The accompanying Notes to the Consolidated Financial Statements are an integral part of these financial statements.
The accompanying Notes to the Consolidated Financial Statements are an integral part of these financial statements.
The accompanying Notes to the Consolidated Financial Statements are an integral part of these financial statements.
The accompanying Notes to the Consolidated Financial Statements are an integral part of these financial statements.
The accompanying Notes to the Consolidated Financial Statements are an integral part of these financial statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Currencies in thousands, except per share data)
1. COMPANY BACKGROUND
Helios Technologies, Inc. (“Helios,” or the “Company”) together with its wholly-owned subsidiaries, is a global leader in highly engineered motion control and electronic controls technology for diverse end markets, including construction, material handling, agriculture, energy, recreational vehicles, marine, health and wellness. 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 through innovative product development and acquisition.
The Company operates in two 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 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).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Company reports on a fiscal year that ends on the Saturday closest to December 31st. Each quarter generally consists of thirteen weeks, with a fourteen-week quarter occurring periodically. The 2020 fiscal year contained 53 weeks and ended January 2, 2021. The 2019 and 2018 fiscal years contained 52 weeks and ended December 28, 2019 and December 29, 2018, respectively.
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, its operations and, as a result, the financial results for the year and the Company’s near-term outlook. The Company cannot at this time predict the 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.
The Consolidated Financial Statements include the accounts and operations of Helios Technologies and its direct subsidiaries. All significant intercompany accounts and transactions are eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
56
Foreign Currency Translation and Transactions
The financial statements of foreign subsidiaries are translated into U.S. dollars using period-end exchange rates for assets and liabilities and average exchange rates for operating results. Unrealized translation gains and losses are included in accumulated other comprehensive income (loss) (“AOCI”) in shareholders’ equity. When a transaction is denominated in a currency other than the subsidiary’s functional currency, the Company recognizes a transaction gain or loss in foreign currency transaction (gain) loss, net.
Business Combinations
Business combinations are accounted for under the acquisition method of accounting, which requires recognition separately from goodwill, the assets acquired and the liabilities assumed at their acquisition date fair values. While best estimates and assumptions are used to accurately value assets acquired and liabilities assumed at the acquisition date as well as contingent consideration, when applicable, the estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, adjustments that are based on new information obtained about facts and circumstances that existed as of the acquisition date are recorded to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recognized in the Consolidated Statements of Operations.
Fair Value Measurements
The Company applies fair value accounting guidelines for all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). Under these guidelines, fair value is defined as the price that would be received for the sale of an asset or paid to transfer a liability (i.e., an exit price) in an orderly transaction between market participants at the measurement date. The guidance establishes a three-tier fair value hierarchy that prioritizes the inputs used in measuring fair value as follows:
Level 1 - Quoted prices in active markets for identical assets or liabilities.
Level 2 - Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets.
Level 3 - Unobservable inputs that are supported by little, infrequent, or no market activity and reflect the Company’s own assumptions about inputs used in pricing the asset or liability.
The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
The fair value of the Company’s cash and cash equivalents, accounts receivable, other current assets, accounts payable, accrued expenses and other liabilities approximate their carrying value, due to their short-term nature. Contingent consideration and newly acquired intangible assets are measured at fair value using level 3 inputs. The Company utilizes risk-adjusted probability analysis to estimate the fair value of contingent consideration arrangements. Forward foreign exchange contracts are measured at fair value based on quoted foreign exchange forward rates at the reporting dates. The fair value of interest rate swap contracts is based on the expected cash flows over the life of the trade. Expected cash flows are determined by evaluating transactions with a pricing model using a specific market environment. The values are estimated using the closing and mid-market market rate/price environment as of the end of the period. See Note 4 for detail on the level of inputs used in determining the fair value of assets and liabilities.
57
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents are maintained at financial institutions and, at times, balances may exceed federally insured limits. The Company has never experienced any losses related to these balances.
Accounts Receivable, net
Accounts receivable are stated at amounts owed by customers, net of an allowance for estimated credit losses. The allowance for estimated credit losses is based on management’s assessment of amounts which may become uncollectible in the future and is estimated from a review of historical experience and specific identification of those accounts that are significantly in arrears. Account balances are charged against the allowance when it is probable the receivable will not be recovered. See the Consolidated Balance Sheets for the allowance amounts.
Inventories, net
Inventories are valued at the lower of cost and net realizable value, on a first-in, first-out basis. On an ongoing basis, component parts found to be obsolete through design or process changes are disposed of and charged to material cost. The Company reviews on-hand balances of products and component parts against specific criteria. Products and component parts without usage or that have excess quantities on hand are evaluated. An inventory reserve is then established for the appropriate inventory value of those products and component parts deemed to be obsolete or slow moving. See Note 5 for inventory reserve amounts.
Property, Plant and Equipment, net
Property, plant and equipment is stated at cost. Expenditures for repairs and improvements that significantly add to the productive capacity or extend the useful life of an asset are capitalized. Repairs and maintenance are expensed as incurred. Depreciation is computed using the straight-line method over the following useful lives:
|
|
Years
|
Machinery and equipment
|
|
2 - 14
|
Office furniture and equipment
|
|
2 - 14
|
Buildings
|
|
25 - 40
|
Building and land improvements
|
|
7 - 40
|
Leasehold improvements
|
|
3-6
|
Gains or losses on the retirement, sale, or disposal of property, plant, and equipment are reflected in the Consolidated Statement of Operations in the period in which the assets are taken out of service.
Leases
In February 2016, the FASB issued ASU 2016-02, Leases. ASU 2016-02 requires an entity to recognize both assets and liabilities arising from financing and operating leases, along with additional qualitative and quantitative disclosures. The Company adopted the standard for the fiscal year beginning December 30, 2018, using the effective date method which required a cumulative-effect adjustment to be recorded to the opening balance of retained earnings. Under the effective date method, financial results reported in periods prior to fiscal year 2019 are unchanged. The Company also elected the package of practical expedients, which among other things, does not require reassessment of lease classification. As of the adoption date, the Company recorded right-of-use (“ROU”) assets and lease liabilities of approximately $13,900 to the balance sheet and a cumulative-effect adjustment of $134 was recognized in retained earnings.
58
The Company determines whether an arrangement is a lease at its inception. Operating lease ROU assets represent the Company’s right to use an underlying asset for the lease term and are presented in Property, plant and equipment in the Consolidated Balance Sheets. Operating lease liabilities represent the Company’s obligation to make lease payments arising from the leases and are presented in Other accrued expenses and current liabilities and Other noncurrent liabilities in the Consolidated Balance Sheets. ROU assets and lease liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term.
The Company utilizes an estimated incremental borrowing rate, which is derived from information available at the lease commencement date, in determining the present value of lease payments. The Company considers its existing credit facilities when calculating the incremental borrowing rate.
Lease terms include options to extend the lease when it is reasonably certain that the Company will exercise the option. Leases with a term of 12 months or less are not recorded on the balance sheet. See Note 7 for additional disclosures related to leases.
Goodwill and Other Intangible Assets
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.
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 its 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. In the third and fourth quarters of 2020, the Company completed its annual goodwill impairment testing and determined that the remaining carrying amount of goodwill was not impaired. See Note 8 for discussion of interim impairment testing and goodwill amounts.
Other intangible assets with definite lives consist primarily of technology, customer relationships, trade names and brands, a favorable supply agreement and sales order backlog, and are amortized over their respective estimated useful lives, ranging from less than one to twenty-six years.
Impairment of Long-Lived Assets
Long-lived assets, such as property and equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of the asset is measured by comparison of its carrying amount to future net cash flows the asset is expected to generate. If such assets are considered impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the asset exceeds its fair value. For the year ended January 2, 2021, there were no impairments recorded based on our analysis.
Revenue Recognition
Revenue recognition is evaluated through the following five steps: 1) identification of the contracts with customers; 2) identification of the performance obligations in the contracts; 3) determination of the transaction price; 4) allocation of the transaction price to the performance obligations in the contract; and 5) recognition of revenue as or when performance obligations are satisfied.
59
The Company disaggregates revenue by reporting segment as well as by geographic destination of the sale. See disaggregated revenue balances in Note 16, Segment Reporting. These categories depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.
Revenue from Product Sales
The significant majority of the Company’s contracts with its customers are for standard product sales under standard ship and bill arrangements. The contracts are generally accounted for as having a single performance obligation for the manufacture of product, which is considered the only distinct promise in the contract, and are short term in nature, typically completed within one quarter and not exceeding one year in duration. The transaction price is agreed upon in the contract. Revenue is recognized upon satisfaction of the performance obligation, which is typically at a point in time when control is transferred to the customer. Typically, control is transferred upon shipment to the customer but can also occur upon delivery to the customer, depending on contract terms. Revenue recognition can also occur over time for these contracts when the following criteria are met: the Company has no alternative use for the product; and the Company has an enforceable right to payment (including a reasonable margin) for performance completed to date.
