UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 28, 2020April 3, 2021
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-21835
HELIOS TECHNOLOGIES, INC.
(Exact Name of Registration as Specified in its Charter)
Florida |
| 59-2754337 |
(State or Other Jurisdiction of Incorporation or Organization) |
| (I.R.S. Employer Identification No.) |
|
|
|
1500 WEST UNIVERSITY PARKWAY SARASOTA, Florida |
| 34243 |
(Address of Principal Executive Offices) |
| (Zip Code) |
941/(941)362-1200
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
| Trading Symbol(s) |
| Name of each exchange on which registered |
Common Stock $.001 Par Value |
| HLIO |
| The NASDAQ Global Select Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
| ☒ |
| Accelerated filer |
| ☐ |
Non-accelerated filer |
| ☐ |
| Smaller Reporting Company |
| ☐ |
|
|
|
| Emerging growth company |
| ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The registrant had 32,081,44532,234,227 shares of common stock, par value $.001, outstanding as of April 24, 2020.30, 2021.
Helios Technologies, Inc.
INDEX
For the quarter ended
March 28, 2020April 3, 2021
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| Condensed Notes to the Consolidated, Unaudited Financial Statements |
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| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
| 20 |
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| Item 3. |
| 27 | |
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| Item 4. |
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| Item 1. |
| 28 | |
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| Item 1A. |
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| Item 2. |
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| Item 3. |
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| Item 4. |
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| Item 5. |
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| Item 6. |
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2
PART I: FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS.
Helios Technologies, Inc.
Consolidated Balance Sheets
(in thousands)thousands, except per share data)
|
| March 28, 2020 |
|
| December 28, 2019 |
|
| April 3, 2021 |
|
| January 2, 2021 |
| ||||
|
| (unaudited) |
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| (unaudited) |
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Assets |
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Current assets: |
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Cash and cash equivalents |
| $ | 27,257 |
|
| $ | 22,123 |
|
| $ | 25,924 |
|
| $ | 25,216 |
|
Restricted cash |
|
| 37 |
|
|
| 39 |
|
|
| 41 |
|
|
| 41 |
|
Accounts receivable, net of allowance for doubtful accounts of $1,187 and $1,131 |
|
| 71,638 |
|
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| 66,677 |
| ||||||||
Accounts receivable, net of allowance for credit losses of $1,453 and $1,493 |
|
| 124,391 |
|
|
| 97,623 |
| ||||||||
Inventories, net |
|
| 86,727 |
|
|
| 85,195 |
|
|
| 119,763 |
|
|
| 110,372 |
|
Income taxes receivable |
|
| 1,757 |
|
|
| 3,196 |
|
|
| 579 |
|
|
| 1,103 |
|
Other current assets |
|
| 17,570 |
|
|
| 15,359 |
|
|
| 21,901 |
|
|
| 19,664 |
|
Total current assets |
|
| 204,986 |
|
|
| 192,589 |
|
|
| 292,599 |
|
|
| 254,019 |
|
Property, plant and equipment, net |
|
| 141,912 |
|
|
| 145,854 |
|
|
| 160,695 |
|
|
| 163,177 |
|
Deferred income taxes |
|
| 9,668 |
|
|
| 5,803 |
|
|
| 6,152 |
|
|
| 6,645 |
|
Goodwill |
|
| 343,815 |
|
|
| 377,569 |
|
|
| 434,059 |
|
|
| 443,533 |
|
Other intangible assets, net |
|
| 288,989 |
|
|
| 294,651 |
|
|
| 407,309 |
|
|
| 419,375 |
|
Other assets |
|
| 4,479 |
|
|
| 5,285 |
|
|
| 10,734 |
|
|
| 10,230 |
|
Total assets |
| $ | 993,849 |
|
| $ | 1,021,751 |
|
| $ | 1,311,548 |
|
| $ | 1,296,979 |
|
Liabilities and shareholders' equity |
|
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Current liabilities: |
|
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Accounts payable |
| $ | 33,145 |
|
| $ | 29,730 |
|
| $ | 72,608 |
|
| $ | 59,477 |
|
Accrued compensation and benefits |
|
| 13,376 |
|
|
| 16,898 |
|
|
| 18,731 |
|
|
| 22,985 |
|
Other accrued expenses and current liabilities |
|
| 12,834 |
|
|
| 13,549 |
|
|
| 24,315 |
|
|
| 24,941 |
|
Current portion of contingent consideration |
|
| 828 |
|
|
| 828 |
| ||||||||
Current portion of long-term non-revolving debt, net |
|
| 7,369 |
|
|
| 7,623 |
|
|
| 15,841 |
|
|
| 16,229 |
|
Dividends payable |
|
| 2,887 |
|
|
| 2,884 |
|
|
| 2,900 |
|
|
| 2,891 |
|
Income taxes payable |
|
| 7,954 |
|
|
| 4,941 |
|
|
| 7,749 |
|
|
| 1,489 |
|
Total current liabilities |
|
| 78,393 |
|
|
| 76,453 |
|
|
| 142,144 |
|
|
| 128,012 |
|
Revolving line of credit |
|
| 204,865 |
|
|
| 208,708 |
|
|
| 249,797 |
|
|
| 255,909 |
|
Long-term non-revolving debt, net |
|
| 82,197 |
|
|
| 84,062 |
|
|
| 186,126 |
|
|
| 189,932 |
|
Deferred income taxes |
|
| 48,680 |
|
|
| 49,290 |
|
|
| 73,578 |
|
|
| 78,864 |
|
Other noncurrent liabilities |
|
| 28,079 |
|
|
| 25,602 |
|
|
| 34,623 |
|
|
| 36,472 |
|
Total liabilities |
|
| 442,214 |
|
|
| 444,115 |
|
|
| 686,268 |
|
|
| 689,189 |
|
Commitments and contingencies |
|
| — |
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| — |
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| — |
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| — |
|
Shareholders' equity: |
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Preferred stock, par value $0.001, 2,000 shares authorized, 0 shares issued or outstanding |
|
| — |
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| — |
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| — |
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| — |
|
Common stock, par value $0.001, 100,000 shares authorized, 32,075 and 32,047 shares issued and outstanding |
|
| 32 |
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| 32 |
| ||||||||
Common stock, par value $0.001, 100,000 shares authorized, 32,226 and 32,121 shares issued and outstanding |
|
| 32 |
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| 32 |
| ||||||||
Capital in excess of par value |
|
| 366,521 |
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| 365,310 |
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| 376,994 |
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| 371,778 |
|
Retained earnings |
|
| 247,548 |
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| 267,658 |
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| 290,007 |
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| 270,320 |
|
Accumulated other comprehensive loss |
|
| (62,466 | ) |
|
| (55,364 | ) |
|
| (41,753 | ) |
|
| (34,340 | ) |
Total shareholders' equity |
|
| 551,635 |
|
|
| 577,636 |
|
|
| 625,280 |
|
|
| 607,790 |
|
Total liabilities and shareholders' equity |
| $ | 993,849 |
|
| $ | 1,021,751 |
|
| $ | 1,311,548 |
|
| $ | 1,296,979 |
|
The accompanying Condensed Notes to the Consolidated, Unaudited Financial Statements are an integral part of these financial statements.
34
Helios Technologies, Inc.
Consolidated Statements of Operations
(in thousands, except per share data)
|
| Three Months Ended |
|
| Three Months Ended |
| ||||||||||
|
| March 28, 2020 |
|
| March 30, 2019 |
|
| April 3, 2021 |
|
| March 28, 2020 |
| ||||
|
| (unaudited) |
|
| (unaudited) |
|
| (unaudited) |
|
| (unaudited) |
| ||||
Net sales |
| $ | 129,483 |
|
| $ | 146,851 |
|
| $ | 204,844 |
|
| $ | 129,483 |
|
Cost of sales |
|
| 77,633 |
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|
| 90,342 |
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|
| 129,477 |
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|
| 77,633 |
|
Gross profit |
|
| 51,850 |
|
|
| 56,509 |
|
|
| 75,367 |
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|
| 51,850 |
|
Selling, engineering and administrative expenses |
|
| 25,664 |
|
|
| 26,156 |
|
|
| 30,561 |
|
|
| 25,664 |
|
Amortization of intangible assets |
|
| 4,348 |
|
|
| 4,521 |
|
|
| 10,198 |
|
|
| 4,348 |
|
Goodwill impairment |
|
| 31,871 |
|
|
| — |
|
|
| — |
|
|
| 31,871 |
|
Operating (loss) income |
|
| (10,033 | ) |
|
| 25,832 |
| ||||||||
Operating income (loss) |
|
| 34,608 |
|
|
| (10,033 | ) | ||||||||
Interest expense, net |
|
| 2,951 |
|
|
| 4,385 |
|
|
| 4,751 |
|
|
| 2,951 |
|
Foreign currency transaction loss (gain), net |
|
| 125 |
|
|
| (439 | ) | ||||||||
Miscellaneous (income) expense, net |
|
| (94 | ) |
|
| 108 |
| ||||||||
Change in fair value of contingent consideration |
|
| — |
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|
| 719 |
| ||||||||
(Loss) income before income taxes |
|
| (13,015 | ) |
|
| 21,059 |
| ||||||||
Foreign currency transaction loss, net |
|
| 464 |
|
|
| 125 |
| ||||||||
Other non-operating income, net |
|
| (1 | ) |
|
| (94 | ) | ||||||||
Income (loss) before income taxes |
|
| 29,394 |
|
|
| (13,015 | ) | ||||||||
Income tax provision |
|
| 4,208 |
|
|
| 4,655 |
|
|
| 6,807 |
|
|
| 4,208 |
|
Net (loss) income |
| $ | (17,223 | ) |
| $ | 16,404 |
| ||||||||
Basic and diluted net (loss) income per common share |
| $ | (0.54 | ) |
| $ | 0.51 |
| ||||||||
Net income (loss) |
| $ | 22,587 |
|
| $ | (17,223 | ) | ||||||||
Basic and diluted net income (loss) per common share |
| $ | 0.70 |
|
| $ | (0.54 | ) | ||||||||
Basic and diluted weighted average shares outstanding |
|
| 32,062 |
|
|
| 31,978 |
|
|
| 32,193 |
|
|
| 32,062 |
|
Dividends declared per share |
| $ | 0.09 |
|
| $ | 0.09 |
|
| $ | 0.09 |
|
| $ | 0.09 |
|
The accompanying Condensed Notes to the Consolidated, Unaudited Financial Statements are an integral part of these financial statements.
Helios Technologies, Inc.
Consolidated Statements of Comprehensive Income
(in thousands)
|
| Three Months Ended |
| |||||
|
| April 3, 2021 |
|
| March 28, 2020 |
| ||
|
| (unaudited) |
|
| (unaudited) |
| ||
Net income (loss) |
| $ | 22,587 |
|
| $ | (17,223 | ) |
Other comprehensive income (loss) |
|
|
|
|
|
|
|
|
Foreign currency translation adjustments, net of tax |
|
| (9,118 | ) |
|
| (4,901 | ) |
Unrealized gain (loss) on interest rate swap, net of tax |
|
| 1,705 |
|
|
| (2,201 | ) |
Total other comprehensive loss |
|
| (7,413 | ) |
|
| (7,102 | ) |
Comprehensive income (loss) |
| $ | 15,174 |
|
| $ | (24,325 | ) |
The accompanying Condensed Notes to the Consolidated, Unaudited Financial Statements are an integral part of these financial statements.
4
Helios Technologies, Inc.
Consolidated Statements of Comprehensive Income (Loss)
(in thousands)
|
| Three Months Ended |
| |||||
|
| March 28, 2020 |
|
| March 30, 2019 |
| ||
|
| (unaudited) |
|
| (unaudited) |
| ||
Net (loss) income |
| $ | (17,223 | ) |
| $ | 16,404 |
|
Other comprehensive loss |
|
|
|
|
|
|
|
|
Foreign currency translation adjustments, net of tax |
|
| (4,901 | ) |
|
| (4,831 | ) |
Unrealized loss on interest rate swap, net of tax |
|
| (2,201 | ) |
|
| (1,082 | ) |
Total other comprehensive loss |
|
| (7,102 | ) |
|
| (5,913 | ) |
Comprehensive (loss) income |
| $ | (24,325 | ) |
| $ | 10,491 |
|
The accompanying Condensed Notes to the Consolidated, Unaudited Financial Statements are an integral part of these financial statements.
5
Helios Technologies, Inc.
