ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

SUN HYDRAULICS CORPORATIONFor the fiscal year ended January 2, 2021

OR

For the transition period from to

Commission file number 0-21835

HELIOS TECHNOLOGIES, INC.

(Exact Namename of Registrationregistrant as Specifiedspecified in its Charter)charter)

941/362-1200

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ☒    No  ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.    Yes ☐    No  ☒

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ☐

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.

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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

The aggregate market value of the shares of voting common stock held by non-affiliates of the Registrant, computed by reference to the closing sales price of such shares on the Nasdaq Stock Market, LLC, as of the last business day of the Registrant’s most recently completed second fiscal quarter was $1,373,530,467.$1,167,758,700.

The Registrant had 31,978,28432,193,734 shares of common stock, par value $.001, outstanding as of February 15, 2019.19, 2021.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s Proxy Statement for the 2021 Annual Meeting of Shareholders to be held June 3, 2021, which is expected to be filed with the Securities and Exchange Commission on or about April 23, 2021, have been incorporated by reference into Part III, Items 10, 11, 12, 13 and 14 of this Annual Report on Form 10-K.  

PART 1

ITEM 1. BUSINESS

Our Business

Overview and Strategy

Sun Hydraulics Corporation, doing business as Helios Technologies, Inc. (“Helios,” the “Company,” “we”“we,” “us” or “our”), and its wholly-owned subsidiaries, is ana global industrial technology leader that develops and manufactures solutions for both the hydraulics and electronics markets. On August 6, 2018, we announcedWe were originally founded in 1970 as Sun Hydraulics Corporation, which designed and manufactured cartridge valves for hydraulics systems. We changed the adoption ofCompany’s legal name on June 13, 2019, from Sun Hydraulics Corporation to Helios Technologies, as our 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” or “CFP”), along with Enovation Controls, LLC (“Enovation Controls”) and Faster S.r.l. (“Faster”), are the three wholly-owned operating subsidiaries of Helios TechnologiesInc.  

Today we operate under the new holding company name.

We operate in two business segments,segments: Hydraulics and Electronics. The Hydraulics segment consists of the global Sun Hydraulics companies, Faster, acquired in the second quarter of 2018,These businesses design and Custom Fluidpower, acquired in the third quarter of 2018. Sun Hydraulics serves the hydraulics market as a leading manufacturer of high-performance screw-inmanufacture hydraulic cartridge valves, electro-hydraulics, manifolds, and integrated package solutions for the worldwide industrial and mobile hydraulics markets. Faster is a leading global manufacturer ofhydraulic quick release hydraulic coupling solutions focused in the agriculture, construction equipmentcouplings and industrial markets. Custom Fluidpower iscustomized electronic controls systems and displays for a global providervariety of hydraulic, pneumatic, electronic and instrumentation solutions to a broad range of industries including agriculture, industrial, mining and material handling. The Electronics segment, comprised of Enovation Controls, LLC, is a global provider of innovative electronic control, display and instrumentation solutions for both recreational and off-highway vehicles,end markets, as well as stationarydesign complete hydraulic systems.  

A little over five years ago, we set out a 10-year vision to achieve $1 billion in sales through a combination of organic growth and power generation equipment.  Our operational organization chart is presented below.acquisitions and to deliver operating margins in excess of 20%.

In addition to our expectation of compounded annual organic growth in the high single digits to low double digits, we have an active pipeline and a history of acquiring companies with niche technologies as well as strong profitability. We are augmenting our strategy with additional value streams that will help us to execute on our goals and potentially accelerate the achievement of our strategic vision. We believe the value streams will deliver growth, diversification and market leading financial performance as we develop into a more sophisticated, globally oriented, customer centric and learning organization. These are:

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Sun Hydraulics was foundedOur strategy is underpinned by the execution of acquisitions which we expect to include bolt-on flywheel type acquisitions (up to $100 million in 1970enterprise value) and is a wholly owned subsidiarythe evaluation of Helios with its headquartersmore transformative type acquisitions ($100 million to $1 billion in Sarasota, Florida.enterprise value). The majority of Sun’s manufacturing operations reside in Sarasota with additional operations in the U.K., Germany and South Korea, as well as sales offices in China, India and South America.  Enovation Controls, which was acquired on December 5, 2016 and is a wholly owned subsidiary of Helios, was formed in 2009 in connection with the reorganization of Murphy Group, Inc. and EControls Group, Inc. which were founded in 1939 and 1994, respectively.  Enovation Controls operates the majority of its manufacturing in Tulsa, OK with sales and engineering capabilities in Texas, the U.K., China and India.  Faster, which was acquired on April 5, 2018 and is a wholly owned subsidiary of Helios, was formed in 1951.  Headquartered near Milan, Italy, Faster has manufacturing operations co-located with its headquarters as well as in Ohio and India.  Additionally, the company has sales offices in China, Brazil and Germany.  Helios acquired Custom Fluidpower as a wholly owned subsidiary on August 1, 2018.  Custom Fluidpower has eight locations throughout Australia where engineering solutions are provided, four of which operate as value-add distributors.  The remaining four locations conduct repair work for hydraulics systems.

Until 2016, we operated primarily in the hydraulics market with a small presence in the electronics market. The expansionobjective of our electronic and digital capabilities throughacquisition strategy is to enhance Helios by:

To support the acquisitionexecution of Enovation Controls was a significant step towards achieving our Vision 2025 goals.  The acquisition further diversifiedstrategy, our business, granting us access to the new, highly specialized marine, power generation and recreational vehicle markets and customers seeking complete machine control.  Enovation Controls also broughtfinancial strategy is oriented on delivering industry leading margins, a strong talent pool with a proven track record of new product developmentbalance sheet and technical innovation, complementing our existing competencies.  sufficient financial flexibility to support organic and acquisitive growth.

We believealign our 2018 acquisitions of Faster and Custom Fluidpower are also in alignmentinternal key performance indicators with our Vision 2025 goals, advancing the Company as a global technology leader in the industrial goods sector while maintaining superior profitability and financial strength.  Faster further diversifies the Company more deeply into the global agriculture market and broadens the Company’s global footprint, advancingstrategy to ensure our “in the region, for the region” initiative by providing a manufacturing hub in Europe.  Custom Fluidpower provides regional value-add capabilities to continue successful penetration of the Asia Pacific (“APAC”) region and particularly Southeast Asia, further evolving our “in the region, for the region” initiative.

We have been profitable every year since 1972 and Sun has paid a dividend every quarter since going public in January 1997.

The Company’s executive offices are located at 1500 West University Parkway, Sarasota, Florida 34243, and our telephone number is (941) 362-1200. Our websites include www.heliostechnologies.com, www.sunhydraulics.com, www.enovationcontrols.com, www.fastercouplings.com and www.custom.com.au.short-term actions will deliver long-term expectations.

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Strategy & Vision 2025

In 2016, we announced our Vision 2025.  We believe we can reach a critical mass of $1 billion in annual sales by 2025 while remaining a technology leader in the industrial goods sector.  An important aspect of our 2025 vision is that we believe we can maintain superior profitability and financial strength throughout the period of growth. There are two significant components to reaching the revenue goal: organic growth and acquisitions.  We expect that, by 2025, up to $930 million of the anticipated annual $1 billion in revenue will result from organic growth of our existing segments (approximately $730 million from our Hydraulics segment and $200 million from our Electronics segment), with the remaining $70 million to be derived from acquisitions of companies that advance our technology position with adjacent products for the industrial goods sector and broaden our geographic reach.  We will seek acquisition targets that will bring us advanced technologies in the industrial goods sector.  Financially, targets should be accretive in the first year and contribute to maintaining Helios’s superior profitability and financial strength long-term.  This is imperative to creating lasting shareholder value.  Our current initiatives for organic growth include new product development, penetrating new geographic markets, expanding sales and marketing efforts in existing geographies, developing new channels to market to reach customers not currently in Helios’s purview and further diversifying our end market penetration.

Helios’s strategic roadmap includes product and service differentiation, disciplined and thoughtful leadership throughout our global organization and ensuring that all processes and activities consider the view of the customer.  We have identified and have begun applying several tactics to execute our strategies which include capitalizing on our unique and deeply rooted values, structured human capital development and differentiated engineering for both products and processes.  Internal key performance indicators are used on a daily basis to align our short-term actions with our long-term strategy.

A primary focus of our strategic thinking is the identification of megatrends whichthat will impact the future capital equipment and industrial goods markets. We have identified three megatrends: globalization, growing sophistication of safe machinery and equipment and increased computing power, as further described below:

Globalization. We believe global population growth and urbanization, driven predominantly by Asian mega-cities, will generate ongoing demand for infrastructure projects, resources and food production, all of which require equipment and machinery from our key end markets.  

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Sophistication of safe machinery and equipment. Machine users increasingly demand safety, productivity, efficiency, and even automated control. Advancements in the design of these machines require continuous evolution of critical components such as hydraulic and electronic functionality and control.  

Increased computing power. In the current electronic and digital age, electronics are increasingly used to activate processes which were once activated only manually or mechanically. Information is increasingly being converted into a form that allows it to be processed, stored and transmitted digitally, resulting in both time and energy savings.  

Our culture of innovation is at the core of our business. We have approximately 250200 engineers in support of product innovation, as well as technical support and customer service. We believe our product innovation will aid organic growth and fill the expected demand resulting from the identified megatrends. All growth initiatives are intended to preserve Helios’s history of superior profitability and financial strength.

Acquisitions

We initiated our strategy to diversify and grow in 2016 with an acquisition in the electronics industry which served a variety of end markets.  Since then, our acquisitions have further diversified our product offerings and the markets we serve as well as expanded our geographic presence.

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Business Segments

Beginning with the fourth quarter of 2016, we are organized into two operating and reporting segments: Hydraulics and Electronics.  TheOur Hydraulics segment consists of all ofincludes products sold under the Sun Hydraulics, Faster and Custom Fluidpower companies globally.brands. The Electronics segment consists ofincludes products sold under the Enovation Controls, business.Murphy and Balboa Water Group brands. Financial information about our business segments is presented in Note 1716 of the Notes to the Consolidated Financial Statements included in this Annual Report.  

Hydraulics

There are three key technologies within our Hydraulics segment:  cartridge valve technology (“CVT”), quick-release hydraulic couplings solutions (“QRC”) and hydraulic system design (“Systems”).

Within Our CVT our products provide functions important to a hydraulic system: to control rates and direction of fluid flow and to regulate and control pressures. Our CVT products useWe pioneered a fundamentally different design platform compared to most other competitive product offerings, which are often referred to as industry common products. Theemploying a floating construction that we pioneered results in a self-alignment characteristic thatcharacteristic. This design provides better performance and reliability advantages compared towith most competitors’ product offerings. This floating construction differentiates our products from those of most of our competitors, who design and manufacture rigid screw-inOur cartridge valves that fit a common cavity.  Our cartridge valves,are offered in five size ranges and includinginclude both electrically actuated and non-electrically actuated products, werehydro-mechanical products. They are designed to be able to operate reliably at higher pressures, making them equally suitable for both industrial and mobile applications.  Sun’s product development approach yields

Hydraulic systems are increasingly taking signals from on-board electronic control systems, making it necessary for hydraulic products to be capable of digital communication. In response to this we have aggressively expanded our CVT offering of electrically actuated cartridge valves. In 2017, we introduced FLeX™, a new electro-hydraulic product line of extreme breadthoffering high-performance electro-hydraulic products. Since 2018, we have continued to introduce new products under the FLeX™ Series, further expanding our electro-hydraulic product offering for both the mobile and depth compared to our competitors.  Our broad scope of product offerings, coupled with the high-performance characteristics of our cartridge valves, makes Sun a leader in the industry.industrial hydraulics markets.

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. Quick connection of multiple hydraulic lines can be accomplished through the use of a MultiFaster or casting solution. Simultaneous connection of several lines is an important feature in many applications and allows for dramatic reduction of connection time, even when the system is under pressure. Faster is a leading global manufacturer of QRC solutions. We design, engineer and distribute hydraulic coupling solutions focusedprimarily in the agriculture, construction equipment and industrial markets.  Exposure to the agriculture market was one of the drivers that led to our acquisition of Faster.  This is a key end market for hydraulic applications and Faster’s strong presence in the agriculture market further diversifies Helios’s end market exposures.

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Systems provideprovides 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 systems we manufacture are:manufacture:

Sun routinely competes in the custom integrated package market.  An integrated package is a customized system solution comprised of multiple cartridge valves assembled in a custom designed manifold for a specific original equipment manufacturers’ (“OEM”) machine.  The functionality of the integrated package system is generally specified by the OEM and then designed by Sun or a distributor channel partner.

Custom Fluidpower’s systems provide cost effective alternatives to purchasing new machinery to upgrade, overhaul and automate existing equipment. We also provide full installation and commissioning services for our systems world-wide.  Field services are offered for our systems to assist in minimizing downtime, managing breakdowns and routine servicing. Additionally, we offer a comprehensive and fully inclusive asset management program to ensure the ongoing maintenance of the system. We have the ability to manage systems from conception to installation, and provide ongoing maintenance and support. 

For many decades, the Hydraulics segment has provided global capital goods industries with innovative product solutions for hydraulic components and systems used to transmit power and control force, speed and motion. Our products typically add a fine degree of precision, reliability and safety to the machinery and equipment in which they are used.  Business activities at our global locations include new product development, component and system design, manufacturing, sales, technical support, inventory warehousing and distributor management.

Our hydraulics products are sold globally through a combination of wholly-owned companies, representative sales offices, independent channel partners, which include value-add distributors and integrators, and OEMs.  Our global channel partner network includes representation in many industrialized markets.

Hydraulic systems are increasingly taking signals from on-board electronic control systems, making it necessary for hydraulic products to be capable of digital communication.  In response to this, in recent years, we have aggressively expanded our CVT offering of electrically-actuated cartridge valves.  In 2017, we introduced FLeX™, a new electro-hydraulic product line offering high-performance electro-hydraulic products.  Throughout 2018, we continued to introduce new products under the FLeX™ Series, further expanding our electro-hydraulic product offering for both the mobile and industrial hydraulics markets. The valves are designed to outperform comparable valves in the market. They are virtually leak-proof poppet-style valves that deliver consistently better pressure drop. Coil options include interchangeable low-power, high power and hazardous location (explosion-proof) versions for expanded configuration flexibility.  The FLeX™ Series valves use Sun’s unique floating-style design, adding an extra layer of security in those harsh applications where torque and force can become excessive.

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Electronics

In 2016, we acquired Enovation Controls to further develop our digital and electronic capabilities.  A portion of the product portfolio offered by Enovation Controls serves end markets also served by our Hydraulics segment such as off-highway vehicles including construction, agricultural and utility vehicles as well as material handling equipment.  However, the majority of Enovation’s productsWe are sold into end markets not historically served by our Hydraulics segment such as marine, power generation and recreational vehicles.  This provides additional diversification of Helios’s revenue base.

Enovation Controls is aan international leader in displaycustom-tailored solutions for many industrial and control integration solutions offeringcommercial applications, including engines, engine-driven equipment and specialty vehicles with a broad range of rugged and reliable instruments coupledsuch as displays, controls and instrumentation products through our Enovation Controls, Zero Off, Murphy and HCT brands. With the Balboa brand, we are also an industry leader in the health and wellness market providing comprehensive, electronic control systems with expertise in J1939 engine protocol,proprietary and patented technology for therapy bath and spas from a single source.

As an innovative manufacturer of electronic controls and displays, we serve a variety of markets including off-highway, recreational and commercial marine, power sports and specialty vehicles, agriculture and water pumping, power generation, engine-driven industrial equipment and health and wellness. We partner directly with OEMs and support a worldwide network of authorized distributors and systems integrators. We make significant investments to producegarner an industry-leading arrayintense understanding of easy-to-read displays and gauges for controller area network (“CAN”) transmitted engine data and faults. We referunique applications to this technology as Electronic Controls (“EC”).  solve complex system challenges.

