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•	deterioration of, or instability in, the domestic and international economy;

•	potential impact on our business from global pandemics, including COVID-19;

•	challenging conditions in our various end markets;

•	our ability to execute restructuring actions and the realization of anticipated cost savings;

•	competition in the markets we serve;

•	failure to develop new products and market acceptance of existing and new products;

•	a material disruption at a significant manufacturing facility;

•	heavy reliance on suppliers for components used in the manufacture and sale of our products;

•	operating margin risk due to competitive pricing, operating inefficiencies, production levels and increases in the costs of commodities and raw materials;

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

•	our international operations present special risks, including currency exchange rate fluctuations and export and import restrictions;

•	regulatory and legal developments, including changes to United States taxation rules;

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•	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;

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

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

•	litigation, including product liability and warranty claims;

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

•	inadequate intellectual property protection or if our products are deemed to infringe on the intellectual property of others;

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

•

numerous other matters including those of a political, economic, business, competitive and regulatory nature contained from time to time in 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 the Form 10-K filed with the SEC on October 28, 2019 and those factors contained within Part II, Item 1A herein.

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Note 1. Basis of Presentation

General

The accompanying unaudited condensed consolidated financial statements of Enerpac Tool Group Corp. (“Company,” "we," or "us"), formerly known as Actuant Corporation, 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, 2019 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 2019 Annual Report on Form 10-K.

In the opinion of management, all adjustments considered necessary for a fair statement of financial results have been made. Such adjustments consist of only those of a normal recurring nature. Operating results for the three and six months ended February 29, 2020 are not necessarily indicative of the results that may be expected for the entire fiscal year ending August 31, 2020.

New Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases (and subsequently ASU 2018-01 and ASU 2019-01), to increase transparency and comparability among organizations by recognizing all lease transactions on the balance sheet as a lease liability and a right-of-use (“ROU”) asset. The amendments also expanded disclosure requirements for key information about leasing arrangements. On September 1, 2019, the Company adopted the standard using a modified retrospective approach and through implementing selected third-party lease software utilized as a central repository for all leases. The Company elected the package of practical expedients allowing us to not reassess whether any expired or existing contracts contain leases, the lease classification for any expired or existing leases, and initial direct costs for leases that commenced prior to September 1, 2019. In addition, we elected not to recognize ROU assets or lease liabilities for leases containing terms of 12 months or less and not separate lease components from non-lease components for all asset classes. The Company updated its standard lease accounting policy to address the new standard, revised the Company’s business processes and controls to align to the updated policy and new standard and completed the implementation of and data input into the Company’s lease accounting software solution. The most significant impact of the standard on the Company was the recognition of a $60.8 million ROU asset and operating lease liability on the Condensed Consolidated Balance Sheets at adoption. The standard did not have a significant impact on our Condensed Consolidated Statements of Operations or Condensed Consolidated Statements of Cash Flows. In addition, as a result of sale leaseback transactions in previous years for which gains were deferred and under the new standard would have been recognized, the Company recorded an increase to retained earnings of $0.2 million in the first quarter of fiscal 2020, which represents the recognition of these previously deferred gains. See Note 15, “Leases” for further discussion of the Company’s operating leases.

In February 2018, the FASB issued ASU 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which allows companies to reclassify stranded income tax effects resulting from the Tax Cuts and Jobs Act from accumulated other comprehensive income to retained earnings in their consolidated financial statements. The Company adopted the guidance on September1, 2019 and recorded an increase to retained earnings with an offsetting increase in accumulated other comprehensive loss of $3.7 million on the adoption date.

Accumulated Other Comprehensive Loss

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

		February 29, 2020				August 31, 2019
Foreign currency translation adjustments		$	93,875			$	151,115
Pension and other postretirement benefit plans, net of tax		23,589				20,557
Accumulated other comprehensive loss		$	117,464			$	171,672

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Property Plant and Equipment

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

		February 29, 2020				August 31, 2019
Land, buildings and improvements		$	31,901			$	29,661
Machinery and equipment		140,071				140,083
Gross property, plant and equipment		171,972				169,744
Less: Accumulated depreciation		(108,907		)		(113,015		)
Property, plant and equipment, net		$	63,065			$	56,729

Note 2. Revenue Recognition

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. Due to the highly customized nature and limited alternative use of certain products, for which the Company has an enforceable right of reimbursement for performance completed to date, revenue is recognized over time. We consider the input measure (efforts-expended or cost-to-cost) or output measure as a fair measure of progress for the recognition of over time revenue associated with these custom products. For a majority of the Company’s custom products, machine hours and labor hours (efforts-expended measurement) are used as a measure of progress.

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

Disaggregated Revenue and Performance Obligations

The Company disaggregates revenue from contracts with customers by reportable segment and product line and by the timing of when goods and services are transferred. See Note 13, "Segment Information" for information regarding our revenue disaggregation by reportable segment and product line.

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

		Three Months Ended								Six Months Ended
		February 29, 2020				February 28, 2019				February 29, 2020				February 28, 2019
Revenues recognized at point in time		$	97,189			$	109,883			$	202,001			$	218,139
Revenues recognized over time		36,197				49,905				78,059				100,201
Total		$	133,386			$	159,788			$	280,060			$	318,340

Contract Balances

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

		February 29, 2020				August 31, 2019
Receivables, which are included in accounts receivable, net		$	113,294			$	125,883
Contract assets, which are included in other current assets		5,177				3,747
Contract liabilities, which are included in other current liabilities		1,334				3,707

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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.

