UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended |
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Commission file number 0-21835 |
(Exact Name of Registration as Specified in its Charter)
FLORIDA |
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59-2754337 |
(State or Other Jurisdiction of Incorporation or Organization) |
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(I.R.S. Employer Identification No.) |
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1500 WEST UNIVERSITY PARKWAY SARASOTA, FLORIDA |
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34243 |
(Address of Principal Executive Offices) |
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(Zip Code) |
941/362-1200
(Registrant’s Telephone Number, Including Area Code)
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, 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. (Check one):
Large accelerated filer |
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☒ |
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Accelerated filer |
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☐ |
Non-accelerated filer |
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☐ |
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Smaller Reporting Company |
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☐ |
Emerging growth company |
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☐ |
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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 ☒
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
Common Stock $.001 Par Value |
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The NASDAQ Global Select Market |
The Registrant had
Sun Hydraulics Corporation
Doing Business as Helios Technologies
INDEX
For the quarter ended
March 30, 2019
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Item 1. |
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Consolidated Balance Sheets as of March 30, 2019 (unaudited) and December 29, 2018 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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Item 1. |
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31 |
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Item 1A. |
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Item 2. |
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31 |
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Item 3. |
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31 |
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Item 4. |
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Item 5. |
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31 |
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Item 6. |
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32 |
2
PART I: FINANCIAL INFORMATION
Item 1.
Sun Hydraulics Corporation
Doing Business as Helios Technologies
Consolidated Balance Sheets
(in thousands, except share data)
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March 30, 2019 |
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December 29, 2018 |
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(unaudited) |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Restricted cash |
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Accounts receivable, net of allowance for doubtful accounts of $ |
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Inventories, net |
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Income taxes receivable |
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Other current assets |
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Total current assets |
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Property, plant and equipment, net |
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Deferred income taxes |
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Goodwill |
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Other intangibles, net |
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Other assets |
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Total assets |
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$ |
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$ |
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Liabilities and shareholders' equity |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued compensation and benefits |
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Other accrued expenses and current liabilities |
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Current portion of contingent consideration |
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Current portion of long-term non-revolving debt, net |
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Dividends payable |
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Income taxes payable |
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Total current liabilities |
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Revolving line of credit |
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Long-term non-revolving debt, net |
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Contingent consideration, less current portion |
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Deferred income taxes |
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Other noncurrent liabilities |
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Total liabilities |
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Commitments and contingencies |
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Shareholders' equity: |
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Preferred stock, |
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Common stock, |
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Capital in excess of par value |
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Retained earnings |
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Accumulated other comprehensive loss |
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( |
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Total shareholders' equity |
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Total liabilities and shareholders' equity |
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$ |
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$ |
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The accompanying Notes to the Consolidated, Unaudited Financial Statements are an integral part of these financial statements.
3
Sun Hydraulics Corporation
Doing Business as Helios Technologies
Consolidated Statements of Operations
(in thousands, except per share data)
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Three months ended |
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March 30, 2019 |
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March 31, 2018 |
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(unaudited) |
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(unaudited) |
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Net sales |
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$ |
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$ |
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Cost of sales |
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Gross profit |
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Selling, engineering and administrative expenses |
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Amortization of intangible assets |
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Operating income |
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Interest expense, net |
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Foreign currency transaction (gain) loss, net |
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( |
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Miscellaneous expense (income), net |
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( |
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Change in fair value of contingent consideration |
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Income before income taxes |
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Income tax provision |
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Net income |
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$ |
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$ |
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Basic and diluted net income per common share |
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$ |
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$ |
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Basic and diluted weighted average shares outstanding |
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Dividends declared per share |
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$ |
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$ |
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The accompanying Notes to the Consolidated, Unaudited Financial Statements are an integral part of these financial statements.
4
Sun Hydraulics Corporation
Doing Business as Helios Technologies
Consolidated Statements of Comprehensive Income
(in thousands)
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Three months ended |
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March 30, 2019 |
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March 31, 2018 |
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(unaudited) |
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(unaudited) |
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Net income |
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$ |
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$ |
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Other comprehensive (loss) income |
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Foreign currency translation adjustments, net of tax |
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( |
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Unrealized loss on interest rate swap, net of tax |
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( |
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— |
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Total other comprehensive (loss) income |
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( |
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Comprehensive income |
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$ |
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$ |
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The accompanying Notes to the Consolidated, Unaudited Financial Statements are an integral part of these financial statements.
5
Sun Hydraulics Corporation
Doing Business as Helios Technologies
Consolidated Statements of Shareholders’ Equity (unaudited)
(in thousands)
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Accumulated |
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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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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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income (loss) |
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Total |
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Balance, December 29, 2018 |
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— |
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$ |
— |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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Shares issued, other compensation |
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— |
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Shares issued, ESPP |
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Shares issued, ESOP |
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Stock-based compensation |
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Cancellation of shares for payment of employee tax withholding |
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( |
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( |
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( |
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Dividends declared |
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( |
) |
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( |
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Net income |
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Other comprehensive loss |
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( |
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( |
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Impact of adoption of ASU 2016-02, related to leases |
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( |
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( |
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Balance, March 30, 2019 |
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— |
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$ |
— |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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Balance, December 30, 2017 |
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— |
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$ |
— |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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Shares issued, restricted stock |
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— |
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Shares issued, other compensation |
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— |
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Shares issued, ESPP |
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Shares issued, public offering |
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Stock-based compensation |
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Cancellation of shares for payment of employee tax withholding |
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( |
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( |
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( |
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Dividends declared |
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( |
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( |
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Net income |
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Other comprehensive income |
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Balance, March 31, 2018 |
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— |
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$ |
— |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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The accompanying Notes to the Consolidated, Unaudited Financial Statements are an integral part of these financial statements.