Our focus is on creating customized systems that solve complex problems for niche products that are customized to the machine in which they are installed in volumes of 1,000 to 10,000 per year.mid-market volume customers.  This allows us to target customers or industries that see value in this level of integration, and as a result, our customer list contains a wide variety of OEM applications. Product categories include traditional mechanical and electronic gauge instrumentation, plug and go CAN-based instruments, after-market support through global distribution, robust environmentally sealed controllers, hydraulicshydraulic controllers, pumps and water flow systems, engineered panels, and application specialists, process monitoring instrumentation, proprietary hardware and software developmentprinted circuit board assembly and wiring harness design and manufacturing.design. Our technologies can be used in both mobile, or DC power applications, as well as fixed, or AC power applications.  

We offer our customers the ability to customize software on their products from the graphics for our PowerView™PowerView®™ line of LCD displays with focus on the customization of the operator interface: larger, full-graphic displays; flexible hardware configurations; multi-language support; class-leading environmental protection; and software tools that deliver the ultimate solution for OEM and distributor display customization and CAN control.displays. Our displays offer easy-to-read, bonded LCD graphical views with the industry's best readability even in direct sunlight or harsh waterweather conditions. Our controllers are built with the ability to withstand a wide ambient temperature range. User friendly software configuration tools allow engineers and non-engineers alike to create customized systems that solve complex problems on their equipment making the user experience more seamless.  

Our panel solutions offer customized design and simple, turnkey solutions. Oursolutions and our Industrial Panel Division offers engineers dedicated to applications, wire harnesses, panels and software development. Engineers focus entirely on custom and standard solutions built to desired specifications. Our services for design and development include on-site installation and testing with reviews to ensure the solution works with the application out of the box.  

Through our HCT™ brand, we design and manufacture electronic controllers that manage the function of electrically actuated hydraulic components. HCT™ brand products range from simple one valve, manually adjusted controllers to fully integrated hydraulic control systems managing multiple hydraulic valves as well as other input and output products such as joysticks and displays. All controllers are potted and therefore impervious to outside influence, making them ideal for mobile, industrial and marine applications.

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Globally, electronics products are sold primarily direct to OEM customers, with about 20%25% sold through independent, authorized channel partners.  Beginningpartners in 2018, we commenced2020. We continue to implement a strategic initiative to further diversify our channels to market, as well as our geographic reach.  Our expansion efforts will requirereach and end markets served. In addition to acquisitions such as Balboa, this effort includes the development of distribution partners globally, including on-boarding and training of these partners.  We feel that theseglobally. These efforts will assist in our ability to diversify our global customer base, allowing us to grow more quickly, diversify the end-markets we serve, and expand our customer base.  We have also shifted our focus from an end-market driven sales model to channel-driven sales model.  Historically end markets within the Electronics segment were divided into two lines of business: Power Controls (“PC”) and Vehicle Technologies (“VT”).  PC served a variety of end markets, including mobile equipment, industrial applications and agriculture with products such as displays, panels, gauges, controllers, battery chargers and various end devices.  VT served the recreational end market with products such as electronic controls, displays and instrumentation. Beginning in Q4 2018, Enovation Controls reorganized the management of the business into two distinct sales channels:  OEM and Distribution.

Engineering

EngineersSubsequent to the end of 2020, we established the Helios Center of Engineering Excellence, LLC to serve both our segments. Helios Engineering will play an important role in all aspects of our business including design, manufacturing, sales, marketing and technical support. Engineers work within a disciplined set of design parameters that encourage the re-use and incorporation of existing parts and platforms into new products. Engineers work closely with manufacturing personnel to define the processes required to manufacture products reliably and consistently.

Both of our segments have manufacturing engineers who are responsible for evaluating and changing manufacturing processes as well as implementing lean initiatives throughout global operations.  

Hydraulics

Our Hydraulics segment engineers are comprised of three distinct groups: sustaining, innovation/R&D and systems.  The sustaining engineering group focuses on improving existing products, both from a design as well as a manufacturing perspective, including optimizing manufacturing costs.  The innovation/R&D engineering group is responsible for new product development and evaluating future needs, from a product perspective, of the hydraulics industry.  The systems engineering group focuses on system design and component integration to solve the complex needs of a specific application.  Additionally, our field application specialists are also engineers who provide local customer interface.

Electronics

In our Electronics segment, approximately one-third of our employees are degreed engineers working across multiple disciplines, including electrical, mechanical, software, sales and application engineering. Our engineering teams:

Importantly, Helios Engineering of new products is often very fast paced and is completed in a collaborative manner with each OEM based on a product release date.  All engineering groups have significant interface with the customer which enables them to understand market demands and identify opportunities for technological advancement, driving market share gains.  

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New product development generally starts through collaboration with an OEM, driven by the need for innovative products at the machine level.  Once products are released and in use by OEMs, a standardized version typically becomes available for sale to distributors as well.  

Joint Product Development

There arewill advance ongoing joint product development efforts amongto address the engineering groups of Hydraulics and Electronics.  Electrification of machines was onemegatrend of the global needs that will driveelectrification of machines.

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Engineering teams work cross-functionally between the megatrends identified in our strategic review and which led to our acquisition of Enovation Controls.  The know-how and technical competence of thesegments where engineers in the Electronics segment are being utilizedbring expertise to bringenable electrification toof products and systems designed and manufactured within the Hydraulics segment.

In 2017, we introduced XMD which represents While the first joint product development project betweencore value of our Electronicsproducts have been critical to our companies’ historical success and Hydraulics business segments. XMD is a compact, Bluetooth® configurable electro-hydraulic driver. XMD is a high-powered, electronic control device for electrically operated hydraulic actuators that is built to stand up to extreme environmental conditions in mobile and industrial applications. The XMD Bluetooth-configurable electro-hydraulic driver meets the needs of international mobile and industrial equipment. The XMD serves actuators used in on- and off-highway equipment in numerous applications including agriculture, forestry, construction, marine, earth moving and material handling.  Other joint products are currently in development and are expected to be introduced to the marketplacewill remain important in the second half of 2019.  

These joint development efforts are a key driver of the revenue synergies identified for our acquisitions.  We have a small focused group of engineers involved in these development projects to concentrate efforts and drive results.  Sun, Faster and Enovation Controls have core competencies within their own technology which must be preserved as it is what powered their historical success.  However,future, we see significant opportunities in bringing together the technology of hydraulics and electronics to create new products which willto better serve future market trends.  

Manufacturing

Hydraulics

We utilize process-intensive manufacturing operations that make extensive use of automated handling and assembly technology, (including robotics), where possible, to perform repetitive tasks, thus promoting manufacturing efficiencies and workplace safety. We employ lean techniques to continually improve our productivity and efficiency. SunOur hydraulics business is capital intensive which affords us the ability to choose whether we produce in-house and/or out-source component parts and Faster have complementary manufacturing processes.  Sun relies on outside suppliers to perform high-volume machining operations for cartridge parts, but most critical finishing processes are completed in-house.  Conversely, Faster completes most of its machining operations in-house and outsources the finishing processes. This providesWe have manufacturing hubs in the Hydraulics segment with an opportunity for Faster to manufacture machined parts for Sun.  Faster provides Helios with a manufacturing hub inU.S., Europe, as we work toward ourthe Middle East and Africa (“EMEA”) and APAC providing “in the region, for the region” goal.  CFP operates differently than Sun or Faster duesupport to the natureour customers. In 2019, we added manufacturing capacity and capability in China, further extending our global footprint as part of their business as a value-add distributor. They are focused primarily on systems and service versus pure manufacturingthat element of components.  They purchase components from multiple manufactures and utilize them to design and build systems.our strategy.

We hold significant raw materials, work in process and finished goods in all of the businesses within the Hydraulics segment. The raw materials used, primarily aluminum and steel, are commercially available from multiple sources.  Finished goods consist of customer orders whichthat are completed but have not been shipped.  

We typically build to order, not to stock, so if we produce a part, it will be shipped to a customer on the next available shipping date.  

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In 2018, wehave negotiated long termcertain long-term agreements (“LTA”) with our key suppliers. Terms and conditions of these agreements include pricing, annual quantity estimates, quality standards, safety stock quantities and lead time expectations. The LTAs are intended to provide the Company and the supplier with a framework for effective long-term planning and utilization of assets.

We continually review all of our suppliers to improve the quality of incoming parts and to assess opportunities for better control of price, quality and lead times. We are in compliance with the following quality systems:

Electronics

We offer a wide range of advanced manufacturing and engineering capabilities, including mechanical and electrical hardware design, software design, product testing, in-house LCD bonding, panel and harness engineering and more. State-of-the-art manufacturing and test capabilities include LCD bonding, surface mount technology (“SMT”) with 3D solder paste inspection, 3D automated optical inspection, x-ray inspection and LCD bonding.highly accelerated life test and highly accelerated stress screen (“HALT” and “HASS”) chambers for accelerated product lifecycle testing. Multipoint functional testing is conducted to ensure quality control of our products before they are delivered to our customers. Products are serialized, and test data is captured against serial numbers and stored in a manufacturing execution system (“MES”) database.

Our global operating system is tied together via an enterprise and manufacturing resource planning system, and we deploy Lean manufacturing and Six Sigma principles and tools to drive ongoing quality and productivity improvements. This allows us to identify and remove variation and waste in our manufacturing and business processes while driving continuous improvements in lead times and quality.

We are a customer/customer focused, project-based organization engaging with customers in long-term product plans and contracts, backed by vertically integrated manufacturing capabilities.

A global Our strategic investment in vertically integrated operating system, which utilizes intelligent approaches like lean manufacturing and six sigma for maximum productivity, allows us to identify and remove variables in our manufacturing and business processes. By pinpointing areas for improvement, we provide our customers with faster delivery time and higher quality products.  

Our in-house manufacturing operations feature vertically integrated processes such as wire processing, sheet metal fabrication, LCD bonding, and surface mount technology (“SMT”) printed circuit board assembly.  Lean manufacturing designed cells are usedenable speed to market in developing highly engineered electronics engine and machine control solutions for the final assembly of panel, instrument, and electronic products, and cells are networked to a manufacturing execution system (“MES”) database.  Products are serialized and functionally tested in process, and test results are recorded by product serial number in the MES database.OEMs.  

We hold significantOur globally aligned raw materials and finished goods inventory in our Tulsa, OK facility.  Finished goods inventory contains high demand items which require quick delivery.  Raw materials inventory generally has significant lead times; therefore, raw material inventory is held to enablestrategies allow us to fulfill orders based on customer request dates whichmaintain high service levels for customers. Electronics raw materials long lead times are often less than three weeks.  carefully planned and managed to ensure we meet demand.

We continually review all of our suppliers to improve the quality of incoming parts and to assess opportunities for better control of price, quality and lead times. We are in compliance with the following quality systems:

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Sales and Marketing

In 2018,2020, no single customer made up more than 5%6% of consolidated net sales.sales across the company.  

Hydraulics

Approximately 75%In 2020, 78% of Helios’s sales arewere derived from the Hydraulics segment. Our 20182020 Hydraulics segment sales arewere distributed fairly evenly among our three major geographic regions with 39%32% to the Americas, 34%32% to Europe, the Middle EastEMEA and Africa (“EMEA”) and 27%36% to APAC. Given our acquisitions in 2018, we have increased our global reach into the EMEA region with Faster, and our APAC presence has significantly grown with Custom Fluidpower.

We market and sell hydraulic products through value-add distributors and directly to OEMs. Globally,Our global channel partner network includes representation in many industrialized markets, and approximately 57%60% of segment sales are attributed to our channel partners who generally combine our products with other hydraulic components to design a complete hydraulic system. Sales directlydirect to an OEMOEMs for integration in their machines makesmake up the remaining 43%40%. Sun relies veryWe rely heavily on itsour distribution network in the U.S. with nearly 100%72% of segment sales in this region going through these channel partners. In EMEA and APAC, CVT sales are split more evenly between OEMs and distribution.  Faster sells 75% of its products to global OEMs whereas the remainder of sales utilize worldwide distributors. Technical support is provided by local experts based at each of our global operations.

We provide end users with technical information through the websites of our operating companies and cataloguescatalogs in multiple languages, including all information necessary to specify and obtain our products. We believe this approach helps stimulate demand for our products.  

Electronics

Electronic products are sold globally both to OEM customers and through distributors. OEM sales constitute 80%constituted 75% of total Electronics segment sales.sales in 2020. Building strong partnerships with OEMs is a priority. We rely on direct customer contacts to stimulate demand for our products. We work closely with our OEM customers to design and deliver innovative reliable products for specific applications. Twenty-four hourOur hardware and software products are designed and modified with the customer utilizing our extensive application knowledge to create unique system level products that cannot be easily replaced by simply switching out components. Twenty-four-hour customer service support and an in-house technical service department is available before, during and after the initial sale to create sustainable partnerships with our customers.  

In 2018, we moved our sales structure from sales teams that serviced PC and VT end markets to customer-centric sales teams dedicated to OEM and Distributor customer classifications.  Our OEM sales team collaborates with large OEMs, whereas the Distributor sales team works with a large number of distributors of varying sizes. The reconfiguration ofOver the last few years, we reconstituted our sales teams willto create a heavier focus on distributor sales with a dedicated team effort.sales. Overall, approximately 20%25% of 2020 segment sales arewere derived from independent, authorized distributor channel partners.

Geographically, our 20182020 Electronics segment sales represent 86%represented 81% to the Americas, 8%9% to EMEA and 6%10% to APAC. There is a well-defined initiative to grow sales in EMEA and APAC as part of Vision 2025.our growth strategy. Additionally, synergies identified at the time of acquisition utilize customer relationships from the Hydraulics segment to create pull through of electronic products.products, and joint product development has created additional sales opportunities for both segments.  

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Competition

Hydraulics

Competitors in the hydraulics market are broken down into three categories: full-line hydraulics system producers, component onlycomponent-only producers of CVT or QRC products, and low-cost producers. Most competitors market globally.  Full-line producers, such as Parker Hannifin and Danfoss, can provide complete hydraulic systems to their customers, including componentcomponents functionally like those manufactured in our Hydraulics segment. Component onlySimilar to Helios, component-only producers are like Sun and Faster inentities that theyoffer only offer CVT or QRC products, while additional parts of the hydraulics system are obtained from other manufacturers. Low costThese include HydraForce, Inc. and Delta Power Company.  Low-cost producers, such as Winner and Valvole Italia, are competitors who have emerged in low costlow-cost production areas such as AsiaAPAC and Eastern Europe. These competitors will typically copy both our products and like products designed by competitors. Low costLow-cost producers typicallygenerally have a limited product range compared towith full line or cartridge valve and quick release coupling only producers, which limitsrestricts their ability to be competitive.

We believe that we compete based upon the quality, reliability, price, value, speed of delivery and technological characteristics of our products and services.

Electronics

Competition within the electronics market is very broad with competitors ranging from large multi-nationalmultinational companies with a full electronics offeringofferings, such as Continental and Garmin, to small niche companies that specialize in one product type. Enovation Controls is a niche player in the displays, controllers, gauges and instrumentation panel markets. Balboa is a niche player providing single source control and water flow systems in the health and wellness industry.

The market for products designed and manufactured by Enovation Controls is relatively fragmented with the top four to six companies comprising 70%the majority of the market, mostly servicing the automotive space. Enovation Controls differentiates itself through product quality, customization ability and service with a focus on mid-market niche markets that are not well served by the large competitors. Our engagement and speed to market set us apart from larger competitors.

Balboa Water Group is the largest supplier of integrated end-to-end solutions for the therapy and wellness spa and bath market and is the only supplier capable of providing the full spectrum of components, from controls and displays to pumps and jets. By providing integrated architecture of hardware and software that is customized to match specific OEM products, Balboa creates a high cost to switch suppliers.

Our overall position in our key markets is defensible due to high barriers to switching suppliers, such as up-front engineering and programming costs, and positive perceptions among core customers on key selection criteria, including quality and service.