Revenue is recognized in an amount that reflects the consideration the Company expects to be entitled to in exchange for the goods. Consideration for product sales is primarily fixed in nature with insignificant amounts recognized for sales discounts, rebates and product returns. The Company’s estimates for sales discounts, rebates and product returns reduce revenue recognized at the time of the sale.
Revenue from Services
The Company generates revenue from various services provided to customers including system design, maintenance, repairs, installation and commissioning and various other services. This is not a significant revenue stream for the Company, as it represents less than 5% of total revenue. Service contracts are typically completed within one quarter and do not exceed one year in duration. These contracts are generally accounted for as having a single distinct performance obligation for the performance of the service. The transaction price is agreed upon in the contract and can be based on a fixed amount or on a time and material arrangement. Revenue is recognized over time for service contracts as the customer receives and consumes the benefits as the Company performs. The method of over time recognition considers total costs incurred to date and the applicable margin on the total expected efforts to complete the performance obligation.
Contract Assets & Liabilities
Contract assets are recognized when the Company has a conditional right to consideration for performance completed on contracts. Contract asset balances totaled $2,776 and $2,796 at January 2, 2021 and December 28, 2019, 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 satisfying the underlying performance obligation. Contract liabilities totaled $4,208 and $353 at January 2, 2021 and December 28, 2019, respectively, and are presented in Other accrued expenses and current liabilities in the Consolidated Balance Sheets.
Other Revenue Recognition Considerations
Contracts do not have significant financing components and payment terms do not exceed one year from the date of the sale. The Company does not incur significant credit losses from contracts with customers.
The Company applies the practical expedient as permitted by the Financial Accounting Standards Board, which allows the omission of certain disclosures related to remaining performance obligations, as contract duration does not exceed one year.
60
The Company’s warranties provide assurance that products will function as intended. Estimated costs of product warranties are recognized at the time of the sale. The estimates are based upon current and historical warranty trends and other related information known to the Company.
The Company treats shipping and handling activities that occur after control of the product transfers as fulfillment activities, and therefore, does not account for shipping and handling costs as a separate performance obligation. Shipping and handling costs billed to customers are recorded in revenue. Shipping costs incurred by the Company are recorded in cost of goods sold.
Derivative Instruments and Hedging Activities
All derivative instruments are recorded gross on the Consolidated Balance Sheets at their respective fair values. The accounting for changes in the fair value of a derivative instrument depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. For derivative instruments that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative instrument is initially reported as a component of AOCI and is subsequently reclassified into the line item within the Consolidated Statements of Operations in which the hedged items are recorded in the same period in which the hedged item affects earnings.
The Company enters into foreign exchange currency contracts that are not designated as hedging instruments for accounting purposes. Changes in the fair value of foreign exchange currency contracts not designated as hedging instruments are recognized in earnings. Derivative financial instruments are utilized as risk management tools and are not used for trading or speculative purposes.
The Company utilizes foreign currency denominated debt to hedge currency exposure in foreign operations. The Company designates certain foreign currency denominated debt as hedges of net investments in foreign operations, which reduces the Company’s exposure to changes in currency exchange rates on investments in non-U.S. subsidiaries. Gains and losses on net investments in non-U.S. operations are economically offset by losses and gains on foreign currency borrowings. The change in the U.S. dollar value of foreign currency denominated debt is recorded in Foreign currency translation adjustments, a component of AOCI.
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 $15,557, $15,163 and $14,122 for the 2020, 2019 and 2018 fiscal years, respectively.
Restructuring Charges
During 2019, the Company incurred $1,724 of early retirement and severance costs associated with an organizational restructure. The restructuring plan was initiated to improve the global cost structure of the business while aligning employee talent with the strategic operational goals of the Company. All actions from this restructuring plan have been completed.
61
Stock-Based Compensation
All share-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized as an expense in earnings over the requisite service period. For performance-based share awards, the Company recognizes expense when it is determined the performance criteria are probable of being met. The probability of vesting is reassessed at each reporting date and compensation cost is adjusted using a cumulative catch up adjustment. Forfeitures are recognized in compensation cost when they occur. Benefits or deficiencies of tax deductions in excess of recognized compensation costs are reported within operating cash flows.
Income Taxes
The Company’s income tax policy provides for a balance sheet approach under which deferred income taxes are provided for based upon enacted tax laws and rates applicable to the periods in which the taxes become payable. These differences result from items reported differently for financial reporting and income tax purposes, primarily depreciation, accrued expenses and reserves. If necessary, the measurement of deferred tax assets is reduced by the amount of any tax benefits that are not expected to be realized based on available evidence.
The Company reports a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. The Company recognizes potential interest and penalties related to its unrecognized tax benefits in income tax expense.
The Company accounts for Global Intangible Low-Taxed Income (“GILTI”) as a current-period expense when incurred.
Capitalized Software Development Costs
The Company sells certain products that contain embedded software that is integral to the functionality of the products. Internal and external costs incurred for developing this software are charged to expense until technological feasibility has been established, at which point the development costs are capitalized. Capitalized software development costs primarily include payroll, benefits and other headcount related expenses. Once the products are available for general release to customers, no additional costs are capitalized.
Earnings Per Share
The following table presents the computation of basic and diluted earnings per common share (in thousands except per share data):
|
|
January 2, 2021
|
|
|
December 28, 2019
|
|
|
December 29, 2018
|
|
Net income
|
|
$
|
14,218
|
|
|
$
|
60,268
|
|
|
$
|
46,730
|
|
Basic and diluted weighted average shares outstanding
|
|
|
32,088
|
|
|
|
32,015
|
|
|
|
31,309
|
|
Basic and diluted net income per common share
|
|
$
|
0.44
|
|
|
$
|
1.88
|
|
|
$
|
1.49
|
|
62
Reclassifications
Certain reclassifications have been made to the prior period Consolidated Financial Statements to conform to the current year presentation.
Recently Adopted Accounting Standards
In January 2017, the FASB issued 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 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 Financial Statements.
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 retrospective basis, modified retrospective basis or prospectively, depending on the provision within the amendment. The Company does not expect the adoption of this guidance to have a material impact on its Consolidated Financial Statements.
3. BUSINESS ACQUISITION
Acquisition of Balboa Water Group
On November 6, 2020, the Company completed the acquisition of Balboa Water Group, LLC (“Balboa”), an innovative market leader of electronic controls for the health and wellness industry with proprietary and patented technology that enables end-to-end electronic control systems for therapy bath and spas. Pursuant to the Agreement and Plan of Merger (the “Purchase Agreement”), the Company acquired all of the outstanding equity interests of BWG Holdings I Corp., the owner of 100% of the share capital of Balboa. The acquisition was completed for cash consideration totaling $223,158 and was financed with cash on hand and borrowings on the Company’s credit facility.
The acquisition enables Helios to enter new and adjacent, high growth markets with a robust complementary product portfolio and diversifies Helios’s end markets, customers and product offerings while enhancing scale, addressable market and innovation in electronic control systems. The results of Balboa’s operations are reported in the Company’s Electronics segment and have been included in the Consolidated Financial Statements since the acquisition date.
63
The Purchase Agreement allows for future payments to the sellers for certain tax benefits realized, related to the pre-acquisition period, through tax periods ending on or before December 31, 2023. The estimated fair value of the contingent liability was determined to be $1,919, as of the acquisition date.
The fair value of total purchase consideration consisted of the following:
Cash
|
|
$
|
223,158
|
|
Post closing adjustment receivable, net
|
|
|
(431
|
)
|
Acquisition date fair value of contingent consideration
|
|
|
1,919
|
|
Total purchase consideration
|
|
|
224,646
|
|
Less: cash acquired
|
|
|
(6,129
|
)
|
Total purchase consideration, net of cash acquired
|
|
$
|
218,517
|
|
The purchase price was allocated to tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. The fair value of identifiable intangible assets acquired was based on estimates and assumptions made by management at the time of the acquisition. As additional information becomes available, as of the acquisition date, management will finalize its analysis of the estimated fair value of the identified intangible assets and tax related items. As management completes its evaluation, the preliminary purchase price allocation may be revised during the remainder of the measurement period (which will not exceed 12 months from the acquisition date). Any such revisions or changes to the fair values of the tangible and intangible assets acquired and liabilities assumed may be material.
The preliminary allocation of the total purchase price, net of cash acquired, is as follows:
Accounts receivable
|
|
$
|
28,328
|
|
Inventories
|
|
|
24,807
|
|
Property, plant and equipment
|
|
|
12,562
|
|
Goodwill
|
|
|
76,031
|
|
Intangible assets
|
|
|
128,000
|
|
Other assets
|
|
|
12,233
|
|
Total assets acquired
|
|
|
281,961
|
|
Accounts payable
|
|
|
17,840
|
|
Other accrued expenses and current liabilities
|
|
|
11,219
|
|
Deferred income taxes
|
|
|
23,823
|
|
Other noncurrent liabilities
|
|
|
10,562
|
|
Total liabilities assumed
|
|
|
63,444
|
|
Fair value of net assets acquired
|
|
$
|
218,517
|
|
Goodwill is primarily attributable to Balboa’s assembled workforce and anticipated synergies and economies of scale expected from the operations of the combined company. The synergies included certain cost savings, operating efficiencies, access to key end markets, and strategic benefits to be achieved as a result of the acquisition. Goodwill of $6,436 is expected to be deductible for tax purposes.