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 February 29, 2020, 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 $1.3 million will be recognized in net sales from satisfying those performance obligations within the next twelve months.

Significant Judgments

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 will generally be paid within twelve months, while future lease payments related to facilities vacated as a result of restructuring will be paid over the underlying remaining lease terms. During fiscal 2019, the Company announced a new restructuring plan focused on i) the integration of the Enerpac and Hydratight businesses (Industrial Tools & Service ("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. Total restructuring charges associated with this restructuring plan were $1.7 million and $3.1 million in the three and six months ended February 29, 2020, respectively. The Company recorded total restructuring charges of $0.1 million in both the three and six months ended February 28, 2019 associated with the legacy restructuring initiatives.

The following summarizes restructuring reserve activity for the IT&S reportable segment and corporate (in thousands):

		Six Months Ended February 29, 2020
		Industrial Tools & Services				Corporate
Balance as of August 31, 2019		$	2,912			$	—
Restructuring charges		2,189				939
Cash payments		(2,693		)		(628		)
Other non-cash uses of reserve		(406		)		(302		)
Impact of changes in foreign currency rates		(4		)		—
Balance as of February 29, 2020		$	1,998			$	9

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		Six Months Ended February 28, 2019
		Industrial Tools & Services				Corporate
Balance as of August 31, 2018		$	1,687			$	46
Restructuring charges		20				—
Cash payments		(1,115		)		(46		)
Other non-cash uses of reserve		(12		)		—
Impact of changes in foreign currency rates		(18		)		—
Balance as of February 28, 2019		$	562			$	—

The three and six months ended February 29, 2020 included $0.3 million and $0.8 million of restructuring expenses related to Cortland U.S. (Other segment), respectively. Restructuring reserves for Cortland U.S. were $0.6 million and $1.9 million as of February 29, 2020 and August 31, 2019, respectively. There were inconsequential restructuring charges recorded within the Other segment associated with the legacy restructuring initiatives in the three and six months ended February 28, 2019.

Note 4.    Acquisitions

On January 7, 2020, the Company acquired 100% of the stock of HTL Group ("HTL"), a provider of controlled bolting products and calibration and repair services, as well as a strong rental business. The tuck-in acquisition of HTL now provides the Company with a complete bolting line of products and enhances our European rental capabilities. The Company acquired all of the assets and assumed certain liabilities of HTL for a purchase price of $33.4 million, net of cash acquired. The preliminary purchase price allocation resulted in $8.6 million of goodwill (which is not deductible for tax purposes), $18.0 million of intangible assets, and $7.3 million of property, plant and equipment. The impact on the remaining balance sheet line items was not material. The intangible assets were comprised of $3.7 million of indefinite-lived tradenames, $13.6 million of amortizable customer relationships and $0.7 million of amortizable patents. The fair values of the assets acquired and liabilities assumed are based on preliminary estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation procedures and techniques. While the Company believes these preliminary estimates provide a reasonable basis for estimating the fair value of the assets acquired and liabilities assumed, it will continue to evaluate available information prior to finalization of the amounts. The primary areas of the preliminary purchase price allocation that are not yet finalized relate to the fair value of rental assets acquired (component of property, plant, and equipment), intangible assets and the resulting impact on deferred income tax assets and liabilities.

The Company incurred transaction costs of $0.2 million for both the three and six months ended February 29, 2020 (included in "Selling, administrative and engineering expenses" in the Condensed Consolidated Statements of Operations) related to this acquisition.

Note 5. Discontinued Operations and Other Divestiture Activities

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 previously announced sale of the businesses comprising its former Engineered Components & Systems ("EC&S") segment to wholly owned subsidiaries of BRWS Parent LLC, a Delaware limited liability company and affiliate of One Rock Capital Partners II, LP, for a purchase price of approximately $214.5 million (which included approximately $3.0 million to be paid in four equal quarterly installments after closing, of which $0.7 million was received in the three months ended February 29, 2020). In connection with the completion of the sale in the three months ended November 30, 2019, the Company recorded a net loss of $4.2 million comprised of a loss of $22.4 million representing the excess of the net assets (exclusive of deferred tax assets and liabilities associated with subsidiaries of the Company whose stock was sold as part of the transaction) as compared to the purchase price less costs to sell and the recognition in earnings of the cumulative effect of foreign currency exchange gains and losses during the quarter largely offset by an income tax benefit of $18.2 million associated with the write off of the net deferred tax liability on subsidiaries of the EC&S segment for which the stock was divested. The Company also recognized an additional $3.3 million of impairment & divestiture costs in the three months ended November 30, 2019 associated with the accelerated vesting of restricted stock awards associated with employees terminated as part of the transaction and $2.7 million of additional divestiture charges which were necessary to complete the transaction. In the three months ended February 29, 2020, the Company also incurred approximately $0.3 million of additional miscellaneous divestiture related costs. The final loss on the sale is subject to the customary negotiation of final working capital amounts.