EmployeesHuman Capital

AsWe believe our employees are fundamental to our success. We are focused on continuing to attract and retain strong talent and furthering the development of December 29, 2018,our workforce through programs that not only enhance technical abilities but also strengthen leadership, communication and collaboration skills that contribute to our high performing, team-oriented culture. Helios is committed to attracting and developing a diverse workforce. In our core values, we had approximately 2,065 full-timebelieve that we should treat others as they want to be treated, fostering an inclusive and welcoming environment for our colleagues and their ideas.

At the end of our 2020 fiscal year we employed over 2,000 colleagues worldwide. Approximately 54% of our employees with 1,155are located in the Americas 570region, 27% in the EMEA region and 34019% in APAC. In addition, we have a committed service agreement with a third party that supports nearly 1,200 jobs in Mexico and serves as an integral part of our supply chain. We also hire consultants, independent contractors and temporary workers as needed to augment our workforce.

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Employees are guided by our core values and Code of Business Conduct and Ethics. The Company and its employees believe that relationsrespecting others means recognizing the dignity of every person and embracing diversity around the globe. Helios is committed to maintaining a workplace free from discrimination and harassment and encourages diversity in its hiring and employment practices. Our leadership and employees strive to “do the right thing by living with integrity,” which includes caring for communities around the world and the people they employ.

We continue to promote diversity throughout our organization. Notably, sixty percent (60%) of our executive officers are female and our executive team represents three different national origins.

As part of our talent development initiatives, and to support our diversity and inclusion efforts, we partner with a third-party consulting firm with whom we have developed and launched multiple programs including the Helios Leadership Development Program (“HLDP”), with employees based in six different countries. The in-depth year-long program reinforces the importance of diversity & inclusion, as well as many elements of business acumen. Also core to the program was the establishment of a global mentoring program to help guide these future leaders of our Company.

Our employees also participate in a 3C Triad Coaching Program, a three-month online coaching program which focuses on the core elements of Coaching, Communication & Collaboration. The Triad Program goals are to build leadership capabilities while developing skills to support the growth and development of peers, and involves participants from nine countries across all of our businesses.

The Company is committed to the safety of its employees. Each company within our group maintains environmental, health and safety policies that seek to promote the operation of our business in a manner that is protective of the health and safety of the public and our employees. Several of our businesses have onsite medical clinics for employees and their families. Our companies offer several health and welfare programs to employees to promote fitness and wellness and preventative healthcare. In addition, our employees are good.  Approximatelyoffered a confidential employee assistance program that provides professional counseling to employees and their family members.

We have approximately 440 of our employees in Italy who are represented by a union. We have constructive and productive dialog on a regular basis with union leaders. To the best of our knowledge, there is no labor dispute, strike, controversy, slowdown, work stoppage or lockout pending or threatened against or affecting the Company, nor is there any basis for any of the foregoing.  

Patents and Trademarks

In addition to trade secrets, unpatented know-how, and other intellectual property rights, we own approximately 150270 active patents and trademarks relating to certain of our products and businesses. We believe that the growth of our business is dependent upon the quality and functional performance of our products and our relationship with the marketplace, rather than on any single patent, trademark, copyright or other item of intellectual property or group of patents, trademarks or copyrights. However, our patents are important in the defense of our intellectual property from competitors who exploit product development that is not otherwise legally protected by its creator.

12Governmental Regulations

We are subject to a variety of federal, state, and local laws and regulations, including in foreign jurisdictions, relating to our business practices, labor and employment, construction, land use, and taxation, among others. These laws and regulations are complex, change frequently and have tended to become more stringent over time. Compliance with government regulations, including environmental regulations, has not had, and based on current information and the applicable laws and regulations currently in effect, is not expected to have a material effect on our capital expenditures, earnings or competitive position. However, laws and regulations may be changed, accelerated or adopted that impose significant operational restrictions and compliance requirements upon our company and which could negatively impact our operating results. See Item 1A - Risk Factors.

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Anti-Corruption and Anti-Bribery Laws and Regulations

We are subject to the U.S. Foreign Corrupt Practices Act (FCPA) and anti-corruption laws, and similar laws in foreign countries, such as the UK Anti-Bribery Act. Any violation of these laws by us or our agents or distributors could create substantial liability for us, subject our officers and directors to personal liability, and cause a loss of reputation in the market. Increased business in higher risk countries could subject us and our officers and directors to increased scrutiny and increased liability. In addition, becoming familiar with and implementing the infrastructure necessary to comply with laws, rules and regulations applicable to new business activities and mitigating and protecting against corruption risks could be quite costly.

Export Controls and Trade Policies

We are subject to numerous domestic and foreign regulations relating to our operations worldwide. In particular, we are subject to trade and import and export regulations in multiple jurisdictions, including sanctions administered by the Office of Foreign Asset Controls of the U.S. Treasury Department (OFAC). Our businesses may also be impacted by additional domestic or foreign trade regulations ensuring fair trade practices, including trade restrictions, tariffs and sanctions.

Environmental Regulations

Our operations and properties are subject to laws and regulations relating to environmental protection, including those governing air emissions, water discharges, waste management and workplace safety. We use, generate and dispose of hazardous substances and waste in our operations and could be subject to material liabilities relating to the investigation and clean-up of contaminated properties and related claims. We are required to conform our operations and properties to these laws and adapt to regulatory requirements in all countries as these requirements change. In connection with our acquisitions, we may assume significant environmental liabilities, some of which we may not be aware of, or may not be quantifiable, at the time of acquisition. In addition, new laws and regulations, the discovery of previously unknown contamination or the imposition of new requirements could increase our costs or subject us to new or increased liabilities.

Occupational Health and Safety Regulations

The Company's operations are subject to extensive and stringent governmental regulations including regulations related to the Occupational Safety and Health Act (OSHA) and similar safety and health regulations promulgated in other countries. The Company's employees in its manufacturing facilities operate complicated machinery that may cause substantial injury or death upon malfunction or improper operation. The Company's manufacturing locations are subject to the workplace safety rules and regulations of OSHA and local safety and health laws. The Company believes that it is in compliance with the requirements of these laws. However, in the event that the Company is unable to comply with OSHA or other environmental requirements, the Company could be subject to substantial sanctions, including restrictions on its business operations, monetary liability and criminal sanctions, any of which could have a material adverse effect upon the Company's business.

Sustainability

Corporate responsibility and sustainability are reflected in the Company’s business strategy. The board of directors recently reviewed the Company’s historical commitment to principles of corporate and social responsibility. The Company is committed to reducing emissions, recycling, and minimizing its environmental footprint and has implemented several strategies to achieve these goals. The Company is also fully committed to the safety of its employees and the safety of those who use its products. Additionally, the Company actively seeks to support diversity initiatives in its hiring and employment practices. The Board and its committees will continue to assist the Company in its oversight of corporate social responsibilities, significant public policy issues, health and safety, and climate-change related trends.

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Available Information

Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports, as well as our proxy statements and other materials which are filed with or furnished to the Securities and Exchange Commission (“SEC”) are made available, free of charge, on or through the Helios website under the heading “Investors” and “SEC Filings” as soon as reasonably practicable after they are filed with, or furnished to, the SEC.

The Company’s executive offices are located at 1500 West University Parkway, Sarasota, Florida 34243, and our telephone number is (941) 362-1200. Our websites include www.heliostechnologies.com, www.sunhydraulics.com, www.enovationcontrols.com, www.fastercouplings.com, www.custom.com.au and www.balboawatergroup.com.

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ITEM 1A. - RISK FACTORS

FACTORS INFLUENCING FUTURE RESULTS - FORWARD-LOOKING STATEMENTS This Annual Report contains “forward-looking statements” (within the meaning of the Private Securities Litigation Reform Act of 1995) that are based on current expectations, estimates, forecasts, and projections, our beliefs, and assumptions made by us, including (i) our strategies regarding growth, including our intention to develop new products and undertake acquisitions; (ii) our financing plans; (iii) trends affecting our financial condition or results of operations; (iv) our ability to continue to control costs and to meet our liquidity and other financing needs; (v) the declaration and payment of dividends; and (vi) our ability to respond to changes in customer demand domestically and internationally, including as a result of standardization.  In addition, we may make other written or oral statements, which constitute forward-looking statements, from time to time.  Words such as “may,” “expects,” “projects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” variations of such words, and similar expressions are intended to identify such forward-looking statements.  Similarly, statements that describe our future plans, objectives or goals also are forward-looking statements.  These statements are not guarantees ofguaranteeing future performance and are subject to a number of risks and uncertainties, including those discussed below and elsewhere in this report.  Our actual results may differ materially from what is expressed or forecasted in such forward-looking statements, and undue reliance should not be placed on such statements.  All forward-looking statements are made as of the date hereof, and we undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

Factors that could cause actual results to differ materially from what is expressed or forecasted in such forward-looking statements include, but are not limited to: (i) conditions in the capital markets, including the interest rate environment and the availability of capital; (ii) changes in the competitive marketplace that could affect our revenue and/or cost bases, such as increased competition, lack of qualified engineering, marketing, management or other personnel, and increased labor and raw materials costs; (iii) risks related to heath epidemics, pandemics and similar outbreaks, including, without limitation, the current COVID-19 pandemic, which may have material adverse effects on our business, financial position, results of operations and cash flows; (iv) new product introductions, product sales mix and the geographic mix of sales nationally and internationally; and (iv)(v) the following risk factors:

Risks Relating to Our BusinessBusiness: Global Regulatory and Economic Conditions

General global economic trends and industry trends may affect our sales. The capital goods industry in general, and our businesses, are subject to economic cycles, which directly affect customer orders, lead times and sales volume. Economic downturns generally have a material adverse effect on our business and results of operations, as they did in 2009. Cyclical economic expansions such as those of 2017 and 2018, provide a context where demand for capital goods is stimulated, creating higher incoming order rates for the products we produce. Higher demand can lead to part shortages which drive costs up.  If demand gets too strong, lead times can be extended which may cause some customers to cancel orders.  In the Electronics segment, our business is dependent on the general economy and widespread adoption of advanced digital control solutions that integrate technologies such as high-resolution displays, configurable software GPS navigation, telematics, vehicle management systems, and diagnostics to improve engine safety diagnostics and engine energy efficiency, performance, and reliability with less dependence on operator skill, is dependent on the general economy, but also favorable industry trends of the many industries our products serve.efficiency. If one or more of these expected industry trends fails to occur, or occurs at a slower rate than expected, our sales growth will be negatively impacted, and our business will be adversely affected. In the future, continued weakening or improvement in the economy will directly affect orders and influence results of operations.

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Our business could be harmed by adverse global and regional economic and political conditions. In June 2016, voters in the United KingdomUK approved the United Kingdom’sUK’s exit (“Brexit”) from the European Union (“BrexitEU”), and officially exited on January 31, 2020. A transition period ended on December 31, 2020, during which the UK and the British governmentEU negotiated the terms of the UK’s relationship with the EU going forward. Despite the implementation of the UK Trade and Cooperation Agreement beginning on January 1, 2021, it is still unclear how Brexit will ultimately impact relationships within the UK and between the UK and other countries on many aspects of fiscal policy, cross-border trade and international relations. The effects of and the perceptions as to the impact from the UK’s withdrawal from the EU has indicated that it intendsaffected and may continue to negotiateadversely affect business activity and economic and market conditions in the UK, EU and globally, and could contribute to instability in global financial and foreign exchange markets, including volatility in the value of the pound sterling and the euro. In addition, Brexit could lead to additional political, legal, and economic instability in the EU. Any of these effects of Brexit, and others we cannot anticipate, could adversely affect our business in the UK, as well as our financial condition, results of operations and cash flows. It is also unclear what long-term economic, financial, trade, and legal implications the withdrawal of the United KingdomUK from the European Union based onEU will have and how such withdrawal will affect our customers and our operations in the UK and EU. If the UK were to significantly alter its regulations affecting the manufacturing industry, we could face significant new costs. Any of the effects of Brexit could adversely affect our business, business opportunities, results of this vote. The Brexit vote has created significant economicoperations, financial condition and cash flows. Further, uncertainty instill remains regarding the United Kingdom and in Europe,potential for the Middle East, and Asia, which may negatively impact our business results in those regions. In addition, the termsfuture imposition of Brexit, once negotiated, could potentially disrupt the markets we serve and the tax jurisdictions in which we operate and adversely change tax benefits or liabilities in these or other jurisdictions, and may cause us to lose customers, suppliers, and employees.tariffs on imports across EU borders. In addition, Brexit could lead to legal uncertainty and potentially divergent national laws and regulations as the United KingdomUK determines which European UnionEU laws to replace or replicate.  Any of these effects could adversely affect our business and results of operations.

We are subject to intense competition.

Hydraulics 

The Hydraulics segment is intensely competitive, and competition comes from many companies, some of which are full-line hydraulic system producers and others that are niche suppliers like us. Full-line producers can provide total hydraulic systems to customers, including components functionally similar to those manufactured by us. We believe that we compete based upon quality, reliability, price, value, speed of delivery and technological characteristics. Many Hydraulics segment competitors are owned by corporations that are significantly larger and have greater financial resources than we have. Also, competitors have emerged in low cost production areas such as Asia and Eastern Europe with look-alike products. We cannot provide assurance that we will continue to be able to compete effectively with these companies.

In addition, we compete in the sale of hydraulic valves, manifolds and integrated packages with certain of our customers, that also may be competitors. Generally, these customers purchase cartridge valves from us to meet a specific need in a system that cannot be filled by any valve they make themselves. To the extent that we introduce new products in the future that increase competition with such customers, it may have an adverse effect on our relationships with them.

Electronics

In the Electronics segment, our products face, and will continue to face, significant competition, including from incumbent technologies. New developments in technology may negatively affect the development or sale of some or all of our products or make our products uncompetitive or obsolete. Other companies, many of which have substantially longer operating histories and larger customer bases, name recognition, and financial and marketing resources than we do, are currently engaged in the development of products and technologies that are similar to, or may compete with, certain of our products and technologies.

We sell products into competitive markets. Within our primary markets, we compete with a range of companies that offer certain individual components of our full system solutions. The components of our overall systems most commonly include displays, panels, sensors, valves, and other end-devices.

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We also face competition from customers developing products internally. Customers for our products generally have substantial technological capabilities and financial resources. Some customers have traditionally used these resources to develop their own products internally. The future prospects for our products are dependent upon our customers’ acceptance of our products as an alternative to their internally developed products. Future sales prospects also are dependent upon acceptance of third-party sourcing for products as an alternative to in-house development. Customers may in the future continue to use internally developed components. They also may decide to develop or acquire products that are similar to, or that may be substituted for, our products. If our customers fail to accept our products as an alternative, if they develop or acquire the technology to develop such products internally rather than purchase our products, or if we are otherwise unable to develop or maintain strong relationships with them, our business, financial condition and results of operations would be materially and adversely affected. 

Competitive actions, such as price reductions, consolidation in the industry, improved delivery and other actions, could adversely affect our revenue and earnings. We could experience a material adverse effect to the extent that our competitors are successful in reducing our customers’ purchases of products and services from us. Competition could also cause us to lower our prices, which could reduce our margins and profitability.

We are subject to risks relating to international sales.  International sales represent a significant proportion of our consolidated sales.Approximately 55% and 47% of our net sales were outside of the United States during 2018 and 2017, respectively. We will continue to expand the scope of operations outside the United States, both through direct investment and distribution, and expect that international sales will continue to account for a substantial portion of net sales in future periods.

Our future results could be harmed by a variety of factors, including:

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Our international operations and sales also expose us to different local political, regulatory, and business risks and challenges. For example, we are faced with potential difficulties in staffing and managing local operations and we have to design local solutions to manage credit and legal risks of local customers and channel partners, which may not be effective. In addition, because some of our international sales are to suppliers that perform work for foreign governments, we are subject to the political and legal risks associated with foreign government projects. For example, certain foreign governments may require suppliers for a project to obtain products solely from local manufacturers or may prohibit the use of products manufactured in certain countries.