Transaction costs of $6,644 incurred in connection with the acquisition are included in selling, engineering and administrative expenses in the Consolidated Statement of Operations for the year ended January 2, 2021.
Net sales and loss before income taxes of Balboa included in the Consolidated Statement of Operations for the period from acquisition date through January 2, 2021 totaled $26,057 and $1,547, respectively. Included in Balboa’s loss for the period are $1,874 of charges related to the purchase accounting effects of inventory step up to fair value and $4,041 of amortization of acquisition related intangible assets.
64
The preliminary fair value of identified intangible assets and their respective useful lives are as follows:
|
|
Fair Value
|
|
|
Weighted-
Average
Amortization
Periods (Yrs)
|
|
Trade name
|
|
$
|
22,000
|
|
|
|
18
|
|
Technology
|
|
|
13,000
|
|
|
|
8
|
|
Customer relationships
|
|
|
85,000
|
|
|
|
25
|
|
Sales order backlog
|
|
|
8,000
|
|
|
|
0.5
|
|
Identified intangible assets
|
|
$
|
128,000
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
Unaudited Pro Forma Information
The following unaudited pro forma financial information presents combined results of operations for each of the periods presented, as if Balboa had been acquired as of the beginning of 2019.
The pro forma information includes adjustments to amortization and depreciation for intangible assets and property, plant, and equipment and interest expense to reflect the borrowings of the combined entity. Non-recurring pro forma adjustments directly attributable to the Balboa acquisition included in the pro forma information presented below include the purchase accounting effect of inventory step up to fair value of $1,874, transaction costs for both entities totaling $7,239, other acquisition related costs of Balboa in 2019 of $1,683, other non-recurring costs of Balboa incurred in 2019 of $1,471 and amortization of sales order backlog intangible asset totaling $8,000.
The pro forma information does not reflect any operating efficiencies or potential cost savings that may result from the acquisitions. Accordingly, the pro forma information is for illustrative purposes only and is not intended to present or be indicative of the actual results of operations of the combined company that may have been achieved had the acquisition actually occurred at the beginning of 2019, nor is it intended to represent or be indicative of future results of operations of the combined business. Consequently, actual results will differ from the unaudited pro forma information presented below:
|
|
Fiscal Year
|
|
|
|
2020
|
|
|
2019
|
|
Net sales
|
|
$
|
638,288
|
|
|
$
|
667,524
|
|
Net income
|
|
|
30,332
|
|
|
|
54,487
|
|
Basic and diluted net income per common share
|
|
|
0.95
|
|
|
|
1.70
|
|
4. 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 January 2, 2021 and December 28, 2019.
|
|
January 2, 2021
|
|
|
|
|
|
|
|
|
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
|
|
|
Quoted Market
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
Total
|
|
|
Prices (Level 1)
|
|
|
Inputs (Level 2)
|
|
|
Inputs (Level 3)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward foreign exchange contracts
|
|
$
|
211
|
|
|
$
|
—
|
|
|
$
|
211
|
|
|
$
|
—
|
|
Total
|
|
$
|
211
|
|
|
$
|
—
|
|
|
$
|
211
|
|
|
$
|
—
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap contract
|
|
$
|
7,679
|
|
|
$
|
—
|
|
|
$
|
7,679
|
|
|
$
|
—
|
|
Forward foreign exchange contracts
|
|
|
1,551
|
|
|
|
—
|
|
|
|
1,551
|
|
|
|
—
|
|
Contingent consideration
|
|
|
1,919
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,919
|
|
Total
|
|
$
|
11,149
|
|
|
$
|
—
|
|
|
$
|
9,230
|
|
|
$
|
1,919
|
|
65
|
|
December 28, 2019
|
|
|
|
|
|
|
|
|
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
|
|
|
Quoted Market
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
Total
|
|
|
Prices (Level 1)
|
|
|
Inputs (Level 2)
|
|
|
Inputs (Level 3)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward foreign exchange contracts
|
|
$
|
815
|
|
|
$
|
—
|
|
|
$
|
815
|
|
|
$
|
—
|
|
Total
|
|
$
|
815
|
|
|
$
|
—
|
|
|
$
|
815
|
|
|
$
|
—
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap contract
|
|
$
|
5,792
|
|
|
$
|
—
|
|
|
$
|
5,792
|
|
|
$
|
—
|
|
Forward foreign exchange contracts
|
|
|
219
|
|
|
|
—
|
|
|
|
219
|
|
|
|
—
|
|
Contingent consideration
|
|
|
828
|
|
|
|
—
|
|
|
|
—
|
|
|
|
828
|
|
Total
|
|
$
|
6,839
|
|
|
$
|
—
|
|
|
$
|
6,011
|
|
|
$
|
828
|
|
A summary of changes in the estimated fair value of contingent consideration at January 2, 2021 and December 28, 2019 is as follows:
Balance at December 29, 2018
|
|
$
|
18,960
|
|
Change in estimated fair value
|
|
|
652
|
|
Payment on liability
|
|
|
(18,747
|
)
|
Currency remeasurement
|
|
|
(37
|
)
|
Balance at December 28, 2019
|
|
$
|
828
|
|
Change in estimated fair value
|
|
|
(47
|
)
|
Contingent consideration incurred in connection with Balboa acquisition
|
|
|
1,919
|
|
Payment on liability
|
|
|
(830
|
)
|
Currency remeasurement
|
|
|
49
|
|
Balance at January 2, 2021
|
|
$
|
1,919
|
|
During the years ended December 28, 2019, and January 2, 2021, the third and final payment to the sellers of Enovation Controls was made as well as the final payment to the sellers of Faster, respectively.
5. INVENTORIES
At January 2, 2021 and December 28, 2019, inventory consisted of the following:
|
|
January 2, 2021
|
|
|
December 28, 2019
|
|
Raw materials
|
|
$
|
49,361
|
|
|
$
|
34,340
|
|
Work in process
|
|
|
30,675
|
|
|
|
28,667
|
|
Finished goods
|
|
|
39,332
|
|
|
|
29,711
|
|
Provision for obsolete and slow moving inventory
|
|
|
(8,996
|
)
|
|
|
(7,523
|
)
|
Total
|
|
$
|
110,372
|
|
|
$
|
85,195
|
|
66
6. PROPERTY, PLANT, AND EQUIPMENT
At January 2, 2021 and December 28, 2019, property, plant and equipment consisted of the following:
|
|
January 2, 2021
|
|
|
December 28, 2019
|
|
Machinery and equipment
|
|
$
|
168,012
|
|
|
$
|
144,820
|
|
Office furniture and equipment
|
|
|
23,888
|
|
|
|
19,808
|
|
Buildings
|
|
|
57,854
|
|
|
|
54,979
|
|
Building and land improvements
|
|
|
15,440
|
|
|
|
15,377
|
|
Leasehold improvements
|
|
|
3,122
|
|
|
|
1,133
|
|
Land
|
|
|
13,930
|
|
|
|
13,585
|
|
|
|
$
|
282,246
|
|
|
$
|
249,702
|
|
Less: Accumulated depreciation
|
|
|
(153,211
|
)
|
|
|
(133,582
|
)
|
Construction in progress
|
|
|
17,526
|
|
|
|
17,424
|
|
|
|
$
|
146,561
|
|
|
$
|
133,544
|
|
Operating lease ROU assets
|
|
|
16,616
|
|
|
|
12,310
|
|
Total
|
|
$
|
163,177
|
|
|
$
|
145,854
|
|
Depreciation expense for the years ended January 2, 2021, December 28, 2019, and December 29, 2018 totaled $17,570, $17,150, and $16,452, respectively.
7. OPERATING LEASES
The Company leases machinery, equipment, vehicles, buildings and office space throughout its locations, that are classified as operating leases. Remaining terms on these leases range from less than one year to ten years. For the years ended January 2, 2021 and December 28, 2019, operating lease costs totaled $4,119 and $3,689, respectively.