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During the first quarter of fiscal 2019, the Company determined that the Precision Hayes business was a non-core asset, did not align with the strategic objectives of the Company and, as a result, the Company committed to a plan to sell this business. The Company completed the sale of the Precision Hayes business on December 31, 2018 for $23.6 million cash net of final transaction costs, working capital adjustments, accelerated vesting of equity compensation, retention bonuses and other adjustments which were recognized within the second quarter of fiscal 2019. The Company recorded $0.0 million and $9.5 million of impairment & divestiture charges during the three and six months ended February 28, 2019, respectively, of which the charges for the six-month period represented the excess of the net book value of the net assets held for sale less the anticipated proceeds, less costs to sell.

The Company completed the sale of the Cortland Fibron business on December 19, 2018 for $12.5 million in cash. During the three and six months ended February 28, 2019, the Company recognized $2.6 million and $4.3 million of impairment & divestiture charges associated with the divestiture of the Cortland Fibron business.

In addition to the above disclosed matters, the Company also incurred $0.9 million and $2.5 million of divestiture related costs during the three and six months ended February 29, 2020, respectively.

As the aforementioned divestitures were a part of our strategic shift to become a pure-play industrial tools and services company, the results of their operations (including the stated impairment & divestiture charges) are recorded as a component of "Loss from discontinued operations" in the Condensed Consolidated Statements of Operations for all periods presented.

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

		Three Months Ended								Six Months Ended
		February 29, 2020*				February 28, 2019				February 29, 2020*				February 28, 2019
Net sales		$	—			$	112,119			$	67,010			$	246,099
Cost of products sold		—				85,948				49,749				185,232
Gross profit		—				26,171				17,261				60,867
Selling, administrative and engineering expenses		619				17,312				11,451				37,383
Amortization of intangible assets		—				1,587				—				3,569
Restructuring charges (benefit)		—				14				(11		)		446
Impairment & divestiture charges		314				3,344				28,730				16,319
Operating (loss) earnings		(933		)		3,914				(22,909		)		3,150
Financing (benefits) costs, net		—				(4		)		14				(7		)
Other expense (income), net		—				141				(104		)		547
(Loss) earnings before income tax expense (benefit)		(933		)		3,777				(22,819		)		2,610
Income tax expense (benefit)		823				1,789				(16,812		)		1,652
Net (loss) earnings from discontinued operations		$	(1,756	)		$	1,988			$	(6,007	)		$	958

* "(Loss) earnings from discontinued operations, net of income taxes" for the periods presented in fiscal 2020 include the results of the EC&S segment for the two months ended October 31, 2019 (the divestiture date) as well as the ancillary impacts from certain retained liabilities subsequent to the divestiture. As a result of the classification of the segment as assets and liabilities held for sale for the two months ended October 31, 2019, the Company did not record amortization or depreciation expense in the results of operations in accordance with U.S. GAAP. Furthermore, the Company excluded EC&S segment employees from the fiscal 2020 bonus compensation plan, hence there are no expenses associated with the plan for that period.

Other Divestiture Activities

On September 20, 2019, the Company completed the sale of the UNI-LIFT product line, a component of our Milwaukee Cylinder business (IT&S segment) for net cash proceeds of $6.0 million, which resulted in an impairment & divestiture benefit of $4.6 million in the three months ended November 30, 2019. In the three months ended February 29, 2020, the Company recorded an additional benefit of $0.1 million related to agreement with the buyer on final working capital amounts and various other benefits. In March 2020, the buyer of the UNI-LIFT product line extended a long-term supply agreement with a significant customer. Pursuant to the sales agreement, this action triggered the requirement for the buyer to pay $1.5 million of contingent proceeds and payment was subsequently received by the Company. These contingent proceeds were not reflected within the condensed consolidated financial statements as of and for the periods ended February 29, 2020, but will be reflected within the condensed consolidated financial statements as of and for the periods ending May 31, 2020.

After the sale of the UNI-LIFT product line, the Company determined that the remaining Milwaukee Cylinder business was a non-core asset, did not align with the strategic objectives of the Company and, as a result, the Company committed to a plan to sell

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this business. We recorded impairment & divestiture charges of $4.6 million in the three months ended November 30, 2019 comprised of impairment charges of $2.5 million representing the excess of net assets held for sale compared to the anticipated proceeds less costs to sell, $1.9 million associated with our requirement to withdraw from the multi-employer pension plan associated with that business and $0.2 million of other divestiture related charges. The Company completed the divestiture of the Milwaukee Cylinder business on December 2, 2019 for a negligible amount. In the three months ended February 29, 2020, the Company recorded inconsequential amounts of impairment & divestiture charges. The historical results of the Milwaukee Cylinder business, inclusive of the UNI-LIFT product line, (which had net sales of $4.3 million in the three months ended February 28, 2019 and $2.9 million and $7.1 million in the six months ended February 29, 2020 and February 28, 2019, respectively) are not material to the condensed consolidated financial results.

On October 22, 2019, the Company completed the sale of the Connectors product line (IT&S segment) for net cash proceeds of $2.7 million, which resulted in an impairment & divestiture benefit of $1.3 million in the three months ended November 30. 2019. During the three months ended February 29, 2020, the Company recorded $0.1 million of impairment & divestiture charges related to working capital adjustment. The historical results of the Connectors product line (which had net sales of $1.0 million in the three months ended February 28, 2019 and $0.2 million and $2.5 million in the six months ended February 29, 2020 and February 28, 2019, respectively) are not material to the condensed consolidated financial results.

