S.future. presidentialIn electionsresponse, some countries have announced or imposed tariffs on goods made in the U.S, along with other trade restrictions, such as export restrictions on certain goods, including critical minerals, produced in their countries. These actions could depress demand for our products or increase the cost to manufacture our products, which may affect the competitiveness of our products relative to manufacturers not affected by such actions. Moreover, protracted trade disputes and uncertainty with respect to tariffs and trade agreements can adversely affect general economic conditions. All of these outcomes could have a significantmaterial impactadverse effect on U.S.our domesticbusiness, financial condition, results of operations and globalcash tariffs. Uncertainties about future tariff changes could result in mitigation actions that prove to be ineffective or detrimental to our business.flow.

The Company’s ability to import products in a timely and cost-effective manner has been, and may continue to be, adversely affected by shortages of freight capacity, delays at ports, port strikes, and other issues that otherwise affect transportation and warehousing providers. For example, the armed conflicts in the Middle East and the associated attacks on commercial ships in the Red Sea hashave caused global increases in shipping costs, as well as significant delays for some shipments. Globally, the shipping industry faces other challenges, including labor disputes at major ports and railways and weather-related disruptions, such as droughts in Panama reducing capacity in the Panama Canal. These issues could delay importationthe delivery of our products or require the Company to locate alternative ports or warehousing providers to avoid disruption to customers. These alternatives may not be available on short notice or could result in higher freight and logistics costs, which could have an adverse impact on the Company’s business and financial condition.

We sell products and services through distributors and agents. In certain jurisdictions, those third parties represent a significant portion of our sales in their respective country. Collection times for receivables in many foreign jurisdictions may often be substantially longer than those in the United States (though typically less than one year). Further, for certain of our services business agency relationships, we utilize intermediary agents and are dependent on our agents to collect payment on our behalf. The indirect sales channels expose us to the credit risk of both our channel partners and end customers and increase the risk of delayed payments or uncollectible balances.balances, Forwhich example,has duringoccurred in the yearpast endedand Augustmay 31,occur 2022, we recognized a $13.2 million bad debt reserve as a result of the continued payment delinquency of one of our agents.again. A liquidity event or dispute involving one of our channel partners may adversely affect our results of operations and financial condition.

Increased global cybersecurity threats, computer viruses and more sophisticated and targeted cyber-related attacks,attacks aspose wellrisks asto our systems, networks and operations. Similarly, cybersecurity failures resulting from human error, vulnerabilities and technological errors, including the errors of third-party software providers, can also pose a risk to our systems, including third-party vendor operated systems, operations and products and potentially those of our business partners. An attack or information system failure also could result in losses due to an inability to recover lost data,data; software and key documentation,documentation; ransomware payments,payments; security breaches,breaches; theft,theft; lost or corrupted data,data; misappropriation of sensitive, confidential or personal data or information,information; loss of trade secrets and commercially valuable information,information; reputational harm, including loss of confidence by our customers, suppliers and employees in our ability to adequately protect their information,information; fines,fines; and production downtimes and operational disruptions. The development and adoption of generative artificial intelligence ("AI") technologies exacerbates these risks and may give rise to new tools for threat actors to attack and disrupt our systems. We attempt to mitigate these risks by employing measures including employee training, network monitoring and testing, maintenance of protective systems, contingency planning, and the engagement of third-party experts, but we remain potentially vulnerable to additional known or unknown threats. We anticipate that meaningful investments in our operating technology infrastructure will be necessary as we continue to evaluate our vulnerabilities and take actions to safeguard our systems. Further, while we currently maintain insurance coverage that, subject to its terms and conditions, is intended to address costs associated with certain aspects of cybersecurity incidents and information systems failures, this insurance coverage may not, depending on the specific facts and circumstances surrounding an incident, cover all losses or all types of claims that arise from an incident, or the damage to our reputation that may result from an incident. There is no assurance the financial or operational impact from such threats or events will not be material.

In March 2022, we announced the launchAs of August 31, 2024, ASCEND, a transformation program focused on driving accelerated earnings growth and efficiency across the business with the goal of delivering improved annual operating profit oncewas fullycompleted, implemented.with total program costs of $75 million. The ASCEND program focused on the following key initiatives: (i) accelerating organic growth strategies, (ii) improving operational excellence and production efficiency by utilizing a lean approach and (iii) driving greater efficiency and productivity in selling, general and administrative expenses. In addition, we implemented other plans that incurred restructuring costs to (i) eliminate redundancies in our corporate or regional structures, (ii) eliminate excess capacity in our facilities as a result of integration of acquisitions or divestitures of product lines, or (iii)and eliminate product or service lines that did not meet targeted profitability metrics. Although we expect that the improved operating profit, cost savings and realization of efficiencies from these programs will continue to provide annual benefit,benefits, we may not fully maintain these improvements (see Note 3. "ASCEND Transformation Program" and Note 4, "Restructuring Charges," in the notes to the consolidated financial statements and "Business Update" within Item 7 for further discussion of the ASCEND program and other current restructuring activities).

