UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
OR
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number
(Exact Name of Registration as Specified in its Charter)
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(State or Other Jurisdiction of Incorporation or Organization) |
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(I.R.S. Employer Identification No.) |
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(Address of Principal Executive Offices) |
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(Registrant’s Telephone Number, Including Area Code)
Title of each class |
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Name of each exchange on which registered |
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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.
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).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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Accelerated filer |
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Non-accelerated filer |
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Smaller Reporting Company |
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Emerging growth company |
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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
The registrant had
Helios Technologies, Inc.
INDEX
For the quarter ended
March 28, 2020
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Item 1. |
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Consolidated Balance Sheets as of March 28, 2020 (unaudited) and December 28, 2019 |
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Condensed Notes to the Consolidated, Unaudited Financial Statements |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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2
PART I: FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS.
Helios Technologies, Inc.
Consolidated Balance Sheets
(in thousands)
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March 28, 2020 |
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December 28, 2019 |
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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 intangible assets, 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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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, par value $ |
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Common stock, par value $ |
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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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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 Condensed Notes to the Consolidated, Unaudited Financial Statements are an integral part of these financial statements.
3
Helios Technologies, Inc.
Consolidated Statements of Operations
(in thousands, except per share data)
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Three Months Ended |
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March 28, 2020 |
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March 30, 2019 |
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(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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Goodwill impairment |
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— |
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Operating (loss) income |
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Interest expense, net |
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Foreign currency transaction loss (gain), net |
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Miscellaneous (income) expense, net |
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Change in fair value of contingent consideration |
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— |
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(Loss) income before income taxes |
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Income tax provision |
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Net (loss) income |
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$ |
( |
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$ |
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Basic and diluted net (loss) 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 Condensed Notes to the Consolidated, Unaudited Financial Statements are an integral part of these financial statements.
4
Helios Technologies, Inc.
Consolidated Statements of Comprehensive Income (Loss)
(in thousands)
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Three Months Ended |
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March 28, 2020 |
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March 30, 2019 |
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(unaudited) |
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(unaudited) |
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Net (loss) income |
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$ |
( |
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$ |
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Other comprehensive loss |
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Foreign currency translation adjustments, net of tax |
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Unrealized loss on interest rate swap, net of tax |
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( |
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Total other comprehensive loss |
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( |
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( |
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Comprehensive (loss) income |
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$ |
( |
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$ |
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The accompanying Condensed Notes to the Consolidated, Unaudited Financial Statements are an integral part of these financial statements.
5
Helios Technologies, Inc.
Consolidated Statements of Shareholders’ Equity (unaudited)
Three Months Ended
(in thousands)
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Accumulated |
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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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(loss) |
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Total |
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Balance, December 28, 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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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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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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Net loss |
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( |
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( |
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Other comprehensive loss |
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( |
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( |
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Balance at March 28, 2020 |
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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 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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Dividends declared |
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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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Balance at 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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The accompanying Condensed Notes to the Consolidated, Unaudited Financial Statements are an integral part of these financial statements.
6
Helios Technologies, Inc.
Consolidated Statements of Cash Flows
(in thousands)
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Three Months Ended |
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March 28, 2020 |
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March 30, 2019 |
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(unaudited) |
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(unaudited) |
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Cash flows from operating activities: |
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Net (loss) 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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Goodwill impairment |
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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 for deferred income taxes |
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( |
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( |
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Change in fair value of contingent consideration |
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— |
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Forward contract (gains) losses, net |
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( |
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Other, net |
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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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( |
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Income taxes receivable |
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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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Increase (decrease) in: |
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Accounts payable |
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Accrued expenses and other liabilities |
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( |
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Income taxes payable |
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Other noncurrent liabilities |
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( |
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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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Proceeds from dispositions of equipment |
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Cash settlement of forward contracts |
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— |
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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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Repayment of borrowings on revolving credit facility |
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( |
) |
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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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( |
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Other financing activities |
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( |
) |
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( |
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Net cash used in 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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( |
) |
Net increase (decrease) 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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|
Cash, cash equivalents and restricted cash, end of period |
|
$ |
|
|
|
$ |
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|
The accompanying Condensed Notes to the Consolidated, Unaudited Financial Statements are an integral part of these financial statements.
7
HELIOS TECHNOLOGIES, INC.
