UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~October~~April 2, ~~2021~~2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 0-21835

HELIOS TECHNOLOGIES, INC.

(Exact Name of Registration as Specified in its Charter)


Florida		59-2754337
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

7456 16th St E SARASOTA, Florida		34243
(Address of Principal Executive Offices)		(Zip Code)

(941)362-1200

(Registrant’s Telephone Number, Including Area Code)

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

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

Common Stock $.001 Par Value

HLIO

The New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

The registrant had ~~32,401,071~~32,485,571 shares of common stock, par value $.001, outstanding as of ~~October~~April 29, ~~2021.~~2022.

Helios Technologies, Inc.

INDEX

For the quarter ended

~~October~~April 2, ~~2021~~2022


			Page

PART I. FINANCIAL INFORMATION			3

	Item 1.	Financial Statements	3

	Consolidated Balance Sheets as of ~~October~~April 2, ~~2021~~2022 (unaudited) and January ~~2, 2021~~1, 2022		3

	Consolidated Statements of Operations for the Three Months Ended ~~October~~April 2, ~~2021~~2022 (unaudited) and ~~September 26, 2020~~April 3, 2021 (unaudited)		4

	Consolidated Statements of ~~Operations~~Comprehensive Income for the ~~Nine~~Three Months Ended ~~October~~ April 2, ~~2021~~2022 (unaudited) and ~~September 26, 2020~~April 3, 2021 (unaudited)		5

	Consolidated Statements of ~~Comprehensive Income~~Shareholders’ Equity for the Three ~~andNine~~ Months Ended ~~October~~ April 2, ~~2021~~2022 (unaudited) and ~~September 26, 2020~~April 3, 2021 (unaudited)		6

	Consolidated Statements of ~~Shareholders’ Equity~~Cash Flows for the Three Months Ended ~~October~~April 2, ~~2021~~2022 (unaudited) and ~~September 26, 2020~~April 3, 2021 (unaudited)		7

	~~Consolidated Statements of Shareholders’ Equity for the Nine Months Ended October 2, 2021 (unaudited) and September 26, 2020 (unaudited)~~		8

	~~Consolidated Statements of Cash Flows for the Nine Months Ended October 2, 2021 (unaudited) and September 26, 2020 (unaudited)~~		9

	Condensed Notes to the Consolidated, Unaudited Financial Statements		108

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2320

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3428

	Item 4.	Controls and Procedures	3428

PART II. OTHER INFORMATION			3529

	Item 1.	Legal Proceedings	3529

	Item 1A.	Risk Factors	3529

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3529

	Item 3.	Defaults Upon Senior Securities	3529

	Item 4.	Mine Safety Disclosures	3529

	Item 5.	Other Information	3529

	Item 6.	Exhibits	3630

PART I: FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS.

Helios Technologies, Inc.

Consolidated Balance Sheets

(in thousands, except per share data)


	October 2, 2021			January 2, 2021			April 2, 2022			January 1, 2022
	(unaudited)						(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	47,687		$	25,216		$	33,019		$	28,540
Restricted cash		41			41			39			41
Accounts receivable, net of allowance for credit losses of $1,333 and $1,493		136,812			97,623
Accounts receivable, net of allowance for credit losses of $1,119 and $1,212								151,350			134,561
Inventories, net		148,186			110,372			180,290			165,629
Income taxes receivable		3,892			1,103			1,796			2,762
Other current assets		20,130			19,664			21,871			20,101
Total current assets		356,748			254,019			388,365			351,634
Property, plant and equipment, net		165,778			163,177			170,411			174,210
Deferred income taxes		3,537			6,645			4,183			2,934
Goodwill		463,034			443,533			452,654			459,936
Other intangible assets, net		416,913			419,375			399,946			412,759
Other assets		11,982			10,230			19,322			13,873
Total assets	$	1,417,992		$	1,296,979		$	1,434,881		$	1,415,346
Liabilities and shareholders' equity
Current liabilities:
Accounts payable	$	73,927		$	59,477		$	89,117		$	85,301
Accrued compensation and benefits		26,370			22,985			18,636			28,595
Other accrued expenses and current liabilities		28,586			24,941			29,863			28,254
Current portion of long-term non-revolving debt, net		15,368			16,229			18,141			18,125
Dividends payable		2,916			2,891			2,924			2,917
Income taxes payable		10,733			1,489			14,362			6,328
Total current liabilities		157,900			128,012			173,043			169,520
Revolving line of credit		276,326			255,909			238,932			242,312
Long-term non-revolving debt, net		178,534			189,932			179,864			183,897
Deferred income taxes		78,026			78,864			70,144			71,836
Other noncurrent liabilities		38,760			36,472			37,262			38,818
Total liabilities		729,546			689,189			699,245			706,383
Commitments and contingencies		—			—			—			—
Shareholders' equity:
Preferred stock, par value $0.001, 2,000 shares authorized, 0 shares issued or outstanding		—			—			—			—
Common stock, par value $0.001, 100,000 shares authorized, 32,400 and 32,121 shares issued and outstanding		32			32
Common stock, par value $0.001, 100,000 shares authorized, 32,478 and 32,407 shares issued and outstanding								32			32
Capital in excess of par value		391,461			371,778			395,873			394,641
Retained earnings		342,643			270,320			390,831			363,279
Accumulated other comprehensive loss		(45,690	)		(34,340	)		(51,100	)		(48,989	)
Total shareholders' equity		688,446			607,790			735,636			708,963
Total liabilities and shareholders' equity	$	1,417,992		$	1,296,979		$	1,434,881		$	1,415,346