Our financial performance could be adversely affected due to our inability to meet customer demand for our products or services in the event of a material disruption at one of our significant manufacturing or services facilities. Equipment failures, natural disasters, health issues (including pandemics like COVID-19), power outages, fires, explosions, terrorism, adverse weather conditions, labor disputes or other events could create a material disruption. Interruptions to production could increase our cost of sales, harm our reputation and adversely affect our ability to attract or retain our customers. Our business continuity plans may not be sufficient to address disruptions attributable to such risks. Any interruption in production capability could require us to make substantial capital expenditures to remedy the situation, which could adversely affect our financial condition and results of operations.

We expect sales from and into foreign markets to continue to represent a significant portion of our revenue. In addition, many of our manufacturing operations and suppliers are located outside the United States, including China, the United KingdomKingdom, Spain and the Netherlands. Our sales and operating activities outside of the U.S. are, and will continue to be, subject to a number of risks, including:

Imposition of climate-related laws and regulations that disadvantage the oil & gas industry compared toor other energy industries or consumer behavior that reduces demand for petroleum products may have an adverse impact on our results of operations.

A significant portion of our revenues are derived from the sale of products and services to end users in the oil & gas industry. Accordingly, our results of operations may be adversely affected by the imposition of climate-related laws and regulations that disadvantage the oil & gas industry compared to other industries and have the effect of reducing the production of petroleum products. In addition, a reduction in the production of petroleum products as a result of consumer behavior that embraces alternative sources of energy over oil & gas could similarly adversely affect our results of operations by reducing the demand for our products and services. Similarly, actions by the U.S. Government that disadvantage the wind industry may adversely affect demand for certain of our products and adversely affect our results of operations.

The process of integrating acquired businesses into our existing operations also may require additional financial resources and attention from management that would otherwise be available for the ongoing development or expansion of our existing operations. Although we expect to successfully integrate any acquired businesses, we may not achieve the desired net benefit in the timeframe planned.planned or at all. If acquired businesses do not operate as we anticipate, it could materially impact our business, financial condition and results of operations.

Certain acquisition agreements from past acquisitions require the former owners to indemnify us against certain liabilities related to the operation of eachsuch of theiracquired companies. In most of these agreements, the liability of the former owners is limited to specific warranties given in the agreement as well as in amount and duration. Certain former owners also may not be able to meet their indemnification responsibilities. We may be subject to the same risk with respect to future acquisitions as well. As a result of those limitations, we may face unexpected liabilities that adversely affect our profitability and financial position.

In connection with the execution of our strategy to become a pure-play industrial tools and services company, we have completed several divestitures, including the divestiture of our former EC&S segment.divestitures. These divestitures pose risks and challenges that could negatively impact our business, including retained liabilities related to divested businesses, obligations to indemnify buyers against contingent liabilities and potential disputes with buyers.

Our businesses are subject to regulation under a broad range of U.S. and foreign laws and regulations. Some of those laws and regulations may change in ways that will require us to modify our business practices and objectives in ways that adversely impact our financial condition or results of operations, including by restricting existing activities and products, subjecting our operations to escalating costs or prohibiting us from operating in certain jurisdictions. Examples of laws or regulations that may have an adverse effect on our operations, financial condition and growth strategies include tax law, export and import controls, anti-corruption law, competition law, data privacy regulations, currency controls and economic or political sanctions. In addition, changes in laws or regulations, for example, the proposed regulations of the Securities and Exchange Commission with respect to climate-related disclosures, may significantly increase our costs, adversely affecting our results of operations.

Terrorist attacks against targets in the U.S. or abroad, rumors or threats of war, other geopolitical activity or trade disruptions, such as those caused by the Russia-Ukraine conflict, the armed conflicts in the Middle East, or any conflict or threatened conflict between China and Taiwan, may cause trade relations and general economic conditions in the U.S. or abroad to deteriorate. The occurrence of any of these events could result in a prolonged economic slowdown or recession in the U.S. or in other areas and could have a significant impact on our business, financial condition or results of operations.

