ENERPAC TOOL GROUP CORP

Previous wording

The following Management’s Discussion and Analysis is intended to assist the reader in understanding our results of operations and financial condition. Management’s Discussion and Analysis is provided as a supplement to, and should be read in conjunction with, our audited consolidated financial statements included in Item 8. "Financial Statements and Supplementary Data".

Current wording

The following Management’s Discussion and Analysis is intended to assist the reader in understanding our results of operations and financial condition for the fiscal years ended August 31, 2026 and 2025. For comparisons of the fiscal years ended August 31, 2025 and 2024, see Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended August 31,2025 filed on October 17, 2025. Management’s Discussion and Analysis is provided as a supplement to, and should be read in conjunction with, our audited consolidated financial statements included in Item 8.“Financial Statements and Supplementary Data”.

Previous wording

The Company has one reportable segment, the Industrial Tools & Service ("IT&S") segment, 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 therefinery/petrochemical; general industrial; industrial maintenance, repair and operations ("MRO"); machining & manufacturing; power generation; infrastructure; mining and other markets. Financial information related to the Company's reportable segment is included in Note 16, "Business Segment, Geographic and Customer Information" in the notes to the consolidated financial statements.

Current wording

The Company has one reportable segment, the Industrial Tools & Services (“IT&S”) segment, 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; infrastructure; mining and other markets. Financial information related to the Company's reportable segment is included in Note 16,“Business Segment, Geographic and Customer Information” in the notes to the consolidated financial statements.

Previous wording

The following table and corresponding year-over-year analysis sets forth our results of continuing operations (dollars in millions, except per share amounts):

Current wording

The following table and corresponding year-over-year analysis sets forth our results of continuing operations:

Previous wording

(1) Results are from continuing operations and exclude the financial results of previously divested businesses reported as discontinued operations. The summation of the individual components may not equal the total due to rounding.

Current wording

(1)Results are from continuing operations and exclude the financial results of previously divested businesses reported as discontinued operations. The summation of the individual components may not equal the total due to rounding. Period to period differences between line items included in the table may differ from the amount presented below due to rounding.

Previous wording

Consolidated net sales for fiscal 2025 were $617 million, 5% higher than the prior-year sales of $590 million. The effect of the weakening U.S. dollar on foreign currency rates compared to the prior-year period favorably impacted sales by $2 million, or 1%, and the inclusion of DTA, acquired in the first quarter of fiscal 2025 favorably impacted sales by $20 million, or 3%. This resulted in organic consolidated sales growth of approximately 1% in the year. Management refers to sales adjusted to exclude the impact of these items (foreign currency changes and recent acquisitions and divestitures) as "organic sales". Product sales increased 6% to $500 million, compared to the prior fiscal year. Foreign currency rate changes favorably impacted product sales by $2 million, or less than 1%, and the acquisition of DTA favorably impacted product sales by $20 million, or 4%. This resulted in product organic sales growth of 1%. This increase in product organic sales was primarily due to growth in the Americas and APAC regions, and the Cortland Medical business. This was offset by declines in our EMEA region. Service sales were $117 million, an increase of 1% compared to the prior fiscal year. Foreign currency impact was nearly flat, resulting in a 1% increase in service organic sales over the prior fiscal year. The service organic sales increase in the service business was due to strong growth within our Americas region that was partially offset by declines in activity within our EMEA region.

Current wording

Consolidated net sales for fiscal 2026 were $652 million, 6% higher than the prior-year sales of $617 million. The effect of the weakening U.S. dollar on foreign currency rates compared to the prior-year period favorably impacted sales by $13 million, or 2%. This resulted in organic consolidated sales growth of approximately 4% in the year. Management refers to sales adjusted to exclude the impact of foreign currency changes and recent acquisitions and divestitures as “organic sales”. Product sales increased 9% to $546 million, compared to the prior fiscal year. Foreign currency rate changes favorably impacted product sales by $10 million, or 2%, resulting in organic product sales growth of 7%. This increase in organic product sales was primarily due to growth in the Americas region and the Cortland Biomedical business. Service sales were $106 million, a decrease of 9% compared to the prior fiscal year. Foreign currency rate changes favorably impacted service sales by $3 million, or 3%, resulting in a 12% decrease in organic service sales compared to the prior fiscal year. The organic sales decrease in the service business was due to lower activity, primarily in the EMEA region.