Supplemental balance sheet information related to operating leases is as follows:
|
|
January 2, 2021
|
|
|
December 28, 2019
|
|
Right-of-use assets
|
|
$
|
16,616
|
|
|
$
|
12,310
|
|
Lease liabilities:
|
|
|
|
|
|
|
|
|
Current lease liabilities
|
|
$
|
4,736
|
|
|
$
|
3,155
|
|
Non-current lease liabilities
|
|
|
12,728
|
|
|
|
9,312
|
|
Total lease liabilities
|
|
$
|
17,464
|
|
|
$
|
12,467
|
|
|
|
|
|
|
|
|
|
|
Weighted average remaining lease term (in years):
|
|
|
5.1
|
|
|
|
|
|
Weighted average discount rate:
|
|
|
5.0
|
%
|
|
|
|
|
Supplemental cash flow information related to leases is as follows:
|
|
For the Year Ended
|
|
|
|
January 2, 2021
|
|
|
December 28, 2019
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
|
|
|
|
Operating cash flows from operating leases
|
|
$
|
4,077
|
|
|
$
|
3,714
|
|
Non-cash impact of new leases and lease modifications
|
|
$
|
1,270
|
|
|
$
|
1,834
|
|
67
Maturities of lease liabilities are as follows:
2021
|
|
$
|
5,487
|
|
2022
|
|
|
3,561
|
|
2023
|
|
|
3,228
|
|
2024
|
|
|
2,599
|
|
2025
|
|
|
2,003
|
|
Thereafter
|
|
|
2,920
|
|
Total lease payments
|
|
|
19,798
|
|
Less: Imputed interest
|
|
|
(2,334
|
)
|
Total lease obligations
|
|
|
17,464
|
|
Less: Current lease liabilities
|
|
|
(4,736
|
)
|
Non-current lease liabilities
|
|
$
|
12,728
|
|
8. GOODWILL AND INTANGIBLE ASSETS
Goodwill
A summary of changes in goodwill by segment for the years ended January 2, 2021 and December 28, 2019 is as follows:
|
|
Hydraulics
|
|
|
Electronics
|
|
|
Total
|
|
Balance at December 29, 2018
|
|
$
|
276,758
|
|
|
$
|
106,373
|
|
|
$
|
383,131
|
|
Faster acquisition measurement period adjustment
|
|
|
(343
|
)
|
|
|
—
|
|
|
|
(343
|
)
|
Custom Fluidpower acquisition measurement period adjustment
|
|
|
1,205
|
|
|
|
—
|
|
|
|
1,205
|
|
Currency translation
|
|
|
(6,424
|
)
|
|
|
—
|
|
|
|
(6,424
|
)
|
Balance at December 28, 2019
|
|
$
|
271,196
|
|
|
$
|
106,373
|
|
|
$
|
377,569
|
|
Acquisition of Balboa
|
|
|
—
|
|
|
|
76,031
|
|
|
|
76,031
|
|
Impairment charge
|
|
|
(31,871
|
)
|
|
|
—
|
|
|
|
(31,871
|
)
|
Currency translation
|
|
|
21,804
|
|
|
|
—
|
|
|
|
21,804
|
|
Balance at January 2, 2021
|
|
$
|
261,129
|
|
|
$
|
182,404
|
|
|
$
|
443,533
|
|
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 to conduct 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.
68
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 made every effort to estimate future cash flows as accurately as possible, given the high degree of economic uncertainty that existed. 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.
Intangibles Assets
At January 2, 2021 and December 28, 2019, intangible assets consisted of the following:
|
|
|
|
January 2, 2021
|
|
|
December 28, 2019
|
|
|
|
Useful life
(years)
|
|
Gross carrying
amount
|
|
|
Accumulated
amortization
|
|
|
Net carrying
amount
|
|
|
Gross carrying
amount
|
|
|
Accumulated
amortization
|
|
|
Net carrying
amount
|
|
Definite-lived intangibles:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade names and brands
|
|
10-20
|
|
$
|
80,402
|
|
|
$
|
(11,188
|
)
|
|
$
|
69,214
|
|
|
$
|
56,032
|
|
|
$
|
(7,658
|
)
|
|
$
|
48,374
|
|
Non-compete agreements
|
|
5
|
|
|
950
|
|
|
|
(776
|
)
|
|
|
174
|
|
|
|
950
|
|
|
|
(586
|
)
|
|
|
364
|
|
Technology
|
|
7 - 13
|
|
|
45,955
|
|
|
|
(12,368
|
)
|
|
|
33,587
|
|
|
|
31,704
|
|
|
|
(8,661
|
)
|
|
|
23,043
|
|
Supply agreement
|
|
10
|
|
|
21,000
|
|
|
|
(8,575
|
)
|
|
|
12,425
|
|
|
|
21,000
|
|
|
|
(6,475
|
)
|
|
|
14,525
|
|
Customer relationships
|
|
15 - 26
|
|
|
330,406
|
|
|
|
(31,431
|
)
|
|
|
298,975
|
|
|
|
227,844
|
|
|
|
(19,499
|
)
|
|
|
208,345
|
|
Sales order backlog
|
|
0.5
|
|
|
8,000
|
|
|
|
(3,000
|
)
|
|
|
5,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
$
|
486,713
|
|
|
$
|
(67,338
|
)
|
|
$
|
419,375
|
|
|
$
|
337,530
|
|
|
$
|
(42,879
|
)
|
|
$
|
294,651
|
|
During 2019, the Company terminated its technology licensing agreement with Sturman Industries, Inc. A phase out of all digital logic valve (“DLV”) related products was completed and no further sales of any related products or technologies will occur. The termination of the agreement resulted in the recognition of a loss on disposal of the related intangibles asset totaling $2,713.
Amortization expense for the 2020, 2019 and 2018 fiscal years was approximately $22,114, $18,065 and $23,262, respectively. Future estimated amortization expense is presented below.
Year:
|
|
|
|
|
2021
|
|
$
|
29,955
|
|
2022
|
|
|
24,692
|
|
2023
|
|
|
24,633
|
|
2024
|
|
|
23,978
|
|
2025
|
|
|
23,909
|
|
Thereafter
|
|
|
292,208
|
|
Total
|
|
$
|
419,375
|
|
69
9. 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. The Company enters into foreign currency forward contracts to reduce the effects of fluctuating foreign currency exchange rates. In addition, the Company enters into interest rate derivatives to manage the effects of interest rate movements on the Company’s credit facilities.
For each derivative contract entered into where the Company looks to obtain hedge accounting treatment, the Company formally and contemporaneously documents all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking the hedge transaction, the nature of the risk being hedged, how the hedging instruments’ effectiveness in offsetting the hedged risk will be assessed prospectively and retrospectively. This process includes linking all derivatives to specific assets and liabilities on the balance sheet or to specific firm commitments or forecasted transactions. The Company also formally assesses, both at the inception of the hedges and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. If it is determined that a derivative is not highly effective, or that it has ceased to be a highly effective hedge, the Company will discontinue hedge accounting with respect to that derivative prospectively.
The fair value of the Company’s derivative financial instruments included in the Consolidated Balance Sheets is presented as follows:
|
Asset Derivatives
|
|
|
Liability Derivatives
|
|
|
Balance Sheet
|
|
Fair Value (1)
|
|
|
Fair Value (1)
|
|
|
Balance Sheet
|
|
Fair Value (1)
|
|
|
Fair Value (1)
|
|
|
Location
|
|
January 2, 2021
|
|
|
December 28, 2019
|
|
|
Location
|
|
January 2, 2021
|
|
|
December 28, 2019
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap contract
|
Other assets
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Other non-current liabilities
|
|
$
|
7,679
|
|
|
$
|
5,792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward foreign exchange contracts
|
Other current assets
|
|
|
169
|
|
|
|
509
|
|
|
Other current liabilities
|
|
|
1,413
|
|
|
213
|
|
Forward foreign exchange contracts
|
Other assets
|
|
|
42
|
|
|
|
306
|
|
|
Other non-current liabilities
|
|
|
138
|
|
|
|
6
|
|
Total derivatives
|
|
|
$
|
211
|
|
|
$
|
815
|
|
|
|
|
$
|
9,230
|
|
|
$
|
6,011
|
|
(1) See Note 4 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 2020 and 2019 years are presented as follows:
|
|
Amount of Gain or (Loss) Recognized in Other Comprehensive Income on Derivative (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)
|
|
|
|
January 2, 2021
|
|
December 28, 2019
|
|
|
into Earnings (Effective Portion)
|
|
January 2, 2021
|
|
December 28, 2019
|
|
Derivatives in cash flow hedging relationships:
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap contract
|
|
$
|
(1,887
|
)
|
$
|
(3,482
|
)
|
|
Interest expense, net
|
|
$
|
(3,712
|
)
|
$
|
(1,110
|
)
|
Interest expense presented in the Consolidated Statements of Operations, in which the effects of cash flow hedges are recorded, totaled $13,286 and $15,387 for the years ended January 2, 2021 and December 28, 2019, respectively.
70
|
|
Amount of Gain or (Loss) Recognized
in Earnings on Derivatives
|
|
|
Location of Gain or (Loss) Recognized
|
|
|
January 2, 2021
|
|
December 28, 2019
|
|
|
in Earnings on Derivatives
|
Derivatives not designated as hedging instruments:
|
|
|
|
Forward foreign exchange contracts
|
|
$
|
(5,458
|
)
|
$
|
2,863
|
|
|
Foreign currency transaction gain loss, net
|
Interest Rate Swap Contract
Helios primarily utilizes variable-rate debt, which exposes the Company to variability in interest payments. The Company enters into various types of derivative instruments to manage fluctuations in cash flows resulting from interest rate risk attributable to changes in the benchmark interest rates.