Our patents, trademarks and other intellectual property may not prevent competitors from independently developing or selling products and services functionally equivalent or superior to our own or adequately deter misappropriation or improper use of our innovations and technology. In addition, further steps we take to protect our intellectual property, including non-disclosure agreements, may not prevent the misappropriation of our business criticalbusiness-critical secrets and information. In such circumstances, our competitive position and the value of our brand may be negatively impacted.

Our long-term goal is to create sustainable returns for our shareholders through above-market growth in our core business, expanding our margins, generating strong cash flow and being disciplined in the deployment of our capital. We intend to grow through execution of our organic growth strategy, focused on key vertical markets that benefit from long-term macro trends, driving customer driven innovation, expansion of our digital ecosystem to acquire and engage customers, and an expansion in emerging markets such as Asia Pacific. In addition to organic growth, we also focus on margin expansion through operational efficiency techniques, including lean,Lean, continuous improvement and 80/20, to drive productivity and lower costs, as well as optimizing our selling, general and administrative expenses through consolidation and shared service implementation. We also apply these techniques and pricing actions to offset commodity increases and inflationary pricing. Finally, cash flow generation is critical to achieving our financial and long-term strategic objectives. We believe driving profitable growth and margin expansion will result in cash flow generation, which we seek to supplement through minimizing primary working capital. We intend to allocate the cash flow that results from the execution of our strategy in a disciplined way toward investment in our businesses, maintaining our strong balance sheet, disciplined M&A program and opportunistically returning capital to shareholders. We anticipate the compounding effect of reinvesting in our business will fuel further growth and profitable returns.

In March 2022, the Company announced the start of its ASCEND transformation program (“ASCEND”), initially estimating an incremental $40 to $50 million of annual operating profit once fully implemented.. ASCEND’s key initiatives includeincluded accelerating organic growth strategies, improving operational excellence and production efficiency by utilizing a Lean approach, and driving greater efficiency and productivity in selling, general and administrative expense by better leveraging resources to create a more efficient and agile organization. At the time the company anticipated investing $60 to $65 million through the end of fiscal 2024 to complete these actions.

In October 2023, the Company announced that during fiscal 2023, the Company had realized approximately $54 million of annual operating profit from execution of the ASCEND program and would no longer be breaking out the ASCEND benefit from results going into fiscal 2024. Through fiscal 2023, the Company invested approximately $60 million as part of the program, both through program charges and restructuring. Through the end of fiscal 2024 when theThe ASCEND program concluded,was thecompleted Companyas hasof investedAugust approximately31, 2024, with total program costs of $75 million as partmillion, of the program, consisting ofwhich $19 million throughrelated to restructuring and $56 million in ASCEND transformation program charges. The following summarizes ASCEND transformation charges (in thousands):

Consolidated net sales for fiscal 2024 were $590 million, 1% lower than the prior-year sales of $598 million. The impact of foreign currency rates was nearly flat year-over-year, while the divestiture of the Cortland Industrial business during the fourth quarter of fiscal 2023 unfavorably impacted fiscal 2024 sales by approximately $23 million, or 4%. Management refers to sales adjusted to exclude the impact of these items, foreign currency changes and recent acquisitions and divestitures, as "organic sales", which we formerly referred to as "core sales". Product sales declined 3% compared to prior fiscal year to $474 million, with foreign currency impact of less than 1% and the Cortland Industrial divestiture unfavorably impacting sales by 5%, resulting in a 1% improvement in Productproduct organic sales. The increase in Productproduct organic sales was driven by pricing actions and mix within the IT&S product offerings; however, this was partially offset by a decrease in product organic sales in the Cortland Medical business due to softness in demand related to certain surgical procedures utilizing Cortland Biomedical products. Service sales were $116 million, an increase of 7% compared to the prior fiscal year. Foreign currency impact was nearly flat, resulting in a 7% increase in service organic Service sales over the prior fiscal year. The service organic sales increase in the Service business was due to strong growth within our EMEA region from increased work scopes, higher maintenance activity in the North Sea and projects delayed from the prior fiscal year taking place during fiscal 2024.

Operating profit for fiscal 2024 was $122 million, approximately $38 million higher than the prior fiscal year of $84 million. Operating profit was impacted by the increased gross profit noted above, as well as a reduction of Selling, general & administrative ("SG&A") expense of $36 million compared to the prior fiscal year. The SG&A decrease was primarily due to lower ASCEND transformation program charges ($28 million), M&A charges ($1 million) and leadership transition charges ($1 million), as well as reduced incentive compensation expense.

Fiscal 2024 operating profit increased $17 million to $153 million. This increase was driven by the aforementioned pricing actions, with some volume contribution and a reduction in SG&A expenses. The reduction of SG&A expense was from reduced ASCEND Transformation Program charges ($4 million) and lower incentive compensation expense, partially offset by slightly higher restructuring charges ($1 million) for this segment.