Note 6. Goodwill, Intangible Assets and Long-Lived Assets

Changes in the gross carrying value of goodwill and intangible assets result from changes in foreign currency exchange rates, business acquisitions, divestitures and impairment charges. The changes in the carrying amount of goodwill for the six months ended February 29, 2020 are as follows (in thousands):

	Industrial Tools & Services				Other				Total
Balance as of August 31, 2019	$	242,873			$	17,542			$	260,415
Acquisition of HTL Group (Note 4)	8,595				—				8,595
Impact of changes in foreign currency rates	2,815				3				2,818
Balance as of February 29, 2020	$	254,283			$	17,545			$	271,828

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

			February 29, 2020												August 31, 2019
	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		$	140,239			$	100,895			$	39,344			$	126,229			$	96,817			$	29,412
Patents	12		14,068				12,723				1,345				13,227				12,276				951
Trademarks and tradenames*	12		3,202				2,019				1,183				4,513				2,921				1,592
Indefinite lived intangible assets:
Tradenames	N/A		24,629				—				24,629				20,420				—				20,420
			$	182,138			$	115,637			$	66,501			$	164,389			$	112,014			$	52,375

*The decrease in the Gross Carrying Value and Accumulated Amortization of Trademarks and tradenames is a result of the Milwaukee Cylinder business being held for sale as of November 30, 2019 and the impairment charge discussed in Note 5, "Discontinued Operations and Other Divestiture Activities." included the Trademarks and tradenames associated with that business being fully impaired.

The Company estimates that amortization expense will be $4.5 million for the remaining six months of fiscal 2020. Amortization expense for future years is estimated to be: $8.0 million in fiscal 2021, $7.3 million in fiscal 2022, $5.8 million in fiscal 2023, $4.2 million in fiscal 2024, $3.4 million in fiscal 2025 and $8.7 million cumulatively thereafter. The future amortization expense amounts represent estimates and may be impacted by future acquisitions, adjustments to preliminary purchase accounting estimates, divestitures or changes in foreign currency exchange rates, among other causes.

Fiscal 2019 Impairment Charges

Within the Other segment, the Company recognized $3.5 million and $13.7 million of Goodwill impairment charges for the three and six months ended February 28, 2019 related to the Cortland U.S. business in conjunction with triggering events identified during the periods.

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Note 7. Product Warranty Costs

The Company generally offers its customers an assurance warranty on products sold, although warranty periods may vary by product type and application. The reserve for future warranty claims, which is recorded within the "Other current liabilities" line in the Condensed Consolidated Balance Sheets, is based on historical claim rates and current warranty cost experience. The following summarizes the changes in product warranty reserves for the six months ended February 29, 2020 and February 28, 2019, respectively (in thousands):

	Six Months Ended
	February 29, 2020				February 28, 2019
Beginning balance	$	1,145			$	931
Provision for warranties	135				807
Warranty payments and costs incurred	(418		)		(525		)
Warranty activity for divested businesses	(27		)		—
Reclass of liabilities held for sale	—				(33		)
Impact of changes in foreign currency rates	—				(9		)
Ending balance	$	835			$	1,171

Note 8. Debt

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

	February 29, 2020				August 31, 2019
Senior Credit Facility
Revolver	$	—			$	—
Term Loan	—				175,000
Total Senior Credit Facility	—				175,000
5.625% Senior Notes	287,559				287,559
Total Senior Indebtedness	287,559				462,559
Less: Current maturities of long-term debt	—				(7,500		)
Debt issuance costs	(1,192		)		(2,114		)
Total long-term debt, less current maturities	$	286,367			$	452,945

Senior Credit Facility

The Company's $600 million Senior Credit Facility is comprised of a $400 million revolving line of credit and provided for a $200 million term loan which was scheduled to mature in March 2024. It also provides the option for future expansion through a $300 million accordion on the revolving line of credit. Borrowings under the Senior Credit Facility bear interest based on LIBOR or a base rate, with interest rate spreads above LIBOR or the base rate being subject to adjustments based on the Company's net leverage ratio, ranging from 1.125% to 2.00% in the case of loans bearing interest at LIBOR and from 1.25% 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 ratio.

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. For each covenant, certain transactions lead to adjustments to the underlying ratio, including a reduction of the minimum interest coverage ratio from 3.5 to 3.0 for any fiscal quarter ending within twelve months after the sale of the EC&S segment and 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 February 29, 2020. 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.

In November 2019, the Company used the proceeds from the sale of the EC&S segment to pay off the outstanding principal balance on the term loan. In conjunction, we expensed the remaining $0.6 million of associated capitalized debt issuance costs. As of February 29, 2020, the unused credit line and amount available for borrowing under the revolving line of credit was $394.9 million.

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Senior Notes

On April 16, 2012, the Company issued $300 million of 5.625% Senior Notes due 2022 (the “Senior Notes”), of which $287.6 million remain outstanding. The Senior Notes require no principal installments prior to their June 15, 2022 maturity, require semiannual interest payments in December and June of each year and contain certain financial and non-financial covenants. The Senior Notes include a call feature that allows the Company to repurchase them anytime on or after June 15, 2017 at stated redemption prices currently at 100.9% and reducing to 100.0% on June 15, 2020, plus accrued and unpaid interest.