The accompanying Condensed Notes to the Consolidated, Unaudited Financial Statements are an integral part of these financial statements.

Helios Technologies, Inc.

Consolidated Statements of Operations

(in thousands, except per share data)


	Three Months Ended						Three Months Ended
	October 2, 2021			September 26, 2020			April 2, 2022			April 3, 2021
	(unaudited)			(unaudited)			(unaudited)			(unaudited)
Net sales	$	223,241		$	122,645		$	240,547		$	204,844
Cost of sales		142,299			75,702			156,904			129,477
Gross profit		80,942			46,943			83,643			75,367
Selling, engineering and administrative expenses		32,786			24,042			33,776			30,561
Amortization of intangible assets		7,407			4,558			6,980			10,198
Operating income		40,749			18,343			42,887			34,608
Interest expense, net		3,813			2,730			3,809			4,751
Foreign currency transaction loss (gain), net		304			(727	)
Other non-operating income, net		(616	)		(22	)
Foreign currency transaction (gain) loss, net								(924	)		464
Other non-operating expense (income), net								750			(1	)
Income before income taxes		37,248			16,362			39,252			29,394
Income tax provision		9,488			3,380			8,774			6,807
Net income	$	27,760		$	12,982		$	30,478		$	22,587
Basic and diluted net income per common share	$	0.86		$	0.40
Basic and diluted weighted average shares outstanding		32,385			32,095

Net income per share:
Basic							$	0.94		$	0.70
Diluted							$	0.94		$	0.70

Weighted average shares outstanding:
Basic								32,439			32,193
Diluted								32,565			32,345

Dividends declared per share	$	0.09		$	0.09		$	0.09		$	0.09

The accompanying Condensed Notes to the Consolidated, Unaudited Financial Statements are an integral part of these financial statements.

Helios Technologies, Inc.

Consolidated Statements of ~~Operations~~Comprehensive Income

(in ~~thousands, except per share data)~~thousands)

Nine Months Ended

October 2, 2021

September 26, 2020

(unaudited)

(unaudited)

Net sales

$
651,499

$
371,422

Cost of sales

413,036

227,910

Gross profit

238,463

143,512

Selling, engineering and administrative expenses

95,757

73,306

Amortization of intangible assets

25,285

13,323

Goodwill impairment

—

31,871

Operating income

117,421

25,012

Interest expense, net

12,965

8,572

Foreign currency transaction loss (gain), net

1,271

(319
)
Other non-operating income, net

(727
)

(132
)
Income before income taxes

103,912

16,891

Income tax provision

22,870

8,224

Net income

$
81,042

$
8,667

Basic and diluted net income per common share

$
2.51

$
0.27

Basic and diluted weighted average shares outstanding

32,272

32,079

Dividends declared per share

$
0.27

$
0.27


	Three Months Ended
	April 2, 2022			April 3, 2021
	(unaudited)			(unaudited)
Net income	$	30,478		$	22,587
Other comprehensive loss
Foreign currency translation adjustments, net of tax		(7,735	)		(9,118	)
Unrealized gain on interest rate swap, net of tax		5,624			1,705
Total other comprehensive loss		(2,111	)		(7,413	)
Comprehensive income	$	28,367		$	15,174

The accompanying Condensed Notes to the Consolidated, Unaudited Financial Statements are an integral part of these financial statements.

Helios Technologies, Inc.