Previous wording

Fiscal 2025 Compared to Fiscal 2024

Current wording

Gross profit increased by $9 million as a result of higher net sales in the current year. As a percentage of sales, gross profit was approximately 49.2% in fiscal 2026 compared to 50.5% in fiscal 2025. The 130 basis point decrease was primarily attributable to lower activity levels in the service business and, to a lesser extent, product sales mix.

Previous wording

The IT&S segment is a global supplier of branded hydraulic and mechanical tools and services to a broad array of end markets, including refinery/petrochemical; general industrial; 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):

Current wording

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:

Previous wording

Fiscal 2025 net sales were $596 million, an increase of $25 million, or 4% from fiscal 2024 sales of $571 million. The impact of foreign currency was nearly flat and the first quarter acquisition of DTA favorably impacted sales by $20 million, or 3%, resulting in organic sales growth for the segment of approximately 1%. The primary driver of this organic sales increase was strong performance in the Americas and APAC regions.

Current wording

Fiscal 2026 net sales were $626 million, an increase of $30 million, or 5% from fiscal 2025 sales of $596 million. The effect of the weakening U.S. dollar on foreign currency rates compared to the prior-year period favorably impacted net sales by $13 million, resulting in organic sales growth for the segment of approximately 3%. The organic sales increase was driven by growth in our product sales, partially offset by a decline in our Service & Rental sales.

Previous wording

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 2025, which were flat compared to fiscal 2024 expenses.

Current wording

Corporate primarily consists of SG&A expenses and enterprise-wide restructuring costs, including executive, legal, finance, human resources, and information technology, that are not allocated to the segments based on their nature. Corporate expenses were $41 million in fiscal 2026, an increase of$5 million compared to fiscal 2025 expenses. This increase was primarily attributable to $5 million in incremental SG&A expenses associated with M&A activities related to the acquisition of SFE Group and higher employee-related SG&A costs, including incentive compensation. These increases were partially offset by the impact of higher restructuring costs in the prior year.

Previous wording

Net financing costs were $10 million, $14 million and $12 million in fiscal years 2025, 2024 and 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 fiscal 2023 to fiscal 2024 was due to the year-over-year increase in interest rates and debt levels.

Current wording

Net financing costs were $9 million and $10 million in fiscal 2026 and fiscal 2025, respectively. The decrease in net financing costs for fiscal 2026 compared to fiscal 2025 was primarily due to lower net debt balances and lower net interest rates.

Previous wording

The Company's income tax expense is impacted by a number of factors, including, among others, the amount of taxable earnings generated in foreign jurisdictions with tax rates that are different than the U.S. federal statutory rate, permanent items, state tax rates, changes in tax laws, acquisitions and divestitures and the ability to utilize various tax credits and net operating loss carryforwards. Income tax expense also includes the impact of provision to tax return adjustments, changes in valuation allowances and reserve requirements for unrecognized tax benefits. Pre-tax earnings, income tax expense and effective income tax rate from continuing operations for the past three fiscal years were as follows (dollars in thousands):

Current wording

The Company's income tax expense is impacted by a number of factors, including, among others, the amount of taxable earnings generated in foreign jurisdictions with tax rates that are different than the U.S. federal statutory rate, permanent items, state tax rates, changes in tax laws, acquisitions and divestitures and the ability to utilize various tax credits and net operating loss carryforwards. Income tax expense also includes the impact of provision to tax return adjustments, changes in valuation allowances and reserve requirements for unrecognized tax benefits. Pre-tax earnings, income tax expense and effective income tax rate from continuing operations for the past two fiscal years were as follows:

Previous wording

The fiscal 2025 and fiscal 2024 effective tax rates were 23.2% and 22.1%, respectively. The fiscal 2025 effective tax rate was slightly higher than the statutory 21% primarily as a result of state income taxes and taxes in foreign jurisdictions with rates higher than the U.S. which were partially offset by one-time tax benefits related to the lapse of the statute of limitations on uncertain tax positions, 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.

Current wording

The fiscal 2026 and fiscal 2025 effective tax rates were 23.7% and 23.2%, respectively. The fiscal 2026 effective tax rate was slightly higher than the statutory 21% primarily as a result of state income taxes and taxes in foreign jurisdictions with rates higher than the U.S. which were partially offset by one-time tax benefits related to the lapse of the statute of limitations on uncertain tax positions, 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 2026 and fiscal 2025 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.