Note 9. Fair Value Measurement

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, and accounts payable approximated book value at both February 29, 2020 and August 31, 2019 due to their short-term nature. The fair value of variable rate long-term debt approximated book value at August 31, 2019 as the interest rate approximated market rates (the Company had no variable rate debt outstanding as of February 29, 2020). Foreign currency exchange contracts are recorded at fair value. The fair value of the Company's foreign currency exchange contracts was a net liability of $0.1 million at February 29, 2020 and a net asset of less than $0.1 million at August 31, 2019. The fair value of the foreign currency exchange contracts was based on quoted inactive market prices and is therefore classified as Level 2 within the valuation hierarchy. The fair value of the Company’s outstanding Senior Notes was $289.8 million and $291.5 million at February 29, 2020 and August 31, 2019, respectively. The fair value of the Senior Notes was based on quoted inactive market prices and are therefore classified as Level 2 within the valuation hierarchy.

Note 10. Derivatives

All derivatives are recognized in the balance sheet at their estimated fair value. The Company does not enter into derivatives for speculative purposes. Changes in the 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 expense" in the Condensed Consolidated Statements of Operations). The U.S. dollar equivalent notional value of these short duration foreign currency exchange contracts was $116.1 million and $13.3 million at February 29, 2020 and August 31, 2019, respectively. The fair value of outstanding foreign currency exchange contracts was a net liability of $0.1 million in February 29, 2020 and a net asset of less than $0.1 million at August 31, 2019. Net foreign currency (loss) gain (included in "Other expense" in the Condensed Consolidated Statements of Operations) related to these derivative instruments were as follows (in thousands):

	Three Months Ended								Six Months Ended
	February 29, 2020				February 28, 2019				February 29, 2020				February 28, 2019
Foreign currency (loss) gain, net	$	(376	)		$	227			$	(551	)		$	(2	)

The Company also uses foreign currency forward exchange contracts to hedge portions of our net investments in non-U.S. subsidiaries (net investment hedge) against the effect of exchange rate fluctuations on the translation of foreign currency balances to the U.S. dollar. The change in the value of foreign currency forward exchange contracts designated as net investment hedges are recorded in accumulated other comprehensive income where they offset gains and losses recorded on our net investments where the entity has a non-U.S. dollar functional currency. As of February 29, 2020, the notional value of foreign currency forward exchange contracts designated as net investment hedges was $31.6 million. The Company recorded through accumulated other comprehensive income (loss) a loss of $0.2 million in the three months ended February 29, 2020.

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Note 11. Earnings per Share and Shareholders' Equity

The Company's Board of Directors 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 22,295,357 shares of common stock for $658.0 million. As of February 29, 2020, the maximum number of shares that may yet be purchased under the programs is 5,704,643 shares. During the six months ended February 29, 2020, the Company repurchased 839,789 shares for $17.8 million. No shares were purchased in the three months ended February 29, 2020.

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

	Three Months Ended								Six Months Ended
	February 29, 2020				February 28, 2019				February 29, 2020				February 28, 2019
Numerator:
Net earnings (loss) from continuing operations	$	3,918			$	765			$	10,290			$	(15,657	)
Net (loss) earnings from discontinued operations	(1,756		)		1,988				(6,007		)		958
Net earnings (loss)	2,162				2,753				4,283				(14,699		)
Denominator:
Weighted average common shares outstanding - basic	60,130				61,243				60,106				61,137
Net effect of dilutive securities - stock based compensation plans	383				364				451				—
Weighted average common shares outstanding - diluted	$	60,513			$	61,607			$	60,557			$	61,137
Earnings (loss) per common share from continuing operations:
Basic	$	0.07			$	0.01			$	0.17			$	(0.26	)
Diluted	$	0.06			$	0.01			$	0.17			$	(0.26	)
(Loss) earnings per common share from discontinued operations:
Basic	$	(0.03	)		$	0.03			$	(0.10	)		$	0.02
Diluted	$	(0.03	)		$	0.03			$	(0.10	)		$	0.02
Earnings (loss) per common share:
Basic	$	0.04			$	0.04			$	0.07			$	(0.24	)
Diluted	$	0.04			$	0.04			$	0.07			$	(0.24	)
Anti-dilutive securities from stock based compensation plans (excluded from earnings per share calculation)	1,024				1,503				1,046				2,986

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The following table illustrates the changes in the balances of each component of shareholders' equity for the three months ended February 29, 2020 (in thousands):

	Common Stock							Additional Paid-in Capital				Treasury Stock				Retained Earnings				Accumulated Other Comprehensive Loss				Stock Held in Trust				Deferred Compensation Liability				Total Shareholders’ Equity
	Issued Shares			Amount
Balance at November 30, 2019	82,248			$	16,450			$	187,772			$	(658,017	)		$	921,460			$	(114,412	)		$	(3,157	)		$	3,157			$	353,253
Net earnings	—			—				—				—				2,162				—				—				—				2,162
Other comprehensive loss, net of tax	—			—				—				—				—				(3,052		)		—				—				(3,052		)
Stock contribution to employee benefit plans and other	5			1				125				—				—				—				—				—				126
Restricted stock awards	259			52				(52		)		—				—				—				—				—				—
Stock based compensation expense	—			—				3,093				—				—				—				—				—				3,093
Stock option exercises	17			3				119				—				—				—				—				—				122
Tax effect related to net share settlement of equity awards	—			—				(1,425		)		—				—				—				—				—				(1,425		)
Stock issued to, acquired for and distributed from rabbi trust	11			2				84				—				—				—				723				(723		)		86
Balance at February 29, 2020	82,540			$	16,508			$	189,716			$	(658,017	)		$	923,622			$	(117,464	)		$	(2,434	)		$	2,434			$	354,365