Consolidated Statements of ~~Comprehensive Income~~Shareholders’ Equity (unaudited)

Three Months Ended

(in thousands)

Three Months Ended

Nine Months Ended

October 2, 2021

September 26, 2020

October 2, 2021

September 26, 2020

(unaudited)

(unaudited)

(unaudited)

(unaudited)

Net income

$
27,760

$
12,982

$
81,042

$
8,667

Other comprehensive (loss) income

Foreign currency translation adjustments, net of tax

(7,528
)

8,575

(14,215
)

7,237

Unrealized gain (loss) on interest rate swap, net of tax

623

716

2,865

(1,259
)
Total other comprehensive (loss) income

(6,905
)

9,291

(11,350
)

5,978

Comprehensive income

$
20,855

$
22,273

$
69,692

$
14,645


																Accumulated
										Capital in						other
	Preferred		Preferred		Common			Common		excess of			Retained			comprehensive
	shares		stock		shares			stock		par value			earnings			loss			Total

Balance at January 1, 2022		0	$	0		32,407		$	32	$	394,641		$	363,279		$	(48,989	)	$	708,963
Shares issued, restricted stock						64					70									70
Shares issued, ESPP						7					530									530
Stock-based compensation											2,494									2,494
Cancellation of shares for payment of employee tax withholding											(1,862	)								(1,862	)
Dividends declared														(2,926	)					(2,926	)
Net income														30,478						30,478
Other comprehensive loss																	(2,111	)		(2,111	)
Balance at April 2, 2022		0	$	0		32,478		$	32	$	395,873		$	390,831		$	(51,100	)	$	735,636

Balance at January 2, 2021		0	$	0		32,120		$	32	$	371,778		$	270,320		$	(34,340	)	$	607,790
Shares issued, restricted stock						30														0
Shares issued, other compensation						7														0
Shares issued, ESPP						10					333									333
Shares issued, acquisition						63					3,624									3,624
Stock-based compensation											2,107									2,107
Cancellation of shares for payment of employee tax withholding						(4	)				(848	)								(848	)
Dividends declared														(2,900	)					(2,900	)
Net income														22,587						22,587
Other comprehensive loss																	(7,413	)		(7,413	)
Balance at April 3, 2021		0	$	0		32,226		$	32	$	376,994		$	290,007		$	(41,753	)	$	625,280

The accompanying Condensed Notes to the Consolidated, Unaudited Financial Statements are an integral part of these financial statements.

Helios Technologies, Inc.

Consolidated Statements of ~~Shareholders’ Equity (unaudited)~~

~~Three Months Ended~~Cash Flows

(in thousands)

Accumulated

Capital in

other

Preferred

Preferred

Common

Common

excess of

Retained

comprehensive

shares

stock

shares

stock

par value

earnings

loss

Total

Balance at July 3, 2021

—

$
—

32,249

$
32

$
379,299

$
317,799

$
(38,785
)

$
658,345

Shares issued, restricted stock

12

18

18

Shares issued, other compensation

5

—

Shares issued, ESPP

7

522

522

Shares issued, acquisition

134

10,390

10,390

Stock-based compensation

2,050

2,050

Cancellation of shares for payment of employee tax withholding

(235
)

(235
)
Shares repurchased

(7
)

(583
)

(583
)
Dividends declared

(2,916
)

(2,916
)
Net income

27,760

27,760

Other comprehensive loss

(6,905
)

(6,905
)
Balance at October 2, 2021

—

$
—

32,400

$
32

$
391,461

$
342,643

$
(45,690
)

$
688,446

Balance at June 27, 2020

—

$
—

32,081

$
32

$
367,841

$
257,568

$
(58,677
)

$
566,764

Shares issued, restricted stock

(3
)

—

Shares issued, other compensation

7

—

Shares issued, ESPP

12

304

304

Stock-based compensation

1,383

1,383

Cancellation of shares for payment of employee tax withholding

(1
)

(18
)

(18
)
Dividends declared

(2,890
)

(2,890
)
Net income

12,982

12,982

Other comprehensive income

9,291

9,291

Balance at September 26, 2020

—

$
—

32,096

$
32

$
369,510

$
267,660

$
(49,386
)

$
587,816


	Three Months Ended
	April 2, 2022			April 3, 2021
	(unaudited)			(unaudited)
Cash flows from operating activities:
Net income	$	30,478		$	22,587
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		12,554			15,237
Stock-based compensation expense		2,494			2,107
Amortization of debt issuance costs		125			125
Benefit for deferred income taxes		(1,082	)		(906	)
Forward contract gains, net		(1,577	)		(2,402	)
Other, net		696			32
(Increase) decrease in:
Accounts receivable		(17,418	)		(28,051	)
Inventories		(15,471	)		(10,809	)
Income taxes receivable		938			565
Other current assets		(2,403	)		(2,614	)
Other assets		2,202			2,139
Increase (decrease) in:
Accounts payable		4,136			13,912
Accrued expenses and other liabilities		(8,053	)		(2,147	)
Income taxes payable		8,177			6,126
Other noncurrent liabilities		(1,108	)		(819	)
Net cash provided by operating activities		14,688			15,082
Cash flows from investing activities:
Acquisition of a business, net of cash acquired		1,271			(1,000	)
Amounts paid for net assets acquired		0			(2,400	)
Capital expenditures		(5,630	)		(5,036	)
Proceeds from dispositions of equipment		1,837			35
Cash settlement of forward contracts		707			1,544
Software development costs		(874	)		(623	)
Net cash used in investing activities		(2,689	)		(7,480	)
Cash flows from financing activities:
Borrowings on revolving credit facilities		23,548			6,602
Repayment of borrowings on revolving credit facilities		(23,605	)		(8,500	)
Repayment of borrowings on long-term non-revolving debt		(4,201	)		(4,029	)
Proceeds from stock issued		600			333
Dividends to shareholders		(2,917	)		(2,891	)
Other financing activities		(2,259	)		(974	)
Net cash used in financing activities		(8,834	)		(9,459	)
Effect of exchange rate changes on cash, cash equivalents and restricted cash		1,312			2,565
Net increase in cash, cash equivalents and restricted cash		4,477			708
Cash, cash equivalents and restricted cash, beginning of period		28,581			25,257
Cash, cash equivalents and restricted cash, end of period	$	33,058		$	25,965