The Company assesses interest rate cash flow risk by continually identifying and monitoring changes in interest rate exposures that may adversely impact expected future cash flows and by evaluating hedging opportunities.
The Company maintains risk management control systems to monitor interest rate cash flow risk attributable to both the Company’s outstanding and forecasted debt obligations as well as the Company’s offsetting hedge positions. The risk management control systems involve the use of analytical techniques to estimate the expected impact of changes in interest rates on the Company’s future cash flows.
The Company has entered into interest rate swap transactions to hedge the variable interest rate payments on its credit facilities. In connection with the 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 swaps have an aggregate notional amount of $195,000, with periodic decreases, have been designated as hedging instruments and are accounted for as cash flow hedges. The interest rate swaps are scheduled to expire in April 2023, and October 2025. The contracts are settled with the respective counterparties on a net basis at each settlement date. Assuming LIBOR rates consistent with year-end, the estimated losses included in AOCI at January 2, 2021, that are expected to be reclassified into earnings during the 2021 fiscal year total $3,978.
Forward Foreign Exchange Contracts
The Company has entered into forward contracts to economically hedge translational and transactional exposure associated with various business units whose local currency differs from the Company’s reporting currency. The Company’s forward contracts are not designated as hedging instruments for accounting purposes.
At January 2, 2021, the Company had twelve forward foreign exchange contracts with an aggregate notional value of €51,798, maturing at various dates through July 2022.
Net Investment Hedge
The Company utilizes foreign currency denominated debt to hedge currency exposure in foreign operations. The Company has designated €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 $109,909 as of January 2, 2021 and is included in the Revolving line of credit line item in the Consolidated Balance Sheets. The loss on the net investment hedge recorded in AOCI as part of the currency translation adjustment was $7,246, net of tax, for the year ended January 2, 2021. A loss of $164, associated with the net investment hedge, was reclassified from AOCI into income for the year ended January 2, 2021.
71
10. CREDIT FACILITIES
Total long-term non-revolving debt consists of the following:
|
Maturity Date
|
|
January 2, 2021
|
|
|
December 28, 2019
|
|
Long-term non-revolving debt:
|
|
|
|
|
|
|
|
|
|
Term loan credit facility with PNC Bank
|
10/28/2025
|
|
$
|
200,000
|
|
|
$
|
91,250
|
|
Term loan credit facility with Intesa Sanpaolo S.p.A.
|
12/23/2021
|
|
|
6,106
|
|
|
|
—
|
|
Term loan credit facility with Citibank
|
11/22/2023
|
|
|
400
|
|
|
|
—
|
|
Other long-term debt
|
Various
|
|
|
264
|
|
|
|
1,238
|
|
Total long-term non-revolving debt
|
|
|
|
206,770
|
|
|
|
92,488
|
|
Less: current portion of long-term non-revolving debt
|
|
|
16,229
|
|
|
|
7,623
|
|
Less: unamortized debt issuance costs
|
|
|
|
609
|
|
|
|
803
|
|
Total long-term non-revolving debt, net
|
|
|
$
|
189,932
|
|
|
$
|
84,062
|
|
Information on the Company's revolving credit facilities is as follows:
|
|
|
Balance
|
|
|
Available credit
|
|
|
Maturity Date
|
|
January 2, 2021
|
|
|
December 28, 2019
|
|
|
January 2, 2021
|
|
|
December 28, 2019
|
|
Revolving line of credit with PNC Bank
|
10/28/2025
|
|
$
|
255,909
|
|
|
$
|
208,708
|
|
|
$
|
144,045
|
|
|
$
|
191,292
|
|
Revolving line of credit with Citibank
|
11/18/2021
|
|
$
|
315
|
|
|
$
|
—
|
|
|
$
|
1,982
|
|
|
$
|
—
|
|
Future maturities of total debt are as follows:
Year:
|
|
|
|
2021
|
$
|
16,670
|
|
2022
|
|
15,274
|
|
2023
|
|
15,141
|
|
2024
|
|
20,000
|
|
2025
|
|
395,909
|
|
Total
|
$
|
462,994
|
|
Term Loan and Line of Credit with PNC Bank
On October 28, 2020, the Company amended and restated its credit agreement with PNC Bank, National Association, as administrative agent, and the lenders party thereto. The amendment increased the term loan credit facility to an aggregate principle amount of $200,000 and revised the accordion feature to permit the increase of the amended and restated facility by up to an additional $300,000. The aggregate maximum borrowing amount on the revolving line of credit remained unchanged at $400,000. Borrowings under the line of credit bear interest at defined rates plus an applicable margin based on the Company’s leverage ratio.
The credit agreement requires the Company to comply with a number of restrictive covenants, including limitations on the Company’s ability to incur indebtedness; create or maintain liens on its property or assets; make investments, loans and advances; repurchase shares of its common stock; engage in acquisitions, mergers, joint ventures, consolidation and asset sales; and pay dividends and distributions. The Company (together with its subsidiaries) is also required to comply with certain financial tests, including a minimum interest coverage ratio (as defined therein) of 3.0 to 1.0 and a maximum leverage ratio of 3.75 to 1.0. As of January 2, 2021, the Company was in compliance with all covenants related to the credit agreement.
The credit facility is guaranteed by the Company’s U.S. domestic subsidiaries and requires any future U.S. domestic subsidiaries to join as guarantors. In addition, the credit facility is required to be secured by substantially all of the assets of the Company and its current and future U.S. domestic subsidiaries of the Company.
72
To hedge currency exposure in foreign operations, €90,000 of the borrowings on the line of credit are denominated in euros. The borrowings have been designated as a net investment hedge, see additional information in Note 9.
The effective interest rate on the credit agreement at January 2, 2021, was 2.96%. Interest expense recognized on the credit agreement during the years ended January 2, 2021, December 28, 2019 and December 29, 2018 was $9,500, $14,149 and $12,799, respectively.
Term Loan with Intesa Sanpaolo S.p.A.
On June 23, 2020, the Company entered into an agreement with Intesa Sanpaolo S.p.A. that provided an unsecured term loan of €5,000. The facility bears interest at 1.25%. Repayment of the facility begins in January 2021 and is due in 12 monthly installments. The loan bears a guarantee from SACE S.p.A. – the Italian export public credit agency operating in the 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.
Term Loan and Line of Credit with Citibank
On May 18, 2020, the Company entered into 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 for a period of 180 days, 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 with the final payment due in November 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 facility 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 covenants related to the Fixed Asset Facility and Working Capital Facility.
Other Credit Facilities
The Company had a credit agreement with Shinhan Bank that provided a term loan of KRW 1,000,000. The loan matured in March 2020, at which time the balance was paid in full.
The Company’s other long-term debt consists of auto loans payable to National Australia Bank. Interest is charged at various rates ranging from 4.5% to 5.1%. Principal and interest payments are due monthly. The loans mature at various dates through July 2023.
11. DIVIDENDS TO SHAREHOLDERS
The Company declared dividends of $11,556, $11,532, and $11,444 to shareholders in 2020, 2019, and 2018, respectively.
73
The Company declared the following regular quarterly dividends to shareholders during 2020, 2019 and 2018. The dividends were declared to shareholders of record on the 5th day following the respective quarter end and paid on the 20th day of each month following the date of declaration.
|
|
|
2020
|
|
|
|
2019
|
|
|
|
2018
|
|
First quarter
|
|
$
|
0.09
|
|
|
$
|
0.09
|
|
|
$
|
0.09
|
|
Second quarter
|
|
|
0.09
|
|
|
|
0.09
|
|
|
|
0.09
|
|
Third quarter
|
|
|
0.09
|
|
|
|
0.09
|
|
|
|
0.09
|
|
Fourth quarter
|
|
|
0.09
|
|
|
|
0.09
|
|
|
|
0.09
|
|
12. INCOME TAXES
For financial reporting purposes, income before income taxes includes the following components:
|
|
For the year ended
|
|
|
|
January 2, 2021
|
|
|
December 28, 2019
|
|
|
December 29, 2018
|
|
United States
|
|
$
|
30,619
|
|
|
$
|
51,007
|
|
|
$
|
44,693
|
|
Foreign
|
|
|
(6,572
|
)
|
|
|
24,300
|
|
|
|
11,702
|
|
Total
|
|
$
|
24,047
|
|
|
$
|
75,307
|
|
|
$
|
56,395
|
|
The Company derives its pretax income based on the consolidated results of its legal entities. Products manufactured in the U.S. are sold worldwide and are the primary reason that pretax income in the U.S. is higher than foreign pretax income. The U.S. legal entities had third-party export sales of $106,147, $105,976, and $98,876 for the 2020, 2019 and 2018 years, respectively. Foreign pretax income is impacted by the level of foreign manufacturing, sales at varying market levels, as well as direct sales to large OEM customers.