The following table illustrates the changes in the balances of each component of shareholders' equity for the three months ended February 28, 2019 (in thousands):

	Common Stock							Additional Paid-in Capital				Treasury Stock				Retained Earnings				Accumulated Other Comprehensive Loss				Stock Held in Trust				Deferred Compensation Liability				Total Shareholders’ Equity
	Issued Shares			Amount
Balance at November 30, 2018	81,503			$	16,301			$	171,606			$	(617,731	)		$	1,149,578			$	(182,189	)		$	(2,573	)		$	2,573			$	537,565
Net earnings	—			—				—				—				2,753				—				—				—				2,753
Other comprehensive income, net of tax	—			—				—				—				—				42,437				—				—				42,437
Stock contribution to employee benefit plans and other	6			1				125				—				—				—				—				—				126
Restricted stock awards	284			56				(56		)		—				—				—				—				—				—
Stock based compensation expense	—			—				3,568				—				—				—				—				—				3,568
Stock option exercises	20			4				349				—				—				—				—				—				353
Tax effect related to net share settlement of equity awards	—			—				(1,287		)		—				—				—				—				—				(1,287		)
Stock issued to, acquired for and distributed from rabbi trust	19			2				113				—				—				—				(416		)		416				115
Balance at February 28, 2019	81,832			$	16,364			$	174,418			$	(617,731	)		$	1,152,331			$	(139,752	)		$	(2,989	)		$	2,989			$	585,630

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The following table illustrates the changes in the balances of each component of shareholders' equity for the six months ended February 29, 2020 (in thousands):

	Common Stock							Additional Paid-in Capital				Treasury Stock				Retained Earnings				Accumulated Other Comprehensive Loss				Stock Held in Trust				Deferred Compensation Liability				Total Shareholders’ Equity
	Issued Shares			Amount
Balance at August 31, 2019	81,919			$	16,384			$	181,213			$	(640,212	)		$	915,466			$	(171,672	)		$	(3,070	)		$	3,070			$	301,179
Net earnings	—			—				—				—				4,283				—				—				—				4,283
Other comprehensive income, net of tax	—			—				—				—				—				57,875				—				—				57,875
Stock contribution to employee benefit plans and other	11			2				255				—				—				—				—				—				257
Restricted stock awards	449			90				(90		)		—				—				—				—				—				—
Treasury stock repurchases	—			—				—				(17,805		)		—				—				—				—				(17,805		)
Stock based compensation expense	—			—				9,630				—				—				—				—				—				9,630
Stock option exercises	145			29				2,602				—				—				—				—				—				2,631
Tax effect related to net share settlement of equity awards	—			—				(4,063		)		—				—				—				—				—				(4,063		)
Stock issued to, acquired for and distributed from rabbi trust	16			3				169				—				—				—				636				(636		)		172
Adoption of accounting standards (Note 1)	—			—				—				—				3,873				(3,667		)		—				—				206
Balance at February 29, 2020	82,540			$	16,508			$	189,716			$	(658,017	)		$	923,622			$	(117,464	)		$	(2,434	)		$	2,434			$	354,365

The following table illustrates the changes in the balances of each component of shareholders' equity for the six months ended February 28, 2019 (in thousands):

	Common Stock							Additional Paid-in Capital				Treasury Stock				Retained Earnings				Accumulated Other Comprehensive Loss				Stock Held in Trust				Deferred Compensation Liability				Total Shareholders’ Equity
	Issued Shares			Amount
Balance at August 31, 2018	81,424			$	16,285			$	167,448			$	(617,731	)		$	1,166,955			$	(174,245	)		$	(2,450	)		$	2,450			$	558,712
Net loss	—			—				—				—				(14,699		)		—				—				—				(14,699		)
Other comprehensive income, net of tax	—			—				—				—				—				34,493				—				—				34,493
Stock contribution to employee benefit plans and other	10			2				242				—				—				—				—				—				244
Restricted stock awards	334			65				(65		)		—				—				—				—				—				—
Stock based compensation expense	—			—				7,162				—				—				—				—				—				7,162
Stock option exercises	41			8				779				—				—				—				—				—				787
Tax effect related to net share settlement of equity awards	—			—				(1,488		)		—				—				—				—				—				(1,488		)
Stock issued to, acquired for and distributed from rabbi trust	23			4				340				—				—				—				(539		)		539				344
Adoption of accounting standards	—			—				—				—				75				—				—				—				75
Balance at February 28, 2019	81,832			$	16,364			$	174,418			$	(617,731	)		$	1,152,331			$	(139,752	)		$	(2,989	)		$	2,989			$	585,630

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Note 12. Income Taxes

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

	Three Months Ended								Six Months Ended
	February 29, 2020				February 28, 2019				February 29, 2020				February 28, 2019
Earnings (loss) from continuing operations before income tax expense	$	4,724			$	4,767			$	12,046			$	(11,589	)
Income tax expense	806				4,002				1,756				4,068
Effective income tax rate	17.1		%		84.0		%		14.6		%		(35.1		)%

Note 13. Segment Information

The Company is a global manufacturer of a broad range of industrial products and solutions. The IT&S reportable 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 industrial, maintenance, infrastructure, oil & gas, energy and other markets. The Other operating segment is included for purposes of reconciliation of the respective balances below to the condensed consolidated financial statements.