The accompanying Condensed Notes to the Consolidated, Unaudited Financial Statements are an integral part of these financial statements.

~~Helios Technologies, Inc.~~

~~Consolidated Statements of Shareholders’ Equity (unaudited)~~

~~Nine Months Ended~~

~~(in thousands)~~

Accumulated

��

Capital in

other

Preferred

Preferred

Common

Common

excess of

Retained

comprehensive

shares

stock

shares

stock

par value

earnings

loss

Total

Balance at January 2, 2021

—

$
—

32,120

$
32

$
371,778

$
270,320

$
(34,340
)

$
607,790

Shares issued, restricted stock

43

36

36

Shares issued, other compensation

19

—

Shares issued, ESPP

32

1,318

1,318

Shares issued, acquisition

197

14,014

14,014

Stock-based compensation

6,233

6,233

Cancellation of shares for payment of employee tax withholding

(4
)

(1,335
)

(1,335
)
Shares repurchased

(7
)

(583
)

(583
)
Dividends declared

(8,719
)

(8,719
)
Net income

81,042

81,042

Other comprehensive loss

(11,350
)

(11,350
)
Balance at October 2, 2021

—

$
—

32,400

$
32

$
391,461

$
342,643

$
(45,690
)

$
688,446

Balance at December 28, 2019

—

$
—

32,047

$
32

$
365,310

$
267,658

$
(55,364
)

$
577,636

Shares issued, restricted stock

12

—

Shares issued, other compensation

12

—

Shares issued, ESPP

35

1,027

1,027

Shares issued, discretionary contribution

1

45

45

Stock-based compensation

3,830

3,830

Cancellation of shares for payment of employee tax withholding

(11
)

(702
)

(702
)
Dividends declared

(8,665
)

(8,665
)
Net income

8,667

8,667

Other comprehensive income

5,978

5,978

Balance at September 26, 2020

—

$
—

32,096

$
32

$
369,510

$
267,660

$
(49,386
)

$
587,816

~~The accompanying Condensed Notes to the Consolidated, Unaudited Financial Statements are an integral part of these financial statements.~~

~~Helios Technologies, Inc.~~

~~Consolidated Statements of Cash Flows~~

~~(in thousands)~~

Nine Months Ended

October 2, 2021

September 26, 2020

(unaudited)

(unaudited)

Cash flows from operating activities:

Net income

$
81,042

$
8,667

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

41,131

25,805

Goodwill impairment

—

31,871

Stock-based compensation expense

6,233

3,830

Amortization of debt issuance costs

374

537

Provision (benefit) for deferred income taxes

2,230

(2,937
)
Forward contract (gains) / losses, net

(3,401
)

2,513

Other, net

(135
)

1,287

(Increase) decrease in:

Accounts receivable

(36,634
)

(4,685
)
Inventories

(35,759
)

7,776

Income taxes receivable

(1,893
)

(2,874
)
Other current assets

(288
)

(1,382
)
Other assets

3,989

2,613

Increase (decrease) in:

Accounts payable

11,945

1,387

Accrued expenses and other liabilities

8,079

955

Income taxes payable

9,599

3,548

Other noncurrent liabilities

(4,527
)

(1,884
)
Net cash provided by operating activities

81,985

77,027

Cash flows from investing activities:

Acquisition of a business, net of cash acquired

(48,481
)

—

Amounts paid for net assets acquired

(2,400
)

—

Capital expenditures

(17,054
)

(7,155
)
Proceeds from dispositions of equipment

82

103

Cash settlement of forward contracts

1,433

(1,742
)
Software development costs

(1,785
)

(227
)
Net cash used in investing activities

(68,205
)

(9,021
)
Cash flows from financing activities:

Borrowings on revolving credit facilities

71,198

11,000

Repayment of borrowings on revolving credit facilities

(44,500
)

(55,609
)
Borrowings on long-term non-revolving debt

—

5,812

Repayment of borrowings on long-term non-revolving debt

(12,178
)