Previous wording

On July 4, 2025, H.R. 1, “An Act to provide for reconciliation pursuant to title II of H. Con. Res. 14”, commonly referred to as the "One Big Beautiful Bill Act,” was enacted in the United States. There are multiple business tax provisions for which further guidance from the U.S. Treasury and the Internal Revenue Service is needed. The Company has evaluated the impact of the guidance provided to date and determined that it did not have a material impact related to fiscal 2025. The Company will continue to evaluate the impact of the various provisions that could affect our income tax payable and deferred tax liability, including changes related to bonus depreciation and the expensing of research and development expenditures, among other topics.

Current wording

On July 4, 2025, H.R. 1, “An Act to provide for reconciliation pursuant to title II of H. Con. Res. 14”, commonly referred to as the “One Big Beautiful Bill Act,” was enacted in the United States. The Company has evaluated the impact of the guidance provided to date and determined that it did not have a material impact on the fiscal 2026 consolidated financial statements.

Previous wording

At August 31, 2025, cash and cash equivalents were $152 million, comprised of $105 million of cash held by foreign subsidiaries and $47 million held domestically. The following table summarizes the cash flow attributable to operating, investing and financing activities (in millions):

Current wording

At August 31, 2026, cash and cash equivalents were $175 million, comprised of $135 million of cash held by foreign subsidiaries and $40 million held domestically. The following table summarizes the cash flow attributable to operating, investing and financing activities:

Previous wording

Cash flow provided by operations was $111 million for fiscal 2025 and $81 million for fiscal 2024. The $30 million increase in cash flow from operations was primarily the result of higher earnings, lower annual incentive compensation payments made in the first quarter of fiscal 2025 compared to the prior-year period and the non-recurrence of payments and funds received for legal settlements related to discontinued operations. Net cash used in investing activities was$46 million which is a $32 million increase from theprior fiscal year. The increased use of cash was due to the payment of $27 million for the acquisition of DTA and increased capital expenditures relating to build-out costs for the Company's new headquarters location in Milwaukee, Wisconsin. Cash used in financing activities increased to $81 million, for fiscal 2025 compared to $56 million for fiscal 2024. The $25 million increase is primarily driven by increased expenditures for share repurchases.

Current wording

Cash flow provided by operations was $130 million for fiscal 2026 and $111 million for fiscal 2025. The $19 million increase in cash flow from operations was primarily the result of changes in working capital, in particular the lower inventory balance for fiscal 2026. Net cash used in investing activities was $13 million which is a $33 million decrease in cash used compared to the prior fiscal year. The decreased use of cash was due to the relatively lower cash outflow in fiscal 2026 compared to fiscal 2025, which included the payment of $27 million for the acquisition of DTA The Smart Move, S.A. (“DTA”) and increased capital expenditures relating to build-out costs for the Company's new headquarters location in

Previous wording

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. The Senior Credit Facility contains restrictive covenants and financial covenants. See Note 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, 2025. The unused credit line and amount available for borrowing under the revolving line of credit of the Senior Credit Facility was $399 million at August 31, 2025.

Current wording

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 was scheduled to mature in September 2027. On July 7, 2026, the Company entered into an agreement to amend the Senior Credit Facility to increase the revolving credit facility thereunder from $400 million to $625 million. The Senior Credit Facility contains restrictive covenants and financial covenants. See Note 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, 2026. The unused credit line and amount available for borrowing under the revolving line of credit of the Senior Credit Facility, as amended, was $625 million at August 31, 2026.

Previous wording

We believe that the revolving credit facility under the Senior Credit Facility, 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.

Current wording

We believe that the revolving credit facility under the New Senior Credit Facility, 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.

Previous wording

We use primary working capital as a percentage of sales as a key metric for working capital efficiency. 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 the components of our primary working capital (dollars in millions):

Current wording

We use primary working capital as a percentage of sales as a key metric for working capital efficiency. 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 the components of our primary working capital:

Previous wording

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$19 million,$11 million and$9 million in fiscal 2025, 2024 and 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.

Current wording

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 million and $19 million in fiscal 2026 and 2025, respectively. The decrease during fiscal 2026 is primarily related to a reduction in capital expenditures at the corporate segment compared to fiscal 2025, when additional expenditures occurred related to the build-out of the Company's new headquarters location in Milwaukee, Wisconsin.

Previous wording

We had outstanding commercial letters of credit of$6 million and surety bonds of$5 million at August 31, 2025, while we had$4 millionof outstanding letters of credit at August 31, 2024. Most of these instruments relate to commercial contracts and self-insured workers’ compensation programs.

Current wording

We had outstanding commercial letters of credit of$4 million and surety bonds of$3 million at August 31, 2026, while we had$6 million of outstanding letters of credit and $5 millionof surety bonds at August 31, 2025. Most of these instruments relate to commercial contracts and self-insured workers’ compensation programs.