6
Sun Hydraulics Corporation
Doing Business as Helios Technologies
Consolidated Statements of Cash Flows
(in thousands)
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Three months ended |
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March 30, 2019 |
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March 31, 2018 |
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(unaudited) |
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(unaudited) |
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Cash flows from operating activities: |
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Net income |
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$ |
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$ |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization |
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Loss on disposal of assets |
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— |
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Stock-based compensation expense |
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Amortization of debt issuance costs |
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(Benefit) provision for deferred income taxes |
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( |
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Change in fair value of contingent consideration |
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Forward contract losses, net |
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Other, net |
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( |
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(Increase) decrease in: |
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Accounts receivable |
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( |
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( |
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Inventories |
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( |
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Other current assets |
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( |
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( |
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Other assets |
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( |
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Increase (decrease) in: |
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Accounts payable |
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Accrued expenses and other liabilities |
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Income taxes payable |
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Other noncurrent liabilities |
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( |
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Net cash provided by operating activities |
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Cash flows from investing activities: |
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Capital expenditures |
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( |
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( |
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Proceeds from dispositions of equipment |
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Net cash used in investing activities |
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( |
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( |
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Cash flows from financing activities: |
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Borrowings on revolving credit facility |
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— |
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Repayment of borrowings on revolving credit facility |
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( |
) |
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( |
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Borrowings on long-term non-revolving debt |
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— |
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Repayment of borrowings on long-term non-revolving debt |
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( |
) |
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— |
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Proceeds from stock issued |
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Dividends to shareholders |
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( |
) |
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( |
) |
Other financing activities |
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|
( |
) |
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|
( |
) |
Net cash (used in) provided by financing activities |
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|
( |
) |
|
|
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|
Effect of exchange rate changes on cash, cash equivalents and restricted cash |
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|
( |
) |
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Net (decrease) increase in cash, cash equivalents and restricted cash |
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|
( |
) |
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|
Cash, cash equivalents and restricted cash, beginning of period |
|
|
|
|
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|
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Cash, cash equivalents and restricted cash, end of period |
|
$ |
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$ |
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The accompanying Notes to the Consolidated, Unaudited Financial Statements are an integral part of these financial statements.
7
SUN HYDRAULICS CORPORATION
Doing Business as Helios Technologies
NOTES TO THE CONSOLIDATED, UNAUDITED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
1. COMPANY BACKGROUND
Sun Hydraulics Corporation, doing business as Helios Technologies (“Helios” or the “Company”), and its wholly-owned subsidiaries, is an industrial technology leader that develops and manufactures solutions for both the hydraulics and electronics markets. On August 6, 2018, the Company announced that it had adopted Helios Technologies as its business name. Sun Hydraulics, LLC (“Sun Hydraulics” or “Sun”), a newly-formed Florida limited liability company that holds the historical net operating assets of the Sun Hydraulics brand entities and Custom Fluidpower Pty Ltd (“Custom Fluidpower”), along with Enovation Controls, LLC (“Enovation Controls”) and Faster S.r.l. (“Faster”) are the wholly-owned operating subsidiaries of Helios Technologies under the new holding company name.
The Company operates in
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 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 29, 2018, filed by Sun Hydraulics Corporation with the Securities and Exchange Commission on February 26, 2019. In Management’s opinion, all adjustments necessary for a fair presentation of the Company’s financial statements are reflected in the interim periods presented. Operating results for the three-month period ended March 30, 2019, are not necessarily indicative of the results that may be expected for the period ending December 28, 2019.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 guidance is effective for reporting periods beginning after December 15, 2018, with early adoption permitted. 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, recorded right-of-use (“ROU”) assets and liabilities of approximately $
8
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 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. There are no residual value guarantees included in the Company’s leases.
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 $
Contract liabilities are recognized when payment is received from customers prior to revenue being recognized. Contract liabilities totaled $
Derivative Instruments and Hedging Activities
All derivative instruments are recorded gross in 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 accumulated other comprehensive income (“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-US 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 Accumulated other comprehensive income (loss).
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 approximately $
9
Recently Issued 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 standard is effective for annual and interim goodwill impairment tests conducted in fiscal years beginning after December 15, 2019, with early adoption permitted. The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.
Earnings Per Share
The following table presents the computation of basic and diluted earnings per common share (in thousands except per share data):
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Three Months Ended |
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March 30, 2019 |
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March 31, 2018 |
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Net income |
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$ |
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$ |
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|
Basic and diluted weighted average shares outstanding |
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|
|
|
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Basic and diluted net income per common share |
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$ |
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$ |
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3. BUSINESS ACQUISITIONS
Acquisition of Faster
On
Faster adds adjacent hydraulics products to the Company’s portfolio of products and broadens end market reach, increasing the Company’s presence in the growing agriculture market. The results of Faster’s operations are reported in the Company’s Hydraulics segment and have been included in the consolidated financial statements since the acquisition date.
The Share Purchase Agreement allows for future payments to the sellers for certain tax benefits realized within
The fair value of total purchase consideration consisted of the following:
Cash |
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$ |
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Acquisition date fair value of contingent consideration |
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Total purchase consideration |
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Less: cash acquired |
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