Consolidated Statements of Shareholders’ Equity (unaudited)
Three Months Ended
(in thousands)
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| Accumulated |
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| Accumulated |
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| Capital in |
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| other |
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| Capital in |
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| other |
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| Preferred |
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| Preferred |
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| Common |
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| Common |
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| excess of |
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| Retained |
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| comprehensive |
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| Preferred |
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| Preferred |
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| Common |
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| Common |
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| excess of |
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| Retained |
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| comprehensive |
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| shares |
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| stock |
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| shares |
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| stock |
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| par value |
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| earnings |
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| (loss) |
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| Total |
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| shares |
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| stock |
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| shares |
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| stock |
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| par value |
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| earnings |
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| loss |
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| Total |
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Balance, December 28, 2019 |
|
| — |
|
| $ | — |
|
|
| 32,047 |
|
| $ | 32 |
|
| $ | 365,310 |
|
| $ | 267,658 |
|
| $ | (55,364 | ) |
| $ | 577,636 |
| ||||||||||||||||||||||||||||||||
Balance at January 2, 2021 |
|
| — |
|
| $ | — |
|
|
| 32,120 |
|
| $ | 32 |
|
| $ | 371,778 |
|
| $ | 270,320 |
|
| $ | (34,340 | ) |
| $ | 607,790 |
| ||||||||||||||||||||||||||||||||
Shares issued, restricted stock |
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|
|
|
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|
|
|
| 30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| — |
| ||||||||||||||||||||||||||||||||
Shares issued, other compensation |
|
|
|
|
|
|
|
|
|
| 7 |
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|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
| — |
| ||||||||||||||||||||||||||||||||
Shares issued, ESPP |
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|
|
|
|
|
|
|
|
| 10 |
|
|
|
|
|
|
| 333 |
|
|
|
|
|
|
|
|
|
|
| 333 |
| ||||||||||||||||||||||||||||||||
Shares issued, acquisition |
|
|
|
|
|
|
|
|
|
| 63 |
|
|
|
|
|
|
| 3,624 |
|
|
|
|
|
|
|
|
|
|
| 3,624 |
| ||||||||||||||||||||||||||||||||
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2,107 |
|
|
|
|
|
|
|
|
|
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| 2,107 |
| ||||||||||||||||||||||||||||||||
Cancellation of shares for payment of employee tax withholding |
|
|
|
|
|
|
|
|
|
| (4 | ) |
|
|
|
|
|
| (848 | ) |
|
|
|
|
|
|
|
|
|
| (848 | ) | ||||||||||||||||||||||||||||||||
Dividends declared |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (2,900 | ) |
|
|
|
|
|
| (2,900 | ) | ||||||||||||||||||||||||||||||||
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 22,587 |
|
|
|
|
|
|
| 22,587 |
| ||||||||||||||||||||||||||||||||
Other comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (7,413 | ) |
|
| (7,413 | ) | ||||||||||||||||||||||||||||||||
Balance at April 3, 2021 |
|
| — |
|
| $ | — |
|
|
| 32,226 |
|
| $ | 32 |
|
| $ | 376,994 |
|
| $ | 290,007 |
|
| $ | (41,753 | ) |
| $ | 625,280 |
| ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
Balance at December 28, 2019 |
|
| — |
|
| $ | — |
|
|
| 32,047 |
|
| $ | 32 |
|
| $ | 365,310 |
|
| $ | 267,658 |
|
| $ | (55,364 | ) |
| $ | 577,636 |
| ||||||||||||||||||||||||||||||||
Shares issued, restricted stock |
|
|
|
|
|
|
|
|
|
| 21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| — |
|
|
|
|
|
|
|
|
|
|
| 21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| — |
|
Shares issued, other compensation |
|
|
|
|
|
|
|
|
|
| 5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| — |
|
|
|
|
|
|
|
|
|
|
| 5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| — |
|
Shares issued, ESPP |
|
|
|
|
|
|
|
|
|
| 12 |
|
|
|
|
|
|
| 355 |
|
|
|
|
|
|
|
|
|
|
| 355 |
|
|
|
|
|
|
|
|
|
|
| 12 |
|
|
|
|
|
|
| 355 |
|
|
|
|
|
|
|
|
|
|
| 355 |
|
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1,533 |
|
|
|
|
|
|
|
|
|
|
| 1,533 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1,533 |
|
|
|
|
|
|
|
|
|
|
| 1,533 |
|
Cancellation of shares for payment of employee tax withholding |
|
|
|
|
|
|
|
|
|
| (10 | ) |
|
|
|
|
|
| (677 | ) |
|
|
|
|
|
|
|
|
|
| (677 | ) |
|
|
|
|
|
|
|
|
|
| (10 | ) |
|
|
|
|
|
| (677 | ) |
|
|
|
|
|
|
|
|
|
| (677 | ) |
Dividends declared |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (2,887 | ) |
|
|
|
|
|
| (2,887 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (2,887 | ) |
|
|
|
|
|
| (2,887 | ) |
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (17,223 | ) |
|
|
|
|
|
| (17,223 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (17,223 | ) |
|
|
|
|
|
| (17,223 | ) |
Other comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (7,102 | ) |
|
| (7,102 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (7,102 | ) |
|
| (7,102 | ) |
Balance at March 28, 2020 |
|
| — |
|
| $ | — |
|
|
| 32,075 |
|
| $ | 32 |
|
| $ | 366,521 |
|
| $ | 247,548 |
|
| $ | (62,466 | ) |
| $ | 551,635 |
|
|
| — |
|
| $ | — |
|
|
| 32,075 |
|
| $ | 32 |
|
| $ | 366,521 |
|
| $ | 247,548 |
|
| $ | (62,466 | ) |
| $ | 551,635 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
Balance, December 29, 2018 |
|
| — |
|
| $ | — |
|
|
| 31,965 |
|
| $ | 32 |
|
| $ | 357,933 |
|
| $ | 219,056 |
|
| $ | (46,253 | ) |
| $ | 530,768 |
| ||||||||||||||||||||||||||||||||
Shares issued, other compensation |
|
|
|
|
|
|
|
|
|
| 6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| — |
| ||||||||||||||||||||||||||||||||
Shares issued, ESPP |
|
|
|
|
|
|
|
|
|
| 13 |
|
|
|
|
|
|
| 408 |
|
|
|
|
|
|
|
|
|
|
| 408 |
| ||||||||||||||||||||||||||||||||
Shares issued, ESOP |
|
|
|
|
|
|
|
|
|
| 24 |
|
|
|
|
|
|
| 1,092 |
|
|
|
|
|
|
|
|
|
|
| 1,092 |
| ||||||||||||||||||||||||||||||||
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1,368 |
|
|
|
|
|
|
|
|
|
|
| 1,368 |
| ||||||||||||||||||||||||||||||||
Cancellation of shares for payment of employee tax withholding |
|
|
|
|
|
|
|
|
|
| (12 | ) |
|
|
|
|
|
| (606 | ) |
|
|
|
|
|
|
|
|
|
| (606 | ) | ||||||||||||||||||||||||||||||||
Dividends declared |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (2,881 | ) |
|
|
|
|
|
| (2,881 | ) | ||||||||||||||||||||||||||||||||
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 16,404 |
|
|
|
|
|
|
| 16,404 |
| ||||||||||||||||||||||||||||||||
Other comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (5,913 | ) |
|
| (5,913 | ) | ||||||||||||||||||||||||||||||||
Impact of adoption of ASU 2016-02, related to leases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (134 | ) |
|
|
|
|
|
| (134 | ) | ||||||||||||||||||||||||||||||||
Balance at March 30, 2019 |
|
| — |
|
| $ | — |
|
|
| 31,996 |
|
| $ | 32 |
|
| $ | 360,195 |
|
| $ | 232,445 |
|
| $ | (52,166 | ) |
| $ | 540,506 |
|
The accompanying Condensed Notes to the Consolidated, Unaudited Financial Statements are an integral part of these financial statements.
6
Helios Technologies, Inc.
Consolidated Statements of Cash Flows
(in thousands)
|
| Three Months Ended |
|
| Three Months Ended |
| ||||||||||
|
| March 28, 2020 |
|
| March 30, 2019 |
|
| April 3, 2021 |
|
| March 28, 2020 |
| ||||
|
| (unaudited) |
|
| (unaudited) |
|
| (unaudited) |
|
| (unaudited) |
| ||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
| $ | (17,223 | ) |
| $ | 16,404 |
| ||||||||
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
| ||||||||
Net income (loss) |
| $ | 22,587 |
|
| $ | (17,223 | ) | ||||||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
|
|
|
|
|
|
|
| ||||||||
Depreciation and amortization |
|
| 8,376 |
|
|
| 8,571 |
|
|
| 15,237 |
|
|
| 8,376 |
|
Loss on disposal of assets |
|
| 24 |
|
|
| 71 |
| ||||||||
Goodwill impairment |
|
| 31,871 |
|
|
| — |
|
|
| — |
|
|
| 31,871 |
|
Stock-based compensation expense |
|
| 1,533 |
|
|
| 1,368 |
|
|
| 2,107 |
|
|
| 1,533 |
|
Amortization of debt issuance costs |
|
| 179 |
|
|
| 179 |
|
|
| 125 |
|
|
| 179 |
|
Benefit for deferred income taxes |
|
| (1,186 | ) |
|
| (322 | ) |
|
| (906 | ) |
|
| (1,186 | ) |
Change in fair value of contingent consideration |
|
| — |
|
|
| 719 |
| ||||||||
Forward contract (gains) losses, net |
|
| (440 | ) |
|
| 24 |
| ||||||||
Forward contract gains, net |
|
| (2,402 | ) |
|
| (440 | ) | ||||||||
Other, net |
|
| 136 |
|
|
| 549 |
|
|
| 32 |
|
|
| 160 |
|
(Increase) decrease in: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
| (6,838 | ) |
|
| (8,848 | ) |
|
| (28,051 | ) |
|
| (6,838 | ) |
Inventories |
|
| (2,818 | ) |
|
| (3,729 | ) |
|
| (10,809 | ) |
|
| (2,818 | ) |
Income taxes receivable |
|
| 1,415 |
|
|
| — |
|
|
| 565 |
|
|
| 1,415 |
|
Other current assets |
|
| (2,740 | ) |
|
| (2,455 | ) |
|
| (2,614 | ) |
|
| (2,740 | ) |
Other assets |
|
| 1,213 |
|
|
| 1,088 |
|
|
| 2,139 |
|
|
| 1,213 |
|
Increase (decrease) in: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
| 3,867 |
|
|
| 662 |
|
|
| 13,912 |
|
|
| 3,867 |
|
Accrued expenses and other liabilities |
|
| (4,652 | ) |
|
| 3,496 |
|
|
| (2,147 | ) |
|
| (4,652 | ) |
Income taxes payable |
|
| 3,051 |
|
|
| 2,710 |
|
|
| 6,126 |
|
|
| 3,051 |
|
Other noncurrent liabilities |
|
| (701 | ) |
|
| (659 | ) |
|
| (819 | ) |
|
| (701 | ) |
Net cash provided by operating activities |
|
| 15,067 |
|
|
| 19,828 |
|
|
| 15,082 |
|
|
| 15,067 |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of a business, net of cash acquired |
|
| (1,000 | ) |
|
| — |
| ||||||||
Amounts paid for net assets acquired |
|
| (2,400 | ) |
|
| — |
| ||||||||
Capital expenditures |
|
| (2,937 | ) |
|
| (8,792 | ) |
|
| (5,036 | ) |
|
| (2,937 | ) |
Proceeds from dispositions of equipment |
|
| 3 |
|
|
| 64 |
|
|
| 35 |
|
|
| 3 |
|
Cash settlement of forward contracts |
|
| 1,634 |
|
|
| — |
|
|
| 1,544 |
|
|
| 1,634 |
|
Software development costs |
|
| (623 | ) |
|
| — |
| ||||||||
Net cash used in investing activities |
|
| (1,300 | ) |
|
| (8,728 | ) |
|
| (7,480 | ) |
|
| (1,300 | ) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings on revolving credit facility |
|
| 2,000 |
|
|
| 35,282 |
| ||||||||
Repayment of borrowings on revolving credit facility |
|
| (5,500 | ) |
|
| (48,000 | ) | ||||||||
Borrowings on revolving credit facilities |
|
| 6,602 |
|
|
| 2,000 |
| ||||||||
Repayment of borrowings on revolving credit facilities |
|
| (8,500 | ) |
|
| (5,500 | ) | ||||||||
Repayment of borrowings on long-term non-revolving debt |
|
| (2,100 | ) |
|
| (1,623 | ) |
|
| (4,029 | ) |
|
| (2,100 | ) |
Proceeds from stock issued |
|
| 355 |
|
|
| 408 |
|
|
| 333 |
|
|
| 355 |
|
Dividends to shareholders |
|
| (2,885 | ) |
|
| (2,878 | ) |
|
| (2,891 | ) |
|
| (2,885 | ) |
Other financing activities |
|
| (815 | ) |
|
| (881 | ) |
|
| (974 | ) |
|
| (815 | ) |
Net cash used in financing activities |
|
| (8,945 | ) |
|
| (17,692 | ) |
|
| (9,459 | ) |
|
| (8,945 | ) |
Effect of exchange rate changes on cash, cash equivalents and restricted cash |
|
| 310 |
|
|
| (167 | ) |
|
| 2,565 |
|
|
| 310 |
|
Net increase (decrease) in cash, cash equivalents and restricted cash |
|
| 5,132 |
|
|
| (6,759 | ) | ||||||||
Net increase in cash, cash equivalents and restricted cash |
|
| 708 |
|
|
| 5,132 |
| ||||||||
Cash, cash equivalents and restricted cash, beginning of period |
|
| 22,162 |
|
|
| 23,515 |
|
|
| 25,257 |
|
|
| 22,162 |
|
Cash, cash equivalents and restricted cash, end of period |
| $ | 27,294 |
|
| $ | 16,756 |
|
| $ | 25,965 |
|
| $ | 27,294 |
|
The accompanying Condensed Notes to the Consolidated, Unaudited Financial Statements are an integral part of these financial statements.
78
HELIOS TECHNOLOGIES, INC.
CONDENSED NOTES TO THE CONSOLIDATED, UNAUDITED FINANCIAL STATEMENTS
(Currencies in thousands, except per share data)
1. COMPANY BACKGROUND
Helios Technologies, Inc. (“Helios”Helios,” or the “Company”), together with its wholly-ownedwholly owned subsidiaries, is an industriala global leader in highly engineered motion control and electronic controls technology leader that developsfor diverse end markets, including construction, material handling, agriculture, energy, recreational vehicles, marine, health, and manufactureswellness. Helios sells its products to customers in over 85 countries around the world. The Company’s strategy for growth is to be the leading provider in niche markets, with premier products and solutions for both the hydraulicsthrough innovative product development and electronics markets. Sun Hydraulics, LLC (“Sun Hydraulics” or “Sun”), Enovation Controls, LLC (“Enovation Controls”), Faster S.r.l. (“Faster”) and Custom Fluidpower Pty Ltd (“Custom Fluidpower”), are the wholly-owned operating subsidiaries of Helios.acquisitions.
The Company operates in 2 business segments: Hydraulics and Electronics. There are three key technologies within the Hydraulics segment: cartridge valve technology (“CVT”), quick-release hydraulic coupling solutions (“QRC”) and hydraulic system design (“Systems”). CVT products provide functions important to a hydraulic system: to control rates and direction of fluid flow and to regulate and control pressures. QRC products allow users to connect and disconnect quickly from any hydraulic circuit without leakage and ensure high-performance under high temperature and pressure using one or multiple couplers. Systems provide engineered solutions for machine users, manufacturers or designers to fulfill complete system design requirements including electro-hydraulic, remote control, electronic control and programmable logic controller systems, as well as automation of existing equipment. The Electronics segment provides complete, fully-tailored display and control solutions for engines, engine-driven equipment, specialty vehicles and specialty vehicles.therapy baths and spas. This broad range of products is complemented by extensive application expertise and unparalleled depth of software, embedded programming, hardware and sustaining engineering teams. This technology is referred to as Electronic Controls (“EC”).
On November 6, 2020, the Company completed the acquisition of BWG Holdings I Corp. (hereinafter referred to as “Balboa Water Group” or “Balboa”), an innovative market leader of electronic controls for the health and wellness industry. The results of Balboas operations are reported in the Company’s Electronics segment and have been included in the Consolidated Financial Statements since the acquisition date.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited interim consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission for reporting on Form 10-Q. Accordingly, certain information and footnotes required by accounting principles generally accepted in the United States of America (“U.S. GAAP”) for complete financial statements are not included herein. The financial statements are prepared on a consistent basis (including normal recurring adjustments) and should be read in conjunction with the consolidated financial statements and related notes contained in the Annual Report on Form 10-K for the fiscal year ended December 28, 2019,January 2, 2021 (“Form 10-K”), filed by Helios with the Securities and Exchange Commission on February 25, 2020.March 2, 2021. In management’s opinion, all adjustments necessary for a fair presentation of the Company’s financial statements are reflected in the interim periods presented.
The Company faces various risks related to health epidemics, pandemics and similar outbreaks, including the global outbreak of COVID-19. The current COVID-19 pandemic has had an impact on markets the Company serves and its operations. The Company cannot at this time predict the future impact of the COVID-19 pandemic on its business or economic conditions as a whole, but it could have a material adverse effect on the business, financial position, results of operations and/or cash flows. Operating results for the three months ended March 28, 2020,April 3, 2021 are not necessarily indicative of the results that may be expected for the fiscal year endingended January 2, 2021.1, 2022.
Goodwill
Goodwill, which represents the excess of the purchase price of an acquisition over the fair value of the net assets acquired, is carried at cost. Goodwill is tested for impairment annually, in the third and fourth quarters, or more frequently if events or circumstances indicate a reduction in the fair value below the carrying value. As part of the impairment test, the Company has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after this optional qualitative assessment, the Company determines that impairment is more likely than not, then the Company performs the quantitative impairment test. The carrying value of assets is calculated at the reporting unit level. An impairment loss is recorded to the extent that the carrying value of the reporting unit exceeds its fair value, with the impairment loss limited to the amount of goodwill allocated to the reporting unit.
89
During the first quarter of 2020, the Company determined that, based on current economic conditions and potential future impacts from the COVID-19 pandemic, it was more likely than not that the fair value of the Faster reporting unit was less than its carrying value. Upon completion of the interim impairment testing, the Company determined that the carrying value of goodwill was impaired. See Note 6 for discussion of interim impairment testing.
Contract Assets &and Liabilities
Contract assets are recognized when the Company has a conditional right to consideration for performance completed on contracts. Contract asset balances totaled $2,741$2,239 and $2,796$2,776 at March 28, 2020April 3, 2021 and December 28, 2019,January 2, 2021, respectively, and are presented in Other current assets in the Consolidated Balance Sheets. Accounts receivable balances represent unconditional rights to consideration from customers and are presented separate from contract assets in the Consolidated Balance Sheets.