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The following tables summarize financial information by reportable segment and product line (in thousands):    

	Three Months Ended								Six Months Ended
	February 29, 2020				February 28, 2019				February 29, 2020				February 28, 2019
Net Sales by Reportable Segment & Product Line
Industrial Tools & Services Segment
Product	$	93,364			$	105,584			$	189,727			$	208,353
Service & Rental	29,997				43,937				69,226				89,824
	123,361				149,521				258,953				298,177
Other Operating Segment	10,025				10,267				21,107				20,163
	$	133,386			$	159,788			$	280,060			$	318,340
Operating Profit (Loss)
Industrial Tools & Services Segment	$	20,570			$	26,546			$	46,624			$	52,920
Other Operating Segment	(972		)		(2,447		)		(1,227		)		(26,408		)
General Corporate	(11,031		)		(11,660		)		(22,460		)		(22,625		)
	$	8,567			$	12,439			$	22,937			$	3,887

	February 29, 2020				August 31, 2019
Assets*
Industrial Tools & Services Segment	$	645,163			$	553,615
Other Operating Segment	62,111				54,484
General Corporate	172,068				230,597
	$	879,342			$	838,696

*Excludes "Assets from discontinued operations" as of August 31, 2019.

In addition to the impact of changes in foreign currency exchange rates, the comparability of segment and product line information is impacted by acquisition/divestiture activities, impairment and divestiture charges, restructuring costs and related benefits. Corporate assets, which are not allocated, principally represent cash and cash equivalents, capitalized debt issuance costs and deferred income taxes.

Note 14. Commitments and Contingencies

The Company had outstanding letters of credit of $13.8 million and $18.2 million at February 29, 2020 and August 31, 2019, respectively, the majority of which relate to commercial contracts and self-insured workers' compensation programs.

As part of the Company's global sourcing strategy, we have entered into agreements with certain suppliers that require the supplier to maintain minimum levels of inventory to support certain products for which we require a short lead time to fulfill customer orders. We have the ability to notify the supplier that they no longer need to maintain the minimum level of inventory should we discontinue manufacturing of a product during the contract period, however, we must purchase the remaining minimum inventory levels the supplier was required to maintain within a defined period of time.

The Company is a party to various legal proceedings that have arisen in the normal course of business. These legal proceedings typically include product liability, breaches of contract, employment, personal injury and other disputes. The Company has recorded reserves for loss contingencies based on the specific circumstances of each case. Such reserves are recorded when it is probable a loss has been incurred and can be reasonably estimated. In the opinion of management, resolution of these contingencies is not expected to have a material adverse effect on the Company’s financial position, results of operations or cash flows.

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The Company remains contingently liable for lease payments under leases of businesses that it previously divested or spun-off in the event that such businesses are unable to fulfill their future lease payment obligations, however, the Company does not believe it is probable that it will be required to satisfy these obligations. Future minimum lease payments for these leases at February 29, 2020 were $7.7 million associated with monthly payments extending to fiscal 2025.

As previously disclosed, the Company filed a voluntary self-disclosure ("VSD") with the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) in October 2018 regarding otherwise authorized sales of tools and other products totaling approximately $0.5 million by certain of its foreign subsidiaries to two Iranian distributors, which sales potentially fell outside the scope of General License H under the Iranian Transaction and Sanctions Regulations, 31 C.F.R. Part 560. The VSD also included information about additional transactions by certain of the Company's Dutch subsidiaries with a counterparty in Estonia that may have been in violation of E.O. 13685, as certain sales of products and services may have been diverted to the Crimea region of Ukraine. In February 2020, OFAC issued the Company a Cautionary Letter as its final enforcement response. Accordingly, the matter has concluded with no adverse impact to the Company's financial results.

Additionally, the Company has self-disclosed the sales to its Estonian customer to relevant authorities in the Netherlands as potentially violating applicable sanctions laws in that country and the European Union. The investigation by authorities in the Netherlands is ongoing and may result in penalties. At this time, the Company cannot predict when the investigation will be completed or reasonably estimate what penalties, if any, will be assessed. While there can be no assurance of the ultimate outcome of the Netherlands investigation, the Company currently believes that there will be no material adverse effect on the Company's financial position, results of operations or cash flows.

Note 15. Leases

The Company adopted ASC 842 on September 1, 2019 using a modified retrospective approach and as a result did not adjust prior periods. See Note 1, “Basis of Presentation” for further discussion of the adoption.

As of February 29, 2020, the Company has operating leases for real estate, vehicles, manufacturing equipment, IT equipment and office equipment. The Company did not have any financing leases during the three and six months ended February 29, 2020. Our real estate leases are generally for office, warehouse and manufacturing facilities typically ranging in term from 5 to 15 years and may contain renewal options for periods up to 3 years at our discretion. Our equipment leases are generally for vehicles, manufacturing and IT equipment typically ranging in term from 3 to 7 years and may contain renewal options for periods up to one year at our discretion. Our leases generally contain payments that are primarily fixed; however, certain lease arrangements contain variable payments, which are expensed as incurred and not included in the measurement of ROU assets and lease liabilities. These amounts include payments affected by changes in the Consumer Price Index and executory costs (such as real estate taxes, utilities and common-area maintenance), which are based on usage or performance. In addition, our leases generally do not include material residual value guarantees or material restrictive covenants.