CONDENSED NOTES TO THE CONSOLIDATED, UNAUDITED FINANCIAL STATEMENTS
(Currencies in thousands, except per share data)
1. COMPANY BACKGROUND
Helios Technologies, Inc. (“Helios” or the “Company”), together with its wholly-owned subsidiaries, is an industrial technology leader that develops and manufactures solutions for both the hydraulics and electronics markets. Sun Hydraulics, LLC (“Sun Hydraulics” or “Sun”), Enovation Controls, LLC (“Enovation Controls”), Faster S.r.l. (“Faster”) and Custom Fluidpower Pty Ltd (“Custom Fluidpower”), are the wholly-owned operating subsidiaries of Helios.
The Company operates in
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited interim consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission for reporting on Form 10-Q. Accordingly, certain information and footnotes required by accounting principles generally accepted in the United States of America (“U.S. GAAP”) for complete financial statements are not included herein. The financial statements are prepared on a consistent basis (including normal recurring adjustments) and should be read in conjunction with the consolidated financial statements and related notes contained in the Annual Report on Form 10-K for the fiscal year ended December 28, 2019, (“Form 10-K”), filed by Helios with the Securities and Exchange Commission on February 25, 2020. In management’s opinion, all adjustments necessary for a fair presentation of the Company’s financial statements are reflected in the interim periods presented.
The Company faces various risks related to health epidemics, pandemics and similar outbreaks, including the global outbreak of COVID-19. The Company cannot at this time predict the impact of the COVID-19 pandemic, but it could have a material adverse effect on the business, financial position, results of operations and/or cash flows. Operating results for the three months ended March 28, 2020, are not necessarily indicative of the results that may be expected for the fiscal year ending January 2, 2021.
Goodwill
Goodwill, which represents the excess of the purchase price of an acquisition over the fair value of the net assets acquired, is carried at cost. Goodwill is tested for impairment annually, in the third and fourth quarters, or more frequently if events or circumstances indicate a reduction in the fair value below the carrying value. As part of the impairment test, the Company has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after this optional qualitative assessment, the Company determines that impairment is more likely than not, then the Company performs the quantitative impairment test. The carrying value of assets is calculated at the reporting unit level. An impairment loss is recorded to the extent that the carrying value of the reporting unit exceeds its fair value, with the impairment loss limited to the amount of goodwill allocated to the reporting unit.
8
During the first quarter of 2020, the Company determined that, based on current economic conditions and potential future impacts from the COVID-19 pandemic, it was more likely than not that the fair value of the Faster reporting unit was less than its carrying value. Upon completion of the interim impairment testing, the Company determined that the carrying value of goodwill was impaired. See Note 6 for discussion of interim impairment testing.
Contract Assets & 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 $
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 $
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 28, 2020 |
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March 30, 2019 |
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Net (loss) income |
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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 (loss) income per common share |
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$ |
( |
) |
|
$ |
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Recently Adopted Accounting Standards
In January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-04, Intangibles – Goodwill and Other: Simplifying the Test for Goodwill Impairment. ASU 2017-04 eliminates the second step in the goodwill impairment test, which requires an entity to determine the implied fair value of the reporting unit’s goodwill. Instead, an entity should recognize an impairment loss if the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, with the impairment loss not to exceed the amount of goodwill allocated to the reporting unit. The Company adopted the standard for the fiscal year beginning December 29, 2019, and conducted its interim impairment testing accordingly.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses. The standard replaces the incurred loss model with the current expected credit loss (“CECL”) model to estimate credit losses for financial assets measured at amortized cost and certain off-balance sheet credit exposures. The CECL model requires a Company to estimate credit losses expected over the life of the financial assets based on historical experience, current conditions and reasonable and supportable forecasts. The Company adopted the standard for the fiscal year beginning December 29, 2019. Adoption of the standard did not have a material impact on the Consolidated, Unaudited Financial Statements.
9
Recently Issued Accounting Standards
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This update simplifies accounting for income taxes by eliminating some exceptions to the general approach in ASC 740, Income Taxes, related to intraperiod tax allocation, the methodology for calculating income tax in an interim period and the recognition of deferred tax liabilities for outside basis differences. This update is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The amendments in this update should be applied on either a retrospective basis, a modified retrospective basis or prospectively, depending on the provision within the amendment. The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.
3. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following tables provide information regarding the Company’s assets and liabilities measured at fair value on a recurring basis at March 28, 2020 and December 28, 2019.
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March 28, 2020 |
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Quoted Market |
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Significant Other Observable |
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Significant Unobservable |
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Total |
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Prices (Level 1) |
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Inputs (Level 2) |
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Inputs (Level 3) |
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Assets |
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Forward foreign exchange contracts |
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$ |
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