(5,905
)
Proceeds from stock issued

1,353

1,027

Dividends to shareholders

(8,694
)

(8,660
)
Other financing activities

(2,851
)

(1,937
)
Net cash provided by (used in) financing activities

4,328

(54,272
)
Effect of exchange rate changes on cash, cash equivalents and restricted cash

4,363

(3,414
)
Net increase in cash, cash equivalents and restricted cash

22,471

10,320

Cash, cash equivalents and restricted cash, beginning of period

25,257

22,162

Cash, cash equivalents and restricted cash, end of period

$
47,728

$
32,482

~~The accompanying Condensed Notes to the Consolidated, Unaudited Financial Statements are an integral part of these financial statements.~~

HELIOS TECHNOLOGIES, INC.

CONDENSED NOTES TO THE CONSOLIDATED, UNAUDITED FINANCIAL STATEMENTS

(Currencies in thousands, except per share data)

1. COMPANY BACKGROUND

Helios Technologies, Inc. (“Helios,” or the “Company”) together with its wholly owned subsidiaries, is a global leader in highly engineered motion control and electronic controls technology for diverse end markets, including construction, material handling, agriculture, energy, recreational vehicles, marine and health and wellness. Helios sells its products to customers in over 90 countries around the world. The Company’s strategy for growth is to be the leading provider in niche markets, with premier products and solutions through innovative product development and acquisitions.

The Company operates in 2 business segments: Hydraulics and Electronics. There are three key technologies within the Hydraulics segment: cartridge valve technology (“CVT”), quick-release hydraulic coupling solutions (“QRC”) and hydraulic system design (“Systems”). CVT products provide functions important to a hydraulic system: to control rates and direction of fluid flow and to regulate and control pressures. QRC products allow users to connect and disconnect quickly from any hydraulic circuit without leakage and ensure high-performance under high temperature and pressure using one or multiple couplers. Systems provide engineered solutions for machine users, manufacturers or designers to fulfill complete system design requirements including electro-hydraulic, remote control, electronic control and programmable logic controller systems, as well as automation of existing equipment. The Electronics segment provides complete, fully-tailored display and control solutions for engines, engine-driven equipment, specialty vehicles, ~~and~~ therapy baths and traditional and swim spas. This broad range of products is complemented by extensive application expertise and unparalleled depth of software, embedded programming, hardware and sustaining engineering teams. ~~This technology is referred to as Electronic Controls (“EC”).~~

On ~~November 6, 2020~~, the Company completed the acquisition of BWG Holdings I Corp. (hereinafter referred to as “Balboa Water Group” or “Balboa”), an innovative market leader of electronic controls for the health and wellness industry. The results of Balboa’s operations are reported in the Company’s Electronics segment and have been included in the Consolidated Financial Statements since the acquisition date.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited interim consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission for reporting on Form 10-Q. Accordingly, certain information and footnotes required by accounting principles generally accepted in the United States of America (“U.S. GAAP”) for complete financial statements are not included herein. The financial statements are prepared on a consistent basis (including normal recurring adjustments) and should be read in conjunction with the consolidated financial statements and related notes contained in the Annual Report on Form 10-K for the fiscal year ended January ~~2, 2021~~1, 2022 (“Form 10-K”), filed by Helios with the Securities and Exchange Commission on March ~~2, 2021.~~1, 2022. In management’s opinion, all adjustments necessary for a fair presentation of the Company’s financial statements are reflected in the interim periods presented.

The Company faces various risks related to health epidemics, pandemics and similar outbreaks, including the global outbreak of COVID-19. The current COVID-19 pandemic has had an impact on markets the Company serves and its operations. The Company cannot at this time predict the future impact of the COVID-19 pandemic on its business or economic conditions as a whole, but it could have a material adverse effect on the business, financial position, results of operations and/or cash flows. Operating results for the ~~nine~~three months ended ~~October~~April 2, ~~2021~~2022 are not necessarily indicative of the results that may be expected for the fiscal year ended ~~January 1,~~December 31, 2022.

10Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

~~Contract Assets and Liabilities~~

~~Contract assets are recognized when the Company has a conditional right to consideration for performance completed on contracts. Contract asset balances totaled $2,155~~ ~~and $2,776~~ at October 2, 2021 and January 2, 2021, respectively, and are presented in Other current assets in the Consolidated Balance Sheets. Accounts receivable balances represent unconditional rights to consideration from customers and are presented separate from contract assets in the Consolidated Balance Sheets.