Contract liabilities are recognized when payment is received from customers prior to revenue being recognized.satisfying the underlying performance obligation. Contract liabilities totaled $253$3,865 and $353$4,208 at March 28, 2020April 3, 2021 and December 28, 2019,January 2, 2021, respectively, and are presented in Other accrued expenses and current liabilities in the Consolidated Balance Sheets.
Research and Development
The Company conducts research and development (“R&D”) to create new products and to make improvements to products currently in use. R&D costs are charged to expense as incurred and totaled $4,107,$4,298, and $3,900$4,107 for the three months ended April 3, 2021 and March 28, 2020, and March 30, 2019, respectively.
Earnings Per Share
The following table presents the computation of basic and diluted earnings per common share (in thousands, except per share data):
|
| Three Months Ended |
| |||||
|
| March 28, 2020 |
|
| March 30, 2019 |
| ||
Net (loss) income |
| $ | (17,223 | ) |
| $ | 16,404 |
|
Basic and diluted weighted average shares outstanding |
|
| 32,062 |
|
|
| 31,978 |
|
Basic and diluted net (loss) income per common share |
| $ | (0.54 | ) |
| $ | 0.51 |
|
|
| Three Months Ended |
| |||||
|
| April 3, 2021 |
|
| March 28, 2020 |
| ||
Net income (loss) |
| $ | 22,587 |
|
| $ | (17,223 | ) |
Basic and diluted weighted average shares outstanding |
|
| 32,193 |
|
|
| 32,062 |
|
Basic and diluted net income (loss) per common share |
| $ | 0.70 |
|
| $ | (0.54 | ) |
Recently Adopted Accounting Standards
In January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-04, Intangibles – Goodwill and Other: Simplifying the Test for Goodwill Impairment. ASU 2017-04 eliminates the second step in the goodwill impairment test, which requires an entity to determine the implied fair value of the reporting unit’s goodwill. Instead, an entity should recognize an impairment loss if the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, with the impairment loss not to exceed the amount of goodwill allocated to the reporting unit. The Company adopted the standard for the fiscal year beginning December 29, 2019, and conducted its interim impairment testing accordingly.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses. The standard replaces the incurred loss model with the current expected credit loss (“CECL”) model to estimate credit losses for financial assets measured at amortized cost and certain off-balance sheet credit exposures. The CECL model requires a Company to estimate credit losses expected over the life of the financial assets based on historical experience, current conditions and reasonable and supportable forecasts. The Company adopted the standard for the fiscal year beginning December 29, 2019. Adoption of the standard did not have a material impact on the Consolidated, Unaudited Financial Statements.
9
Recently Issued Accounting Standards
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This update simplifies accounting for income taxes by eliminating some exceptions to the general approach in ASC 740, Income Taxes, related to intraperiod tax allocation, the methodology for calculating income tax in an interim period and the recognition of deferred tax liabilities for outside basis differences. This update is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The amendments in this update should be applied on either a retrospective basis, a modified retrospective basis or prospectively, depending on the provision within the amendment. The Company doesadopted the standard for the fiscal year beginning January 3, 2021. Adoption of the standard did not expect the adoption of this guidance to have a material impact on its consolidated financial statements.
the Consolidated, Unaudited Financial Statements.
3. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following tables provide information regarding the Company’s assets and liabilities measured at fair value on a recurring basis at March 28, 2020April 3, 2021 and December 28, 2019.January 2, 2021.
|
| March 28, 2020 |
|
| April 3, 2021 |
| ||||||||||||||||||||||||||
|
|
|
|
|
| Quoted Market |
|
| Significant Other Observable |
|
| Significant Unobservable |
|
|
|
|
|
| Quoted Market |
|
| Significant Other Observable |
|
| Significant Unobservable |
| ||||||
|
| Total |
|
| Prices (Level 1) |
|
| Inputs (Level 2) |
|
| Inputs (Level 3) |
|
| Total |
|
| Prices (Level 1) |
|
| Inputs (Level 2) |
|
| Inputs (Level 3) |
| ||||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap contract |
| $ | 861 |
|
| $ | — |
|
| $ | 861 |
|
| $ | — |
| ||||||||||||||||
Forward foreign exchange contracts |
| $ | 710 |
|
| $ | — |
|
| $ | 710 |
|
| $ | — |
|
|
| 251 |
|
|
| — |
|
|
| 251 |
|
|
| — |
|
Total |
| $ | 710 |
|
| $ | — |
|
| $ | 710 |
|
| $ | — |
|
| $ | 1,112 |
|
| $ | — |
|
| $ | 1,112 |
|
| $ | — |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap contract |
| $ | 9,821 |
|
| $ | — |
|
| $ | 9,821 |
|
| $ | — |
|
| $ | 6,329 |
|
| $ | — |
|
| $ | 6,329 |
|
| $ | — |
|
Forward foreign exchange contracts |
|
| 1,309 |
|
|
| — |
|
|
| 1,309 |
|
|
| — |
|
|
| 731 |
|
|
| — |
|
|
| 731 |
|
|
| — |
|
Contingent consideration |
|
| 828 |
|
|
| — |
|
|
| — |
|
|
| 828 |
|
|
| 1,459 |
|
|
| — |
|
|
| — |
|
|
| 1,459 |
|
Total |
| $ | 11,958 |
|
| $ | — |
|
| $ | 11,130 |
|
| $ | 828 |
|
| $ | 8,519 |
|
| $ | — |
|
| $ | 7,060 |
|
| $ | 1,459 |
|
|
| December 28, 2019 |
|
| January 2, 2021 |
| ||||||||||||||||||||||||||
|
|
|
|
|
| Quoted Market |
|
| Significant Other Observable |
|
| Significant Unobservable |
|
|
|
|
|
| Quoted Market |
|
| Significant Other Observable |
|
| Significant Unobservable |
| ||||||
|
| Total |
|
| Prices (Level 1) |
|
| Inputs (Level 2) |
|
| Inputs (Level 3) |
|
| Total |
|
| Prices (Level 1) |
|
| Inputs (Level 2) |
|
| Inputs (Level 3) |
| ||||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward foreign exchange contracts |
| $ | 815 |
|
| $ | — |
|
| $ | 815 |
|
| $ | — |
|
| $ | 211 |
|
| $ | — |
|
| $ | 211 |
|
| $ | — |
|
Total |
| $ | 815 |
|
| $ | — |
|
| $ | 815 |
|
| $ | — |
|
| $ | 211 |
|
| $ | — |
|
| $ | 211 |
|
| $ | — |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap contract |
| $ | 5,792 |
|
| $ | — |
|
| $ | 5,792 |
|
| $ | — |
|
| $ | 7,679 |
|
| $ | — |
|
| $ | 7,679 |
|
| $ | — |
|
Forward foreign exchange contracts |
|
| 219 |
|
|
| — |
|
|
| 219 |
|
|
| — |
|
|
| 1,551 |
|
|
| — |
|
|
| 1,551 |
|
|
| — |
|
Contingent consideration |
|
| 828 |
|
|
| — |
|
|
| — |
|
|
| 828 |
|
|
| 1,919 |
|
|
| — |
|
|
| — |
|
|
| 1,919 |
|
Total |
| $ | 6,839 |
|
| $ | — |
|
| $ | 6,011 |
|
| $ | 828 |
|
| $ | 11,149 |
|
| $ | — |
|
| $ | 9,230 |
|
| $ | 1,919 |
|
A summary of the changes in the estimated fair value of contingent consideration at April 3, 2021 is as follows:
Balance at January 2, 2021 |
| $ | 1,919 |
|
Change in estimated fair value |
|
| (460 | ) |
Balance at April 3, 2021 |
| $ | 1,459 |
|
4. INVENTORIES
At March 28, 2020April 3, 2021 and December 28, 2019,January 2, 2021, inventory consisted of the following:
|
| March 28, 2020 |
|
| December 28, 2019 |
|
| April 3, 2021 |
|
| January 2, 2021 |
| ||||
Raw materials |
| $ | 35,760 |
|
| $ | 34,340 |
|
| $ | 58,133 |
|
| $ | 49,361 |
|
Work in process |
|
| 31,189 |
|
|
| 28,667 |
|
|
| 33,169 |
|
|
| 30,675 |
|
Finished goods |
|
| 27,183 |
|
|
| 29,711 |
|
|
| 38,014 |
|
|
| 39,332 |
|
Provision for obsolete and slow moving inventory |
|
| (7,405 | ) |
|
| (7,523 | ) |
|
| (9,553 | ) |
|
| (8,996 | ) |
Total |
| $ | 86,727 |
|
| $ | 85,195 |
|
| $ | 119,763 |
|
| $ | 110,372 |
|
10
5. OPERATING LEASES
The Company leases machinery, equipment, vehicles, buildings and office space, throughout its locations, whichthat are classified as operating leases. Remaining terms on these leases range from less than one year to ten years. For the three months ended April 3, 2021 and March 28, 2020, and March 30, 2019, operating lease costs totaled $1,395 and $908, in each period.respectively.
Supplemental balance sheet information related to operating leases is as follows:
|
| March 28, 2020 |
|
| December 28, 2019 |
|
| April 3, 2021 |
|
| January 2, 2021 |
| ||||
Right-of-use assets |
| $ | 10,841 |
|
| $ | 12,310 |
|
| $ | 15,512 |
|
| $ | 16,616 |
|
Lease liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current lease liabilities |
| $ | 3,092 |
|
| $ | 3,155 |
|
| $ | 4,341 |
|
| $ | 4,736 |
|
Non-current lease liabilities |
|
| 7,911 |
|
|
| 9,312 |
|
|
| 11,982 |
|
|
| 12,728 |
|
Total lease liabilities |
| $ | 11,003 |
|
| $ | 12,467 |
|
| $ | 16,323 |
|
| $ | 17,464 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average remaining lease term (in years): |
|
|
|
|
|
| 5.3 |
|
|
| 5.0 |
|
|
|
|
|
Weighted average discount rate: |
|
|
|
|
|
| 4.7 | % |
|
| 5.0 | % |
|
|
|
|
Supplemental cash flow information related to leases is as follows:
|
| Three Months Ended |
|
| Three Months Ended |
| ||||||||||
|
| March 28, 2020 |
|
| March 30, 2019 |
|
| April 3, 2021 |
|
| March 28, 2020 |
| ||||
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating cash flows from operating leases |
| $ | 915 |
|
| $ | 913 |
|
| $ | 1,355 |
|
| $ | 915 |
|
Right-of-use assets obtained in exchange for new operating lease liabilities |
| $ | 15 |
|
| $ | 901 |
| ||||||||
Non-cash impact of new leases and lease modifications |
| $ | 204 |
|
| $ | 15 |
|
Maturities of lease liabilities are as follows:
2020 Remaining |
|
|
| $ | 2,656 |
| ||||||
2021 |
|
|
|
| 3,419 |
| ||||||
2021 Remaining |
|
|
| $ | 4,084 |
| ||||||
2022 |
|
|
|
| 1,638 |
|
|
|
|
| 3,594 |
|
2023 |
|
|
|
| 1,289 |
|
|
|
|
| 3,261 |
|
2024 |
|
|
|
| 903 |
|
|
|
|
| 2,602 |
|
2025 |
|
|
|
| 631 |
|
|
|
|
| 2,001 |
|
2026 |
|
|
|
| 1,606 |
| ||||||
Thereafter |
|
|
|
| 2,053 |
|
|
|
|
| 1,297 |
|
Total lease payments |
|
|
|
| 12,589 |
|
|
|
|
| 18,445 |
|
Less: Imputed interest |
|
|
|
| (1,586 | ) |
|
|
|
| (2,122 | ) |
Total lease obligations |
|
|
|
| 11,003 |
|
|
|
|
| 16,323 |
|
Less: Current lease liabilities |
|
|
|
| (3,092 | ) |
|
|
|
| (4,341 | ) |
Non-current lease liabilities |
|
|
| $ | 7,911 |
|
|
|
| $ | 11,982 |
|
6. GOODWILL AND INTANGIBLE ASSETS
Goodwill
A summary of changes in goodwill by segment for the three months ended March 28, 2020,April 3, 2021, is as follows:
|
| Hydraulics |
|
| Electronics |
|
| Total |
| |||
Balance at December 28, 2019 |
| $ | 271,196 |
|
| $ | 106,373 |
|
| $ | 377,569 |
|
Impairment charge |
|
| (31,871 | ) |
|
| — |
|
|
| (31,871 | ) |
Currency translation |
|
| (1,883 | ) |
|
| — |
|
|
| (1,883 | ) |
Balance at March 28, 2020 |
| $ | 237,442 |
|
| $ | 106,373 |
|
| $ | 343,815 |
|
|
| Hydraulics |
|
| Electronics |
|
| Total |
| |||
Balance at January 2, 2021 |
| $ | 261,129 |
|
| $ | 182,404 |
|
| $ | 443,533 |
|
Measurement period adjustment, Balboa Water Group acquisition |
|
| 0 |
|
|
| 90 |
|
|
| 90 |
|
Currency translation |
|
| (9,564 | ) |
|
| 0 |
|
|
| (9,564 | ) |
Balance at April 3, 2021 |
| $ | 251,565 |
|
| $ | 182,494 |
|
| $ | 434,059 |
|
11
During the first quarter of 2020, the global economy was significantly impacted by the COVID-19 pandemic. Given the economic impact, primarily in Europe, government mandated facility closures and an unfavorable outlook for certain end markets, the Company concluded that this change in circumstances triggered the need for an interim impairment review of its Faster reporting unit. The interim review was performed as of March 28, 2020. A recoverability test for the long-lived assets within the Faster reporting unit was performed first and resulted in the conclusion that the carrying value of the long-lived assets was fully recoverable. An interim quantitative impairment test for goodwill was then performed.
The fair value of the Faster reporting unit was determined based on a combination of income and market approach methodologies. The income approach utilized a discounted cash flow analysis, which estimates the present value of the projected free cash flows to be generated by the reporting unit. Principal assumptions used in the analysis include the Company's estimates of future revenue and terminal growth rates, margin assumptions and discount rates. While assumptions utilized are subject to a high degree of judgment and complexity, the Company has made every effort to estimate future cash flows as accurately as possible, given the high degree of economic uncertainty that currently exists. The market approaches estimate fair value by comparing to guideline public companies and guideline transactions. Various valuation multiples of companies that are economically and operationally similar were used as data points for selecting multiples. The Company concluded that the estimated fair value of the Faster reporting unit was less than its carrying value, and as a result, recorded a non-cash, non-tax-deductible goodwill impairment charge of $31,871. If the economic impact from the COVID-19 pandemic is more severe than anticipated, or if the economic recovery takes longer to materialize or does not materialize as strongly as anticipated, it could result in further goodwill impairment charges.
The Company considered the known and anticipated impacts of the COVID-19 pandemic on its other reporting units and concluded that it was more likely than not that their fair value exceeded their carrying value.