Corporate consists of selling, general and administrative costs and expenses, including executive, legal, finance, human resources, and information technology, that are not allocated to the segments based on their nature. Corporate expenses were $36 million in fiscal 2024,2025, which waswere $27flat million lower than the fiscal 2023 expenses of $63 million. This decrease was primarily duecompared to a reduction in ASCEND transformation program charges in fiscal 2024 ($25 million).expenses.

Net financing costs were $14$10 million, $12$14 million and $4$12 million in fiscal years 2024,2025, 20232024 and 2022,2023, respectively. The decrease in net financing costs for fiscal 2025 to fiscal 2024 was due to a mix of lower debt balances and lower interest rates. The increase in net financing costs for both fiscal 2023 to fiscal 2024 and fiscal 2022 to fiscal 2023 was due to the year-over-year increase in interest rates and debt levels during each succeeding fiscal year.levels.

BothThe thefiscal 2025 and fiscal 2024 and prior-year income tax provisions were impacted by the mix of earnings in foreign jurisdictions with incomeeffective tax rates differentwere than the U.S. federal income tax rate23.2% and income22.1%, tax benefits from global tax planning initiatives.respectively. The fiscal 2024 and 2023 effective tax rate were both 22.1%. The fiscal 20242025 effective tax rate was slightly higher than the statutory 21% primarily as a result of state income taxes and taxes in foreign jurisdictions with rates higher than the U.S. which were partially offset by one-time tax benefits related to the lapse of the statute of limitations on uncertain tax positionspositions, tax benefits related to stock compensation, and global tax planning initiatives that will not repeat in future periods due to certain tax attributes that are no longer available. Both the fiscal 2025 and fiscal 2024 income tax provisions were impacted by the mix of earnings in foreign jurisdictions with income tax rates different than the U.S. federal income tax rate and income tax benefits from global tax planning initiatives.

Cash flow provided by operations was $81 million for fiscal 2024 and $78 million for fiscal 2023. The $3 million increase in cash flow from operations was primarily the result of $29 million of higher earnings from continuing operations, partially offset by decreases in accrued compensation and benefits, principally due to lower incentive compensation expense, of $18 million, with the remainder due to a decrease in other accrued liabilities principally from reduced costs associated with ASCEND. We had approximately $14 million of cash used in investing activities from continuing operations,operations for fiscal 2024, which is a $25 million decrease from the prior fiscal year, due principally to the $20 million in proceeds from the sale of the Cortland Industrial business in the fourth quarter of fiscal 2023, net of the $1 million in working capital adjustments settled during fiscal 2024 (see Note 5,6, "Discontinued Operations and Other Divestiture Activities" in the notes to the consolidated financial statements for further detail on the divestiture). The remaining variance iswas due to higher capital expenditures in fiscal 2024 relating to build-out costs for the company's new headquarters location in Milwaukee, with an anticipated fiscal 2025 move-in date,Milwaukee and purchase of the business assets of Track Tools during the first quarter of fiscal 2024.

During fiscal 2023, the Company refinanced its credit facility resulting in an updated senior credit facility (the "Senior Credit Facility") of $600 million, comprised of a $400 million revolving line of credit and a $200 million term loan, which will mature in September 2027. Prior to this, the Company's senior credit facility was comprised of a $400 million revolving line of credit and a $200 million term loan which were scheduled to mature in March 2024. The Senior Credit Facility contains restrictive covenants and financial covenants. See Note 7,8, "Debt" in the notes to the consolidated financial statements for further details of the Senior Credit Facility. The Company was in compliance with all covenants, including the financial covenants, under the Senior Credit facility at August 31, 2024.2025. The unused credit line and amount available for borrowing under the revolving line of credit of the Senior Credit Facility was $398$399 million at August 31, 2024.2025.

The majority of our manufacturing activities consist of assembly operations. We believe that our capital expenditure requirements are not as extensive as other industrial companies given the nature of our operations. Capital expenditures associated with continuing operations were $11$19 million, $9$11 million and $8$9 million in fiscal 2024,2025, 20232024 and 2022,2023, respectively. The increase in capital expenditures during fiscal 2025 is primarily related to build-out costs for the Company's new headquarters location in Milwaukee, Wisconsin.