International growth and expansion into markets such as Europe, Asia, and Latin America may cause us difficulty due to greater regulatory barriers than in the United States, the necessity of adapting to new regulatory systems, problems related to entering new markets with different economic, social and political systems and conditions, and significant competition from the primary participants in these markets, some of which may have substantially greater resources and political influence than we do. For example, unstable political conditions or civil unrest could negatively impact our order levels and sales in a region or our ability to collect receivables from customers or operate or execute projects in a region.

Our international operations and transactions also depend upon favorable trade relations between the United StatesU.S. and those foreign countries in which our customers and suppliers have operations. A protectionist trade environment in either the United StatesU.S. or those foreign countries in which we do business or sell products, such as a change in the current tariff structures, export compliance laws, government subsidies, or other trade policies, may adversely affect our ability to economically source materials, sell our products, or do business in foreign markets. Trade restrictions, including withdrawal from or modification of existing trade agreements, negotiation of new trade agreements, including a possible new trade agreement with the UK, and imposition of new (and retaliatory) tariffs against certain countries or covering certain products, including developments in U.S.-China trade relations, could limit our ability to capitalize on current and future growth opportunities in international markets and impair our ability to expand the business. These trade restrictions, and changes in, or uncertainty surrounding, global trade policies may affect our competitive position. Our overall success as a global business depends, in part, upon our ability to succeed in differing economic, social and political conditions. We may not succeed in developing and implementing policies and strategies to counter the foregoing factors effectively in each location where we do business and the foregoing factors may cause a reduction in our sales, profitability, or cash flows, or cause an increase in our liabilities.

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Failure to comply with laws, regulations and policies, including the U.S. Foreign Corrupt Practices Act and UK Bribery Act or other applicable anti-corruption legislation, could result in fines, criminal penalties and an adverse effect on our business. We are subject to regulation under a wide variety of U.S. federal and state and non-U.S. laws, regulations and policies, including anti-corruption laws and export-import compliance and trade laws, due to our global operations. In particular, the U.S. Foreign Corrupt Practices Act or FCPA,(“FCPA”), the U.K.UK Bribery Act of 2010 and similar anti-bribery laws in other jurisdictions generally prohibit companies, their agents, consultants and other business partners from making improper payments to government officials or other persons (i.e., commercial bribery) for the purpose of obtaining or retaining business or other improper advantage.  TheyThe laws also impose recordkeeping and internal control provisions on companies such as ours. We operate and/or conduct business, and any acquisition target may operate and/or conduct business, in some parts of the world, such as China, India and Russia, that are recognized as having governmental and commercial corruption and in such countries, strict compliance with anti-bribery laws may conflict with local customs and practices.  Under some circumstances, a parent company may be civilly and criminally liable for bribes paid by a subsidiary.  We cannot provide assurance that our or any acquisition target’s internal control policies and procedures have protected us, or will protect us, from unlawful conduct of our employees, agents, consultants and other business partners. In the event that we believe or have reason to believe that violations of anti-corruption laws may have occurred, including without limitation violations of anti-corruption laws, we may be required to investigate and/or have outside counsel investigate the relevant facts and circumstances, which can be expensive and require significant time and attention from senior management. Violation may result in substantial civil and/or criminal fines, disgorgement of profits, sanctions and penalties, debarment from future work with governments, curtailment of operations in certain jurisdictions and imprisonment of the individuals involved.  As a result, any such violations may materially and adversely affect our business, results of operations or financial condition. In addition, actual or alleged violations could damage our reputation and ability to do business. Any of these impacts could have a material, adverse effect on our business, results of operations or financial condition.

FluctuationsOur business is subject to a variety of governmental regulations that may restrict our business and may result in exchange ratescosts and penalties.We are subject to a variety of federal, state, and local laws and regulations relating to foreign business practices, labor and employment, construction, land use, and taxation, among others. These laws and regulations are complex, change frequently and have tended to become more stringent over time. Failure to comply with these laws and regulations may affectresult in a variety of administrative, civil and criminal enforcement measures, including assessment of monetary penalties and the imposition of corrective requirements. From time to time, as part of the regular overall evaluation of our operatingoperations, including newly acquired operations, we may be subject to compliance audits by regulatory authorities. In addition, any failure to comply with regulations related to the government procurement process at the federal, state or local level, or restrictions on political activities and lobbying may result in administrative or financial penalties including being barred from providing services to governmental entities, which could have a material adverse effect on our results of operations.

Our operations expose us to risks of non-compliance with numerous countries’ import and impactexport laws and regulations.Due to our financial condition. Fluctuationssignificant foreign sales, we are subject to trade and import and export regulations in multiple jurisdictions, including the U.S. Treasury Department’s Office of Foreign Assets Control’s regulations. As a result, compliance with multiple trade sanctions and embargoes and import and export laws and regulations pose a constant challenge and risk to us. Furthermore, the laws and regulations concerning import activity, export recordkeeping and reporting, export control and economic sanctions are complex and constantly changing. Any failure to comply with applicable legal and regulatory trading obligations could result in criminal and civil penalties and sanctions, such as fines, imprisonment, debarment from governmental contracts, seizure of shipments, loss of import and export privileges, reputational damage and a reduction in the value of the U.S. dollarour common stock.

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We face various risks related to health epidemics, pandemics and similar outbreaks, which may increase or decreasehave material adverse effects on our sales or earnings. Because our consolidatedbusiness, financial results are reported in U.S. dollars, when we generate sales or earnings in other currencies, or we pay expenses in other currencies, the translation of those results into U.S. dollars can result in a significant increase or decrease in the amount of those sales or earnings. If the U.S. dollar strengthens relative to the value of the local currency, we may be less competitive. In addition, our debt service requirements are predominantly in U.S. dollars and a portion of our cash flow is generated in British pounds, euros and other foreign currencies. Significant changes in the value of the foreign currencies relative to the U.S. dollar could impair our cash flow,position, results of operations and/or cash flows. We face various risks related to health epidemics, pandemics and financial condition.

In addition, fluctuationssimilar outbreaks, including the global outbreak of COVID-19. The continued spread of COVID-19 has led to disruption and volatility in currencies relativethe global capital markets, which increases the cost of capital and adversely impacts access to capital. If significant portions of our workforce are unable to work effectively, including because of illness, quarantines, government actions, facility closures or other restrictions in connection with the U.S. dollarCOVID-19 pandemic, our operations will likely be impacted. We may make it more difficultbe unable to perform period-to-period comparisonsfully on our contracts and our costs may increase as a result of the COVID-19 outbreak. These cost increases may not be fully recoverable or adequately covered by insurance.

It is possible that the continued spread of COVID-19 could also cause further disruption in our supply chain; cause delay, or limit the ability of customers to perform, including in making timely payments to us; impact investment performance; and cause other unpredictable events.

We continue to work with our stakeholders (including customers, employees, suppliers and local communities) to responsibly address this global pandemic. We continue to monitor the situation to assess further possible implications to our business, supply chain and customers, and to take actions in an effort to mitigate adverse consequences.

As a result of current economic conditions and expected future impacts from the COVID-19 pandemic, the carrying value of goodwill with respect to certain of our reportedassets was impaired, resulting in impairment charges that negatively impacted our results of operations. For purposesWe may be required to record additional impairment charges in the future if the COVID-19 pandemic continues. We cannot predict the amount and timing of accounting,any such additional charges, which could adversely impact our results of operations.

We cannot at this time predict the assetsimpact of the COVID-19 pandemic, but it could have a material adverse effect on our business, financial position, results of operations and/or cash flows.

Our operations are subject to environmental, health and safety laws and regulations, and we may face significant costs or liabilities associated with environmental, health and safety matters.  We are subject to a variety of federal, state, local and foreign environmental, health, and safety laws and regulations concerning, among other things: the discharge of pollutants into the soil, air and water; the generation, storage, handling, use, release, disposal and transportation of hazardous materials and wastes; environmental cleanup; and the health and safety of our foreignemployees. Environmental, health, and safety laws and regulations continue to evolve, and we may become subject to increasingly stringent environmental standards in the future, particularly related to air quality and water quality, which could require us to make changes to our operations whereor incur significant costs relating to compliance. We are also required to obtain and maintain environmental, health and safety permits and approvals for our facilities and operations. In addition, the local currencypotential impacts of climate change on our operations are highly uncertain. Although the financial impact of these potential changes is the functional currency, are translated using period-end exchange rates,not reasonably estimable at this time, our operations in certain locations and the revenues and expensesthose of our foreign operations are translated using average exchange rates during each period.

In addition to currency translation risks, we incur currency transaction risk whenever we enter into either a purchase or a sales transaction using a currency other than U.S. dollars. Given the volatility of exchange rates, we may notcustomers and suppliers could potentially be able to effectively manage our currency or translation risks. Volatility in currency exchange rates may decrease our sales and profitability and impair our financial condition. We periodically evaluate our need to hedge our exposures to foreign currencies and enter into forward foreign exchange contracts as we deem necessary.

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Our existing indebtednessadversely affected, which could adversely affect our businesssales, profitability and growth prospects. As of December 29, 2018, we had total indebtedness (including the current portion) of approximately $353 million.cash flows. Our indebtedness, or any additional indebtedness we may incur, could require us to divert funds identified for other purposes for debt service and impair our liquidity position. If we cannot generate sufficient cash flow from operations to service our debt, we may need to refinance our debt, dispose of assets or issue equity to obtain necessary funds. We do not know whether we would be able to take any of these actions on a timely basis, on terms satisfactory to us or at all.

Our indebtedness, the cash flow needed to satisfy our debt and the covenants contained in our senior credit facility have important consequences, including:

More specifically, under the terms of our senior credit facility, we have agreed to certain financial covenants. In addition, our senior credit facility places limitations on our ability to acquire other companies. Any failure by us to comply with the financialsuch laws, regulations, permits and approvals could subject us to increased employee healthcare and workers’ compensation costs, liabilities, fines and other penalties or other covenants set forth in our senior credit facility in the future, if not cured or waived,compliance costs, and could result in our senior lender accelerating the maturity of our indebtedness or preventing us from accessing availability under our senior credit facility. If the maturity of our indebtedness is accelerated, we may not have sufficient cash resources to satisfy our debt obligations and we may not be able to continue our operations as planned.

We may need additional capital in the future, and it may not be available on acceptable terms, or at all. We may require additional capital in the future to:

We can give no assurance that additional financing will be available on terms favorable to us, or at all. The terms of available financing may place limitsa material adverse effect on our business, financial condition and operating flexibility. If adequate funds are not available on acceptable terms, we may be forced to reduce our operations or to delay, limit or abandon expansion opportunities. Moreover, even if we are able to continue our operations, the failure to obtain additional financing could reduce our competitiveness. Our senior credit facility limits our ability to incur additional debt and therefore we likely would have to issue additional equity to raise additional capital. If we issue additional equity, your interest in us will be diluted.results of operations.

1916

Risks Relating to Our Business: Growth Strategy

We are subject to various risks relating to our growth strategy. In pursuing our growth strategy, and Vision 2025, we intend to expand our presence in existing markets, enter new markets and pursue acquisitions and joint ventures to complement our business. Many of the expenses arising from expansion efforts may have a negative effect on operating results until such time, if at all, that these expenses are offset by increased revenues. We cannot assure you that we will be able to improve our market share or profitability, recover our expenditures or successfully implement our growth strategy.

The expansion strategy also may require substantial capital investment for the construction of new facilities and their effective operation. We can give no assurance that additional financing will be available on terms favorable to us, or at all.

Our culture, by encouraging initiative, and both individual and collaborative responsibility, has substantially contributed to our success and operating results. Because our employees are able to readily shift their job functions to accommodate the demands of the business and changes in the market, we are a nimble, creative and innovative organization. As we increase the number of our employees and grow into new geographic markets, our culture will likely shift and evolve in new ways. Because our culture promotes the drivers of our success, our inability to protect and align our core values and culture with the evolving needs of the business could adversely affect our continued success.

We may fail to successfully acquire or integrate companies that provide complementary products or technologies.A key component of our growth strategy and Vision 2025financial goals depends upon our ability to successfully identify and integrate acquisition targets that complement our existing products and services. Such a strategy involves the potential risks inherent in assessing the value, strengths, weaknesses, contingent or other liabilities, and potential profitability of acquisition candidates, and inas well as integrating the operations of acquired companies, including Faster and Custom Fluidpower.companies. In addition, any acquisitions of businesses with foreign operations or sales may increase our exposure to risks inherent in doing business outside the United States.U.S. From time to time, we may have acquisition discussions with potential target companies both domestically and internationally. Any acquisition may or may not occur and, if an acquisition does occur, it may not be successful in enhancing our business for one or more of the following reasons:

Inherent in any future acquisition is the risk of transitioning company cultures and facilities. The failure to efficiently and effectively achieve such transitions could increase our costs and decrease our profitability.

We also may incur significant costs such as transaction fees, professional service fees and other costs related to future acquisitions, as well as integration costs following the completion of any such acquisitions. Although we expect that the realization of efficiencies related to the integration of any acquired businesses will offset the incremental transaction and acquisition-related costs over time, this net financial benefit may not be achieved in the near term, or at all.

2017

We are subject to intense competition. Our products in both the Hydraulics and Electronics segments currently, and will continue to, face significant competition, both from other companies and from incumbent technologies. In the case of our Hydraulics segment, some of our competitors are full-line hydraulic system producers and others are niche suppliers like us. In the case of our Electronics segment, our competitors include companies that have substantially longer operating histories, larger customer bases, name recognition, and financial and marketing resources than we do. Our competitors also include companies that have emerged in low cost production areas such as Asia and Eastern Europe with look-alike products. We believe that we compete with our competitors based upon quality, reliability, price, value, speed of delivery and technological characteristics. However, we cannot provide assurance that we will continue to be able to compete effectively with these companies.

Currently, certain of our customers purchase parts or products from us to meet a specific need in a system that cannot be filled by a component that they make themselves. However, given their superior technological capabilities and financial resources, our competitors could be engaged in the internal development of products and technologies that are similar to, or may compete with, certain of our products and technologies.

The future prospects for our products are dependent upon our customers’ acceptance of our products as an alternative to their internally developed products. Future sales prospects also are dependent upon acceptance of third-party sourcing for products as an alternative to in-house development. In the future, customers may continue to use internally developed components. They also may decide to develop or acquire products that are similar to, or that may be substituted for, our products.

We also sell products into competitive markets. Within our primary markets, we compete with a range of companies that offer certain individual components of our full system solutions. Particularly within our Electronics segment, the components of our overall systems most commonly include displays, panels, sensors, valves, and other end-devices. If our customers fail to accept our full system products or seek to internally develop alternatives to our full system products using component parts sourced from our competitors, or if we are otherwise unable to develop or maintain strong relationships with our customers, our business, financial condition and results of operations would be materially and adversely affected.

Competitive actions, such as price reductions, consolidation in the industry, improved delivery and other actions, could adversely affect our revenue and earnings. We could experience a material adverse effect to the extent that our competitors are successful in reducing our customers’ purchases of products and services from us. Competition could also cause us to lower our prices, which could reduce our margins and profitability.

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If we are unable to continue our technological innovation and successful introduction of new commercial products in an efficient, cost-effective manner, our business will be adversely affected. The industries we serve Our business involves a significant level of product development activities, generally in connection with our customers’ development activities. Industry standards, customer expectations or other products may emerge that could render one or more of our products or services less desirable or obsolete. Maintaining our market position requires continued investment in research and development, particularly in the Electronics segment, experiencewhich experiences ongoing technological change and product improvement. Manufacturers periodically introduce new generations of products or require new technological capacity to develop customized products or to respond to industry developments or needs. Our future growth will depend on our ability to gauge the direction of the commercial and technological progress in our markets, as well as our ability to acquire new product technologies or to fund and successfully develop, manufacture and market products in this constantly changing environment. We must continue to identify, develop, manufacture and market innovative products on a timely basis to replace existing products in order to maintain our profit margins and competitive position. We may not be successful in acquiring and developing new products or technologies and any of our new products may not be accepted by our customers. If we fail to keep pace with evolving technological innovations in the markets we serve, our business will be adversely affected. Technology does not advance as quickly in the Hydraulics segment and, therefore, when there is risk relative to continued technological innovation, there is a lower threat than in the Electronics segment.