Intangible Assets
At March 28, 2020,April 3, 2021, and December 28, 2019,January 2, 2021, intangible assets consisted of the following:
|
| March 28, 2020 |
|
| December 28, 2019 |
|
| April 3, 2021 |
|
| January 2, 2021 |
| ||||||||||||||||||||||||||||||||||||
|
| Gross carrying amount |
|
| Accumulated amortization |
|
| Net carrying amount |
|
| Gross carrying amount |
|
| Accumulated amortization |
|
| Net carrying amount |
|
| Gross Carrying Amount |
|
| Accumulated Amortization |
|
| Net Carrying Amount |
|
| Gross Carrying Amount |
|
| Accumulated Amortization |
|
| Net Carrying Amount |
| ||||||||||||
Definite-lived intangibles: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade names and brands |
| $ | 55,747 |
|
| $ | (8,362 | ) |
| $ | 47,385 |
|
| $ | 56,032 |
|
| $ | (7,658 | ) |
| $ | 48,374 |
|
| $ | 79,422 |
|
| $ | (12,112 | ) |
| $ | 67,310 |
|
| $ | 80,402 |
|
| $ | (11,188 | ) |
| $ | 69,214 |
|
Non-compete agreements |
|
| 950 |
|
|
| (633 | ) |
|
| 317 |
|
|
| 950 |
|
|
| (586 | ) |
|
| 364 |
|
|
| 950 |
|
|
| (823 | ) |
|
| 127 |
|
|
| 950 |
|
|
| (776 | ) |
|
| 174 |
|
Technology |
|
| 31,544 |
|
|
| (9,414 | ) |
|
| 22,130 |
|
|
| 31,704 |
|
|
| (8,661 | ) |
|
| 23,043 |
|
|
| 45,441 |
|
|
| (13,460 | ) |
|
| 31,981 |
|
|
| 45,955 |
|
|
| (12,368 | ) |
|
| 33,587 |
|
Supply agreement |
|
| 21,000 |
|
|
| (7,000 | ) |
|
| 14,000 |
|
|
| 21,000 |
|
|
| (6,475 | ) |
|
| 14,525 |
|
|
| 21,000 |
|
|
| (9,100 | ) |
|
| 11,900 |
|
|
| 21,000 |
|
|
| (8,575 | ) |
|
| 12,425 |
|
Customer relationships |
|
| 226,835 |
|
|
| (21,678 | ) |
|
| 205,157 |
|
|
| 227,844 |
|
|
| (19,499 | ) |
|
| 208,345 |
|
|
| 322,825 |
|
|
| (33,977 | ) |
|
| 288,848 |
|
|
| 330,406 |
|
|
| (31,431 | ) |
|
| 298,975 |
|
Sales order backlog |
|
| 8,000 |
|
|
| (6,833 | ) |
|
| 1,167 |
|
|
| 8,000 |
|
|
| (3,000 | ) |
|
| 5,000 |
| ||||||||||||||||||||||||
Workforce |
|
| 6,077 |
|
|
| (101 | ) |
|
| 5,976 |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||||
|
| $ | 336,076 |
|
| $ | (47,087 | ) |
| $ | 288,989 |
|
| $ | 337,530 |
|
| $ | (42,879 | ) |
| $ | 294,651 |
|
| $ | 483,715 |
|
| $ | (76,406 | ) |
| $ | 407,309 |
|
| $ | 486,713 |
|
| $ | (67,338 | ) |
| $ | 419,375 |
|
Amortization expense for the three months ended April 3, 2021, and March 28, 2020, was $10,198 and March 30, 2019, was $4,348, and $4,521, respectively. Future estimated amortization expense is presented below.
Year: |
|
|
|
|
2020 Remaining |
| $ | 13,413 |
|
2021 |
|
| 17,674 |
|
2022 |
|
| 17,411 |
|
2023 |
|
| 17,352 |
|
2024 |
|
| 16,697 |
|
2025 |
|
| 16,642 |
|
Thereafter |
|
| 189,800 |
|
Total |
| $ | 288,989 |
|
Year: |
|
|
|
|
2021 Remaining |
| $ | 20,444 |
|
2022 |
|
| 25,519 |
|
2023 |
|
| 25,459 |
|
2024 |
|
| 24,805 |
|
2025 |
|
| 24,737 |
|
2026 |
|
| 23,349 |
|
Thereafter |
|
| 262,996 |
|
Total |
| $ | 407,309 |
|
7. DERIVATIVE INSTRUMENTS & HEDGING ACTIVITIES
The Company addresses certain financial exposures through a controlled program of risk management that includes the use of derivative financial instruments and hedging activities.
The fair value of the Company’s derivative financial instruments included in the Consolidated Balance Sheets is presented as follows:
| Asset Derivatives |
|
| Liability Derivatives |
| Asset Derivatives |
|
| Liability Derivatives |
| ||||||||||||||||||||||||
| Balance Sheet |
| Fair Value (1) |
| Fair Value (1) |
|
| Balance Sheet |
| Fair Value (1) |
| Fair Value (1) |
| Balance Sheet |
| Fair Value (1) |
| Fair Value (1) |
|
| Balance Sheet |
| Fair Value (1) |
| Fair Value (1) |
| ||||||||
| Location |
| March 28, 2020 |
| December 28, 2019 |
|
| Location |
| March 28, 2020 |
| December 28, 2019 |
| Location |
| April 3, 2021 |
| January 2, 2021 |
|
| Location |
| April 3, 2021 |
| January 2, 2021 |
| ||||||||
Derivatives designated as hedging instruments: | Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
| Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
| ||||||||||||||
Interest rate swap contract | Other assets |
| $ | — |
| $ | — |
|
| Other non-current liabilities |
| $ | 9,821 |
| $ | 5,792 |
| |||||||||||||||||
Interest rate swap contracts | Other assets |
| $ | 861 |
| $ | — |
|
| Other non-current liabilities |
| $ | 6,329 |
| $ | 7,679 |
| |||||||||||||||||
Derivatives not designated as hedging instruments: | Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
|
| Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
|
| ||||||||||||||
Forward foreign exchange contracts | Other current assets |
|
| 547 |
| 509 |
|
| Other current liabilities |
|
| 1,228 |
| 213 |
| Other current assets |
|
| 30 |
| 169 |
|
| Other current liabilities |
|
| 731 |
| 1,413 |
| ||||
Forward foreign exchange contracts | Other assets |
|
| 163 |
| 306 |
|
| Other non-current liabilities |
|
| 81 |
| 6 |
| Other assets |
|
| 221 |
| 42 |
|
| Other non-current liabilities |
|
| — |
| 138 |
| ||||
Total derivatives |
|
| $ | 710 |
| $ | 815 |
|
|
|
| $ | 11,130 |
| $ | 6,011 |
|
|
| $ | 1,112 |
| $ | 211 |
|
|
|
| $ | 7,060 |
| $ | 9,230 |
|
(1) See Note 3 for information regarding the inputs used in determining the fair value of derivative assets and liabilities. | (1) See Note 3 for information regarding the inputs used in determining the fair value of derivative assets and liabilities. |
| (1) See Note 3 for information regarding the inputs used in determining the fair value of derivative assets and liabilities. |
|
The amount of gains and losses related to the Company’s derivative financial instruments for the three months ended April 3, 2021 and March 28, 2020, and March 30, 2019, are presented as follows:
|
| Amount of Gain or (Loss) Recognized in Other Comprehensive Income on Derivatives (Effective Portion) |
|
| Location of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income | Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Earnings (Effective Portion) |
|
| Amount of Gain or (Loss) Recognized in Other Comprehensive Income on Derivatives (Effective Portion) |
|
| Location of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income | Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Earnings (Effective Portion) |
| ||||||||||||||||||
|
| March 28, 2020 |
| March 30, 2019 |
|
| into Earnings (Effective Portion) |
| March 28, 2020 |
| March 30, 2019 |
|
| April 3, 2021 |
| March 28, 2020 |
|
| into Earnings (Effective Portion) |
| April 3, 2021 |
| March 28, 2020 |
| ||||||||
Derivatives in cash flow hedging relationships: | Derivatives in cash flow hedging relationships: |
|
|
|
|
|
|
|
|
| Derivatives in cash flow hedging relationships: |
|
|
|
|
|
|
|
|
| ||||||||||||
Interest rate swap contract |
| $ | (4,029 | ) | $ | (1,521 | ) |
| Interest expense, net |
| $ | (525 | ) | $ | (183 | ) | ||||||||||||||||
Interest rate swap contracts |
| $ | 2,210 |
| $ | (4,029 | ) |
| Interest expense, net |
| $ | (1,079 | ) | $ | (525 | ) |
Interest expense presented in the Consolidated Statements of Operations, in which the effects of cash flow hedges are recorded, totaled $2,951$4,751 and $4,385$2,951 for the three months ended April 3, 2021 and March 28, 2020, and March 30, 2019, respectively.
|
| Amount of Gain or (Loss) Recognized in Earnings on Derivatives |
|
| Location of Gain or (Loss) Recognized |
| Amount of Gain or (Loss) Recognized in Earnings on Derivatives |
|
| Location of Gain or (Loss) Recognized | ||||||||
|
| March 28, 2020 |
| March 30, 2019 |
|
| in Earnings on Derivatives |
| April 3, 2021 |
| March 28, 2020 |
|
| in Earnings on Derivatives | ||||
Derivatives not designated as hedging instruments: | Derivatives not designated as hedging instruments: |
|
|
| Derivatives not designated as hedging instruments: |
|
|
| ||||||||||
Forward foreign exchange contracts |
| $ | 440 |
| $ | (24 | ) |
| Foreign currency transaction gain loss, net |
| $ | 2,402 |
| $ | 440 |
|
| Foreign currency transaction gain loss, net |
Interest Rate Swap ContractContracts
The Company has entered into an interest rate swap transactiontransactions to hedge the variable interest rate payments on theits credit facilities. In connection with this transaction,these transactions, the Company pays interest based upon a fixed rate as agreed upon with the respective counterparties and receives variable rate interest payments based on the one-month LIBOR. The interest rate swap hasswaps have an aggregate notional amount of $175,000, which$195,000, with periodic decreases, by $25,000 annually, hashave been designated as a hedging instrumentinstruments and isare accounted for as a cash flow hedge.hedges. The interest rate swap was effective on August 2, 2018 and isswaps are scheduled to expire on in April 3, 2023.2023 and October 2025. The contract will becontracts are settled with the respective counterparties on a net basis at each settlement date.
13
Forward Foreign Exchange Contracts
The Company has entered into forward contracts to economically hedge translational and transactional exposure associated with commitments arisingvarious business units whose local currency differs from transactions denominated in a currency other than the functional currency of the respective operating entity.Company’s reporting currency. The Company’s forward contracts are not designated as hedging instruments for accounting purposes.
At March 28, 2020,April 3, 2021, the Company had 1110 forward foreign exchange contracts with an aggregate notional value of €61,843,€51,902, maturing at various dates through October 1, 2021.September 2022.
Net Investment Hedge
The Company utilizes foreign currency denominated debt to hedge currency exposure in foreign operations. The Company has designated €100,000€90,000 of borrowings on the revolving credit facility as a net investment hedge of a portion of the Company’s European operations. The carrying value of the euro denominated debt totaled $111,365$105,797 as of March 28, 2020April 3, 2021 and is included in the Revolving line of credit line item in the Consolidated Balance Sheets. The gain or loss on the net investment hedge recorded in accumulated other comprehensive income (“AOCI”) as part of the currency translation adjustment was a gain of $265,$3,172, net of tax, for the three months ended March 28, 2020. NaN amounts associated with the net investment hedge were reclassified from AOCI into income for the three months ended March 28, 2020.
April 3, 2021.
8. CREDIT FACILITIES
Total long-term non-revolving debt consists of the following:
| Maturity Date |
| March 28, 2020 |
|
| December 28, 2019 |
| Maturity Date |
| April 3, 2021 |
|
| January 2, 2021 |
| ||||
Long-term non-revolving debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term loan credit facility with PNC Bank | 4/3/2023 |
| $ | 90,000 |
|
| $ | 91,250 |
| |||||||||
Term loan credit facility with Shinhan Bank | 3/30/2020 |
|
| — |
|
|
| 862 |
| |||||||||
Term loan with PNC Bank | 10/28/2025 |
| $ | 197,500 |
|
| $ | 200,000 |
| |||||||||
Term loan with Intesa Sanpaolo S.p.A | 12/23/2021 |
|
| 4,415 |
|
|
| 6,106 |
| |||||||||
Term loan with Citibank | 5/23/2023 |
|
| 398 |
|
|
| 400 |
| |||||||||
Other long-term debt | Various |
|
| 307 |
|
|
| 376 |
| Various |
|
| 232 |
|
|
| 264 |
|
Total long-term non-revolving debt |
|
|
| 90,307 |
|
|
| 92,488 |
|
|
|
| 202,545 |
|
|
| 206,770 |
|
Less: current portion of long-term non-revolving debt |
|
|
| 7,369 |
|
|
| 7,623 |
|
|
|
| 15,841 |
|
|
| 16,229 |
|
Less: unamortized debt issuance costs |
|
|
| 741 |
|
|
| 803 |
|
|
|
| 578 |
|
|
| 609 |
|
Total long-term non-revolving debt, net |
|
| $ | 82,197 |
|
| $ | 84,062 |
|
|
| $ | 186,126 |
|
| $ | 189,932 |
|
Information on the Company’s revolving credit facilityfacilities is as follows:
|
|
| Balance |
|
| Available credit |
| ||||||||||
| Maturity Date |
| March 28, 2020 |
|
| December 28, 2019 |
|
| March 28, 2020 |
|
| December 28, 2019 |
| ||||
Revolving line of credit with PNC Bank | 4/3/2023 |
| $ | 204,865 |
|
| $ | 208,708 |
|
| $ | 195,135 |
|
| $ | 191,292 |
|
|
|
| Balance |
|
| Available Credit |
| ||||||||||
| Maturity Date |
| April 3, 2021 |
|
| January 2, 2021 |
|
| April 3, 2021 |
|
| January 2, 2021 |
| ||||
Revolving line of credit with PNC Bank | 10/28/2025 |
| $ | 249,797 |
|
| $ | 255,909 |
|
| $ | 148,213 |
|
| $ | 144,045 |
|
Revolving line of credit with Citibank | 11/18/2021 |
|
| 415 |
|
|
| 315 |
|
|
| 1,869 |
|
|
| 1,982 |
|
|
|
| $ | 250,212 |
|
| $ | 256,224 |
|
| $ | 150,082 |
|
| $ | 146,027 |
|
Future maturities of total debt are as follows:
Year: |
|
|
|
|
|
|
2020 Remaining | $ | 5,720 |
| |||
2021 |
| 7,636 |
| |||
2021 Remaining | $ | 12,446 |
| |||
2022 |
| 9,448 |
|
| 15,374 |
|
2023 |
| 272,368 |
|
| 15,141 |
|
2024 |
| 20,000 |
| |||
2025 |
| 389,796 |
| |||
Total | $ | 295,172 |
| $ | 452,757 |
|
Term Loan and Line of Credit with PNC Bank
The Company has a credit agreement that includes a revolving line of credit and term loan credit facility with PNC Bank, National Association, as administrative agent, and the lenders party thereto. The revolving line of credit allows for borrowings up to an aggregate maximum principal amount of $400,000.
The Company has exchanged a portion of the USD denominated borrowings on the line of credit for €90,000 in order to hedge currency exposure in foreign operations. The borrowings have been designated as a net investment hedge, see additional information in Note 7.
The effective interest rate on the credit agreement at March 28, 2020April 3, 2021 was 2.34%2.92%. Interest expense recognized on the credit agreement during the three months ended April 3, 2021 and March 28, 2020, totaled $3,633and March 30, 2019, totaled $2,408$2,408, respectively. and $4,164, respectively. As of the date of this filing, the Company was in compliance with all debt covenants related to the credit agreement.
Term Loan with Intesa Sanpaolo S.p.A.
The Company had a credithas an agreement with Shinhan BankIntesa Sanpaolo S.p.A. that provided aprovides an unsecured term loan of 1,000,000 Korean won.€5,000. The facility bears interest at 1.25%. Repayment of the facility began in January 2021 and is due in 12 monthly installments. The loan maturedbears a guarantee from SACE S.p.A. – the Italian export public credit agency operating in March 2020, at which time the balance was paid in full. insurance and financial services sectors – pursuant to the Law Decree No. 23 of April 8, 2020, converted (with amendments) into Law No. 40 of June 5, 2020.