Accounts receivable, net: Accounts receivable, net is recorded based on the contractual value of our accounts receivable, net of an estimated allowance for credit losses representing management’s best estimate of the amount of receivables that are not probable of collection. Accounts receivable, net was $104$106 million as of August 31, 2024,2025, which is net of a $16$4 million allowance for credit losses. Our customer base generally consists of financially reputable distributors, agents, OEMs, and other customers with whom we have long standing relationships, and historically we have not experienced significant writebad offdebt of accounts receivablesexpense as a percentage of our annual net sales (accountsbad receivabledebt written offexpense as a percentage of net sales was less than 0.5% for each the years ended August 31, 2025, 2024, 2023, and 2022, respectively2023). As of August 31, 2024, the Company continued to be exposed to a concentration of credit risk with an agent as a result of its continued payment delinquency. During the year ended August 31, 2022, the Company recorded through bad debt expense (included in SG&A expenses in the Condensed Consolidated Statements of Earnings) a reserve of $13 million for this agent based on the consideration of the factors listed below, which fully reserves for this agent's outstanding account receivable balance. The allowance for credit losses for this particular agent remained unchanged as of August 31, 2024 and continues to represent management's best estimate of the amount probable of collection and considers various factors with respect to this matter, including, but not limited to, (i) the lack of payment by the agent since the fiscal quarter ended February 28, 2021, (ii) our due diligence on balances due to the agent from its end customers related to sales of our services and products and the known markup on those sales from the agent to end customer, (iii) the status of ongoing negotiations with the agent to secure payments and (iv) legal recourse available to secure payment. Actual collections from the agent may differ from the Company's estimate.

In estimating the fair value ofconducting a reportingquantitative unit,assessment for goodwill, we generally use a discounted cash flow model, which calculates fair value as the sum of the projected discounted cash flows over a discrete six-year period plus an estimated terminal value. Significant assumptions include forecasted revenues, operating profit margins, and discount rates applied to the future cash flows based on the respective reporting unit's estimated weighted average cost of capital. In certain circumstances, we also may review a market approach in which a trading multiple is applied to either forecasted EBITDA (earnings before interest, income taxes, depreciation and amortization) or anticipated proceeds of the reporting unit to arrive at the estimated fair value. If the fair value of a reporting unit is less than its carrying value, an impairment loss is recorded. TheWe estimatedperform our goodwill impairment test by comparing the fair value represents the amount we believeof a reporting unit couldwith beits boughtcarrying oramount. soldIf the carrying amount exceeds the fair value of the reporting unit, an impairment charge is recognized for inthe aamount currentby transactionwhich betweenthe willingcarrying partiesamount onexceeds anthe arms-lengthreporting basis.unit's fair value up to the amount of the recorded goodwill.

Business Combinations and Purchase Accounting: Business combinations are accounted for using the acquisition method of accounting, and accordingly, the assets and liabilities of the acquired business are recorded at their respective fair values. The excess of the purchase price over the estimated fair value is recorded as goodwill. Assigning fair market values to the assets acquired and liabilities assumed at the date of an acquisition requires knowledge of current market values and the values of assets in use, and often requires the application of judgment regarding estimates and assumptions. While the ultimate responsibility resides with management, for certain acquisitions we retain the services of certified valuation specialists to assist with assigning estimated values to certain acquired assets and assumed liabilities,assets, including intangible assets and tangible long-lived assets.assets, and assumed liabilities including earn-out obligations. Acquired intangible assets, excluding goodwill, are valued using discounted cash flow methodology based on future cash flows specific to the type of intangible asset purchased. This methodology incorporates various estimates and assumptions, the most significant being projected revenue growth rates, profit margins and forecasted cash flows based on discount rates and terminal growth rates.

Defined Benefit Plans: We provide a variety of benefits to employees and former employees including, in some cases, pensions and postretirement health care. Plan assets and obligations are recorded based on an August 31 measurement date utilizing various actuarial assumptions such as discount rates, assumed rates of return on plan assets and health care cost trend rates. We determine the discount rate assumptions by referencing high-quality, long-term bond rates that are matched to the duration of our benefit obligations, with appropriate consideration of local market factors, participant demographics and benefit payment forecasts. At August 31, 20242025 and 2023,2024, the discount rates on domestic benefit plans were 5.0%5.2% and 5.4%,5.0%, respectively. In estimating the expected return on plan assets, we consider historical returns, forward-looking considerations, inflation assumptions and the asset-allocation strategy in investing such assets. Domestic benefit plan assets consist primarily of participating units in mutual funds with equity based strategies, mutual funds with fixed income based strategies, and U.SU.S. treasury securities. The expected return on domestic benefit plan assets was 5.7%6.2% for each of the fiscal years ended August 31, 20242025 and 2023.2024. A 25 basis point change in the assumptions for the discount rate or expected return on plan assets would not have materially changed the fiscal 20242025 domestic benefit plan expense.