The components of the income tax provision (benefit) are as follows:
|
|
For the year ended
|
|
|
|
January 2, 2021
|
|
|
December 28, 2019
|
|
|
December 29, 2018
|
|
Current tax expense (benefit):
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
3,251
|
|
|
$
|
7,380
|
|
|
$
|
4,229
|
|
State and local
|
|
|
1,166
|
|
|
|
(388
|
)
|
|
|
2,522
|
|
Foreign
|
|
|
7,430
|
|
|
|
9,107
|
|
|
|
3,707
|
|
Total current
|
|
|
11,847
|
|
|
|
16,099
|
|
|
|
10,458
|
|
Deferred tax expense (benefit):
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
3,190
|
|
|
|
665
|
|
|
|
380
|
|
State and local
|
|
|
(326
|
)
|
|
|
58
|
|
|
|
110
|
|
Foreign
|
|
|
(4,882
|
)
|
|
|
(1,783
|
)
|
|
|
(1,283
|
)
|
Total deferred
|
|
|
(2,018
|
)
|
|
|
(1,060
|
)
|
|
|
(793
|
)
|
Total income tax provision
|
|
$
|
9,829
|
|
|
$
|
15,039
|
|
|
$
|
9,665
|
|
74
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Act”) was signed into law making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017, the transition of U.S international taxation from a worldwide tax system to a territorial system, and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017. As a result of the Act, the Company recorded in the 2017 year-end income tax provision $459 of additional income tax expense, including a benefit of $1,541 related to remeasurement of deferred tax assets and liabilities and $2,000 of expense related to one-time transition tax on mandatory deemed repatriation of foreign earnings. Refinements to these items were made during 2018 for the purpose of 2017 tax return reporting, and provision-to-return adjustments have been recorded in the 2018 year-end provision to adjust the transition tax to $630. The Company elected to pay the transition tax in full during the 2018 fiscal year.
As of January 2, 2021, the Company had approximately $19,300 of undistributed earnings of its non-U.S. subsidiaries for which it has not provided for non-U.S. withholding taxes and state taxes because such earnings are intended to be reinvested in international operations.
In January 2018, the FASB released guidance on the accounting for tax on the global intangible low-taxed income (“GILTI”) provisions of the Act. The GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. The guidance indicates that either accounting for deferred taxes related to GILTI inclusions or treating any taxes on GILTI inclusions as a period cost are acceptable methods subject to an accounting policy election. The Company has elected to treat any taxes on GILTI inclusions as period costs.
The reconciliation between the effective income tax rate and the U.S. federal statutory rate is as follows:
|
|
For the year ended
|
|
|
|
January 2, 2021
|
|
|
December 28, 2019
|
|
|
December 29, 2018
|
|
U.S. federal taxes at statutory rate
|
|
$
|
5,057
|
|
|
$
|
15,815
|
|
|
$
|
11,843
|
|
Increase (decrease)
|
|
|
|
|
|
|
|
|
|
|
|
|
986(c) FX gain/(loss)
|
|
|
—
|
|
|
|
(281
|
)
|
|
|
—
|
|
Foreign withholding tax
|
|
|
326
|
|
|
|
—
|
|
|
|
—
|
|
Capitalized transaction costs
|
|
|
387
|
|
|
|
—
|
|
|
|
—
|
|
Foreign income taxed at different rate
|
|
|
1,363
|
|
|
|
1,446
|
|
|
|
1,292
|
|
FDII deduction
|
|
|
(1,265
|
)
|
|
|
(1,790
|
)
|
|
|
(2,195
|
)
|
Changes in estimates related to prior years including foreign
|
|
|
(2,530
|
)
|
|
|
—
|
|
|
|
(2,049
|
)
|
Goodwill impairment
|
|
|
6,693
|
|
|
|
—
|
|
|
|
—
|
|
State and local taxes, net
|
|
|
595
|
|
|
|
(73
|
)
|
|
|
1,462
|
|
Current year tax credits
|
|
|
(674
|
)
|
|
|
(663
|
)
|
|
|
(633
|
)
|
Foreign deferred other true up
|
|
|
—
|
|
|
|
—
|
|
|
|
(810
|
)
|
Change in reserve
|
|
|
(453
|
)
|
|
|
957
|
|
|
|
578
|
|
Foreign patent box benefit
|
|
|
—
|
|
|
|
(1,213
|
)
|
|
|
(937
|
)
|
Increase in valuation allowance
|
|
|
—
|
|
|
|
116
|
|
|
|
526
|
|
Other
|
|
|
330
|
|
|
|
725
|
|
|
|
588
|
|
Income tax provision
|
|
$
|
9,829
|
|
|
$
|
15,039
|
|
|
$
|
9,665
|
|
75
Deferred income tax assets and liabilities are provided to reflect the future tax consequences of differences between the tax basis of assets and liabilities and their reported amounts in the financial statements. The temporary differences that give rise to significant portions of the deferred tax assets and liabilities as of January 2, 2021, and December 28, 2019, are presented below:
|
|
January 2, 2021
|
|
|
December 28, 2019
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Foreign tax benefit of U.S. reserves
|
|
$
|
5,086
|
|
|
$
|
3,691
|
|
Net operating losses
|
|
|
6,159
|
|
|
|
510
|
|
Inventory
|
|
|
2,495
|
|
|
|
1,824
|
|
Intangible assets and goodwill
|
|
|
675
|
|
|
|
2,518
|
|
Accrued expenses and other
|
|
|
5,485
|
|
|
|
2,883
|
|
Other comprehensive income
|
|
|
—
|
|
|
|
3,887
|
|
Total deferred tax assets
|
|
|
19,900
|
|
|
|
15,313
|
|
Less: Valuation allowance
|
|
|
(428
|
)
|
|
|
(428
|
)
|
Net deferred tax assets
|
|
|
19,472
|
|
|
|
14,885
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
(7,493
|
)
|
|
|
(6,495
|
)
|
Intangible assets and goodwill
|
|
|
(82,126
|
)
|
|
|
(51,834
|
)
|
Other deferred tax liabilities
|
|
|
(1,564
|
)
|
|
|
(43
|
)
|
Other comprehensive income
|
|
|
(508
|
)
|
|
|
—
|
|
Total deferred tax liabilities
|
|
|
(91,691
|
)
|
|
|
(58,372
|
)
|
Net deferred tax liabilities
|
|
$
|
(72,219
|
)
|
|
$
|
(43,487
|
)
|
As of January 2, 2021, the Company has federal net operating loss (“NOL”) carryforwards of approximately $14,400, Oklahoma NOLs carryforwards of $14,300 and California NOL carryforwards of $33,400. The Oklahoma NOLs are expected to be fully utilized by 2024. The federal and California NOLs were generated by Balboa during pre-acquisition tax years 2011-2019 and are subject to a 20-year carryforward period. As a result of the acquisition, both the federal and the California NOLs are subject to various limitations under Internal Revenue Code (“IRC”) Section 382. IRC Section 382 limits the use of NOLs to the extent there has been an ownership change of more than 50 percent. Additionally, California enacted legislation in June 2020 to suspend the usage of NOLs for tax years 2020, 2021, and 2022. Despite these limitations, the Company expects to fully utilize the federal NOLs by 2027 and the California NOLs by 2025 and thus has recorded a deferred tax asset of $6,159 for all NOLs. Approximately $2,685 of the expected NOL benefit is payable to the previous owners of Balboa. The payout is considered contingent consideration and has an estimated fair value of $1,919 as of the acquisition date.
A valuation allowance to reduce the deferred tax assets reported is required if, based on the weight of the evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. For the fiscal years ended 2020 and 2019 management has determined that no material valuation allowances were required.
The Company prescribes a recognition threshold and measurement attribute for an uncertain tax position taken or expected to be taken in a tax return.
76
The following is a roll-forward of the Company’s unrecognized tax benefits:
Unrecognized tax benefits - December 30, 2017
|
|
$
|
4,542
|
|
Increases from positions taken during prior periods
|
|
|
372
|
|
Increases from positions taken during current period
|
|
|
2,036
|
|
Settled positions
|
|
|
—
|
|
Lapse of statute of limitations
|
|
|
(837
|
)
|
Unrecognized tax benefits - December 29, 2018
|
|
$
|
6,113
|
|
Increases from positions taken during prior periods
|
|
|
1,121
|
|
Increases from positions taken during current period
|
|
|
817
|
|
Settled positions
|
|
|
—
|
|
Lapse of statute of limitations
|
|
|
—
|
|
Unrecognized tax benefits - December 28, 2019
|
|
$
|
8,051
|
|
Increases from positions taken during prior periods
|
|
|
656
|
|
Increases from positions taken during current period
|
|
|
459
|
|
Current year acquisitions
|
|
|
3,170
|
|
Settled positions
|
|
|
(947
|
)
|
Lapse of statute of limitations
|
|
|
—
|
|
Unrecognized tax benefits - January 2, 2021
|
|
$
|
11,389
|
|
At January 2, 2021, the Company had unrecognized tax benefits of $11,389 including accrued interest. If recognized, $1,842 of unrecognized tax benefits would reduce the effective tax rate in future periods. The Company recognizes interest and penalties related to income tax matters in income tax expense. Interest related to the unrecognized tax benefit has been recognized and included in income tax expense. Interest accrued as of January 2, 2021, is not considered material to the Company’s Consolidated Financial Statements.