Our product development activities may not be successful, may be more costly than currently anticipated, or we may not be able to produce newly developed products at a competitive cost. Our business involves a significant level of product development activities, generally in connection with our customers’ development activities. Industry standards, customer expectations, or other products may emerge that could render one or more of our products or services less desirable or obsolete. Maintaining our market position requires continued investment in research and development. During an economic downturn or a subsequent recovery, we may need to maintain our investment in research and development, which may limit our ability to reduce these expenses in proportion to a sales shortfall. In addition, increased investments in research and development may divert resources from other potential investments in our business, such as acquisitions or investments in our facilities, processes and operations. If these activities are not as successful as currently anticipated, are not completed on a timely basis, or are more costly than currently anticipated, or if we are not able to produce newly developed products at a cost that meets the anticipated product cost structure, then our future sales, margins and/or earnings could be lower than expected, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

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If Further, if we are unablefail to protectkeep pace with evolving technological innovations in the confidentiality of our trade secrets,markets we serve, our business and competitive position would be harmed. In the Electronics segment particularly, we rely significantly on trade secrets, including unpatented software algorithms, know-how, technology, and other proprietary information, to maintain our competitive position. We seek to protect software algorithms through encryption mechanisms in the distribution of our binary files used in programming our engine control products. However, we cannot guarantee that these encryption techniques can protect all or any portion of these binary files. In practice, we seek to protect our trade secrets by entering into non-disclosure and confidentiality agreements with parties who have access to them, such as our employees, corporate collaborators, outside scientific collaborators, contract manufacturers, consultants, advisors and other third parties. In practice, we also enter into confidentiality and noncompetition agreements with certain of our employees and consultants that obligate them to assign to us any inventions developed in the course of their work for us. However, we cannot guarantee that we have executed these agreements with each party that may have or has had access to our trade secrets or that the agreements we have executed will provide adequate protection. Despite these efforts, any of these parties may breach the agreements and disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches. As a result, we may be forced to bring claims against third parties, or defend claims that they bring against us, to determine ownership of what we regard as our intellectual property. Monitoring unauthorized disclosure is difficult and we do not know whether the procedures we have followed to prevent such disclosure are, or will be adequate. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, some courts inside and outside the United States may be less willing or unwilling to protect trade secrets. If any of our trade secrets were to be disclosed to, or independently developed by, a competitor, our competitive position would be harmed, which could have an adverse effect on our business and financial condition.

The inability to protect our intellectual property could reduce or eliminate any competitive advantage and reduce our sales and profitability, and the cost of protecting our intellectual property may be significant. We have obtained and applied for some U.S. and foreign trademark and patent registrations and will continue to evaluate the registration of additional trademarks and patents, as appropriate. We cannot guarantee that any of our pending patent and trademark applications will be approved. Moreover, even if the applications are approved, third parties may seek to oppose or otherwise challenge them. An inability to obtain registrations in the United States or elsewhere could limit our ability to protect our trademarks and technologies and could impede our business. Further, the protection of our intellectual property rights may require expensive investment in protracted litigation and substantial management time, and there is no assurance we ultimately would prevail or that a successful outcome would lead to an economic benefit that is greater than the investment in the litigation. In the Electronics segment, the key issued patents in our patent portfolio are scheduled to expire between 2023 and 2033. In the Hydraulics segment, the key issued patents in our patent portfolio are schedule to expire between 2020 and 2039.  

We may also face difficulties protecting our intellectual property rights in foreign countries. The laws of foreign countries in which our products are sold or manufactured may not protect our intellectual property rights to the same extent as the laws of the United States. For example, we are increasing our technical capabilities and sales in China, where laws may not afford the same intellectual property protections.

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Our use of open source software may expose us to additional risks. In the Electronics segment particularly, we use open source software in our business, including in some of our products. While we try to monitor all use of open source software in our business to ensure that no open source software is used in such a way as to require us to disclose the source code to critical or fundamental elements of our software or technology, we cannot be certain that such use may not have inadvertently occurred in deploying our solutions. Furthermore, the terms of many open source licenses have not been interpreted by U.S. courts. As a result, there is a risk that these licenses could be construed in a way that could impose unanticipated conditions or restrictions on our ability to commercialize our products. The risks associated with usage of open source software cannot be eliminated and could potentially have a material adverse effect on our business, financial condition, and results of operations.

If we are alleged to have infringed upon the intellectual property rights owned by others, our business and results of operations could be materially adversely affected.In the Electronics segment, competitors or other third parties may allege that we, or consultants or other third parties retained or indemnified by us, infringe on their intellectual property rights. We also may face allegations that our employees have misappropriated intellectual property rights of their former employers or other third parties. From time to time, we receive notices from other companies that allege we may be infringing certain of their patents or other rights. If we are unable to resolve these matters satisfactorily, or to obtain licenses on acceptable terms, we may face litigation. Given the potential risks and uncertainties of intellectual property-related litigation, the assertion of an infringement claim against us may cause us to spend significant amounts to defend the claim (even if we ultimately prevail), pay significant money damages, lose significant revenues, be prohibited from using the relevant technologies or other intellectual property rights, cease offering certain products or services, or incur significant license, royalty, or technology development expenses. Even in instances where we believe that claims and allegations of intellectual property infringement against us are without merit, defending against such claims is time consuming and expensive and could result in the diversion of time and attention of our management and employees. In addition, although in some cases a third party may have agreed to indemnify us for such costs, such indemnifying party may refuse or be unable to uphold its contractual obligations.

We are dependent upon key employees and skilled personnel. Our success depends, to some extent, upon a number of key individuals. The loss of the services of one or more of these individuals could have a material adverse effect on our business. Future operating results depend to a significant degree upon the continued contribution of key management, technical personnel and the skilled labor force. As the Company continues to expand internationally, additional management and other key personnel will be needed. Competition for management and engineering personnel is intense, and other employers may have greater financial and other resources to attract and retain these employees. We conduct a substantial part of our operations in Sarasota, Florida, Tulsa, Oklahoma and Rivolta D’adda, Italy. Our continued success is dependent on our ability to attract and retain a skilled labor force at these locations. There are no assurances that we will continue to be successful in attracting and retaining the personnel required to develop, manufacture and market our products and expand our operations.

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We are subject to fluctuations in the prices of parts and raw materials, and dependent on our suppliers of these parts. We are dependent upon suppliers for parts and raw materials used in the manufacture of components that we sell to our customers, and some of our raw material costs are subject to commodity market price fluctuations. We may experience an increase in costs for parts or raw materials that we source from our suppliers, or we may experience a shortage of parts or raw materials for various reasons, such as the loss of a significant supplier, high overall demand creating shortages in parts and supplies we use, financial distress, work stoppages, natural disasters, fluctuations in commodity prices or production difficulties that may affect one or more of our suppliers. In particular, current or future global economic uncertainty may affect our key suppliers in terms of their operating cash flow and access to financing. This may, in turn, affect their ability to perform their obligations to us. In addition, quality and sourcing issues that our suppliers may experience can also adversely affect the quality and effectiveness of our products and services and may result in liability or reputational harm to us. Our customers rely on us to provide on-time delivery and have certain rights if our delivery standards are not maintained. A significant increase in our supply costs, including for raw materials that are subject to commodity price fluctuations, or a protracted interruption of supplies for any reason, could result in the delay of one or more of our customer contracts, or could damage our reputation and relationships with our customers. Any of these events could have a material adverse effect on our business, financial condition, results of operations and cash flows.

SomeUnforeseen or recurring operational problems at any of our products contain magnets that use rare earth metals, and unavailabilityfacilities, or limited supplyother catastrophic loss of these metals could delay productionone of our products or increase ourkey manufacturing facilities, may cause significant lost production costs. In the Electronics segment, some of our products contain magnets that use rare earth metals sourced from China. Although such rare earth metals are available from other sources, these alternative sources may be more costly. Reduced availability of such rare earth metals from China through additional export regulations or restrictions, export quotas, tariffs, or for other reasons could impact our ability to obtain magnets that use the required rare earth metals in sufficient quantities, in a timely manner, or at a commercially reasonable cost. In the event that China’s actions cause our suppliers to seek alternate sources of supply for rare earth metals, it could cause a delay in the production of our products that contain magnets using rare earth metals and increase the cost to us of such magnets, thereby reducing or eliminating our profit margin on certain of our products if we are unable to pass the increase in our production costs on to our customers. Increasing prices to our customers due to escalating costs of rare earth metals may reduce demand for our products and negativelyadversely affect our results of operations.  Our manufacturing process could be affected by operational problems that could impair our production capability. Many of our manufacturing facilities contain high cost and sophisticated machines that are used in our manufacturing processes. Disruptions or shutdowns at any of our facilities could be caused by: 

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If some of our facilities are shut down, they may experience prolonged startup periods, regardless of the reason for the shutdown. Those startup periods could range from several days to several weeks or longer,depending on the reason for the shutdown and other factors. Any prolonged disruption in operations at any of our facilities could cause a significant loss of production and adversely affect our results of operations and negatively impact our customers and dealers.

We currently have operations located in geographies susceptible to severe weather events, such as hurricanes, floods, earthquakes and tornadoes. A catastrophic event, whether resulting from severe weather or otherwise, could result in the loss of the use of all or a portion of one of our manufacturing facilities. Although we carry property and business interruption insurance, our coverage may not be adequate to compensate us for all losses that may occur. Any of these events individually or in the aggregate could have a material adverse effect on our business, financial condition and operating results. 

A disruption in our supply chain or other factors impacting the distribution of our products could adversely affect our business. A disruption within our logistics or supply chain network at any of the freight companies that deliver components for our manufacturing operations or ship our fully-assembled products to our customers could adversely affect our business and result in lost sales or harm to our reputation. Our supply chain is dependent on third-party ocean-going container ships, rail, barge and trucking systems and, therefore, disruption in these logistics services because of weather-related problems, strikes, bankruptcies or other events could adversely affect our financial performance and financial condition, negatively impacting sales, profitability and cash flows.  Additionally, we rely on supplied labor through a third-party provider to support key operations in Mexico.  A disruption in the ability of this provider to deliver qualified personnel and to operate our facility in Mexico could have a material adverse effect on our business, financial condition and operating results.

Risks Relating to Our Business: Financial

We may need additional capital in the future, and it may not be available on acceptable terms, or at all. We may require additional capital in the future to:

We can give no assurance that additional financing will be available on terms favorable to us, or at all. The terms of available financing may place limits on our financial and operating flexibility. If adequate funds are not available on acceptable terms, we may be forced to reduce our operations or to delay, limit or abandon expansion opportunities. Moreover, even if we are able to continue our operations, the failure to obtain additional financing could reduce our competitiveness. Our senior credit facility limits our ability to incur additional debt and therefore we likely would have to issue additional equity to raise additional capital. If we issue additional equity, a shareholder’s interest in us will be diluted.

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Our existing indebtedness could adversely affect our business and growth prospects. As of January 2, 2021, we had total indebtedness of approximately $462 million. Our indebtedness, or any additional indebtedness we may incur, could require us to divert funds identified for other purposes for debt service and impair our liquidity position. If we cannot generate sufficient cash flow from operations to service our debt, we may need to refinance our debt, dispose of assets or issue equity to obtain necessary funds. We do not know whether we would be able to take any of these actions on a timely basis, on terms satisfactory to us or at all.

Our indebtedness, the cash flow needed to satisfy our debt and the covenants contained in our senior credit facility have important consequences, including:

More specifically, under the terms of our senior credit facility, we have agreed to certain financial covenants. In addition, our senior credit facility places limitations on our ability to acquire other companies. Any failure by us to comply with the financial or other covenants set forth in our senior credit facility in the future, if not cured or waived, could result in our senior lender accelerating the maturity of our indebtedness or preventing us from accessing availability under our senior credit facility. If the maturity of our indebtedness is accelerated, we may not have sufficient cash resources to satisfy our debt obligations and we may not be able to continue our operations as planned.

If our long-lived assets, goodwill or other intangible assets become impaired, we may be required to record significant non-cash charges to our earnings. We recognize impairments of goodwill when the fair value of any of our reporting units becomes less than its carrying value. Our estimates of fair value are based on assumptions about future cash flows of each reporting unit, discount rates applied to these cash flows and current market estimates of value. Based on the uncertainty of future revenue growth rates and other assumptions used to estimate our reporting units’ fair value, future reductions in our expected cash flows could cause material non-cash impairment charges, which could have a material adverse effect on our results of operations and financial condition. We also have certain long-lived assets and other intangible assets which could be at risk of impairment or may require reserves based upon anticipated future benefits to be derived from such assets. Any change in the valuation of such assets could have a material effect on our profitability.

Fluctuations in exchange rates may affect our operating results and impact our financial condition. Fluctuations in the value of the U.S. dollar may increase or decrease our sales or earnings. Because our consolidated financial results are reported in U.S. dollars, when we generate sales or earnings in other currencies, or we pay expenses in other currencies, the translation of those results into U.S. dollars can result in a significant increase or decrease in the reported amount of those sales or earnings. If the U.S. dollar strengthens relative to the value of the local currency, we may be less competitive. In addition, our debt service requirements are predominantly in U.S. dollars and a portion of our cash flow is generated in British pounds, euros and other foreign currencies. Significant changes in the value of the foreign currencies relative to the U.S. dollar could impair our cash flow, results of operations and financial condition.

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In addition, fluctuations in currencies relative to the U.S. dollar may make it more difficult to perform period-to-period comparisons of our reported results of operations. For purposes of accounting, the assets and liabilities of our foreign operations, where the local currency is the functional currency, are translated using period-end exchange rates, and the revenues and expenses of our foreign operations are translated using average exchange rates during each period.

In addition to currency translation risks, we incur currency transaction risk whenever we enter into either a purchase or a sales transaction using a currency other than U.S. dollars. Given the volatility of exchange rates, we may not be able to effectively manage our currency or translation risks. Volatility in currency exchange rates may decrease our sales and profitability and impair our financial condition. We periodically evaluate our need to hedge our exposures to foreign currencies and enter into forward foreign exchange contracts as we deem necessary.

Changes in tax rates, laws or regulations and the resolution of tax disputes could adversely impact our financial results. As a global company, we are subject to taxation in the U.S. and numerous non-U.S. jurisdictions. Significant judgment is required to determine our consolidated income tax provision and related liabilities. The Company’s effective tax rate, cash flows and operating results could be affected by changes in the mix of earnings in countries with different statutory tax rates, as well as by changes in the local tax laws and regulations, or the interpretations thereof. On December 22, 2017, the Tax Cuts and Jobs Act (“TCJA”) was signed into law. The TCJA made comprehensive changes to U.S. federal income tax laws, including lowering the statutory rate and moving from a global to a modified territorial tax regime. As the U.S. Department of Treasury and the IRS continue to issue regulations interpreting the implications of the TCJA, we continue to examine the impact that this tax reform legislation may have on our business. In addition, the Company’s tax returns are subject to regular review and audit by U.S. and non-U.S. tax authorities. While we believe our tax provisions are appropriate, the final outcome of tax audits or disputes could result in adjustments to the Company’s tax liabilities, which could adversely affect our financial results.