Enerpac Tool Group Corp. is a premier industrial tools, services, technology, and solutions provider serving a broad and diverse set of customers and end markets for mission-critical applications in more than 100 countries. Enerpac Tool Group's businesses are global leaders in providing high pressure hydraulic tools, controlled force products and solutions for precise positioning of heavy loads that help customers safely and reliably tackle some of the most challenging jobs around the world. The Company was founded in 1910 and is headquartered in Milwaukee, Wisconsin. The Company has one reportable segment, the Industrial Tools & Service Segment ("“IT&S"”), and an Other operating segment, which does not meet the criteria to be considered a reportable segment. The IT&S segment is primarily engaged in the design, manufacture and distribution of branded hydraulic and mechanical tools and in providing services and tool rental to the general industrial; refining and petrochemical; industrial maintenance, repair and operations (“MRO”),; machining & manufacturing; power generation,generation; infrastructure,infrastructure; mining and other markets. Financial information related to the Company's reportable segment is included in Note 11, “Segment Information” in the notes to the condensed consolidated financial statements.

Our businesses provide an array of products and services across multiple markets and geographies, which results in significant diversification. The IT&S segment and the Company are well-positioned to drive shareholder value through a sustainable business strategy built on well-established brands, broad global distribution and end markets, clear focus on the core tools and services businessbusiness, and disciplined capital deployment.

Our long-term goal is to create sustainable returns for our shareholders through above-market growth in our core business, expanding our margins, generating strong cash flow, and being disciplined in the deployment of our capital. We intend to grow through execution of our organic growth strategy, focused on key vertical markets that benefit from long-term macro trends, driving customer driven innovation, expansion of our digital ecosystem to acquire and engage customers, and an expansion in emerging markets such as Asia Pacific. In addition to organic growth, we also focus on margin expansion through operational efficiency techniques, including lean, continuous improvement and 80/20, to drive productivity and lower costs, as well as optimizing our selling, general and administrative expenses through consolidation and shared service implementation. We also apply these techniques and pricing actions to offset commodity increases and inflationary pricing. Finally, cash flow generation is critical to achieving our financial and long-term strategic objectives. We believe driving profitable growth and margin expansion will result in cash flow generation, which we seek to supplement through minimizing primary working capital. We intend to allocate the cash flow that results from the execution of our strategy in a disciplined way toward investment in our businesses, maintaining our strong balance sheet, disciplined M&A programprogram, and opportunistically returning capital to shareholders. We anticipate the compounding effect of reinvesting in our business will fuel further growth and profitable returns.

The following table sets forth our results of operations (dollars in millions, except per share amounts):

Consolidated net sales for the three months ended FebruaryMay 28,31, 2026 were $155$168 million, an increase of $9 million, or 6%, compared to the prior-year comparable period. Management refers to sales adjusted to exclude the impact of foreign currency changes and recent acquisitions and divestitures as “organic sales”. The effect of the weakening U.S. dollar on foreign currency rates compared to the prior-year period favorably impacted sales by $6$4 million, or 4%.2%. This resulted in an organic sales increase of approximately 2%3% in the quarter. Management refers to sales adjusted to exclude the impact of foreign currency changes and recent acquisitions and divestitures as "organic sales". In the three months ended FebruaryMay 28,31, 2026, product sales grew $13$11 million, or 11%,8%, year-over-year, whilewith foreign currency favorably impactedimpacting product sales by $5$3 million, or 4%,2%, resulting in organic product sales growth of 6% over the prior-year quarter. Service sales were down $8$2 million, or 13%,6%, year-over-year, with a favorable impact of foreign currency of $1 million, or 4%,3%, resulting in an organic service sales decline of 17%.8%. Gross profit as a percent of sales decreasedincreased to 46.4%,53.0%, compared to 50.5%50.4% in the secondthird quarter of fiscal 2025; the decreaseincrease in gross profit margin is due to the flow through of the growth in product sales along with tariff refunds recorded in the third quarter, partially offset by continued pressure in our service business, primarily in the EMEA region, as well as restructuring costs.region. Operating profit for the secondthird quarter of fiscal year 2026 was $25$41 million, aan decreaseincrease of $6$10 million compared to the secondthird quarter of fiscal 2025. The decreaseincrease in operating profit wasis mainlydue drivento flow through of the growth in product sales along with tariff refunds recorded in the third quarter, partially offset by thecontinued declinespressure in our service business, as well as restructuring costs recorded in the current-year period.business.