14Term Loan and Line of Credit with Citibank
The Company has an uncommitted fixed asset facility agreement (the “Fixed Asset Facility”) and short-term revolving facility agreement (the “Working Capital Facility”) with Citibank (China) Co., Ltd. Shanghai Branch, as lender.
Under the Fixed Asset Facility, the Company may, from time-to-time, borrow amounts on a secured basis up to a total of RMB 50,000. The proceeds of such loans may be used for purchases of certain equipment. Outstanding borrowings under the Fixed Asset Facility accrue interest at a rate equal to the National Interbank Funding Center 1-year loan prime rate plus 1.50%, to be repaid on a specified schedule. Currently drawn funds have a final payment due date of May 2023.
Under the Working Capital Facility, the Company may from time to time borrow amounts on an unsecured revolving facility of up to a total of RMB 15,000. Proceeds may only be used for expenditures related to production at the Company’s other long-termfacility located in Kunshan City, China. Outstanding borrowings under the Working Capital Facility accrue interest at a rate equal to the National Interbank Funding Center 1-year loan prime rate plus 0.50%. All outstanding balances will be due in November 2021.
As of the date of this filing, the Company was in compliance with all debt consists of auto loans payablecovenants related to National Australia Bank. Principalthe Fixed Asset Facility and interest payments are due monthly. The loans mature at various dates through July 2023. Interest is charged at various rates ranging from 4.5% to 5.1%.Working Capital Facility.
9. INCOME TAXES
The provision for income taxes for the three months ended April 3, 2021and March 28, 2020was 23.2% and March 30, 2019, was 22.3% and 22.1% of pretax income, respectively, after adjusting the prior year for the impact of the goodwill impairment charge.
At March 28, 2020,April 3, 2021, the Company had an unrecognized tax benefit of $8,491$12,344 including accrued interest. If recognized, the$1,878 of unrecognized tax benefit would have a favorable effect onreduce the effective tax rate in future periods. The Company recognizes interest and penalties related to income tax matters in income tax expense. Interest accrued as of March 28, 2020April 3, 2021 is not considered material to the Company’s consolidated financial statements.
The Company files United States (“U.S.”) federal income tax returns as well as income tax returns in various states and foreign jurisdictions. The Company is no longerremains subject to income tax examinations byin the U.S. and various state and foreign jurisdictions for tax authorities for years prior to 2008 for the majority of tax jurisdictions where2009-2020. Although the Company files tax returns.
The Company’s U.S. federal income tax returns areis not currently under examination byin most jurisdictions, limited transfer pricing disputes exist for years dating back to 2008. The Company anticipates the Internal Revenue Service (IRS). Florida income tax returns for tax years 2015resolution of a transfer pricing dispute and 2016 are under examination. The 2016 pre-acquisition Italian income tax return for Faster is also under examination. To date, there have not been any significant proposed adjustmentsalong with the expiration of statutes of limitation that have not been accounted formay result in the Company’s consolidated financial statements.
Audit outcomes and the timing of audit settlements are subjecta net benefit ranging from $0 to significant uncertainty. It is reasonably possible$2,388 that could be recognized within the next twelve months, the Company will resolve some or all of the matters presently under consideration and there could be significant increases or decreases to unrecognized tax benefits.12 months.
15
10. STOCK-BASED COMPENSATION
Equity Incentive Plan
The Company’s 2019 Equity Incentive Plan and its predecessor equity plan provide for the grant of shares of restricted stock, restricted share units, stock options, stock appreciation rights, dividend or dividend equivalent rights, stock awards and other awards valued in whole or in part by reference to or otherwise based on the Company’s common stock, to officers, employees and directors of the Company.
Restricted Stock and Restricted Stock Units
The Company grants restricted shares of common stock and restricted stock units (“RSU”RSUs”) in connection with a long-term incentive plan. Awards with time-based vesting requirements primarily vest ratably over a three-year period. Awards with performance-based vesting requirements cliff vest after a three-year performance cycle and only after the achievement of certain performance criteria over that cycle. The number of shares ultimately issued for the performance-based units may vary from 0% to 200% of their target amount based on the achievement of defined performance targets.
Compensation expense recognized for restricted stock and RSUs totaled $1,253$1,360 and $811,$1,253, respectively, for the three months ended April 3, 2021 and March 28, 2020, and March 30, 2019.2020.
The following table summarizes restricted stock and RSU activity for the three months ended March 28, 2020:April 3, 2021:
|
| Number of |
|
| Weighted average |
|
| Number of |
|
| Weighted Average |
| ||||
|
| shares / units |
|
| grant-date |
|
| Shares / Units |
|
| Grant-Date |
| ||||
|
| (in thousands) |
|
| fair value per share |
|
| (in thousands) |
|
| Fair Value per Share |
| ||||
Nonvested balance at December 28, 2019 |
|
| 203 |
|
| $ | 42.73 |
| ||||||||
Nonvested balance at January 2, 2021 |
|
| 239 |
|
| $ | 38.95 |
| ||||||||
Granted |
|
| 112 |
|
|
| 38.88 |
|
|
| 99 |
|
|
| 54.24 |
|
Vested |
|
| (58 | ) |
|
| 43.15 |
|
|
| (57 | ) |
|
| 42.98 |
|
Forfeited |
|
| (24 | ) |
|
| 43.33 |
|
|
| (7 | ) |
|
| 44.82 |
|
Nonvested balance at March 28, 2020 (1) |
|
| 233 |
|
| $ | 41.55 |
| ||||||||
Nonvested balance at April 3, 2021 (1) |
|
| 274 |
|
| $ | 43.50 |
|
(1) Includes 82,528113,751 unvested performance-based RSUs.
15
The Company had $8,481$10,396 of total unrecognized compensation cost related to the restricted stock and RSU awards as of March 28, 2020.April 3, 2021. That cost is expected to be recognized over a weighted average period of 2.22.1 years.
Stock Options
During the first quarter of 2020,
The following table summarizes stock options the Company has granted 18,121 stock options to its officers. officers (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
| April 3, 2021 |
| |||||||||
|
| Options |
|
| Option Exercise |
|
| Options |
|
| Options |
|
| Options |
| |||||
Date of Grant |
| Granted |
|
| (Strike) Price |
|
| Forfeited |
|
| Outstanding |
|
| Exercisable |
| |||||
February 28, 2020 |
|
| 18 |
|
| $ | 39.75 |
|
|
| 10 |
|
|
| 6 |
|
|
| 2 |
|
July 1, 2020 |
|
| 5 |
|
|
| 35.04 |
|
|
| — |
|
|
| 5 |
|
|
| — |
|
January 28, 2021 |
|
| 18 |
|
|
| 55.30 |
|
|
| — |
|
|
| 18 |
|
|
| — |
|
Total |
|
| 41 |
|
|
|
|
|
|
| 10 |
|
|
| 29 |
|
|
| 2 |
|
The exercise price of $39.75prices per share isare equal to the market price of Helios stock on the respective grant date.dates. The options vest ratably over a three-year period and have a 10-year expiration. The weighted average grant date fair value of the options is $12.81 per share and was estimated using a Black Scholes valuation model. At March 28, 2020,April 3, 2021, the Company had $226$476 of unrecognized compensation cost related to the options which is expected to be recognized over a weighted average period of 2.92.6 years.
Employee Stock Purchase Plans
The Company maintains an Employee Stock Purchase Plan (“ESPP”) in which the U.S. employees of Helios, Sun Hydraulics and Enovation Controls are eligible to participate. Employees who choose to participate are granted an opportunity to purchase common stock at 85 percent of market value on the first or last day of the quarterly purchase period, whichever is lower. Employees in the United Kingdom (“UK”), under a separate plan, are granted an opportunity to purchase the Company’s common stock at market value, on the first or last day of the quarterly purchase period, whichever is lower, with the Company issuing one additional free share of common stock for each 6 shares purchased by the employee under the plan. Employees purchased 7,408 shares at a weighted average price of $44.90, and 10,927 shares at a weighted average price of $32.46, and 14,387 shares at a weighted average price of $28.37, under the ESPP and UK plans during the three months ended April 3, 2021 and March 28, 2020, and March 30, 2019, respectively. The Company recognized $60$195 and $255$60 of compensation expense during the three months ended April 3, 2021 and March 28, 2020, and March 30, 2019, respectively.
Nonemployee Director Fees Plan
The Company’s 2012 Nonemployee Director Fees Plan compensates nonemployee directors for their board service with shares of common stock. Directors were granted 5,5007,375 and 5,8755,500 shares for the three months ended April 3, 2021 and March 28, 2020, and March 30, 2019, respectively. The Company recognized director stock compensation expense of $235$538 and $285$235 for the three months ended April 3, 2021 and March 28, 2020, and March 30, 2019, respectively.
16
11. ACCUMULATED OTHER COMPREHENSIVE LOSS
The following tables present changes in accumulated other comprehensive loss by component:
|
| Unrealized Gains and (Losses) on Derivative Instruments |
|
| Foreign Currency Items |
|
| Total |
| |||||||||||||||
Balance at January 2, 2021 |
| $ | (5,922 | ) |
| $ | (28,418 | ) |
| $ | (34,340 | ) | ||||||||||||
Other comprehensive income (loss) before reclassifications |
|
| 3,019 |
|
|
| (11,562 | ) |
|
| (8,543 | ) | ||||||||||||
Amounts reclassified from accumulated other comprehensive loss, net of tax |
|
| (809 | ) |
|
| — |
|
|
| (809 | ) | ||||||||||||
Tax effect |
|
| (505 | ) |
|
| 2,444 |
|
|
| 1,939 |
| ||||||||||||
Net current period other comprehensive income (loss) |
|
| 1,705 |
|
|
| (9,118 | ) |
|
| (7,413 | ) | ||||||||||||
Balance at April 3, 2021 |
| $ | (4,217 | ) |
| $ | (37,536 | ) |
| $ | (41,753 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
|
| Unrealized Gains and (Losses) on Derivative Instruments |
|
| Foreign Currency Items |
|
| Total |
|
| Unrealized Gains and (Losses) on Derivative Instruments |
|
| Foreign Currency Items |
|
| Total |
| ||||||
Balance at December 28, 2019 |
| $ | (5,372 | ) |
| $ | (49,992 | ) |
| $ | (55,364 | ) |
| $ | (5,372 | ) |
| $ | (49,992 | ) |
| $ | (55,364 | ) |
Other comprehensive loss before reclassifications |
|
| (4,423 | ) |
|
| (5,950 | ) |
|
| (10,373 | ) |
|
| (4,423 | ) |
|
| (5,950 | ) |
|
| (10,373 | ) |
Amounts reclassified from accumulated other comprehensive loss, net of tax |
|
| 394 |
|
|
| — |
|
|
| 394 |
|
|
| 394 |
|
|
| — |
|
|
| 394 |
|
Tax effect |
|
| 1,828 |
|
|
| 1,049 |
|
|
| 2,877 |
|
|
| 1,828 |
|
|
| 1,049 |
|
|
| 2,877 |
|
Net current period other comprehensive loss |
|
| (2,201 | ) |
|
| (4,901 | ) |
|
| (7,102 | ) |
|
| (2,201 | ) |
|
| (4,901 | ) |
|
| (7,102 | ) |
Balance at March 28, 2020 |
| $ | (7,573 | ) |
| $ | (54,893 | ) |
| $ | (62,466 | ) |
| $ | (7,573 | ) |
| $ | (54,893 | ) |
| $ | (62,466 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
|
| Unrealized Gains and (Losses) on Derivative Instruments |
|
| Foreign Currency Items |
|
| Total |
| |||||||||||||||
Balance at December 29, 2018 |
| $ | (2,309 | ) |
| $ | (43,944 | ) |
| $ | (46,253 | ) | ||||||||||||
Other comprehensive loss before reclassifications |
|
| (1,666 | ) |
|
| (7,239 | ) |
|
| (8,905 | ) | ||||||||||||
Amounts reclassified from accumulated other comprehensive loss |
|
| 144 |
|
|
| — |
|
|
| 144 |
| ||||||||||||
Tax effect |
|
| 440 |
|
|
| 2,408 |
|
|
| 2,848 |
| ||||||||||||
Net current period other comprehensive loss |
|
| (1,082 | ) |
|
| (4,831 | ) |
|
| (5,913 | ) | ||||||||||||
Balance at March 30, 2019 |
| $ | (3,391 | ) |
| $ | (48,775 | ) |
| $ | (52,166 | ) |
12. SEGMENT REPORTING
The Company has 2 reportable segments: Hydraulics and Electronics. These segments are organized primarily based on the similar nature of products offered for sale, the types of customers served and the methods of distribution and are consistent with how the segments are managed, how resources are allocated and how information is used by the chief operating decision makers.
The Company evaluates performance and allocates resources based primarily on segment operating income. Certain costs were not allocated to the business segments as they are not used in evaluating the results of, or in allocating resources to the Company’s segments. These costs are presented in the Corporate and other line item. For the three months ended March 28, 2020,April 3, 2021, the unallocated costs totaled $36,293$11,745 and primarily relate toincluded acquisition and integration related expenses of $1,547 and amortization of acquisition-related intangible assets and the goodwill impairment charge.of $10,198. The accounting policies of the Company’s operating segments are the same as those used to prepare the accompanying Consolidated, Unaudited Financial Statements.