Risks Relating to Our Business: Intellectual Property

The inability to protect our intellectual property could reduce or eliminate any competitive advantage and reduce our sales and profitability, and the cost of protecting our intellectual property may be significant.We have obtained and applied for some U.S. and foreign trademark and patent registrations and will continue to evaluate the registration of additional trademarks and patents, as appropriate. We cannot guarantee that any of our pending patent and trademark applications will be approved. Moreover, even if the applications are approved, third parties may seek to oppose or otherwise challenge them. An inability to obtain registrations in the U.S. or elsewhere could limit our ability to protect our trademarks and technologies and could impede our business. Further, the protection of our intellectual property rights may require expensive investment in protracted litigation and substantial management time, and there is no assurance we ultimately would prevail or that a successful outcome would lead to an economic benefit that is greater than the investment in the litigation. In the Electronics segment, the patents in our portfolio are scheduled to expire at various dates through 2038. In the Hydraulics segment, the patents in our portfolio are schedule to expire at various dates through 2040.  

We may also face difficulties protecting our intellectual property rights in foreign countries. The laws of foreign countries in which our products are sold or manufactured may not protect our intellectual property rights to the same extent as the laws of the U.S. For example, we are increasing our technical capabilities and sales in China, where laws may not afford the same intellectual property protections.

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If we are alleged to have infringed upon the intellectual property rights owned by others, our business and results of operations could be materially adversely affected. Competitors or other third parties may allege that we, or consultants or other third parties retained or indemnified by us, infringe on their intellectual property rights. We also may face allegations that our employees have misappropriated intellectual property rights of their former employers or other third parties. From time to time, we receive notices from other companies that allege we may be infringing certain of their patents or otherrights. If we are unable to resolve these matters satisfactorily, or to obtain licenses on acceptable terms, we may face litigation. Given the potential risks and uncertainties of intellectual property-related litigation, the assertion of an infringement claim against us may cause us to spend significant amounts to defend the claim (even if we ultimately prevail), pay significant money damages, lose significant revenues, be prohibited from using the relevant technologies or other intellectual property rights, cease offering certain products or services, or incur significant license royalty, or technology development expenses. Even in instances where we believe that claims and allegations of intellectual property infringement against us are without merit, defending against such claims is time consuming and expensive and could result in the diversion of time and attention of our management and employees. In addition, although in some cases a third party may have agreed to indemnify us for such costs, such indemnifying party may refuse or be unable to uphold its contractual obligations.

If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed. We maintain trade secrets, confidential, and proprietary information in the course and scope of our business. In the Electronics segment particularly, we rely significantly on trade secrets such as unpatented software algorithms, know-how, technology and other proprietary information to maintain our competitive position. We seek to protect software algorithms through encryption mechanisms in the distribution of our binary files used in programming our engine control products. However, we cannot guarantee that these encryption techniques can protect all or any portion of these binary files. In practice, we seek to protect our trade secrets by entering into non-disclosure and confidentiality agreements with parties who have access to them, such as our employees, corporate collaborators, outside scientific collaborators, contract manufacturers, consultants, advisors and other third parties. The agreements obligate them to assign to us any inventions developed in the course of their work for us. However, we cannot guarantee that we have executed these agreements with each party that may have or has had access to our trade secrets or that the agreements we have executed will provide adequate protection. Despite these efforts, any of these parties may breach the agreements and disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches. As a result, we may be forced to bring claims against third parties, or defend claims that they bring against us, to determine ownership of what we regard as our intellectual property. Monitoring unauthorized disclosure is difficult and we do not know whether the procedures we have followed to prevent such disclosure are, or will be, adequate. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, some courts inside and outside the U.S. may be less willing or unwilling to protect trade secrets. If any of our trade secrets were to be disclosed to, or independently developed by, a competitor, our competitive position would be harmed, which could have an adverse effect on our business and financial condition.

Our use of open source software may expose us to additional risks. We use open source software in our business, including in some of our products. While we try to monitor all use of open source software in our business to ensure that no open source software is used in such a way as to require us to disclose the source code to critical or fundamental elements of our software or technology, we cannot be certain that such use may not have inadvertently occurred in deploying our solutions. Furthermore, the terms of many open source licenses have not been interpreted by U.S. courts. As a result, there is a risk that these licenses could be construed in a way that could impose unanticipated conditions or restrictions on our ability to commercialize our products. The risks associated with usage of open source software cannot be eliminated and could potentially have a material adverse effect on our business, financial condition, and results of operations.

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Risks Relating to Our Business: Other

We are subject to risks relating to international sales.  International sales represent a significant proportion of our consolidated sales.Approximately 62% and 59% of our net sales were outside of the U.S. during 2020 and 2019, respectively. We will continue to expand the scope of operations outside the U.S., both through direct investment and distribution, and expect that international sales will continue to account for a substantial portion of net sales in future periods.

Our future results could be harmed by a variety of factors, including:

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Our international operations and sales also expose us to different local political, regulatory and business risks and challenges. For example, we are faced with potential difficulties in staffing and managing local operations and we have to design local solutions to manage credit and legal risks of local customers and channel partners, which may not be effective. In addition, because some of our international sales are to suppliers that perform work for foreign governments, we are subject to the political and legal risks associated with foreign government projects. For example, certain foreign governments may require suppliers for a project to obtain products solely from local manufacturers or may prohibit the use of products manufactured in certain countries.

International growth and expansion into markets such as Europe, Asia and Latin America may cause us difficulty due to greater regulatory barriers than in the U.S., the necessity of adapting to new regulatory systems, problems related to entering new markets with different economic, social and political systems and conditions, and significant competition from the primary participants in these markets, some of which may have substantially greater resources and political influence than we do. For example, unstable political conditions or civil unrest could negatively impact our order levels and sales in a region or our ability to collect receivables from customers or operate or execute projects in a region.

We are dependent upon key individuals and skilled personnel. Our success depends, to some extent, upon a number of key individuals. The loss of the services of one or more of these individuals could have a material adverse effect on our business. Future operating results depend to a significant degree upon the continued contribution of key management, technical personnel and the skilled labor force. As the Company continues to expand internationally, additional management and other key personnel will be needed. Competition for management and engineering personnel is intense, and other employers may have greater financial and other resources to attract and retain these employees. We conduct a substantial part of our operations in Sarasota, Florida; Tulsa, Oklahoma; Rivolta D’adda, Italy; various locations across Australia; Costa Mesa, California and Baja, Mexico. Our continued success is dependent on our ability to attract and retain a skilled labor force at these locations. There are no assurances that we will continue to be successful in attracting and retaining the personnel required to develop, manufacture and market our products and expand our operations.

Increased IT security threats and more sophisticated and targeted computer crime could pose a risk to our systems, networks, products, solutions and services. We are dependent on various information technologies throughout our Company to administer, store and support multiple business activities. Increased global IT security threats and more sophisticated and targeted computer crime pose a risk to the security of our systems and networks and the confidentiality, availability and integrity of our data. While we attempt to mitigate these risks by employing a number of measures, including employee training, comprehensive monitoring of our networks and systems, and maintenance of backup and protective systems, our systems, networks, products, solutions and services remain potentially vulnerable to advanced persistent threats. Depending on their nature and scope, such threats could potentially lead to the compromising of confidential information, improper use of our systems and networks, manipulation and destruction of data, defective products, production downtimes, and operational disruptions, which in turn could adversely affect our reputation, competitiveness, and results of operations.

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Unforeseen or recurring operational problems at any of our facilities, or other catastrophic loss of one of our key manufacturing facilities, may cause significant lost production and adversely affect our results of operations.  Our manufacturing process could be affected by operational problems that could impair our production capability. Many of our manufacturing facilities contain high cost and sophisticated machines that are used in our manufacturing processes. Disruptions or shut downs at any of our facilities could be caused by: 

If some of our facilities are shut down, they may experience prolonged startup periods, regardless of the reason for the shutdown. Those startup periods could range from several days to several weeks or longer, depending on the reason for the shutdown and other factors. Any prolonged disruption in operations at any of our facilities could cause a significant loss of production and adversely affect our results of operations and negatively impact our customers and dealers.

We currently have operations located in geographies susceptible to severe weather events, such as hurricanes floods, earthquakes and tornadoes. A catastrophic event, whether resulting from severe weather or otherwise, could result in the loss of the use of all or a portion of one of our manufacturing facilities. Although we carry property and business interruption insurance, our coverage may not be adequate to compensate us for all losses that may occur. Any of these events individually or in the aggregate could have a material adverse effect on our business, financial condition and operating results. 

We are subject to risks relating to changes in our tax rates, unfavorable resolution of tax contingencies, or exposure to additional income tax liabilities. We are subject to income taxes in the United States and various non-U.S. jurisdictions. Domestic and international tax liabilities are subject to the allocation of income among various tax jurisdictions. Our effective tax rate could be affected by changes in the mix among earnings in countries with differing statutory tax rates or changes in tax laws. We are subject to on-going tax audits in various jurisdictions. If these audits result in assessments different from amounts reserved, future financial results may include unfavorable adjustments to our tax liabilities, which could have a material adverse effect on our results of operations.

U.S. federal income tax reform could adversely affect us and our shareholders. On December 22, 2017, the Tax Cuts and Jobs Act (“TCJA”) was signed into law. The TCJA significantly reforms the Internal Revenue Code of 1986, as amended, or the Code. The TCJA, among other things, includes changes to U.S. federal tax rates, imposes significant additional limitations on the deductibility of interest, allows for the expensing of capital expenditures, and puts into effect the migration from a “worldwide” system of taxation to a territorial system. Our net deferred tax assets and liabilities have been revalued at the newly-enacted U.S. corporate rate, and the impact was recognized in our tax expense for the 2017 year. As the United States Department of Treasury and the IRS continue to issue regulations interpreting the implications of the TCJA, we continue to examine the impact that this tax reform legislation may have on our business. The impact of this tax reform on holders of our common stock is uncertain and could be adverse. We urge our shareholders to consult with their legal and tax advisors with respect to such legislation and the potential tax consequences of investing in our common stock.  

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Our operations are subject to environmental, health and safety laws and regulations, and we may face significant costs or liabilities associated with environmental, health and safety matters.  We are subject to a variety of federal, state, local and foreign environmental, health, and safety laws and regulations concerning, among other things, the discharge of pollutants into the soil, air, and water, the generation, storage, handling, use, release, disposal and transportation of hazardous materials and wastes, environmental cleanup, and the health and safety of our employees. Environmental, health, and safety laws and regulations continue to evolve, and we may become subject to increasingly stringent environmental standards in the future, particularly related to air quality and water quality, which could require us to make changes to our operations or incur significant costs relating to compliance. We are also required to obtain and maintain environmental, health and safety permits and approvals for our facilities and operations. Our failure to comply with such laws, regulations, permits and approvals could subject us to increased employee healthcare and workers’ compensation costs, liabilities, fines and other penalties or compliance costs, and could have a material adverse effect on our business, financial condition and results of operations.

Our business is subject to a variety of governmental regulations that may restrict our business and may result in costs and penalties. We are subject to a variety of federal, state, and local laws and regulations relating to foreign business practices, labor and employment, construction, land use, and taxation, among others. These laws and regulations are complex, change frequently and have tended to become more stringent over time. Failure to comply with these laws and regulations may result in a variety of administrative, civil and criminal enforcement measures, including assessment of monetary penalties and the imposition of corrective requirements. From time to time, as part of the regular overall evaluation of our operations, including newly acquired operations, we may be subject to compliance audits by regulatory authorities. In addition, any failure to comply with regulations related to the government procurement process at the federal, state, or local level or restrictions on political activities and lobbying may result in administrative or financial penalties including being barred from providing services to governmental entities, which could have a material adverse effect on our results of operations.

Our operations expose us to risks of non-compliance with numerous countries’ import and export laws and regulations. Due to our significant foreign sales, we are subject to trade and import and export regulations in multiple jurisdictions, including the U.S. Treasury Department’s Office of Foreign Assets Control’s regulations. As a result, compliance with multiple trade sanctions and embargoes and import and export laws and regulations pose a constant challenge and risk to us. Furthermore, the laws and regulations concerning import activity, export recordkeeping and reporting, export control and economic sanctions are complex and constantly changing. Any failure to comply with applicable legal and regulatory trading obligations could result in criminal and civil penalties and sanctions, such as fines, imprisonment, debarment from governmental contracts, seizure of shipments, loss of import and export privileges, reputational damage, and a reduction in the value of our common stock.

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Regulations related to “conflict minerals” may force us to incur additional expenses and may result in damage to our reputation.We are subject to the Securities and Exchange Commission’s regulations applicable to companies that use certain minerals, known as conflict minerals, in their products or in the production of their products, whether or not these products are manufactured by third parties. These requirements require us to conduct an inquiry into the country of origin of the conflict minerals used, and if it is determined that the conflict minerals used may have originated in the Democratic Republic of Congo or other covered countries, conduct due diligence on the source and chain of custody of the conflict minerals. These requirements could adversely affect the sourcing, availability and pricing of minerals used in the manufacture of our products. In addition, we incur additional costs to comply with the disclosure requirements, including costs related to determining the source of any of the relevant minerals and metals used in our products or in the manufacturing process. Since our supply chain is complex, we may not be able to sufficiently verify the origins for these minerals and metals used in our products through the due diligence procedures that we implement, which may harm our reputation. In such event, we may also face difficulties in satisfying customers who require that all of the components of our products be conflict mineral free.

Due to the nature of our business and products, we may be liable for damages based on product liability and other tort and warranty claims. We face an inherent risk of exposure to claims in the event that the failure, use or misuse of our products results, or is alleged to result, in death, bodily injury, property damage, or economic loss. In the past, we have been subject to product liability claims relating to our products, and we may be subject to additional product liability claims in the future for both past and current products.

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Although we currently maintain product liability coverage, which we believe to be adequate for the continued operation of our business, such insurance may become difficult or impossible to obtain in the future on terms acceptable to us. Moreover, our insurance coverage includes customary exclusions and conditions, may not cover certain specialized applications and generally does not cover warranty or recall claims. A successful product liability claim or series of claims against us, including one or more consumer claims purporting to constitute class actions or claims resulting from extraordinary loss events, in excess of or outside our insurance coverage, or a significant warranty claim or series of claims against us, could materially decrease our liquidity, impair our financial condition and adversely affect our results of operations. Furthermore, regardless of the outcome, product liability claims can be expensive to defend, can divert the attention of management and other personnel for significant periods of time and can cause reputational damage.

We are subject to a variety of claims, investigations and litigation that could adversely affect our results of operations and harm our reputation. In the normal course of our business, we are subject to claims and lawsuits, including from time to time claims for damages related to product liability and warranties, investigations by governmental agencies, litigation alleging the infringement of intellectual property rights and litigation related to employee matters and commercial disputes. Defending these lawsuits and becoming involved in these investigations may divert our management’s attention, and may cause us to incur significant expenses, even if there is no evidence that our systems or components were the cause of the claim. In addition, we may be required to pay damage awards, penalties or settlements, or become subject to injunctions or other equitable remedies, that could have a material adverse effect on our business, financial condition, results of operations and cash flows. Moreover, any insurance or indemnification rights that we have may be insufficient or unavailable to protect us against potential loss exposures.

We are subject to risks related to sustainability, corporate social responsibility and reputation. Many factors influence our reputation and the value of our brands including the perception held by our customers, business partners, investors, other key stakeholders and the communities in which we do business. Our business faces increasing scrutiny related to environmental, social and governance activities and disclosures and risk of damage to our reputation and the value of our brands if we fail to act responsibly in a number of areas, such as environmental stewardship, supply chain management, climate change, diversity and inclusion, workplace conduct, human rights, philanthropy and support for local communities. Any harm to our reputation could impact employee engagement and retention and the willingness of customers and our partners to do business with us, which could have a material adverse effect on our business, results of operations and cash flows. In addition, how governments act to mitigate climate and related environmental risks, as well as associated changes in the behavior and preferences of businesses and consumers, could have an adverse effect on our business and financial results. Changes in climate and related environmental risks, perceptions of them, and governmental responses to them, may also occur more rapidly than we are able to adapt without disrupting our business and impairing our financial results.