~~Contract liabilities are recognized when payment is received from customers prior to satisfying the underlying performance obligation. Contract liabilities totaled $4,357~~ ~~and $4,208~~ ~~at October 2, 2021 and January 2, 2021, respectively, and are presented in Other accrued expenses and current liabilities in the Consolidated Balance Sheets.~~

~~Research and Development~~

~~The Company conducts research and development (“R&D”) to create new products and to make improvements to products currently in use. R&D costs are charged to expense as incurred and totaled $12,467~~ ~~and $11,821~~ ~~for the nine months ended October 2, 2021 and September 26, 2020, respectively.~~

Earnings Per Share

The following table presents the computation of basic and diluted earnings per common share (in thousands, except per share data):

Three Months Ended

Nine Months Ended

October 2, 2021

September 26, 2020

October 2, 2021

September 26, 2020

Net income

$
27,760

$
12,982

$
81,042

$
8,667

Basic and diluted weighted average shares outstanding

32,385

32,095

32,272

32,079

Basic and diluted net income per common share

$
0.86

$
0.40

$
2.51

$
0.27


	Three Months Ended
	April 2, 2022		April 3, 2021
Net income	$	30,478	$	22,587

Weighted average shares outstanding - Basic		32,439		32,193
Net effect of dilutive securities - Stock based compensation		126		152
Weighted average shares outstanding - Diluted		32,565		32,345

Net income per share:
Basic	$	0.94	$	0.70
Diluted	$	0.94	$	0.70

~~Recently Adopted Accounting Standards~~

~~In December 2019, the FASB issued ASU 2019-12,~~ ~~Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.~~ This update simplifies accounting for income taxes by eliminating some exceptions to the general approach in ASC 740, Income Taxes, related to intraperiod tax allocation, the methodology for calculating income tax in an interim period and the recognition of deferred tax liabilities for outside basis differences. This update is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The amendments in this update should be applied on either a retrospective basis, a modified retrospective basis or prospectively, depending on the provision within the amendment. The Company adopted the standard for the fiscal year beginning January 3, 2021. Adoption of the standard did not have a material impact on the Consolidated, Unaudited Financial Statements.

~~3. BUSINESS ACQUISITION~~

~~Acquisition of NEM~~

On ~~July 9, 2021, the Company completed the acquisition of HE-DI S.r.l., an Italian limited liability company and the owner of~~ ~~100~~% of the share capital of NEM S.r.l. ("NEM"), an Italian limited liability company. The acquisition was completed pursuant to a Sale and Purchase Agreement ("SPA") among the Company and the shareholders of NEM.

NEM is an innovative hydraulic solutions company providing customized material handling, construction, industrial vehicle and agricultural applications to its global customer base, predominantly in Europe and Asia. The acquisition of NEM expands the Company's global reach, particularly in electro-hydraulics, by growing original equipment manufacturer ("OEM") business throughout the world and provides additional CVT manufacturing capability in Europe. The results of NEM’s operations are reported in the Company’s Hydraulics segment and have been included in the Consolidated, Unaudited Financial Statements since the date of acquisition.

~~Initial consideration paid at closing, net of cash acquired, totaled $~~3~~57,839~~ ~~and included~~ ~~134,621~~ ~~shares of the Company’s common stock and cash of $47,304~~. ~~In accordance with the terms of the SPA, the sellers are eligible for an additional cash earnout potential of €5,400, or $6,403, based on defined revenue and EBITDA targets. The preliminary acquisition date fair value of the earnout is estimated at $3,269~~. Total consideration for the acquisition is subject to a post-closing adjustment in accordance with the terms of the SPA. The cash consideration was funded with borrowings on the Company’s credit facility.

~~Transaction costs of $891~~ ~~incurred in connection with the acquisition are included in Selling, engineering and administrative expenses in the Consolidated Statement of Operations for the nine months ended October 2, 2021.~~

~~The Company recorded $32,937~~ ~~in goodwill and $28,220~~ in other identifiable intangible assets in connection with the acquisition. However, the purchase price allocation is preliminary, pending post-closing adjustments, final intangibles valuation and tax related adjustments, and may be revised during the remainder of the measurement period (which will not exceed 12 months from the acquisition date). Any such revisions or changes to the fair values of the tangible and intangible assets acquired and liabilities assumed could be material.

4. FAIR VALUE OF FINANCIAL INSTRUMENTS

The following tables provide information regarding the Company’s assets and liabilities measured at fair value on a recurring basis at ~~October~~April 2, ~~2021~~2022 and January ~~2, 2021.~~1, 2022.