17
The following table presents financial information by reportable segment:
|
| Three Months Ended |
|
| Three Months Ended |
|
| ||||||||||
|
| March 28, 2020 |
|
| March 30, 2019 |
|
| April 3, 2021 |
|
| March 28, 2020 |
|
| ||||
Net sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hydraulics |
| $ | 103,818 |
|
| $ | 116,463 |
|
| $ | 119,106 |
|
| $ | 103,818 |
|
|
Electronics |
|
| 25,665 |
|
|
| 30,388 |
|
|
| 85,738 |
|
|
| 25,665 |
|
|
Total |
| $ | 129,483 |
|
| $ | 146,851 |
|
| $ | 204,844 |
|
| $ | 129,483 |
|
|
Operating (loss) income |
|
|
|
|
|
|
|
| |||||||||
Operating income |
|
|
|
|
|
|
|
|
| ||||||||
Hydraulics |
| $ | 21,482 |
|
| $ | 23,762 |
|
| $ | 28,073 |
|
| $ | 21,482 |
|
|
Electronics |
|
| 4,778 |
|
|
| 6,512 |
|
|
| 18,280 |
|
|
| 4,778 |
|
|
Corporate and other |
|
| (36,293 | ) |
|
| (4,442 | ) |
|
| (11,745 | ) |
|
| (36,293 | ) |
|
Total |
| $ | (10,033 | ) |
| $ | 25,832 |
|
| $ | 34,608 |
|
| $ | (10,033 | ) |
|
Capital expenditures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hydraulics |
| $ | 2,394 |
|
| $ | 8,145 |
|
| $ | 2,635 |
|
| $ | 2,394 |
|
|
Electronics |
|
| 543 |
|
|
| 647 |
|
|
| 2,401 |
|
|
| 543 |
|
|
Total |
| $ | 2,937 |
|
| $ | 8,792 |
|
| $ | 5,036 |
|
| $ | 2,937 |
|
|
|
| March 28, 2020 |
|
| December 28, 2019 |
|
| April 3, 2021 |
|
| January 2, 2021 |
| ||||
Total assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hydraulics |
| $ | 733,632 |
|
| $ | 768,324 |
|
| $ | 762,063 |
|
| $ | 765,155 |
|
Electronics |
|
| 250,818 |
|
|
| 251,252 |
|
|
| 541,834 |
|
|
| 523,502 |
|
Corporate |
|
| 9,399 |
|
|
| 2,175 |
|
|
| 7,651 |
|
|
| 8,322 |
|
Total |
| $ | 993,849 |
|
| $ | 1,021,751 |
|
| $ | 1,311,548 |
|
| $ | 1,296,979 |
|
Geographic Region Information
Net sales are measured based on the geographic destination of sales. Tangible long-lived assets are shown based on the physical location of the assets and primarily include net property, plant and equipment and exclude right-of-use assets:assets.
|
| Three Months Ended |
|
| Three Months Ended |
|
| ||||||||||
|
| March 28, 2020 |
|
| March 30, 2019 |
|
| April 3, 2021 |
|
| March 28, 2020 |
|
| ||||
Net sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas |
| $ | 58,950 |
|
| $ | 67,706 |
|
| $ | 99,341 |
|
| $ | 58,950 |
|
|
EMEA |
|
| 35,971 |
|
|
| 44,220 |
|
|
| 52,602 |
|
|
| 35,971 |
|
|
APAC |
|
| 34,562 |
|
|
| 34,925 |
|
|
| 52,901 |
|
|
| 34,562 |
|
|
Total |
| $ | 129,483 |
|
| $ | 146,851 |
|
| $ | 204,844 |
|
| $ | 129,483 |
|
|
|
| March 28, 2020 |
|
| December 28, 2019 |
| ||
Tangible long-lived assets |
|
|
|
|
|
|
|
|
Americas |
| $ | 86,490 |
|
| $ | 87,104 |
|
EMEA |
|
| 27,842 |
|
|
| 28,436 |
|
APAC |
|
| 16,739 |
|
|
| 18,004 |
|
Total |
| $ | 131,071 |
|
| $ | 133,544 |
|
|
| April 3, 2021 |
|
| January 2, 2021 |
| ||
Tangible long-lived assets |
|
|
|
|
|
|
|
|
Americas |
| $ | 96,888 |
|
| $ | 96,752 |
|
EMEA |
|
| 30,183 |
|
|
| 31,091 |
|
APAC |
|
| 18,112 |
|
|
| 18,718 |
|
Total |
| $ | 145,183 |
|
| $ | 146,561 |
|
13. RELATED PARTY TRANSACTIONS
Enovation ControlsThe Company purchases from, and sells inventory to, entities partially owned or managed by a directordirectors of Helios. For the three months ended April 3, 2021 and March 28, 2020, and March 30, 2019, inventory sales to the entities totaled $414$749 and $482,$414, respectively, and inventory purchases from the entities totaled $2,107 and $999, and $1,455, respectively.
At March 28, 2020April 3, 2021 and December 28, 2019,January 2, 2021, amounts due from the entities totaled $166$389 and $73,$528, respectively, and amounts due to the entities totaled $243$736 and $361,$421, respectively.
18
14. COMMITMENTS AND CONTINGENCIES
Legal Proceedings
The Company is not a party to any legal proceedings other than routine litigation incidental to its business. In the opinion of management, the amount of ultimate liability with respect to these actions will not materially affect the results of operations, financial position or cash flows of the Company.
15. SUBSEQUENT EVENTS
On April 30, 2021, the Company’s President of Electronic Controls and Section 16 Officer, Jinger McPeak, informed the Company of her intention to resign. Ms. McPeak has agreed to continue her employment through June 1, 2021. In connection with her resignation, the Company and Ms. McPeak entered into a separation agreement. For additional detail, please refer to the Form 8-K filed by the Company on April 30, 2021.
19
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
This report on Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. The words "expects," "anticipates," "believes," "intends," "plans" and similar expressions identify forward-looking statements. In addition, any statements which refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. We undertake no obligation to publicly disclose any revisions to these forward-looking statements to reflect events or circumstances occurring subsequent to filing this Form 10-Q with the Securities and Exchange Commission. These forward-looking statements are subject to risks and uncertainties, including, without limitation, those discussed in this report and those identified in Item 1A, "Risk Factors" included in our Form 10-K. In addition, new risks emerge from time to time and it is not possible for management to predict all such risk factors or to assess the impact of such risk factors on our business. Accordingly, our future results may differ materially from historical results or from those discussed or implied by these forward-looking statements. Given these risks and uncertainties, the reader should not place undue reliance on these forward-looking statements.
OVERVIEW
We are ana global industrial technology leader that develops and manufactures solutions for both the hydraulics and electronics markets, each ofmarkets. We were originally founded in 1970 as Sun Hydraulics Corporation, which serves as a reportable segment. The operating results ofdesigned and manufactured cartridge valves for hydraulics systems. We changed the Company’s legal name on June 13, 2019, from Sun Hydraulics Corporation to Helios Technologies, Inc.
Today we operate under two business segments: Hydraulics and Electronics segments included in this MD&AElectronics. These businesses design and manufacture hydraulic cartridge valves, hydraulic quick release couplings and customized electronic controls systems and displays for a variety of end markets, as well as design complete hydraulic systems.
Strategic Vision
Our strategic goals are presented on a basis consistent with our internal management reporting. Segment information included in Note 12 to the Consolidated, Unaudited Financial Statements is also presented on this basis. All differences between our internal management reporting basis and U.S. GAAP, specifically the allocation of certain corporate and acquisition-related costs, are included in Corporate and Other.
Vision 2025
In 2016, we introduced our vision for the Company for the next decade. We believe it is important to reach a critical mass ofachieve $1 billion in sales by 2025through a combination of organic growth and acquisitions, while remaining a technology leader and delivering superior profitability, with operating margins in excess of 20%. We are augmenting our strategy with value streams that we expect to help us to execute our goals and potentially accelerate the industrial goods sector. To achieve our goal, we are targeting organic salesachievement of our Hydraulics segment of $700 million, sales of our Electronics segment of $220 millionstrategic vision.
We believe the value streams will deliver growth, diversification and acquisitions at or exceeding $80 million of revenue. Through this growth, our decision-making process will consider our desire to maintain superior profitabilitymarket leading financial performance as we develop into a more sophisticated, globally oriented, customer centric and financial strength.
Product development is a key factor to organic and synergistic growth in both the Hydraulics and Electronics segments, including joint development between the two segments. In the Hydraulics segment, our most recent product introductions have been electro-hydraulics products: the FLeX™ Series Solenoid Valves and the XMD Bluetooth-configurable electro-hydraulics driver. XMD was jointly engineered by a team comprised of Hydraulics and Electronics segment personnel. We expect the trend for development of similar types of products to continue as capital goods markets move toward further electrification and digitalization of machines.
While not a near-term focus, acquisitions of companies that advance our technology capabilities will be critical to achieving our Vision 2025. Target product offerings include hydraulic components and/or systems, electronic controls and instrumentation and linked technologies such as electro-mechanical actuators, factory automation, software, products relevant to the Internet of Things or high-precision manufacturing.
Global Economic Conditions
Impact of COVID-19 on our business
The COVID-19 pandemic has caused significant economic disruption and substantial uncertainty exists regarding magnitude and duration of the pandemic. Broad measures taken by governments, businesses and others to limit the spread of the virus are adversely affecting the Company and its customers.
20
Currently our primary manufacturing locations are fully operational but have been impacted to differing degrees by various COVID-19 related factors such as:learning organization. These are:
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Our strategy is underpinned by the execution of acquisitions, which we expect to include bolt-on, flywheel type acquisitions (up to $100 million in enterprise value) and the evaluation of more transformative type acquisitions ($100 million to $1 billion in enterprise value). The objective of our acquisition strategy is to enhance Helios by:
• | Growing our current product portfolio or adding new technologies and |
| • |
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|
|
|
• |
|
Employees are working from home when possible,To support the execution of our strategy, our financial strategy is oriented on delivering industry leading margins, a strong balance sheet and we have taken significant measuressufficient financial flexibility to support organic and acquisitive growth.
We align our internal key performance indicators with our strategy to ensure our short-term actions will deliver long-term expectations.
Recent Acquisitions
In November 2020, we acquired Balboa Water Group, further diversifying the markets we serve and expanding our technological capabilities in electronics. Balboa is an innovative market leader of electronic controls for the health and safetywellness industry with proprietary and patented technology that enables end-to-end electronic control systems for therapy baths and spas. Headquartered in Costa Mesa, California, manufacturing operations supporting the business are located in Mexico, with sales and warehouse operations in Denmark. This acquisition expanded our electronic control technology with complementary AC (alternating current) capabilities and enabled further diversification of those working atend markets. The results of Balboa’s operations are reported in our facilities.Electronics segment and have been included in the Consolidated Financial Statements since the acquisition date.
In January 2021, we acquired the assets of BJN Technologies, LLC, an innovative engineering solutions provider that was founded in 2014. With the acquisition, we formed the Helios Center of Engineering Excellence to centralize our technology advancements and new product development and better leverage existing talents across the electronics segment initially, and then throughout all of Helios.
Global Economic Conditions
COVID-19 Update
During the first quarter of 2021, we experienced limited disruption to our operations from the pandemic. We continue to experience pandemic-related softening of sales and orders in certain industries and markets; however, many of our customers and end markets are recovering from the substantial impacts experienced during 2020. First quarter demand for our products exceeded our expectations as end market recovery occurred sooner and was stronger than we projected. Demand in the health and wellness and recreational marine markets has been favorably impacted by the pandemic as consumers are investing in leisure products and activities. We are experiencing constraints on our ability to source certain electronic components which originated from the high demand for these products caused by the pandemic; however, we have been able to mitigate the majority of the impact with our procurement efforts and production schedule adjustments.
We have updatedare monitoring the effects of the pandemic that are occurring in India for potential supply chain impacts related to goods coming from our risk factorsHydraulics segment facilities in Part II,the country that are supplied to other parts of the world. We do not expect there will be a material impact to our operations. Our outlook for the remainder of the 2021 fiscal year assumes the global economy continues to recover; however, we cannot at this time predict any future impacts. Refer to Item 1A Risk Factors of this Quarterlyour Annual Report in light of the continued and expected impact ofon Form 10-K for additional COVID-19 on our business.
The impact of the COVID-19 pandemic on our results of operations, liquidity and financial resources and 2020 outlook are discussed later within their respective sections.related discussion.
Brexit Update
In January 2020, the UK exited the European Union (“EU”) (“Brexit”).EU. During the transition period, which endsended on December 31, 2020, existing arrangements between the details of the UK’s withdrawalUK and the nature of its future relationship withEU remained in place while the UK and the EU will be decided.negotiated a free trade agreement. This was entered into on December 24, 2020 and went into effect on January 1, 2021. The Company continues to monitor the status of the negotiationssituation and plan for potential impact. The ultimate impact of Brexit on the Company’s financial results is uncertain. However, we do not expect the effects of Brexit to have a material impact on our results of operations or financial position. For additional information, refer to Part I, Item 1A, “Risk Factors” and Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the Company’s Form 10-K.
21
Industry Conditions
Market demand for our products is dependent on demand for the industrial goods in which the products are incorporated. The capital goods industries in general, and the Hydraulics and Electronics segments specifically, are subject to economic cycles. We utilize industry trend reports from various sources, as well as feedback from customers and distributors, to evaluate economic trends. We also rely on global government statistics such as Gross Domestic Product and Purchasing Managers Index to understand macro-economic conditions.
21
Hydraulics
According to the National Fluid Power Association (the fluid power industry’s trade association in the U.S.), the U.S. index of shipments of hydraulic products decreased an additional 13%3% during the first three months of 2020,2021, after decreasing 7%17% in 2019.2020. In Europe, the CEMA Business Barometer reportedreports that in April 2021, the general business climate index for the European agricultural machinery industry dropped sharply in April, althoughhas risen to its highest level since 2011. The favorable index is based on a record volume of accumulated incoming orders and high levels of turnover already secured for the impact of COVID-19 on future periods remains uncertain.upcoming months. The CECE (Committee for European Construction Equipment) business climate index saw a sharp drop inreports that during the first quarter the European construction equipment industry continued its remarkable recovery from the disruptions caused by the COVID-19 crisis. In March, CECE’s business climate index reached new heights after three10 consecutive months of strong recovery, primarily attributable to deteriorating future business expectations.expansion.
Electronics
According to theThe Federal Reserve’s Industrial Production Index, which measures the real output of all relevant establishments located in the U.S., reports sales of semiconductors and other electronics components peaked atdeclined slightly during the endfirst quarter of 2021; however, the 2019index continues to exceed fourth quarter and have since declined slowly back to mid-fourth quarter 2019 levels. The Institute of Printed Circuits Association reports(“ICP”) reported that total North American printed circuit board shipments increased 4.7% in February 2020 were down 1.1%March 2021 compared towith the same month last year; however,compared with February 2021, March shipments grew 30.9%. ICP also reported that North American electronics manufacturing services shipments were down 3.6% in March compared to January 2020,March 2020; however, up 10.9% compared to February shipments rose 1.5%. In our electronics segment, we are experiencing sales declining in excess of the overall market, primarily due to a strategic change we made to our customer base during 2019. For additional information, refer to the discussion of 2020 results of our electronics segment below.2021.
20202021 First Quarter Results and Comparison of the Three Months Ended April 3, 2021 and March 28, 2020 and March 30, 2019
(in millions except per share data)
|
| Three Months Ended |
|
|
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|
|
|
|
|
|
| Three Months Ended |
|
|
|
|
|
|
|
|
| ||||||||||
|
| March 28, 2020 |
|
| March 30, 2019 |
|
| $ Change |
|
| % Change |
|
| April 3, 2021 |
|
| March 28, 2020 |
|
| $ Change |
|
| % Change |
| ||||||||
Net sales |
| $ | 129.5 |
|
| $ | 146.9 |
|
| $ | (17.4 | ) |
|
| (11.8 | )% |
| $ | 204.8 |
|
| $ | 129.5 |
|
| $ | 75.3 |
|
|
| 58.1 | % |
Gross profit |
| $ | 51.9 |
|
| $ | 56.5 |
|
| $ | (4.6 | ) |
|
| (8.1 | )% |
| $ | 75.4 |
|
| $ | 51.9 |
|
| $ | 23.5 |
|
|
| 45.3 | % |
Gross profit % |
|
| 40.1 | % |
|
| 38.5 | % |
|
|
|
|
|
|
|
|
|
| 36.8 | % |
|
| 40.1 | % |
|
|
|
|
|
|
|
|
Operating (loss) income |
| $ | (10.0 | ) |
| $ | 25.8 |
|
| $ | (35.8 | ) |
|
| (138.8 | )% | ||||||||||||||||
Operating income (loss) |
| $ | 34.6 |
|
| $ | (10.0 | ) |
| $ | 44.6 |
|
|
| (446.0 | )% | ||||||||||||||||
Operating income % |
|
| (7.7 | )% |
|
| 17.6 | % |
|
|
|
|
|
|
|
|
|
| 16.9 | % |
|
| -7.7 | % |
|
|
|
|
|
|
|
|
Net (loss) income |
| $ | (17.2 | ) |
| $ | 16.4 |
|
| $ | (33.6 | ) |
|
| (204.9 | )% | ||||||||||||||||
Basic and diluted net (loss) income per common share |
| $ | (0.54 | ) |
| $ | 0.51 |
|
| $ | (1.05 | ) |
|
| (205.9 | )% | ||||||||||||||||
Net income (loss) |
| $ | 22.6 |
|
| $ | (17.2 | ) |
| $ | 39.8 |
|
|
| (231.4 | )% | ||||||||||||||||
Basic and diluted net income (loss) per common share |
| $ | 0.70 |
|
| $ | (0.54 | ) |
| $ | 1.24 |
|
|
| (229.6 | )% | ||||||||||||||||
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First quarter consolidated net sales declined $17.4increased $75.3 million, 11.8%58.1%, overcompared with the prior-year period. Changes in foreign currency exchange rates unfavorablyfavorably impacted sales for the quarter by $2.1$5.8 million, 1.6%2.8%, and earnings per share by $0.01. Pricing changes had minimal impact on the 2020 first quarter compared to the prior-year first quarter. We estimate that we lost approximately $5.0 million$0.02. A large portion of sales during the first quarter sales growth was attributed to our acquisition of Balboa in November 2020. We also experienced strong organic growth compared with the prior-year period which resulted from facility closures and regulatory restrictions imposed on shipments as a result of the COVID-19 pandemic. Additionally, we continue to experience softeningimproved demand in certain endthe European agriculture and construction equipment markets and reduced order intake across both segments comparedthe U.S. recreational marine market.