Risks Relating to Our Common Stock

Future sales of our common stock in the public market or the issuance of securities senior to our common stock could adversely affect the trading price of our common stock and our ability to raise funds in new stock offerings. Sales by us or our shareholders of a substantial number of shares of our common stock in the public markets, or the perception that these sales might occur, could cause the market price of our common stock to decline or could impair our ability to raise capital through a future sale of, or pay for acquisitions using, our equity securities.

We may issue common stock or equity securities senior to our common stock in the future for a number of reasons, including to finance our operations and business strategy, as consideration in acquisitions or for other reasons. We cannot predict the effect, if any, that future sales or issuances of shares of our common stock or other equity securities, or the availability of shares of our common stock or any other equity securities for future sale or issuance, will have on the trading price of our common stock.

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The price of our common stock may fluctuate significantly, which could negatively affect us and holders of our common stock. The trading price of our common stock may fluctuate significantly in response to a number of factors, many of which are beyond our control. For instance, if our financial results are below the expectations of securities analysts and investors, the market price of our common stock could decrease, perhaps significantly. Other factors that may affect the market price of our common stock include announcements relating to significant corporate transactions; operating and stock price performance of companies that investors deem comparable to us; future sales by us or our subsidiaries of equity, equity-related or debt securities; the amount, if any, of dividends that we pay on our common stock; anticipated or pending investigations, proceedings or litigation that involve or affect us; changes in regional, national or global financial markets and economies and general market conditions, such as interest or foreign exchange rates, stock, commodity, credit or asset valuations or volatility; and changes in government regulation or proposals relating to us. In addition, the U.S. and global securities markets have experienced significant price and volume fluctuations. These fluctuations often have been unrelated to the operating performance of companies in these markets. Market fluctuations and broad market, economic and industry factors may negatively affect the price of our common stock, regardless of our operating performance. You may not be able to sell your shares of our common stock. Any volatility of or a significant decrease in the market price of our common stock could also negatively affect our ability to make acquisitions using our common stock.

Additional issuances of equity securities would dilute the ownership of existing shareholders and could reduce our earnings per share.We may issue equity securities in the future in connection with capital raising activities, acquisitions, strategic transactions or for other purposes. To the extent we issue additional equity securities, the ownership of our existing shareholders would be diluted and our earnings per share could be reduced.

Provisions in our amended and restated articles of incorporation and amended and restated bylaws, as well as certain provisions of Florida law, may discourage a takeover attempt. Provisions contained in our amended and restated articles of incorporation and amended and restated bylaws, as well as certain provisions of Florida law, could make it more difficult for a third party to acquire us, even if doing so might be beneficial to our shareholders. Provisions of our amended and restated articles of incorporation and amended and restated bylaws impose various procedural and other requirements which could make it more difficult for shareholders to effect certain corporate actions. For example, our amended and restated articles of incorporation authorizes our board of directors to determine the rights, preferences, privileges and restrictions of unissued series of preferred stock, without any vote or action by our shareholders. Thus, our board of directors can authorize and issue shares of preferred stock with voting or conversion rights that could adversely affect the voting or other rights of holders of our common stock. In addition, a change of control of our Company may be delayed or deterred as a result of our having three classes of directors serving staggered three-year terms. These provisions could limit the price that certain investors might be willing to pay in the future for shares of our common stock.

We may be subject to influence by certain shareholders and management. Christine L. Koski, the daughter of the deceased founder of the Company, Robert E. Koski, is a member of the board of directors. She, along with other family members, own or control approximately 9% of the outstanding shares of our common stock. Accordingly, the members of the Koski family may have some ability to influence the election of our directors and the outcome of certain corporate actions requiring shareholder approval. Such influence could preclude any acquisition of the Company and could adversely affect the price of our common stock. Our directors and executive officers as a group beneficially own or control approximately 6% of the outstanding shares of our common stock.

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We may not pay dividends on our common stock. Holders of our common stock are only entitled to receive such dividends as our board of directors may declare out of funds legally available for such payments and as permitted by our debt agreements. Although historically we have paid a continuous quarterly dividend and a periodic special dividend, we are not required to declare cash dividends on our common stock, and the payment of future quarterly and special dividends is subject to the discretion of our board of directors. In determining the amount of any future quarterly or special dividends, our board of directors will consider economic and market conditions, our financial condition and operating results. Any change in our historical dividend practice could adversely affect the market price of our common stock. If our board of directors decides not to pay dividends in the future, then a return on your investment in our common stock will only occur if our stock price appreciates.

Securities analysts may issue negative reports or cease to cover our common stock, which may have a negative impact on the market price of our common stock. The trading market for our common stock may be affected in part by the research and reports that industry or financial analysts publish about us or our business. If one or more of the analysts who elects to cover us downgrades our stock, then our stock price would likely decline rapidly. If one or more of these analysts ceases coverage of Helios, we could lose visibility in the market, which in turn could cause our stock price to decline. This could have a negative effect on the market price of our common stock.

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ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2.  PROPERTIES

Corporate Office

We lease office space in Sarasota, FL that is used as our corporate headquarters.

Segments

The table below presents information on the primary operating facilities in our Hydraulics and Electronics segments. These locations are generally used for manufacturing and distribution activities as well as sales, engineering and administrative functions.

In addition to our primary operating facilities, we also lease office space that is used for sales, engineering and administrative activities in Argentina, Australia, Brazil, China, Germany, India China and Australia.Vietnam.

We believe that our properties have been adequately maintained, are generally in good condition, and are suitable and adequate for our business as presently conducted. The extent of utilization of our properties varies from time to time and among our facilities.

ITEM 3.  LEGAL PROCEEDINGS

From time to time we are involved in routine litigation incidental to the conduct of our business.  We do not believe that any pending litigation will have a material adverse effect on our consolidated financial position or results of operations.

ITEM 4.  MINE SAFETY DISCLOSURE

Not applicable.

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PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY,

RELATED STOCKHOLDER MATTERS AND

ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

Our Common Stock has been trading publicly under the symbol SNHYHLIO on the Nasdaq Global Select Market since June 17, 2019 and previously under the symbol SNHY since our initial public offering on January 9, 1997.

Holders

There were 188185 shareholders of record of Common Stock on February 15, 2019.19, 2021. The number of record holders was determined from the records of our transfer agent and does not include beneficial owners of Common Stock whose shares are held in the names of securities brokers, dealers, and registered clearing agencies.  

Dividends

We have historically paid regular quarterly dividends of $0.09 per share. In addition, we declared a special cash dividend in 2017 equal to $0.02 per share.  Our board of directors currently intends to continue to pay a quarterly dividend of $0.09 per share during 2019.2021. However, the declaration and payment of future dividends is subject to the sole discretion of the board of directors, and any determination as to the payment of future dividends will depend upon our profitability, financial condition, capital needs, acquisition opportunities, future prospects and other factors deemed pertinent by the board of directors.

Equity Compensation Plans

Information called for by Item 5 is provided in Note 13 of the Notes to the Consolidated Financial Statements included in this Annual Report (Item 8 of this report).

Issuer Purchases of Equity Securities

We did not repurchase any of our stock during the years ended December 29, 2018January 2, 2021 and December 30, 2017.28, 2019.

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Five-Year Stock Performance Graph

The following graph compares cumulative total return among Helios, the Russell 2000 Index and the Dow Jones US Diversified Industries Index, from December 28, 2013,January 2, 2016, to December 29, 2018,January 2, 2021, assuming $100 invested in each on December 28, 2013.January 2, 2016. Total return assumes reinvestment of any dividends for all companies considered within the comparison.  The stock price performance shown in the graph is not necessarily indicative of future price performance.

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ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA

The following summary should be read in conjunction with the consolidated financial statementsConsolidated Financial Statements and related notes contained herein.  See "Item 7.  Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Item 1.  Business."

We report on a fiscal year that ends on the Saturday closest to December 31st. Each quarter generally consists of thirteen weeks.weeks, with a fourteen-week quarter occurring periodically. The 2018 and 2017 fiscal years ended December 29, 2018 and December 30, 2017, respectively.  The 20152020 fiscal year contained 53 weeks, with a fourteen-week fourth quarter, and ended January 2, 2016; as a result, the quarter ended January 2,2021. Fiscal years 2016 consisted of fourteen weeks, resulting in a 53-week year.  through 2019 contained 52 weeks.

Our acquisition activity impacts the comparability of the selected financial information presented above. We completed the following acquisitions during the periods presented above: Enovation Controls, LLC acquired on December 5, 2016, Faster S.r.l. acquired on April 5, 2018, and Custom Fluidpower Pty Ltd acquired on August 1, 2018.2018 and Balboa Water Group acquired on November 6, 2020. The results of operations and estimated fair value of assets acquired and liabilities assumed are included in our financial statements for all periods subsequent to the acquisition dates. Additional details of our acquisitions are provided in Note 3 of the Notes to the Consolidated Financial Statements included in this Annual Report (Item 8 of this report).

33Comparability of the selected financial data is further impacted by a goodwill impairment charge totaling $31.9 million, recognized in the 2020 fiscal year as a result of the impact of COVID-19 pandemic on the global economy. Additional details are provided in Note 8 of the Notes to the Consolidated Financial Statements included in this Annual Report (Item 8 of this report).

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Annual Report contains “forward-looking statements” (within the meaning of the Private Securities Litigation Reform Act of 1995) that are based on current expectations, estimates, forecasts, and projections, our beliefs, and assumptions made by us, including (i) our strategies regarding growth, including our intention to develop new products and undertake acquisitions; (ii) our financing plans; (iii) trends affecting our financial condition or results of operations; (iv) our ability to continue to control costs and to meet our liquidity and other financing needs; (v) the declaration and payment of dividends; and (vi) our ability to respond to changes in customer demand domestically and internationally, including as a result of standardization.  In addition, we may make other written or oral statements, which constitute forward-looking statements, from time to time.  Words such as “may,” “expects,” “projects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” variations of such words, and similar expressions are intended to identify such forward-looking statements.  Similarly, statements that describe our future plans, objectives or goals also are forward-looking statements.  These statements are not guarantees of future performance and are subject to a number of risks and uncertainties, including those discussed below and elsewhere in this report.  Our actual results may differ materially from what is expressed or forecasted in such forward-looking statements, and undue reliance should not be placed on such statements.  All forward-looking statements are made as of the date hereof, and we undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

Factors that could cause actual results to differ materially from what is expressed or forecasted in such forward-looking statements include, but are not limited to: (i) conditions in the capital markets, including the interest rate environment and the availability of capital; (ii) changes in the competitive marketplace that could affect our revenue and/or cost bases, such as increased competition, lack of qualified engineering, marketing, management or other personnel, and increased labor and raw materials costs; (iii) new product introductions, product sales mix and the geographic mix of sales nationally and internationally, and (iv) the risk factors contained in this Annual Report on Form 10-K.

The operating results of the Hydraulics and Electronics segments included in MD&AManagement’s Discussion and Analysis of Financial Condition and Results of Operations are presented on a basis consistent with our internal management reporting. Segment information included in Note 1716 of the Notes to the Consolidated Financial Statements included in this Annual Report is also presented on this basis. All differences between our internal management reporting basis and accounting principles generally accepted in the United StatesU.S. (“U.S. GAAP”), specifically the allocation of certain corporate and acquisition-related costs, are included in Corporate and Other.

Overview

We are an industrial technology leader that develops and manufactures solutions for both the hydraulics and electronics markets, each of which serves as a reportable segment. Our Hydraulics segment consists ofWe were originally founded in 1970 as Sun Hydraulics FasterCorporation, which designed and Custom Fluidpower.manufactured cartridge valves for hydraulics systems. We changed the Company’s legal name on June 13, 2019, from Sun Hydraulics is a leading designer and manufacturer of high-performance screw-in hydraulic cartridge valves and manifolds, which control force, speed and motion as integral components in fluid power systems.  Faster is a leading global manufacturer of quick release hydraulic coupling solutions focused in the agriculture, construction equipment and industrial markets.  Custom Fluidpower is a global provider of hydraulic, pneumatic, electronic and instrumentation solutionsCorporation to a broad range of industries including agriculture, industrial, mining and material handling.  The Electronics segment, which consists of Enovation Controls, is a global provider of innovative electronic control, display and instrumentation solutions for both recreational and off-highway vehicles, as well as stationary and power generation equipment.  Helios Technologies, Inc.

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On August 6, 2018, we announced the adoptionJune 17, 2019, shares of Helios Technologies as our business name.  Sun Hydraulics, LLC (a newly-formed Florida limited liability company that holdsbegan trading on the historical net operating assets of the Sun Hydraulics brand entities and Custom Fluidpower), along with Enovation Controls and Faster are the three wholly-owned operating subsidiaries of Helios TechnologiesNasdaq under the new holding company name.  The changing of the holding company business name is a reflection of the tremendous growth the Company has accomplished over the last twenty-two months, including the addition of various operating companies under our umbrella. Shares of Helios Technologies continueticker symbol “HLIO”.

Strategic Vision

Our strategic goals are to trade on Nasdaq as SNHY.

Vision 2025

In 2016, we introduced our vision for the Company for the next decade.  We believe it is important to reach a critical mass ofachieve $1 billion in sales by 2025through a combination of organic growth and acquisitions, while remaining a technology leader and delivering superior profitability, with operating margins in excess of 20%. We are augmenting our strategy with value streams that will help us to execute our goals and potentially accelerate the industrial goods sector.  To achieve our goal, we are targeting organic salesachievement of our Hydraulics segment, including Fasterstrategic vision.

We believe the value streams will deliver growth, diversification and Custom Fluidpower,market leading financial performance as we develop into a more sophisticated, globally oriented, customer centric and learning organization. These are:

Our strategy is underpinned by the execution of approximately $730acquisitions, which we expect to include bolt-on flywheel type acquisitions (up to $100 million salesin enterprise value) and the evaluation of more transformative acquisitions ($100 million to $1 billion in enterprise value). The objective of our Electronics segment of approximately $200 million and acquisitions of approximately $70 million in revenue.  Through this growth, our decision-making process will consider our desireacquisition strategy is to maintain superior profitability and financial strength. While acquisitions remain an important componentenhance Helios by:

To support the execution of our long-term strategy, our near-term focusfinancial strategy is oriented on integratingdelivering industry leading margins, a strong balance sheet and sufficient financial flexibility to support organic and acquisitive growth.

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We align our recently acquired businessesinternal key performance indicators with our strategy to ensure our short-term actions will deliver long-term expectations.

We employ several tactics to execute our strategies, which include capitalizing on our unique and improving operating performance.deeply rooted values, structured human capital development and differentiated engineering for both products and processes.

ProductContinued product development is a key factor to organic and synergistic growth in both the Hydraulics and Electronics segments, including joint development between the two segments.

In the Hydraulics segment, we continue to invest in our most recent productFLeX series of electro-hydraulic cartridge valves for the mobile and industrial markets in both high and low pressure applications. We have already released over 25 new FLeX series valves and will have a significant number of additional introductions have been electro-hydraulics products:to the FLeX™ Series Solenoid ValvesFLeX family. These products allow us to compete in parts of the market where we could not before, including complete valve solutions. Investments in sustaining engineering and simulation development are delivering performance improvements of our existing valves by reducing manufacturing costs through improved first pass yield. In addition, the sophistication process of coupling solutions and the XMD Bluetooth-configurable electro-hydraulics driver.  XMD representselectrification of these products has now entered the firstsecond phase of its kind from Sun Hydraulicsdevelopment. We have identified new products to be developed and was jointly engineered by a team comprisedtested with selected customers with the goal of Hydraulicsreinforcing the technological advantage we have historically had and so that we can continue to expand in this market.