	October 2, 2021								April 2, 2022
			Quoted Market		Significant Other Observable		Significant Unobservable				Quoted Market		Significant Other Observable		Significant Unobservable
	Total		Prices (Level 1)		Inputs (Level 2)		Inputs (Level 3)		Total		Prices (Level 1)		Inputs (Level 2)		Inputs (Level 3)
Assets
Interest rate swap contract	$	586	$	—	$	586	$	—	$	6,884	$	—	$	6,884	$	—
Forward foreign exchange contracts		685		—		685		—		1,860		—		1,860		—
Total	$	1,271	$	—	$	1,271	$	—	$	8,744	$	—	$	8,744	$	—
Liabilities
Interest rate swap contract	$	4,546	$	—	$	4,546	$	—	$	1,237	$	—	$	1,237	$	—
Forward foreign exchange contracts		56		—		56		—
Contingent consideration		5,736		—		—		5,736		7,131		—		—		7,131
Total	$	10,338	$	—	$	4,602	$	5,736	$	8,368	$	—	$	1,237	$	7,131


	January 2, 2021								January 1, 2022
			Quoted Market		Significant Other Observable		Significant Unobservable				Quoted Market		Significant Other Observable		Significant Unobservable
	Total		Prices (Level 1)		Inputs (Level 2)		Inputs (Level 3)		Total		Prices (Level 1)		Inputs (Level 2)		Inputs (Level 3)
Assets
Interest rate swap contract									$	1,521	$	—	$	1,521	$	—
Forward foreign exchange contracts	$	211	$	—	$	211	$	—		1,040		—		1,040		—
Total	$	211	$	—	$	211	$	—	$	2,561	$	—	$	2,561	$	—
Liabilities
Interest rate swap contract	$	7,679	$	—	$	7,679	$	—	$	3,248	$	—	$	3,248	$	—
Forward foreign exchange contracts		1,551		—		1,551		—		51		—		51		—
Contingent consideration		1,919		—		—		1,919		6,400		—		—		6,400
Total	$	11,149	$	—	$	9,230	$	1,919	$	9,699	$	—	$	3,299	$	6,400

129

A summary of the changes in the estimated fair value of contingent consideration at ~~October~~April 2, ~~2021~~2022 is as follows:

Balance at January 2, 2021

$
1,919

Change in estimated fair value

621

Contingent consideration incurred in connection with NEM acquisition

3,269

Currency translation

(73
)
Balance at October 2, 2021

$
5,736


Balance at January 1, 2022	$	6,400
Change in estimated fair value		863
Accretion in value		(25	)
Currency remeasurement		(107	)
Balance at April 2, 2022	$	7,131

4. INVENTORIES, NET

At April 2, 2022 and January 1, 2022, inventory consisted of the following:


	April 2, 2022			January 1, 2022
Raw materials	$	98,458		$	90,487
Work in process		44,230			34,713
Finished goods		48,129			50,638
Provision for obsolete and slow moving inventory		(10,527	)		(10,209	)
Total	$	180,290		$	165,629

5. ~~INVENTORIES~~

~~At October 2, 2021 and January 2, 2021, inventory consisted of the following:~~

October 2, 2021

January 2, 2021

Raw materials

$
79,924

$
49,361

Work in process

35,782

30,675

Finished goods

42,886

39,332

Provision for obsolete and slow moving inventory

(10,406
)

(8,996
)
Total

$
148,186

$
110,372

6. OPERATING LEASES

The Company leases machinery, equipment, vehicles, buildings and office space, throughout its locations, that are classified as operating leases. Remaining terms on these leases range from less than one year to ~~nine~~ten years. For the ~~nine~~three months ended ~~October~~April 2, ~~2021~~2022 and ~~September 26, 2020,~~April 3, 2021, operating lease costs totaled $~~4,316~~1,735 and $~~2,765~~1,395, respectively.

Supplemental balance sheet information related to operating leases is as follows:


	October 2, 2021			January 2, 2021		April 2, 2022			January 1, 2022
Right-of-use assets	$	18,208		$	16,616	$	21,524		$	22,776
Lease liabilities:
Current lease liabilities	$	4,219		$	4,736	$	5,417		$	5,823
Non-current lease liabilities		14,877			12,728		17,134			17,940
Total lease liabilities	$	19,096		$	17,464	$	22,551		$	23,763

Weighted average remaining lease term (in years):		5.0					5.2
Weighted average discount rate:		4.2	%				4.5	%

Supplemental cash flow information related to leases is as follows:


	Nine Months Ended				Three Months Ended
	October 2, 2021		September 26, 2020		April 2, 2022		April 3, 2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	4,357	$	2,786	$	1,755	$	1,355
Non-cash impact of new leases and lease modifications	$	5,209	$	418	$	108	$	204

1310

Maturities of lease liabilities are as follows:


2021 Remaining	$	1,496
2022		4,493
2022 Remaining				$	5,035
2023		4,137			4,903
2024		3,575			4,209
2025		3,275			3,863
2026		2,687			3,208
2027					1,390
Thereafter		1,553			3,202
Total lease payments		21,216			25,810
Less: Imputed interest		(2,120	)		(3,259	)
Total lease obligations		19,096			22,551
Less: Current lease liabilities		(4,219	)		(5,417	)
Non-current lease liabilities	$	14,877		$	17,134