From a geographic perspective, demand increased in all regions as companies began to relax COVID-19 restrictions. Excluding the prior-year first quarter.Balboa acquisition and foreign currency effects, we experienced moderate growth in the Americas, and robust growth in the EMEA and APAC regions.
Gross profit trended downwardupward in the first quarter compared with the first quarter of 2020, compareddue to the first quarter of 2019, due toincreased sales volume and an unfavorablea favorable impact from changes in foreign currency rates of $0.7$1.9 million. Gross margin improved over the prior year perioddecreased by 1.63.3 percentage points upcompared with the prior-year period, as improved leverage of our fixed cost base on higher sales was offset by the addition of Balboa’s sales which have a different margin profile compared to 40.1%, driven primarily by continued cost management effortsour historical business resulting in higher material and production efficiencies gained from our CVT manufacturing consolidation project which was completed atcosts and lower selling, engineering and administrative (“SEA”) costs.
22
Operating income as a percentage of sales increased 24.6 percentage points to 16.9% in the endfirst quarter of 2021 compared with an operating loss of 7.7%, as a percentage of sales, in the 2019prior-year period. During the first quarter.
Currentquarter of 2020, current and expected economic impacts from the COVID-19 pandemic led to an impairment charge of $31.9 million of goodwill at our Faster reporting unit. Continued negative impacts togoodwill. Excluding the global economy and reductions in our expected future cash flows could cause further impairment to our goodwill or other assets.
Operatingcharge, operating income as a percentage of sales remained flat with the prior to the goodwill impairment charge, declined 0.7 percentage points toyear period at 16.9% in the first quarter of 2020 compared to 17.6% in the prior-year period primarily due to reduced, as improved leverage of our fixed cost base on lowerhigher sales volume andwas offset by an increase in corporate operating costs.intangible amortization of $5.8 million from the Balboa acquisition and $1.5 million of costs incurred for acquisition and integration related activities.
22
SEGMENT RESULTS
Hydraulics
The following table sets forth the results of operations for the Hydraulics segment (in millions):
|
| Three Months Ended |
|
|
|
|
|
|
|
|
|
| Three Months Ended |
|
|
|
|
|
|
|
|
| ||||||||||
|
| March 28, 2020 |
|
| March 30, 2019 |
|
| $ Change |
|
| % Change |
|
| April 3, 2021 |
|
| March 28, 2020 |
|
| $ Change |
|
| % Change |
| ||||||||
Net sales |
| $ | 103.8 |
|
| $ | 116.5 |
|
| $ | (12.7 | ) |
|
| (10.9 | )% |
| $ | 119.1 |
|
| $ | 103.8 |
|
| $ | 15.3 |
|
|
| 14.7 | % |
Gross profit |
| $ | 39.7 |
|
| $ | 42.6 |
|
| $ | (2.9 | ) |
|
| (6.8 | )% |
| $ | 45.4 |
|
| $ | 39.7 |
|
| $ | 5.7 |
|
|
| 14.4 | % |
Gross profit % |
|
| 38.2 | % |
|
| 36.6 | % |
|
|
|
|
|
|
|
|
|
| 38.1 | % |
|
| 38.2 | % |
|
|
|
|
|
|
|
|
Operating income |
| $ | 21.5 |
|
| $ | 23.8 |
|
| $ | (2.3 | ) |
|
| (9.7 | )% |
| $ | 28.1 |
|
| $ | 21.5 |
|
| $ | 6.6 |
|
|
| 30.7 | % |
Operating income % |
|
| 20.7 | % |
|
| 20.4 | % |
|
|
|
|
|
|
|
|
|
| 23.6 | % |
|
| 20.7 | % |
|
|
|
|
|
|
|
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|
|
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|
|
|
|
|
|
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|
First quarter net sales for the Hydraulics segment totaled $103.8$119.1 million, a declinean increase of $12.7$15.3 million, 10.9%14.7%, overcompared with the prior-year period. Changes in foreign currency exchange rates accounted for $2.0 million of the fluctuation. Pricing changes had minimal impact on theThe first quarter of 2020 compared to the prior-year first quarter. We estimate that approximately $5.0 million of the first quarter sales fluctuation in the Hydraulics segment was due toimpacted by facility closures and regulatory restrictions imposed on shipments as a result ofresulting from the COVID-19 pandemic. Softening end marketThe 2021 first quarter benefited from strong demand resulted in reduced incoming orders; however, we continue to ship certain CVTthe European agriculture and Systems product orders from our backlog due to extended lead times.construction equipment markets. Changes in foreign currency exchange rates favorably impacted sales for the quarter by $5.7 million.
The following table presents net sales based on the geographic region of the sale for the Hydraulics segment (in millions):
|
| Three Months Ended |
|
|
|
|
|
|
|
|
|
| Three Months Ended |
|
|
|
|
|
|
|
|
| ||||||||||
|
| March 28, 2020 |
|
| March 30, 2019 |
|
| $ Change |
|
| % Change |
|
| April 3, 2021 |
|
| March 28, 2020 |
|
| $ Change |
|
| % Change |
| ||||||||
Americas |
| $ | 37.3 |
|
| $ | 41.6 |
|
| $ | (4.3 | ) |
|
| (10.3 | )% |
| $ | 34.3 |
|
| $ | 37.3 |
|
| $ | (3.0 | ) |
|
| (8.0 | )% |
EMEA |
|
| 33.5 |
|
|
| 41.8 |
|
|
| (8.3 | ) |
|
| (19.9 | )% |
|
| 43.3 |
|
|
| 33.5 |
|
|
| 9.8 |
|
|
| 29.3 | % |
APAC |
|
| 33.0 |
|
|
| 33.1 |
|
|
| (0.1 | ) |
|
| (0.3 | )% |
|
| 41.5 |
|
|
| 33.0 |
|
|
| 8.5 |
|
|
| 25.8 | % |
Total |
| $ | 103.8 |
|
| $ | 116.5 |
|
|
|
|
|
|
|
|
|
| $ | 119.1 |
|
| $ | 103.8 |
|
|
|
|
|
|
|
|
|
Shipments and demand weakenedDemand in the Americas region improved during the first quarter of 2020 with sales declining 10.3% over2021 compared to the prior-year first quarter. Salesquarter; however, sales to Europe, the Middle Eastregion declined 8.0% as the 2020 first quarter benefited from sales that were shipped from our backlog due to extended lead times. Demand in the agriculture and Africa (“EMEA”) decreased 19.9%. This was primarily a resultconstruction equipment end markets generated an increase in sales to the EMEA region of COVID-19 related factors as well as negative18.8% compared with the 2020 first quarter, excluding positive impacts from changes in exchange rates, which accounted for $0.8 million of the fluctuation.foreign currency fluctuations totaling $3.5 million. Sales to the Asia Pacific (“APAC”)APAC region remained fairly consistentgrew 19.1% compared with the first quarter of 2019. After consideration of2020, excluding positive impacts from foreign currency fluctuations totaling $2.2 million. The growth primarily resulted from increased demand in China and Korea, as well as the negative impact from changesincrease in exchange rates, totaling $1.2 million, sales to the APAC region improved 3.3% overoperations in our China facility.
In the first quarter of 2019.
First quarter2021, gross profit trended downwardincreased $5.7 million compared towith the first quarter of the prior year due to higher sales volume, and an unfavorablea favorable impact from changes in foreign currency rates of $0.7$1.8 million. Gross profit margin improved 1.6remained fairly consistent with the first quarter of 2020, decreasing 0.1 percentage pointspoint to 38.2%38.1%, from 36.6%due to an unfavorable product mix in the prior-year period. The main drivers of the increased profitability were effective cost management effortssales and production efficiencies gained from our CVT manufacturing consolidation project, partially offset by the closure of production at our Italian facility during the quarter. higher shipping costs.
Selling, engineering and administrativeSEA expenses (“SEA”) decreased $0.6$0.9 million, 4.9%, in the first quarter of 20202021 compared towith the same period of the prior year.year, a result of continued cost management efforts including our restructuring activities and reductions in costs related to travel and marketing, professional fees and other discretionary spend. Increased leverage of our fixed cost base on higher sales and our cost management efforts led to SEA as a percent of sales increased 1.4decreasing 3.0 percentage points primarily dueduring the quarter, to reduced leverage of our fixed costs base on lower sales. In addition, corporate operating costs allocated14.5%, compared to the segment were $0.5 million higher than the prior-year2020 first quarter due to salaries and benefits, insurance costs and talent development programs. quarter.
As a result of the impacts to gross profit and SEA costs noted above, first quarter operating income declined $2.3increased $6.6 million, 9.7%30.7%, compared towith the first quarter of the prior year, whileand operating margin strengthened 0.32.9 percentage points to 20.7%23.6%.
23
Electronics
The following table sets forth the results of operations for the Electronics segment (in millions):
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| Three Months Ended |
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| Three Months Ended |
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| March 28, 2020 |
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| March 30, 2019 |
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| $ Change |
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| % Change |
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| April 3, 2021 |
|
| March 28, 2020 |
|
| $ Change |
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| % Change |
| ||||||||
Net sales |
| $ | 25.7 |
|
| $ | 30.4 |
|
| $ | (4.7 | ) |
|
| (15.5 | )% |
| $ | 85.7 |
|
| $ | 25.7 |
|
| $ | 60.0 |
|
|
| 233.5 | % |
Gross profit |
| $ | 12.2 |
|
| $ | 13.9 |
|
| $ | (1.7 | ) |
|
| (12.2 | )% |
| $ | 30.0 |
|
| $ | 12.2 |
|
| $ | 17.8 |
|
|
| 145.9 | % |
Gross profit % |
|
| 47.5 | % |
|
| 45.7 | % |
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|
| 35.0 | % |
|
| 47.5 | % |
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Operating income |
| $ | 4.8 |
|
| $ | 6.5 |
|
| $ | (1.7 | ) |
|
| (26.2 | )% |
| $ | 18.3 |
|
| $ | 4.8 |
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| $ | 13.5 |
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|
| 281.3 | % |
Operating income % |
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| 18.7 | % |
|
| 21.4 | % |
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| 21.4 | % |
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| 18.7 | % |
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First quarter net sales for the Electronics segment totaled $25.7$85.7 million, a decreasean increase of $4.7$60.0 million 15.5%, overcompared with the prior-year period. A significant portion of the sales were directly related to the recent acquisition while the segment also realized solid organic growth compared with the prior year first quarter. Demand in the health and wellness industries has been strengthened by the pandemic as consumers invest in health and home improvements. The decline wassame trend is occurring in the U.S. recreational marine market in which demand continues to be strong. We have taken swift and successful actions to expand production capacity in an effort to fulfill the high incoming order levels for spa and bath products. The segments supply chain is experiencing constraints on its ability to source certain electronic components; however, the effect on sales has been minimal to date due to softer demand in recreationalincreased procurement efforts and oil and gas end markets, as well as our intentional shift in customer base which included the release of certain contractual obligations to customers that allowed us to leverage all products to a broader and more diversified customer base. The segment experienced a minimal impact from the COVID-19 pandemic during the first quarter of 2020.production schedule adjustments. Changes in exchange rates had a negativeminimal impact on first quarter sales of $0.1 million.sales.
The following table presents net sales based on the geographic region of the sale for the Electronics segment (in millions):
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| Three Months Ended |
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| Three Months Ended |
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| March 28, 2020 |
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| March 30, 2019 |
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| $ Change |
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| % Change |
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| April 3, 2021 |
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| March 28, 2020 |
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| $ Change |
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| % Change |
| ||||||||
Americas |
| $ | 21.6 |
|
| $ | 26.1 |
|
| $ | (4.5 | ) |
|
| (17.2 | )% |
| $ | 65.0 |
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| $ | 21.6 |
|
| $ | 43.4 |
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|
| 200.9 | % |
EMEA |
|
| 2.5 |
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| 2.5 |
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|
| — |
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|
| — | % |
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| 9.3 |
|
|
| 2.5 |
|
|
| 6.8 |
|
|
| 272.0 | % |
APAC |
|
| 1.6 |
|
|
| 1.8 |
|
|
| (0.2 | ) |
|
| (11.1 | )% |
|
| 11.4 |
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|
| 1.6 |
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|
| 9.8 |
|
|
| 612.5 | % |
Total |
| $ | 25.7 |
|
| $ | 30.4 |
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|
| $ | 85.7 |
|
| $ | 25.7 |
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During the first quarter of 2020, sales2021, we experienced robust growth in all regions. Sales to the Americas decreased 17.2%,accounted for 75.8% of total segment sales, a decrease from 84.0% in the prior comparable period, which is primarily from a variation in the regional footprint of the acquisition. Similarly, sales to EMEA remained flat and salesAPAC increased to the APAC region declined 11.1% over the prior-year first quarter. Exchange rates had a negative impact on sales to EMEA10.9% and 13.3% of $0.1 million and minimally impacted sales to APAC during the quarter.total segment sales.
First quarter gross profit dropped $1.7increased $17.8 million 12.2%, compared towith the first quarter of the prior year primarily due to the increased sales volume, while grossvolume. Gross profit margin strengthenedfor the same period decreased by 1.812.5 percentage points. Grosspoints driven by the addition of Balboa’s sales which have a different margin benefited from cost management effortsprofile compared to our historical business resulting in higher material and production costs and lower SEA costs. The segment experienced an increase in raw material and freight and logistics costs during the quarter due to the high demand in the market for electronic components used in our products. Additionally, during the prior-year first quarter the segment realized a $0.9 million non-recurring benefit from the release of contractual obligations to customers.
SEA expenses were flatincreased by $4.3 million in the first quarter of 20202021 compared towith the first quarter of 2019 while2020 and were primarily impacted by the addition of Balboa and an increase in corporate operating costs allocated to the segment offset by continued cost saving measures which focused on managing fixed personnel costs and reducing discretionary spend. SEA margin increased 4.5costs as a percentage pointsof sales decreased to 13.7% in the first quarter of 2021 compared to 28.8% duein the prior-year first quarter; favorably impacted by the margin profile of Balboa’s product sales, partially offset by continued investments in engineering and R&D necessary to reduced leverage of our fixed costs base on lower sales volume.support new product development that will drive future revenue growth.
As a result of the impacts to gross profit and SEA costs noted above, first quarter operating income declined $1.7increased $13.5 million compared toduring the first quarter of 2019 and operating income margin was reduced by 2.7 percentage points to 18.7%.quarter.
24
Corporate and Other
Certain costs are excluded from business segment results as they are not used in evaluating the results of, or in allocating resources to, our operating segments. For the first quarter of 2020,2021, these costs totaled $36.3$11.7 million, of which $4.3$10.2 million was amortization of acquisition-related intangible assets and $31.9$1.5 million was a goodwill impairment charge which resulted from the global economic disruptionfor other acquisition and uncertainty due to the COVID-19 pandemic. Refer to Note 6 to the Consolidated, Unaudited Financial Statements for further discussion.integration related costs.