In the Electronics segment, personnel. We expectwe have launched our new line of ACE™-configurable MCx controllers. Built for market flexibility, the trendMCx controller series empowers original equipment manufacturers (“OEMs”) and distribution partners with a machine control hardware and software system solution that can be easily adapted to any application using our intuitive ACE configuration software or the widely used CODESYS platform. ACE software allows users to quickly build a solution using our patented drag-and-drop coding blocks and makes it easy to rapidly incorporate Sun Hydraulics’ components and Enovation Controls’ customizable displays into a project. MCx hardware and ACE software, combined with Sun's XMD drivers and FLeX Series directional valves, provide customers a complete solution for developmenta wide range of similar typeselectro-hydraulic control applications. Enovation Controls has also launched a complete family of productsedge-to-edge connected PowerView displays for existing recreational and off-highway customers. With new smaller, higher-resolution screen sizes to continue as capital goods markets move toward further electrification and digitalizationfit the needs of machines.  customers, this new platform has brought us significant new customer wins.

Acquisitions of companies that advance

Our acquisition activity, driven by our technology capabilities will be criticalstrategic vision, has enabled us to achievingdiversify our Vision 2025.  Target product offerings include additional CVT, CVT-adjacent hydraulic products, electronic controls and implementation,the markets we serve and linked technologies such as electro-mechanical actuators, factory automation, software or products relevantexpand our geographic presence. Prior to 2016, we operated primarily in the Internet of Things. Cultivating relationshipsHydraulics market with potential acquisition targets can often be a lengthy process, but we believe it is key to creating successfulsmall presence in electronics. Since our acquisitions with sustainable business results.  We have an established list of potential targets at any given time and entertain reviewing other opportunities for acquisition as they become known to us.

Acquisitions

The December 2016 acquisition of Enovation Controls was a significant step toward realizing our vision.  Enovation Controls improvesin 2016 and expands our technology offering, allows us to developFaster and market integrated solutions of electronics and hydraulics, and, most importantly, advances our electrification and digitization initiatives across our product portfolio.  The acquisition brought the Company new end markets, diversification of our technology platform, and provided entry into highly sophisticated, specialized markets.  Enovation Controls provides us with a large team of approximately 100 electrical, mechanical and software engineers with a track record of new product development and technical innovation. In addition, the sales team has developed strong customer relationships from which market insight can be drawn.  

In AprilCustom Fluidpower in 2018, we completedhave entered into several new markets, including, marine, power generation, recreational vehicles and mining. We have also expanded our acquisition of Faster, an Italian company headquartered near Milan, Italy.  Faster is a worldwide leaderpresence in engineering, manufacturing, marketingthe agricultural, construction equipment, general industrial and distribution ofmaterial handling end markets. Our product and service portfolio has grown significantly to include quick release hydraulic coupling solutions. The completion of this acquisition brings us another step closer to the realization of our Vision 2025. Faster fits this strategy well and upholds a strongly innovative culture, driving new product development and market leadership. Faster further diversifies the Company more deeply into the global agriculture market. The business also broadens our global footprint, advancing our “in the region, for the region” initiative.

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On August 1, 2018, we completed our acquisition of Custom Fluidpower, a leading provider of hydraulic, pneumatic, electronic and instrumentation solutions. The company supplies hydraulic, pneumatic, filtration and lubrication products and offers solutions, complete system design, installation and commissioning, andhydraulic system service and repairs, to a broad rangetraditional mechanical and electronic gauge instrumentation, plug and go CAN-based instruments, robust environmentally sealed controllers, engineered panels and application specialists, process monitoring instrumentation, proprietary hardware and software development, printed circuit board assembly and wiring harness design and manufacturing.

In November 2020 we acquired Balboa Water Group further diversifying the markets we serve and expanding our technological capabilities in electronics. Balboa is an innovative market leader of industries including agriculture, aerospace, exploration, industrial, marine, mobile, miningelectronic controls for the health and material handling.wellness industry with proprietary and patented technology that enables end-to-end electronic control systems for therapy baths and spas. Headquartered in Newcastle, NSW, Australia, Custom FluidpowerCosta Mesa, California, Balboa’s manufacturing operations are located in Mexico, with sales and warehouse operations in Denmark. This acquisition expanded our electronic control technology with complementary AC (alternating current) capabilities and enabled further diversification of end markets.

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The COVID-19 pandemic has operational branches co-located with its headquarters as well as throughout Australia.  Custom Fluidpower further diversifies our hydraulics product and service portfolio and provides regional value-add capabilities to continue successful penetration of the APAC region and particularly Southeast Asia.

2017 Restructure

On December 29, 2017, we merged the operations of two of our wholly owned subsidiaries in our Electronics segment, High Country Tek (“HCT”) and Enovation Controls. Enovation Controls was the surviving legal entitycaused, and continues to sell HCT products undercause, significant economic disruption globally, and substantial uncertainty exists regarding the HCT™ brand. HCT historically operated from its facility in Nevada City, California. The HCT operations were relocated to Enovation Controls’ Tulsa manufacturing facility. Costsmagnitude and duration of the restructuring totaled $1.4 millionpandemic and its economic impact. Broad measures taken by governments, businesses and others to limit the spread of the virus are adversely affecting the Company and its customers.

Our primary manufacturing locations are currently fully operational but were impacted throughout the year to differing degrees by various COVID-19 related factors such as:

Employees continue to severance costs. These costswork from home when necessary, and we have taken significant measures to ensure the health and safety of those working at our facilities.

As of the date of this filing, pandemic related disruptions to our business are includedminimal. Our outlook for the 2021 fiscal year assumes the global economy continues to recover, however we cannot at this time predict any future impacts. Refer to Item 1A Risk Factors of this Annual Report for additional COVID-19 related discussion.   

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Brexit

In January 2020, the UK exited the EU. During the transition period, which ended on December 31, 2020, existing arrangements between the UK and the EU remained in place while the costUK and the EU negotiated a free trade agreement that was entered into on December 24, 2020 and went into effect on January 1, 2021. The Company continues to monitor the situation and plan for potential impact. We have considered the following factors that mitigate the potential impact of salesBrexit on the import and restructuring charges line items inexport of goods to and from the Consolidated StatementsUK:

The ultimate impact of Operations for 2017.Brexit on the Company’s financial results is uncertain. However, based on the above noted mitigating factors, we do not expect the effects of Brexit to have a material impact on our results of operations or financial position.

Industry Conditions

Market demand for our products is dependent on demand for the industrial goods in which the products are incorporated.  The capital goods industries in general, and the Hydraulics and Electronics segments specifically, are subject to economic cycles.  According to the National Fluid Power Association (the fluid power industry’s trade association in the United States), the United States index of shipments of hydraulic products increased 13% in 2018, after increasing 11% in 2017 and decreasing 9% in 2016. The Institute of Printed Circuits Association reports that slowing growth continues for North American electronics business while leading indicators are mixed. Sales growth for printed circuit boards (PCB) and semiconductors has slowed while sales growth remains flat for electronics manufacturing services (EMS). Indicators suggest the likelihood of continued sales growth in the electronics industry into the first quarter of 2019. 

We utilize industry trend reports from various sources, as well as feedback from customers and distributors, to evaluate economic trends.  We also rely on global government statistics such as Gross Domestic Product and Purchasing Managers Index to understand higher level economic conditions.

2018Hydraulics

According to the National Fluid Power Association (the fluid power industry’s trade association in the U.S.), the U.S. index of shipments of hydraulic products decreased 17% in 2020, after decreasing 7% in 2019 and increasing 13% in 2018. In Europe, the CEMA Business Barometer reports that in February 2021, the business climate index for the European agricultural machinery industry has risen to a clear boom level after having reached the positive range in October for the first times since mid-2019. The CECE (Committee for European Construction Equipment) business climate index continued its recovery in November as future business expectations reached pre-pandemic levels and the climate index hit the neutral line for the first time since March 2020.

Electronics

The Federal Reserve’s Industrial Production Index, which measures the real output of all relevant establishments located in the U.S., reports sales of semiconductors and other electronics components improved during the fourth quarter of 2020, exceeding fourth quarter 2019 levels. The Institute of Printed Circuits Association reported that total North American printed circuit board shipments in December 2020 increased 4.5% compared with the same month last year; compared with November 2020, December shipments grew 9.8%. In our Electronics segment, we experienced declining sales in excess of the overall market, due to softer demand in recreational and oil and gas end markets as well as a strategic change we made to our customer base during 2019. In addition, several of our large OEM customers had requested to adjust the timing of order request dates into later quarters. For additional information, refer to the discussion of 2020 results of our Electronics segment below.

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2020 Results and Comparison of Years Ended December 29, 2018January 2, 2021 and December 30, 201728, 2019

Faster and Custom Fluidpower were acquired on April 5, 2018 and August 1, 2018, respectively. OurThe following table sets forth our consolidated operating results for the year ended December 29, 2018 include the results of these Companies subsequent to their respective acquisition dates. For comparability we have presented results for Sun, Faster and Custom Fluidpower separately, in the Hydraulics segment results section.

operations:

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Consolidated net sales for the 20182020 year improved to $508.0totaled $523.0 million, 48.2%, over the prior year,down 5.7% compared with 2019. The Company’s acquisition of which $106.5Balboa on November 6, 2020 added $26.1 million 31.1%, was contributed by Faster, $20.3 million, 5.9%, was contributed by Custom Fluidpower, and $38.4 million, 11.2%, was a result of organic growth. Demand for our products remained strong and we continue to see sales growth in most of our geographic regions and end markets. Price increases positively impacted sales for the year by $2.1 million.year. Changes in foreign currency exchange rates favorably impacted sales by $2.0 million for the year. A large portion of the decline in sales and earnings per share (“EPS”) of our historical businesses during the current year by $3.1 million and $0.01, respectively, when compared with 2019 is attributed to the prior year. Compared with foreign currency exchange rates in effect ateffects of the respective acquisition dates, changes in exchange rates had an unfavorableCOVID-19 pandemic on our business, customers and end markets. During the month of April, we experienced a considerable impact on sales due to facility closures, customer shut-downs and regulatory restrictions imposed on shipments. Our production capabilities recovered throughout the second quarter, with the third quarter returning to more typical levels while order intake remained soft throughout the year. Towards the end of the year, we began to experience some recovery, with fourth quarter sales of our acquiredlegacy businesses exceeding second and third quarter levels driven primarily by demand in the European agriculture market and the U.S. recreational marine market.

From a geographic perspective, excluding the acquisition and foreign currency impacts, our sales to the Americas and EMEA regions were impacted significantly during the period subsequent to acquisition by $5.2 million,year, declining 20.4% and unfavorably impacted EPS for9.1% over 2019, respectively. Increased demand and our recent expansion efforts in the year by $0.02.APAC region drove sales growth of 4.6% over 2019.

Gross profit margin declined 1.90.8 percentage points during 20182020 from 39.8%38.3% to 37.9%37.5%. The addition of Faster and Custom Fluidpower impacted consolidated gross profit margin for the period. Additional detail of this impact is presented in the Hydraulics segment results section. Gross margin for the 2018 year was further affected by $4.4 million of amortization of acquisition relatedacquisition-related inventory step up costs resulting from the Balboa acquisition of $1.9 million accounted for 0.4 percentage points of the decline.

Throughout the year, we implemented multiple cost saving measures to mitigate the effects of the downturn, including decreased use of consultants and contractors, adjustments to our fixed cost labor base by implementing salary reductions, furloughs and layoffs, and reduced travel and other discretionary spending. Our cost saving measures have been partially offset as we have incurred costs related to the purchase of safety equipment, personal protective equipment and higher cleaning costs to ensure our employees’ safety during the pandemic.

During the first quarter of 2020, current and expected economic impacts from the COVID-19 pandemic led to an impairment charge of $31.9 million of goodwill at our Faster and Custom Fluidpower acquisitions. The gross profit marginreporting unit. Current year profitability was further impacted by non-recurring costs of $2.6 million related to the transition of two of our legacy businesses improved 0.6 percentage points to 40.4% during the 2018 year driven by increased sales volume, price increasesofficers, including our former Chief Executive Officer and a reduction$6.6 million of operational inefficiencies that were realized in the fourth quarter of the prior year.

Operating income margin fell 3.0 percentage points compared to the prior year, primarily due to the inventory step-up amortization referred to above, an increase of $14.8 million in acquisition related amortization of intangible assets and $5.5 million in transaction costs for the Faster and Custom Fluidpower acquisitions.  

Net income and EPS were negatively impacted by the change in fair valueour acquisition of contingent consideration liabilities incurred in connection with the Enovation Controls and Faster acquisitionsBalboa. Amortization on Balboa intangible assets totaled $4.0 million during 2018 totaling $1.2 million and $0.04, net of tax, respectively. In the prior year the negative impact2020. As a result of these items on sales and EPS, net of tax, totaled $6.1 million and $0.22, respectively.  

2019 Outlook

Consolidated revenueimpacts, operating margin for the full year 2019 is expecteddeclined to be between $590 million and $600 million, with the Hydraulics segment contributing between $464 million and $469 million and the Electronics segment contributing between $126 million and $131 million. Consolidated U.S. GAAP EPS is expected to be $2.10 to $2.20 for the full year 2019. Consolidated non-GAAP cash EPS, which excludes amortization expense and certain one-time costs, is expected to be between $2.55 and $2.65. The full year adjusted EBITDA margin, prior to certain one-time costs, is anticipated to be 24.5% to 25.5%6.8%.

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Segment Results

Hydraulics

The Hydraulics segment provides the global capital goods industries with hydraulic components and systems used to transmit power and control force, speed and motion.  On a component level, Sun Hydraulics designs and manufactures screw-in hydraulic cartridge valves, manifolds, and integrated fluid power packages and subsystems used in hydraulic systems. The Hydraulics segment includes the results of Faster and Custom Fluidpower subsequent to their acquisitions on April 5, 2018 and August 1, 2018, respectively. On a component level, Faster designs and manufactures quick release couplings, multi connections and casting solutions for all hydraulics applications at medium, high and extremely high pressures. Custom Fluidpower is a supplier of hydraulics, pneumatic, filtration and lubrication products and offers complete system design, installation and commissioning, and service and repairs. The following table sets forth the results of operations for the Hydraulics segment (in millions):

Sun, Faster and Custom Fluidpower results are as follows (in millions):

Net sales for the Hydraulics segment totaled $381.8$407.2 million in 2018,2020, representing growtha contraction of $151.1$35.6 million, 65.5%8.0%, over the prior year. FasterChanges in foreign currency exchange rates favorably impacted sales for the year by $2.0 million. Disruptions caused by the pandemic, including our facility closures and Custom Fluidpower contributed $106.5 million and $20.3 millionregulatory restrictions on shipments experienced during the year respectively. Sun Hydraulics net sales increased $24.3 million overfirst and second quarters, as well as ongoing reduced end market demand and related impacts to our customers, led to the prior year. Sun’s growth was driven by increased demand in all geographic markets with the strongest growth occurring in the Asia/Pacific region.  While demand has remained strong, supply chain and capacity constraints have limited growth in shipments, increasing Sun’s backlog. Sun’s ability to grow at an even further accelerated pace was affected by the Sarasota manufacturing consolidation project. The project involves relocating Sun’s U.S. manufacturing operations into 2 adjacent facilities in Sarasota, implementing lean manufacturing and streamlining the production process. The third facility will be utilized as an expanded state-of-the-art testing center for our engineering teams. Production capacity is expected to improve at least 15% throughout 2019. The manufacturing consolidation project is expected to be complete at the end of the first quarter of 2019.

Sun implemented price increases during the third quarter of 2018, which partially offset material cost increases and resulted in an estimated $2.1 million increase indiminished sales during the year.

Changes in exchange rates had a favorable impact on Sun’s sales totaling $2.6 million, compared to the prior year. Since the acquisition of Faster in April 2018, the euro declined in value to the U.S. dollar resulting in an unfavorable impact on Faster sales of $4.6 million during the period. Since the acquisition of Custom Fluidpower in August of 2018, the Australian dollar declined in value to the U.S. dollar resulting in an unfavorable impact on Custom Fluidpower sales of $0.6 million during the period.

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The following table presents net sales based on the geographic region of the sale for the Hydraulics segment (in millions):