Consolidated net sales for the firstnine halfmonths ofended fiscalMay 31, 2026 were $299$467 million, an increase of $8$17 million, or 3%,4%, compared to the prior-year comparable period. The effect of the weakening U.S. dollar on foreign currency rates compared to the prior-year period favorably impacted sales by $9$12 million, or 3%. This resulted in flat organic sales inincrease of approximately 1% for the firstnine halfmonths ofended theMay year31, 2026 compared to the prior-year period. InProduct sales for the firstnine halfmonths ofended fiscalMay 2026,31, product sales2026 grew $20$31 million, or 9%, whilewith foreign currency favorably impactedimpacting sales by $7$9 million, or 3%, resulting in organic product sales growth of 6% over the prior-year period. Service sales were down $12$13 million, or 19%,15%, year-over-year, with a favorable impact of foreign currency of $2$3 million, or 3%, resulting in an organic service sales decline of 22%.18%. Gross profit as a percent of sales decreasedremained torelatively 48.5%,flat at 50.1%, compared to 50.9%50.7% in the firstnine halfmonths ofended fiscalMay 31, 2025; the decrease in gross profit margin ishas dueremained flat as growth in product sales has been offset by activity declines in our service business. Operating profit for the first nine months of fiscal year 2026 was $95 million, a decrease of $1 million compared to continuedthe pressurefirst nine months of fiscal 2025. Operating profit has remained flat as growth related to increased product sales has been offset by activity declines in our service business, primarily in the EMEA region and higher tariff-driven costs flowing through cost of goods sold. Operating profit for the first half of fiscal year 2026 was $54 million, a decrease of $8 million compared to the first half of fiscal 2025. The decrease in operating profit was mainly driven by the declines in our service business and higher tariff-driven costs flowing through cost of goods sold, as well as restructuring costs recorded in the current-year period.region.

The IT&S segment is a global supplier of branded hydraulic and mechanical tools and services to a broad array of end markets, including general industrial; refining and petrochemical; industrial MRO; machining & manufacturing; power generation; infrastructure; mining; and other markets. Its primary products include branded tools, cylinders, pumps, hydraulic torque wrenches, highly engineered heavy lifting technology solutions and other tools (Product product line). The segment provides maintenance and manpower services to meet customer-specific needs and rental capabilities for certain of our products (Service & Rental product line). The following table sets forth the results of operations for the IT&S segment (dollars in millions):

IT&S segment net sales for the secondthird quarter of fiscal 2026 increased by $8 million, or 6%,5%, compared to the secondthird quarter of fiscal 2025. The weakening of the U.S. dollar on foreign currency rates compared to the three months ended FebruaryMay 28,31, 2025 favorably impacted sales by $6$4 million, or 4%.3%. This resulted in an organic sales increase of $2$4 million, or 1%,2%, in the quarter. The organic sales increase is driven by growth in our product business, offset by activity declines in our service business. Service sales were down $3$2 million, or 13%,6%, year-over-year, with a favorable impact of foreign currency of $1 million, or 4%,3%, resulting in an organic service sales decline of 17%.8% primarily attributable to lower activity. Product sales were up $11$9 million, or 10%,7%, year-over-year, with a favorable impact of foreign currency of $5$3 million, or 4%,2%, resulting in organic product sales growth of 6%.5%. The organic sales increase was due to tariffstrong relatedgrowth actionsin andour increasedproduct demand.business, especially in the Americas driven by our success in the power generation market. Operating profit for the three months ended FebruaryMay 28,31, 2026 was $32$49 million, compared to $39$40 million in the same period of the prior year. The decreaseincrease in operating profit was mainly driven by the declinesflow through of the growth in product sales along with tariff refunds recorded in the third quarter, partially offset by continued pressure in our service business, as well as restructuring costs recorded in the current-year period.business.

IT&S segment net sales for the firstnine halfmonths ofended fiscalMay 31, 2026 increased by $6$13 million, or 2%,3%, compared to the firstnine halfmonths ofended fiscalMay 31, 2025. The weakening of the U.S. dollar on foreign currency rates compared to the sixnine months ended FebruaryMay 28,31, 2025 favorably impacted sales by $9$12 million, or 3%. This resulted in an organic sales declineincrease of $3$1 million, or 1%.0.2%. The organic sales decreaseincrease is driven by activity declines in our service business, partially offset by growth in our product business, partially offset by declines in our service business. Service sales were down $12$13 million, or 19%,15%, year-over-year, with a favorable impact of foreign currency of $2$3 million, or 3%, resulting in an organic service sales decline of 22%.18% primarily attributable to lower activity. Product sales were up $17$27 million, or 8%, year-over-year, with a favorable impact of foreign currency of $7$9 million, or 3%, resulting in organic product sales growth of 5%. The organic sales increase was due to tariffstrong relatedgrowth actionsin andour increasedproduct demand.business, especially in the Americas driven by our success in the power generation market. Operating profit for the sixnine months ended FebruaryMay 28,31, 2026 was $67$116 million, compared to $77$117 million in the same period of the prior year. The decrease in operatingOperating profit washas mainlyremained drivenflat as growth related to increased product sales has been offset by theactivity declines in our service business, higher tariff-driven costs flowing through cost of goods sold, as well as restructuring costs recordedprimarily in the current-yearEMEA period.region.