The Company remains subject to income tax examinations in the U.S. and various state and foreign jurisdictions for tax years 2009-2019. Although the Company is not currently under examination in most jurisdictions, limited transfer pricing disputes exist for years dating back to 2008. The Company believes it has adequately reserved for income taxes that could result from any audit adjustments. Although the timing of the resolution and/or closure of audits is highly uncertain, it is reasonably possible that the balance of gross unrecognized tax benefits could significantly change in the next 12 months.
13. STOCK-BASED COMPENSATION
Equity Incentive Plan
The Company’s 2019 Equity Incentive Plan (“2019 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. As of January 2, 2021, 968,666 shares remained available to be issued through the 2019 Plan.
Restricted Stock and Restricted Stock Units
The Company grants restricted shares of common stock and restricted stock units (“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.
77
Compensation expense recognized for restricted stock and RSUs totaled $4,182, $3,465 and $2,728 for the years ended January 2, 2021, December 28, 2019 and December 29, 2018, respectively.
The following table summarizes restricted stock and RSU activity for the 2020 fiscal year:
|
|
Number of
shares / units
(in thousands)
|
|
|
Weighted average
grant-date
fair value per share
|
|
Nonvested balance at December 28, 2019
|
|
|
203
|
|
|
$
|
42.73
|
|
Granted
|
|
|
186
|
|
|
|
36.83
|
|
Vested
|
|
|
(79
|
)
|
|
|
43.60
|
|
Forfeited
|
|
|
(71
|
)
|
|
|
41.78
|
|
Nonvested balance at January 2, 2021 (1)
|
|
|
239
|
|
|
$
|
38.95
|
|
(1) Includes 61,386 unvested performance-based RSUs.
The grant date fair value of restricted stock and RSUs granted during the 2020, 2019 and 2018 fiscal years totaled $6,843, $5,079 and $5,947, respectively.
The Company had $5,444 of total unrecognized compensation cost related to the restricted stock and RSU awards as of January 2, 2021. That cost is expected to be recognized over a weighted average period of 1.7 years.
Stock Options
The following table summarizes stock options the Company has granted to its officers (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
January 2, 2021
|
|
|
|
Options
|
|
|
Option Exercise
|
|
|
Options
|
|
|
Options
|
|
|
Options
|
|
Date of Grant
|
|
Granted
|
|
|
(Strike) Price
|
|
|
Forfeited
|
|
|
Outstanding
|
|
|
Exercisable
|
|
February 28, 2020
|
|
|
18
|
|
|
$
|
39.75
|
|
|
|
10
|
|
|
|
9
|
|
|
|
—
|
|
July 1, 2020
|
|
|
5
|
|
|
|
35.04
|
|
|
|
—
|
|
|
|
5
|
|
|
|
—
|
|
Total
|
|
|
23
|
|
|
|
|
|
|
|
10
|
|
|
|
14
|
|
|
|
—
|
|
The exercise prices per share are equal to the market price of Helios stock on the respective grant dates. The options vest ratable over a three-year period and have a 10-year expiration. The grant date fair value of the options was estimated using a Black Scholes valuation model. At January 2, 2021, the Company had $133 of unrecognized compensation cost related to the options which is expected to be recognized over a weighted average period of 2.3 years.
Employee Stock Purchase Plans
The Company maintains an Employee Stock Purchase Plan (“ESPP”) in which U.S. employees 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 six shares purchased by the employee under the plan. The ESPP authorizes the issuance, and the purchase by employees, of up to 1,096,875 shares of common stock through payroll deductions. No U.S. employee is allowed to buy more than $25 of common stock in any year, based on the market value of the common stock at the beginning of the purchase period, and no UK employee is allowed to buy more than the lesser of £1.5 or 10% of his or her annual salary in any year.
78
Employees purchased 43,574 shares at a weighted average price of $30.86, and 49,195 shares at a weighted average price of $33.55, under the ESPP and UK Plan during the years ended January 2, 2021 and December 28, 2019, respectively. The Company recognized $431, $551 and $324 of compensation expense during the years ended January 2, 2021, December 28, 2019 and December 29, 2018, respectively. At January 2, 2021, 411,629 shares remained available to be issued through the ESPP and the U.K. plan.
Nonemployee Director Fees Plan
In March 2012, the Board of Directors adopted the Sun Hydraulics Corporation 2012 Nonemployee Director Fees Plan (the “2012 Directors Plan”), which was approved by the shareholders of the Company at its 2012 annual meeting. Under the 2012 Directors Plan, Nonemployee Directors are compensated for their Board service solely in shares of common stock. In February 2015, the Board adopted amendments to the 2012 Directors Plan, which revised the compensation for Nonemployee Directors. Each Nonemployee Director receives an annual retainer of 2,000 shares of Common Stock. The Chairman's retainer is twice that of a regular director, and the retainer for the chairs of each Board Committee is 150% that of a regular director. In addition, each Nonemployee Director receives 250 shares of Common Stock for attendance at each Board meeting and each meeting of each committee of the Board on which he or she serves when the committee meeting is not held within one day of a meeting of the Board. In June 2015, the Company's shareholders approved the amendments to the 2012 Directors Plan.
The Board has the authority to change from time to time, in any manner it deems desirable or appropriate, the share compensation to be awarded to all or any one or more Nonemployee Directors, provided that, with limited exceptions, such changes are subject to prior shareholder approval. The aggregate number of shares which may be issued during any single calendar year is limited to 35,000 shares. The 2012 Directors Plan authorizes the issuance of up to 270,000 shares of common stock. At January 2, 2021, 71,549 shares remained available for issuance under the 2012 Directors Plan. Directors were granted 26,675 and 25,200 shares for the years ended January 2, 2021 and December 28, 2019, respectively. The Company recognized director stock compensation expense of $1,178, $1,162 and $1,213 for the years ended January 2, 2021, December 28, 2019 and December 29, 2018, respectively.
14. EMPLOYEE BENEFITS
The Company has a defined contribution retirement plan, under the provisions of Section 401(k) of the Internal Revenue Code, covering substantially all of its eligible U.S. employees. Employer contribution costs recognized under the retirement plan amounted to approximately $2,373, $3,511, and $3,807 during 2020, 2019, and 2018, respectively.
The Company provides supplemental pension benefits to its employees of foreign operations in addition to mandatory benefits included in local country payroll statutes. These benefits amounted to approximately $3,591, $1,905, and $1,865 during 2020, 2019, and 2018, respectively.
79
15. ACCUMULATED OTHER COMPREHENSIVE LOSS
The following table presents changes in accumulated other comprehensive loss by component:
|
|
Unrealized
Gains and
(Losses) on Derivative Instruments
|
|
|
Foreign
Currency
Items
|
|
|
Total
|
|
Balance at December 30, 2017
|
|
$
|
—
|
|
|
$
|
(6,478
|
)
|
|
$
|
(6,478
|
)
|
Other comprehensive loss before
reclassifications
|
|
|
(2,741
|
)
|
|
|
(37,466
|
)
|
|
|
(40,207
|
)
|
Amounts reclassified from accumulated
other comprehensive loss
|
|
|
432
|
|
|
|
—
|
|
|
|
432
|
|
Net current period other comprehensive loss
|
|
|
(2,309
|
)
|
|
|
(37,466
|
)
|
|
|
(39,775
|
)
|
Balance at December 29, 2018
|
|
$
|
(2,309
|
)
|
|
$
|
(43,944
|
)
|
|
$
|
(46,253
|
)
|
Other comprehensive loss before
reclassifications
|
|
|
(2,616
|
)
|
|
|
(9,515
|
)
|
|
|
(12,131
|
)
|
Amounts reclassified from accumulated
other comprehensive loss, net of tax
|
|
|
(866
|
)
|
|
|
—
|
|
|
|
(866
|
)
|
Tax effect
|
|
|
419
|
|
|
|
3,467
|
|
|
|
3,886
|
|
Net current period other comprehensive loss
|
|
|
(3,063
|
)
|
|
|
(6,048
|
)
|
|
|
(9,111
|
)
|
Balance at December 28, 2019
|
|
$
|
(5,372
|
)
|
|
$
|
(49,992
|
)
|
|
$
|
(55,364
|
)
|
Other comprehensive income before
reclassifications
|
|
|
975
|
|
|
|
27,306
|
|
|
|
28,281
|
|
Amounts reclassified from accumulated
other comprehensive loss, net of tax
|
|
|
(2,862
|
)
|
|
|
—
|
|
|
|
(2,862
|
)
|
Tax effect
|
|
|
1,337
|
|
|
|
(5,732
|
)
|
|
|
(4,395
|
)
|
Net current period other comprehensive (loss) income
|
|
|
(550
|
)
|
|
|
21,574
|
|
|
|
21,024
|
|
Balance at January 2, 2021
|
|
$
|
(5,922
|
)
|
|
$
|
(28,418
|
)
|
|
$
|
(34,340
|
)
|
The following table presents reclassifications out of accumulated other comprehensive loss:
Details about Accumulated Other
|
Affected Line Item in the Consolidated
|
For the year Ended
|
|
Comprehensive Income Components
|
Statements of Operations
|
January 2, 2021
|
|
|
December 28, 2019
|
|
|
December 29, 2018
|
|
Derivative financial instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap
|
Interest expense, net
|
$
|
(3,712
|
)
|
|
$
|
(1,110
|
)
|
|
$
|
(547
|
)
|
|
Tax benefit
|
|
850
|
|
|
|
244
|
|
|
|
115
|
|
|
Net of tax
|
$
|
(2,862
|
)
|
|
$
|
(866
|
)
|
|
$
|
(432
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total reclassifications for the period
|
|
$
|
(2,862
|
)
|
|
$
|
(866
|
)
|
|
$
|
(432
|
)
|
16. SEGMENT REPORTING
The Company has two 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.