We determine if an arrangement contains a lease in whole or in part at the inception of the contract and identify classification of the lease as financing or operating. ROU assets represent our right to use an underlying asset for the lease term while lease liabilities represent our obligation to make lease payments arising from the lease. We account for the underlying operating lease asset at the individual lease level. Operating leases are recorded as operating lease ROU assets in “Other long-term assets” and operating lease liabilities in “Other current liabilities” and “Other long-term liabilities” of the Condensed Consolidated Balance Sheets.

All leases greater than 12 months result in recognition of a ROU asset and a liability at the lease commencement date and are recorded at the present value of the future minimum lease payments over the lease term. The lease term is equal to the initial term at commencement plus any renewal or extension options that the Company is reasonably certain will be exercised. ROU assets at the date of commencement are equal to the amount of the initial lease liability, the initial direct costs incurred by the Company and any prepaid lease payments less any incentives received. Lease expense for operating leases is recognized on a straight-line basis over the lease term or remaining useful life. As most of our leases do not provide the information required to determine the implicit rate, we utilize a consolidated group incremental borrowing rate for all leases as the Company has centralized treasury operations. The incremental borrowing rate is derived through a combination of inputs such as the Company's credit rating, impact of collaborated borrowing capabilities and lease term.

The Company considers contract modifications when there is a change to the contractual terms, scope of the lease or the consideration given. In the event the right to use an additional asset is granted and the lease payments associated with the additional asset are commensurate with the ROU asset’s standalone price, the modification is accounted for as a separate contract and the original contract remains unchanged. In the event that a single lease is modified, the Company reassesses the classification of the modified lease as of the effective date of the modification based on the modified terms and accounts for initial direct costs, lease incentives and any other payments made to or by the Company in connection with the modification in the same manner that items would be accounted for in connection with a new lease. If there is an additional ROU asset included, the lease term is extended or reduced, or the consideration is the only change in the contract, the Company reallocates the remaining consideration in the contract and remeasures the lease liability using a discount rate determined at the effective date of the modification. The remeasured lease liability for the modified lease is an adjustment to the corresponding ROU asset and does not impact the Condensed Consolidated

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Statements of Operations. In the event of a full or partial termination, the carrying value of the ROU asset decreases on a basis proportionate to the full or partial termination and any difference between the reduction in the lease liability and the proportionate reduction of the ROU asset is recognized as a gain or loss at the effective date of the modification.

The Company elected not to recognize short-term leases on its balance sheet and continues to expense such leases on a straight-line basis over the lease term.

The components of lease expense for the three and six months ended February 29, 2020 were as follows (in thousands):

		Three Months Ended February 29, 2020				Six Months Ended February 29, 2020
Lease Cost:
Operating lease cost		$	3,894			$	8,147
Short-term lease cost		310				765
Variable lease cost		564				1,033

Supplemental cash flow and other information related to leases were as follows (in thousands):

		Six Months Ended February 29, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases		$	8,141
Right-of-use assets obtained in exchange for new lease liabilities:
Operating leases		4,532

Supplemental balance sheet information related to leases were as follows (in thousands):

		February 29, 2020
Operating leases:
Other long-term assets		$	53,555
Other current liabilities		13,131
Other long-term liabilities		42,105
Total operating lease liabilities		$	55,236
Weighted Average Remaining Lease Term (in years):
Operating leases		7.7 years
Weighted Average Discount Rate:
Operating leases		4.33		%

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A summary of the future minimum lease payments due under operating leases with terms of more than one year at February 29, 2020 is as follows (in thousands):

		Operating Leases
2020 (excluding the six months ended February 29, 2020)		$	7,929
2021		13,133
2022		9,232
2023		7,120
2024		5,746
Thereafter		22,507
Total minimum lease payments		65,667
Less imputed interest		(10,431		)
Present value of net minimum lease payments		$	55,236

A summary of the future minimum lease payments due under operating leases with terms of more than one year at August 31, 2019 is as follows (in thousands):

		Operating Leases
2020		$	15,792
2021		12,266
2022		10,111
2023		6,865
2024		5,177
Thereafter		21,620
Present value of net minimum lease payments		$	71,831

Note 16. Subsequent Events

In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (COVID-19) as a pandemic. COVID-19 continues to spread throughout the world and has led certain countries or jurisdictions within to restrict travel or social gatherings (including at places of business). In addition, in March 2020, as a result of the weakened demand for oil resulting from COVID-19 in addition to political tensions between several large oil producing countries, there has been a substantial decline in oil prices. The Company's results of operations and financial condition will be negatively impacted through the duration of the pandemic and the low oil prices, but that impact cannot be reasonably estimated due to uncertainty associated with i) the duration of the pandemic (though expected to be short term) and the low oil prices and ii) the extent of the impact during the duration on the Company's facilities and employees, customer demand, and availability of materials through supply channels. As such, there could be a material adverse impact on the Company's financial condition or results of operations.

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•	was insolvent or rendered insolvent by reason of such incurrence;

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•	was left with unreasonably small or otherwise inadequate capital to conduct its business; or

•	believed or reasonably should have believed that it would incur debts beyond its ability to pay.

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