Interest Expense, net
Net interest expense was $3.0increased to $4.8 million for the first quarter of 20202021 compared to $4.4with $3.0 million for the prior-year quarter. The change is attributable to increased borrowings used to fund the acquisition of Balboa in November 2020. Average net debt declinedincreased to $272.7$431.7 million compared to $325.3with $272.7 million during the first quarter of 2019. The decreases primarily resulted from debt repayments.2020.
24
Income Taxes
The provision for income taxes for the first quarter of 20202021 was 22.3%23.2% of pretax income compared to 22.1%22.3% before the non-deductible impairment charge for the prior-year first quarter after adjusting for the impact of goodwill impairment related to our Italian subsidiary.quarter. These effective rates fluctuate relative to the levels of income and different tax rates in effect among the countries in which we sell our products.
On March 27, 2020, the President of the U.S. signed the Coronavirus Aid, Relief, and Economic Security ("CARES"Act (“CARES Act”) Act, a substantial tax-and-spending package intendedwas enacted into law in response to provide additional economic stimulus to address the impact of the COVID-19 pandemic. The Company has evaluated the various income and payroll tax provisions and expects little or no impact to income tax expense. However, the Company is taking advantage of the various payment deferments allowed and employee retention credits afforded by the CARES Act and other similar state and/or foreign liquidity measures.
2020 OUTLOOK
As a resultThe CARES Act allows employers to defer the deposit and payment of the evolving economic impactemployer's share of COVID-19, we believe that ourSocial Security taxes. We deferred the payment of $1.5 million of payroll taxes normally due between March 27, 2020 financial results will continue to be impacted, but the magnitude and duration of the impact is uncertain. In addition, production at any of our facilities may be further affected as a result of possible future government, market or Company actions due to COVID-19. For these reasons, we have withdrawn our previously issued guidance.
In the near term, we expect thereDecember 31, 2020. These payroll taxes will be continued impacts to our business that will hinder our ability to meet our previous sales forecast. We cannot accurately estimate this impact due topaid during the significant levelthird quarter of unknown conditions that may be created by the pandemic. The economic impact of the pandemic has negatively affected our sales2021 and orders for April. We expect second quarter headwinds, but anticipate that the largest impact wasare included as accrued compensation and benefits in the month of April due to shutdowns of many of our global OEM customers. A portion of our backlog has been postponed from April to later in the second quarter and a smaller number of orders have been cancelled. In other cases, we do not have updated order schedules from OEMs due to their extended shutdowns. With ongoing significant uncertainty, we do not have sufficient visibility to reinstate guidance for 2020.accompanying consolidated balance sheets.
To be prepared, we have undertaken scenario analyses at varying potential demand levels. The Company has already instituted certain cost containment steps in an effort to mitigate the effects of the downturn. These actions include a temporary 20% salary reduction for all officers of the Company, layoffs and temporary salary reductions at Enovation Controls, a hiring freeze, reduction in the use of contingent labor and the elimination and postponement of capital expenditures. Additionally, our Board of Directors has agreed to reduce director compensation by 20% for the remainder of the year. To further protect the health and liquidity of our business, additional actions included in our scenario planning consist of:
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The extent of such actions will be determined by the magnitude and duration of the economic downturn.
25
LIQUIDITY AND CAPITAL RESOURCES
Historically, our primary source of capital has been cash generated from operations. In recent years, we have used borrowings on our credit facilities to fund acquisitions, and during 2018 we raised $240 million in net proceeds from our public stock offering which was also used to fund acquisition activity.acquisitions. During the first quarterthree months of 2020,2021, cash provided by operating activities totaled $15.1 million and atmillion. At the end of the first quarter, we had $27.3$26.0 million of cash and cash equivalents on hand and $195.1$150.1 million of available credit on our revolving credit facility.facilities. We also have a $200$300.0 million accordion feature available on our credit facility, subject to certain pro forma compliance requirements, intended to support potential future acquisitions. As of the date of this filing, the Company was in compliance with all debt covenants related to the credit agreement.
Our principal uses of cash arehave been paying operating expenses, paying dividends to shareholders, making capital expenditures, servicing debt and making acquisition-related payments.
We believe that cash generated from operations and our borrowing availability under our credit facilities will be sufficient to satisfy our operating expenses. In light of current economic uncertainty, we are actively managing operating costs and capital expenditures, which is expected to provide adequate liquidity beyond the next twelve months. In the event that economic conditions were to severely worsen for a protracted period of time, we would have several options available to ensure liquidity in addition to increased borrowingborrowings. Capital expenditures could be postponed since they primarily pertain to ensure liquidity, as discussed previously.long-term improvements in operations. Additional operating expense reductions also could be made. Finally, the dividend to shareholders could be reduced or suspended.
Cash Flows
The following table summarizes our cash flows for the periods (in millions):
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| Three Months Ended |
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| Three Months Ended |
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| ||||||||||
|
| March 28, 2020 |
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| March 30, 2019 |
|
| $ Change |
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| April 3, 2021 |
|
| March 28, 2020 |
|
| $ Change |
| ||||||
Net cash provided by operating activities |
| $ | 15.1 |
|
| $ | 19.8 |
|
| $ | (4.7 | ) |
| $ | 15.1 |
|
| $ | 15.1 |
|
| $ | — |
|
Net cash used in investing activities |
|
| (1.3 | ) |
|
| (8.7 | ) |
|
| 7.4 |
|
|
| (7.5 | ) |
|
| (1.3 | ) |
|
| (6.2 | ) |
Net cash used in financing activities |
|
| (9.0 | ) |
|
| (17.7 | ) |
|
| 8.7 |
|
|
| (9.5 | ) |
|
| (9.0 | ) |
|
| (0.5 | ) |
Effect of exchange rate changes on cash |
|
| 0.3 |
|
|
| (0.2 | ) |
|
| 0.5 |
|
|
| 2.6 |
|
|
| 0.3 |
|
|
| 2.3 |
|
Net increase (decrease) in cash |
| $ | 5.1 |
|
| $ | (6.8 | ) |
| $ | 11.9 |
| ||||||||||||
Net increase in cash |
| $ | 0.7 |
|
| $ | 5.1 |
|
| $ | (4.4 | ) |
Cash on hand increased $5.1$0.7 million from $22.2$25.3 million at the end of 20192020 to $27.3$26.0 million at March 28, 2020. Cash and cash equivalents were favorably impacted by changesApril 3, 2021. Changes in exchange rates during the quarterthree months ended April 3, 2021 favorably impacted cash and cash equivalents by $0.3$2.6 million. Cash balances on hand are a result of our cash management strategy which focuses on maintaining sufficient cash to fund operations while reinvesting cash in the Company and also paying down borrowings on our credit facilities. During the first quarter of 2020, we increased our cash on hand to provide liquidity for potential future cash flow needs due to the economic impact of the COVID-19 pandemic.
Operating activities
Cash from operations declined $4.7totaled $15.1 million 23.7%, compared to the prior-year period, a result of lower cash earnings. Changes in inventory and accounts receivable reduced cash by $9.7 million and $12.6 during the first quarter, which is consistent with the prior-year period. Current quarter cash earnings increased over the prior-year period; however, operating assets and liabilities grew at a similar pace in order to support the increased operations. Changes in inventory reduced cash by $10.8 million and $2.8 million in the first three months of 2021 and 2020, and 2019, respectively. Days sales outstanding increased slightly during the current period, up to 51 days from 50 days as of March 30, 2019. We have not experienced significant delays in collection of accounts receivable balances from customers as a result of the COVID-19 pandemic. Days of inventory on hand went updecreased to 81 as of April 3, 2021, compared with 101 as of March 28, 2020, comparedpositively impacted by the higher sales levels, the addition of Balboa’s operations and improved demand planning and supply chain management during the quarter and the latter half of 2020. Changes in accounts receivable reduced cash by $28.1 million and $6.8 million in the first three months of 2021 and 2020, respectively. First quarter days sales outstanding increased slightly from the prior-year comparable period, up to 88 as of March 30, 2019,55 days from 51 days, primarily a result of increased inventory levels and lower salesthe timing of Balboa’s collections compared to the prior-year quarter. There has been no decline in the net realizable value of our inventory as a result of recent economic conditions.
We have considered the impacts of the current economic environment on our long-lived assets and determined that there have been no indications that the recorded value of our long-lived assets may not be recoverable.legacy business.
Investing activities
Capital expenditures totaled $2.9$5.0 million for the first quarterthree months of 2020, a decrease2021, an increase of $5.9$2.1 million over the prior-year comparable period. Current yearCapital expenditures for 2021 are forecasted to be approximately $30.0 to $35.0 million, primarily consist of purchases offor investments in machinery and equipment. Dueequipment for capacity expansion projects, improvements to manufacturing technology and maintaining/replacing existing machine capabilities.
Cash used for acquisition related activities in the first quarter of 2021 totaled $3.4 million. The cash outflows consisted of the acquired assets of BJN Technologies, LLC and a contractual purchase price adjustment related to the current economic conditions and uncertainty of future cash flows, capital expenditure projects are being evaluated and several have been postponed. We are currently only proceeding with critical projects.Balboa acquisition.
26
Financing activities
Cash flows used in financing activities totaled $9.0$9.5 million during the first quarterthree months of 2020,2021, compared towith cash used of $17.7$9.0 million in the prior-year period. The reduction isadditional cash used this quarter was due to lowerhigher debt repayments.repayments, net of additional borrowings which totaled $5.9 million for the quarter.
During the first quarter of 2020,2021, we declared a quarterly cash dividend of $0.09 per share payable on April 20, 2020,2021, to shareholders of record as of April 5, 2020.2021. The declaration and payment of future dividends is subject to the sole discretion of the Board of Directors, and any determination as to the payment of future dividends will depend upon our profitability, financial condition, capital needs, future prospects and other factors deemed pertinent by the Board of Directors.
Off Balance Sheet Arrangements
We do not engage in any off balanceoff-balance sheet financing arrangements. In particular, we do not have any material interest in variable interest entities, which include special purpose entities and structured finance entities.
Inflation
The impact of inflation on our operating results has been moderate in recent years, reflecting generally lower rates of inflation in the economies in which we operate. While inflation has not had, and we do not expect that it will have, a material impact upon operating results, there is no assurance that our business will not be affected by inflation in the future.
Critical Accounting Policies and Estimates
We currently apply judgment and estimates which may have a material effect on the eventual outcome of assets, liabilities, revenues and expenses for impairment of long-lived assets, inventory, goodwill, accruals, income taxes and fair value measurements. Our critical accounting policies and estimates are included in our Form 10-K, and any changes made during the first three months of 2020,2021, are disclosed in Note 2 to the Consolidated, Unaudited Financial Statements.
26
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See “Item 7A – Quantitative and Qualitative Disclosures about Market Risk” in our Form 10-K. There were no material changes during the three months ended March 28, 2020.April 3, 2021.
Item 4. CONTROLS AND PROCEDURES.
The Company’s management, with the participation of the Interim Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of the Company’s “disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report, have concluded that our disclosure controls and procedures are effective and are designed to ensure that the information we are required to disclose is recorded, processed, summarized and reported within the necessary time periods. Our disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in reports that we file or submit pursuant to the Securities Exchange Act of 1934, as amended, is accumulated and communicated to our management, including our Interim Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
During the first quarter of 2020, the Company moved to remote work arrangements for the majority of its administrative functions. Management has evaluated the effect of this change on internal control over financial reporting and disclosure controls and procedures and determined that it has not had a material effect on our internal control over financial reporting.
There were no changes in our internal control over financial reporting identified in management's evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Securities Exchange Act of 1934, as amended, during the period covered by this report that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
27
PART II: OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
None.
Item 1A. RISK FACTORS.
In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the risk factors that affect our business and financial results that are discussed in Part I, Item 1A, “Risk Factors” of our Form 10-K. These factors could materially adversely affect our business, financial condition, liquidity, results of operations and capital position, and could cause our actual results to differ materially from our historical results or the results contemplated by the forward-looking statements contained in this report. Other than as set forth below, thereThere have been no material changes to such risk factors.
We face various risks related to health epidemics, pandemics and similar outbreaks, which may have material adverse effects on our business, financial position, results of operations and/or cash flows.
We face various risks related to health epidemics, pandemics and similar outbreaks, including the global outbreak of COVID-19. In recent weeks, the continued spread of COVID-19 has led to disruption and volatility in the global capital markets, which increases the cost of capital and adversely impacts access to capital. If significant portions of our workforce are unable to work effectively, including because of illness, quarantines, government actions, facility closures or other restrictions in connection with the COVID-19 pandemic, our operations will likely be impacted. We may be unable to perform fully on our contracts and our costs may increase as a result of the COVID-19 outbreak. These cost increases may not be fully recoverable or adequately covered by insurance.
It is possible that the continued spread of COVID-19 could also cause further disruption in our supply chain; cause delay, or limit the ability of customers to perform, including in making timely payments to us; impact investment performance; and cause other unpredictable events.
We continue to work with our stakeholders (including customers, employees, suppliers and local communities) to responsibly address this global pandemic. We continue to monitor the situation to assess further possible implications to our business, supply chain and customers, and to take actions in an effort to mitigate adverse consequences.
As a result of current economic conditions and expected future impacts from the COVID-19 pandemic, the carrying value of goodwill with respect to certain of our assets was impaired, resulting in impairment charges that negatively impacted our results of operations. We may be required to record additional impairment charges in the future if the COVID-19 pandemic continues and we cannot predict the amount and timing of any such additional charges, which could adversely impact our results of operations.
We cannot at this time predict the impact of the COVID-19 pandemic, but it could have a material adverse effect on our business, financial position, results of operations and/or cash flows.
We are currently undergoing a period of management transition, which could be disruptive to, or cause uncertainty in, our business.
On April 9, 2020, Helios announced that its Board of Directors named Tricia L. Fulton, the Company’s Chief Financial Officer, as Interim President and Chief Executive Officer, effective immediately. We are in the process of searching for a new Chief Executive Officer. However, there is no guarantee that we will be able to find a permanent replacement on a timely basis. We face significant competition for an executive with the qualifications and experience we are seeking. The prolonged absence of a permanent Chief Executive Officer could adversely impact our business and results of operations.
For additional information regarding risk factors, please refer to Part I, Item 1A, “Risk Factors” included in the Company’s Form 10-K.
28
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
None.In January 2021, we issued 62,599 shares of Helios common stock in a private placement under Section 4(2) of the Securities Act of 1933. The shares of Helios common stock were issued to the sellers as partial funding of our acquisition of the assets of BJN Technologies, LLC, an innovative engineering solutions provider.
Item 3. DEFAULTS UPON SENIOR SECURITIES.
None.
Item 4. MINE SAFETY DISCLOSURES.
Not applicable.
Item 5. OTHER INFORMATION.
None.
29
Item 6. EXHIBITS.
Exhibits:
Exhibit Number |
| Exhibit Description |
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32.1 |
| |
32.2 | ||
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101.INS |
| XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
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|
|
101.SCH |
| XBRL Schema Document |
|
|
|
101.CAL |
| XBRL Calculation Linkbase Document |
|
|
|
101.DEF |
| XBRL Definition Linkbase Document |
|
|
|
101.LAB |
| XBRL Label Linkbase Document |
|
|
|
101.PRE |
| XBRL Presentation Linkbase Document |
|
|
|
104
|
| The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended |
|
| |
30
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: May | HELIOS TECHNOLOGIES, INC. | ||
|
|
|
|
| By: |
| /s/ Tricia L. Fulton |
|
|
| Tricia L. Fulton |
|
|
|
(Principal |
3130