80
The Hydraulics segment provides the global capital goods industries with hydraulic components and systems used to transmit power and control force, speed and motion. 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 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). Product categories include traditional mechanical and electronic gauge instrumentation, plug and go CAN-based instruments, robust environmentally sealed controllers, pumps and jets, hydraulic controllers, engineered panels and application specialists, process monitoring instrumentation, proprietary hardware and software development, printed circuit board assembly and wiring harness design and manufacturing and after-market support through global distribution.
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 year ended January 2, 2021, these unallocated costs totaled $65,947 and include certain corporate costs not deemed to be allocable to either business segment of $2,567, goodwill impairment recognized on the Faster business unit of $31,871, acquisition related costs including Balboa transaction costs of $6,644, charges related to the inventory step up to fair value of $1,874, amortization of acquisition-related intangible assets of $22,114 and other acquisition and integration related activities of $877. The accounting policies of the Company’s operating segments are the same as those used to prepare the accompanying Consolidated Financial Statements.
The following table presents financial information by reportable segment for the last three fiscal years:
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
Hydraulics
|
|
$
|
407,192
|
|
|
$
|
442,812
|
|
|
$
|
381,845
|
|
Electronics
|
|
|
115,848
|
|
|
|
111,853
|
|
|
|
126,200
|
|
Total
|
|
$
|
523,040
|
|
|
$
|
554,665
|
|
|
$
|
508,045
|
|
Operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Hydraulics
|
|
$
|
81,996
|
|
|
$
|
86,027
|
|
|
$
|
83,858
|
|
Electronics
|
|
|
19,363
|
|
|
|
21,994
|
|
|
|
25,046
|
|
Corporate and other
|
|
|
(65,947
|
)
|
|
|
(17,906
|
)
|
|
|
(33,350
|
)
|
Total
|
|
$
|
35,412
|
|
|
$
|
90,115
|
|
|
$
|
75,554
|
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
Hydraulics
|
|
$
|
11,725
|
|
|
$
|
22,221
|
|
|
$
|
25,782
|
|
Electronics
|
|
|
2,855
|
|
|
|
2,804
|
|
|
|
2,598
|
|
Total
|
|
$
|
14,580
|
|
|
$
|
25,025
|
|
|
$
|
28,380
|
|
Total assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Hydraulics
|
|
$
|
765,155
|
|
|
$
|
768,324
|
|
|
$
|
771,409
|
|
Electronics
|
|
|
523,502
|
|
|
|
251,252
|
|
|
|
263,412
|
|
Corporate
|
|
|
8,322
|
|
|
|
2,175
|
|
|
|
7,344
|
|
Total
|
|
$
|
1,296,979
|
|
|
$
|
1,021,751
|
|
|
$
|
1,042,165
|
|
81
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 ROU assets. The following table presents financial information by region for the last three fiscal years:
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
224,470
|
|
|
$
|
258,542
|
|
|
$
|
257,684
|
|
EMEA
|
|
|
142,062
|
|
|
|
150,091
|
|
|
|
139,776
|
|
APAC
|
|
|
156,508
|
|
|
|
146,032
|
|
|
|
110,585
|
|
Total
|
|
$
|
523,040
|
|
|
$
|
554,665
|
|
|
$
|
508,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tangible long-lived assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
96,752
|
|
|
$
|
87,104
|
|
|
$
|
83,664
|
|
EMEA
|
|
|
31,091
|
|
|
|
28,436
|
|
|
|
26,724
|
|
APAC
|
|
|
18,718
|
|
|
|
18,004
|
|
|
|
16,480
|
|
Total
|
|
$
|
146,561
|
|
|
$
|
133,544
|
|
|
$
|
126,868
|
|
17. RELATED PARTY TRANSACTIONS
The Company purchases from and sells inventory to entities partially owned or managed by directors of Helios. For the years ended January 2, 2021, December 28, 2019 and December 29, 2018, inventory sales to the entities totaled $3,493, $1,441 and $2,584, respectively, and inventory purchases from the entities totaled $4,310, $4,732 and $6,178, respectively.
The Company also utilizes the legal services of a law firm where a director of Helios is a partner. Expenses incurred from the entity totaled $246 for the year ended January 2, 2021.
At January 2, 2021 and December 28, 2019, total amounts due from the entities totaled $528 and $73, respectively, and total amounts due to the entity totaled $421 and $361, respectively.
18. COMMITMENTS AND CONTINGENCIES
Building Purchase Commitment
The company has entered into a lease to buy agreement for the purchase of a building for €26,683. The agreement includes an option to purchase during the lease period with a commitment to purchase at the end of the 6-year lease period. The purchase price will be reduced by 60% of the lease payments made prior to purchase.
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.
Insurance
The Company accrues for certain health care benefit costs under a self-funded plan and records a liability for all unresolved claims at the anticipated cost to the Company at the end of the period based on management’s assessment. The Company believes it has adequate reserves for all self-insured claims.
82
Letters of Credit
In the ordinary course of business, we are at times required to post letters of credit. The letters of credit are issued by financial institutions to guarantee our obligations to various parties. We were contingently liable for $1,840 of standby letters of credit with financial institutions as of January 2, 2021.
19. UNAUDITED QUARTERLY FINANCIAL INFORMATION
|
|
For the quarter ended
|
|
|
|
Jan 2,
|
|
|
Sept 26,
|
|
|
Jun 27,
|
|
|
Mar 28,
|
|
|
|
2021
|
|
|
2020
|
|
|
2020
|
|
|
2020
|
|
Net sales
|
|
$
|
151,618
|
|
|
$
|
122,645
|
|
|
$
|
119,294
|
|
|
$
|
129,483
|
|
Gross profit
|
|
|
52,716
|
|
|
|
46,943
|
|
|
|
44,719
|
|
|
|
51,850
|
|
Operating income (loss)
|
|
|
10,400
|
|
|
|
18,343
|
|
|
|
16,702
|
|
|
|
(10,033
|
)
|
Income (loss) before income taxes
|
|
|
7,156
|
|
|
|
16,362
|
|
|
|
13,544
|
|
|
|
(13,015
|
)
|
Net income (loss)
|
|
|
5,551
|
|
|
|
12,982
|
|
|
|
12,908
|
|
|
|
(17,223
|
)
|
Basic and diluted net income (loss) per common share
|
|
$
|
0.17
|
|
|
$
|
0.40
|
|
|
$
|
0.40
|
|
|
$
|
(0.54
|
)
|
|
|
For the quarter ended
|
|
|
|
Dec 28,
|
|
|
Sept 28,
|
|
|
Jun 29,
|
|
|
Mar 30,
|
|
|
|
2019
|
|
|
2019
|
|
|
2019
|
|
|
2019
|
|
Net sales
|
|
$
|
125,927
|
|
|
$
|
138,045
|
|
|
$
|
143,842
|
|
|
$
|
146,851
|
|
Gross profit
|
|
|
47,427
|
|
|
|
52,119
|
|
|
|
56,227
|
|
|
|
56,509
|
|
Operating income
|
|
|
18,772
|
|
|
|
19,138
|
|
|
|
26,373
|
|
|
|
25,832
|
|
Income before income taxes
|
|
|
16,861
|
|
|
|
15,462
|
|
|
|
21,925
|
|
|
|
21,059
|
|
Net income
|
|
|
13,809
|
|
|
|
12,791
|
|
|
|
17,265
|
|
|
|
16,404
|
|
Basic and diluted net income per common share
|
|
$
|
0.43
|
|
|
$
|
0.40
|
|
|
$
|
0.54
|
|
|
$
|
0.51
|
|
83