Previous wording

The timing of principal payments associated with our revolving line of credit are disclosed in Note 8, "Debt" in the notes to the consolidated financial statements. We pay interest monthly based on prevailing interest rates at the time and the balance outstanding on our revolving line of credit.

Current wording

The timing of principal payments associated with our revolving line of credit is disclosed in Note 8,“Debt” in the notes to the consolidated financial statements. We pay interest monthly based on prevailing interest rates at the time and the balance outstanding on our revolving line of credit.

Previous wording

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 $106 million as of August 31,2025, which is net of a $4 million allowance for credit losses. Our customer base generally consists of financially reputable distributors, agents, OEMs, and other customers with whom we have long standing relationships, and historically we have not experienced significant bad debt expense as a percentage of our annual net sales (bad debt expense as a percentage of net sales was less than 0.5% for each the years ended August 31, 2025, 2024, and 2023).

Current wording

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 $113 million as of August 31,2026, which is net of a $3 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 bad debt expense as a percentage of our annual net sales (bad debt expense as a percentage of net sales was less than 0.5% for each of the years ended August 31, 2026, 2025, and 2024).

Previous wording

Inventories: Inventory cost is determined using the last-in, first-out (“LIFO”) method for a portion of U.S. owned inventory (approximately 47% and 49% of total inventories at August 31, 2025 and 2024, respectively). If the LIFO method were not used, inventory balances would be higher than amounts presented in the Consolidated Balance Sheet by $18 million at both August 31, 2025 and 2024. We perform an analysis on historical sales usage of individual inventory items on hand and record a reserve to adjust inventory cost to net realizable value, if necessary. The inventory valuation assumptions used are based on historical experience. We believe that such estimates are made based on consistent and appropriate methods; however, actual results may differ from these estimates under different assumptions or conditions.

Current wording

Inventories: Inventory cost is determined using the last-in, first-out (“LIFO”) method for a portion of U.S. owned inventory (approximately 47% of total inventories at both August 31, 2026 and 2025). If the LIFO method were not used, inventory balances would be higher than amounts presented in the Consolidated Balance Sheet by $17 million and $18 million at August 31, 2026 and 2025, respectively. We perform an analysis on historical sales usage of individual inventory items on hand and record a reserve to adjust inventory cost to net realizable value, if necessary. The inventory valuation assumptions used are based on historical experience. We believe that such estimates are made based on consistent and appropriate methods; however, actual results may differ from these estimates under different assumptions or conditions.

Previous wording

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

Current wording

During 2026 and 2025 management performed a qualitative assessment over goodwill and indefinite-lived intangibles and determined quantitative testing was not necessary.

Previous wording

Specifically related to the acquisition of DTA, the Company believes the developed technology intangible asset and the potential contingent earn-out liability required the most significant judgment. The Company used the relief from royalty rate method to value the developed technology intangible. The significant assumptions used to estimate the value of the developed technology intangible included the survivor curve for attrition of existing technology, revenue growth, royalty charges and the discount rate. The Company used the Black-Scholes model to determine the fair value of the potential earn-out payment. The significant assumptions used to estimate the value of the potential earn-out included the forecasted gross profit and the discount rate. These significant assumptions are forward looking and could be affected by future economic and market conditions.

Current wording

In fiscal 2025, the Company acquired all of the assets and assumed certain liabilities of DTA for an initial purchase price of $26.7 million plus potential earn-out of €12.0 million to be paid at the end of the third year following the acquisition that is contingent upon the achievement of certain financial objectives. The Company is required to remeasure the fair value of this contingent consideration at each reporting date, with changes in fair value recognized in earnings. The Company used the Black-Scholes model to determine the fair value remeasurement of the potential earn-out payment. The significant assumptions used to remeasure the value of the potential earn-out included the forecasted gross profit and the discount rate. These significant assumptions are forward looking and could be affected by future economic and market conditions.

Previous wording

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, 2025 and 2024, the discount rates on domestic benefit plans were 5.2% and 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.S. treasury securities. The expected return on domestic benefit plan assets was 6.2% for each of the fiscal years ended August 31, 2025 and 2024. 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 2025 domestic benefit plan expense.

Current wording

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, 2026 and 2025, the discount rates on domestic benefit plans were 5.7% and 5.2%, 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.S. treasury securities. The expected return on domestic benefit plan assets was 6.4% for each of the fiscal years ended August 31, 2026 and 2025. 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 2026 domestic benefit plan expense.