Corporate expenses were $8$9 million and $11 million in both the three months ended FebruaryMay 28,31, 2026 and 2025.2025, respectively. Corporate expenses were $18$27 million and $17$28 million for the sixnine months ended FebruaryMay 28,31, 2026 and 2025, respectively. The increasedecrease in expense was primarily driven by higher personnelrestructuring chargescosts andin growththe investments.prior year.

Net financing costs were $2 million in both the three months ended FebruaryMay 28,31, 2026 and 2025 and $4$7 million and $5$8 million in the sixnine months ended FebruaryMay 28,31, 2026 and 2025, respectively. Financing costs decreased for the nine-month period due to lower debt balances and interest rates.

The Company's global operations, acquisition activity (as applicable) and specific tax attributes provide opportunities for continuous global tax planning initiatives to maximize tax credits and deductions. Comparative earnings before income taxes, income tax expense and effective income tax rates are as follows (dollars in millions):

The effective tax rate for the three and nine months ended FebruaryMay 28,31, 2026 was 26.3%,23.0% and 24.5%, respectively, compared to 24.5%22.2% and 22.9% respectively, for the respective comparable prior-year period. The effective tax rate in each time period was impacted by year-to-date losses and deductions in jurisdictions where no tax benefit can be realized. The higher effective tax rate for the three months ended FebruaryMay 28,31, 2026 was primarily driven by the more favorable tax impact of uncertain tax position releases related to statute of limitations expirations in the prior period as compared to the current period. The higher effective tax rate for the nine months ended May 31, 2026 was primarily driven by the more favorable tax impact of stock compensation in the prior period as compared to the current period. Both the current and prior-year period effective income tax rates include the impact of non-recurring items.

At FebruaryMay 28,31, 2026, we had $99$116 million of cash and cash equivalents, of which $90$100 million was held by our foreign subsidiaries and $9$16 million was held domestically. The following table summarizes our cash flows provided by operating, investing and financing activities (dollars in millions):

Net cash provided by operating activities was $29$69 million and $16$56 million for the sixnine months ended FebruaryMay 28,31, 2026 and 2025, respectively. The $13 million year-over-year variance is primarily driven by theworking timingcapital of paymentsimprovements and increasesdecreases in contractcash liabilities.taxes paid.

Net cash used in investing activities was $7$11 million and $39$43 million for the sixnine months ended FebruaryMay 28,31, 2026 and 2025, respectively. This decreased use of cash was primarily due to the $27 million payment made for the DTA acquisition in the first quarter of fiscal 2025 and the decrease in capital expenditures in the current year aftercompared to increased expenditures related to relocation of the priorCompany’s yearcorporate increaseheadquarters from the headquarter move duringin fiscal 2025.

Net cash used in financing activities was $75$94 million and $25$40 million for the sixnine months ended FebruaryMay 28,31, 2026 and 2025, respectively. The $50$54 million increase in net cash used in financing activities for the sixnine months ended FebruaryMay 28,31, 2026 was driven by higher share repurchases in the current-year period.

At FebruaryMay 28,31, 2026, there were no borrowings and $399$400 million available under the revolving line of credit facility. The Company was in compliance with all covenants under the senior credit facility at FebruaryMay 28,31, 2026.

We believe that the revolving credit line,line under the senior credit facility, as amended, combined with our existing cash on hand and anticipated operating cash flows, will be adequate to meet operating, debt service, acquisition and capital expenditure funding requirements for the foreseeable future.

We use primary working capital as a percentage of sales (PWC %) as a key metric of working capital management. We define this metric as the sum of net accounts receivable and net inventory less accounts payable, divided by the past three months sales annualized. The following table shows a comparison of primary working capital (dollars in millions):

We had outstanding letters of credit of $7$6 million and surety bonds of $5 million at FebruaryMay 28,31, 2026 and $6 million of letters of credit and $5 million of surety bonds at August 31, 2025, the majority of which relate to commercial contracts and self-insured workers' compensation programs.

Our contractual obligations have not materially changed at FebruaryMay 28,31, 2026 from what was previously disclosed in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the heading “Contractual Obligations” in the fiscal 2025 Annual Report on Form 10-K.