7.6. GOODWILL AND INTANGIBLE ASSETS

Goodwill

A summary of changes in goodwill by segment for the ~~nine~~three months ended ~~October~~April 2, ~~2021,~~2022, is as follows:

Hydraulics

Electronics

Total

Balance at January 2, 2021

$
261,129

$
182,404

$
443,533

Acquisition of NEM

32,937

—

32,937

Measurement period adjustment, Balboa Water Group acquisition

—

435

435

Currency translation

(13,871
)

—

(13,871
)
Balance at October 2, 2021

$
280,195

$
182,839

$
463,034


	Hydraulics			Electronics			Total
Balance at January 1, 2022	$	273,665		$	186,271		$	459,936
Measurement period adjustment, Joyonway acquisition		0			66			66
Measurement period adjustment, NEM acquisition		(37	)		0			(37	)
Currency translation		(7,308	)		(3	)		(7,311	)
Balance at April 2, 2022	$	266,320		$	186,334		$	452,654

Acquired Intangible Assets

At ~~October~~April 2, ~~2021~~2022 and January ~~2, 2021,~~1, 2022, intangible assets consisted of the following:


	October 2, 2021							January 2, 2021							April 2, 2022							January 1, 2022
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Definite-lived intangibles:
Trade names and brands	$	83,045	$	(14,214	)	$	68,831	$	80,402	$	(11,188	)	$	69,214	$	81,962	$	(15,419	)	$	66,543	$	83,443	$	(15,216	)	$	68,227
Non-compete agreements		950		(918	)		32		950		(776	)		174		2,265		(283	)		1,982		3,218		(1,092	)		2,126
Technology		49,984		(15,470	)		34,514		45,955		(12,368	)		33,587		49,536		(17,534	)		32,002		50,425		(16,729	)		33,696
Supply agreement		21,000		(10,150	)		10,850		21,000		(8,575	)		12,425		21,000		(11,200	)		9,800		21,000		(10,675	)		10,325
Customer relationships		337,212		(40,415	)		296,797		330,406		(31,431	)		298,975		331,173		(46,314	)		284,859		336,809		(43,488	)		293,321
Sales order backlog		1,043		(522	)		521		8,000		(3,000	)		5,000
Workforce		6,077		(709	)		5,368		—		—			—		6,077		(1,317	)		4,760		6,077		(1,013	)		5,064
	$	499,311	$	(82,398	)	$	416,913	$	486,713	$	(67,338	)	$	419,375	$	492,013	$	(92,067	)	$	399,946	$	500,972	$	(88,213	)	$	412,759

1411

Amortization expense on acquired intangible assets for the ~~nine~~three months ended ~~October~~April 2, ~~2021~~2022 and ~~September 26, 2020,~~April 3, 2021, was $~~25,285~~6,980 and $~~13,323~~10,198, respectively. Future estimated amortization expense is presented below.


Year:
2021 Remaining	$	7,279
2022		27,035
2022 Remaining			$	20,755
2023		26,976		27,639
2024		26,321		26,984
2025		26,256		26,775
2026		24,873		24,965
2027				21,692
Thereafter		278,173		251,136
Total	$	416,913	$	399,946

8.7. DERIVATIVE INSTRUMENTS & HEDGING ACTIVITIES

The Company addresses certain financial exposures through a controlled program of risk management that includes the use of derivative financial instruments and hedging activities.

The fair value of the Company’s derivative financial instruments included in the Consolidated Balance Sheets is presented as follows:


	Asset Derivatives					Liability Derivatives					Asset Derivatives					Liability Derivatives
	Balance Sheet	Fair Value (1)		Fair Value (1)		Balance Sheet	Fair Value (1)		Fair Value (1)		Balance Sheet	Fair Value (1)		Fair Value (1)		Balance Sheet	Fair Value (1)		Fair Value (1)
	Location	October 2, 2021		January 2, 2021		Location	October 2, 2021		January 2, 2021		Location	April 2, 2022		January 1, 2022		Location	April 2, 2022		January 1, 2022
Derivatives designated as hedging instruments:	Derivatives designated as hedging instruments:										Derivatives designated as hedging instruments:
Interest rate swap contracts	Other assets	$	586	$	—	Other non-current liabilities	$	4,546	$	7,679	Other assets	$	6,884	$	1,521	Other non-current liabilities	$	1,237	$	3,248
Derivatives not designated as hedging instruments:	Derivatives not designated as hedging instruments:										Derivatives not designated as hedging instruments:
Forward foreign exchange contracts	Other current assets		513		169	Other current liabilities		56		1,413	Other current assets		1,536		866	Other current liabilities		0		51
Forward foreign exchange contracts	Other assets		172		42	Other non-current liabilities		0		138	Other assets		324		174	Other non-current liabilities		0		0
Total derivatives		$	1,271	$	211		$	4,602	$	9,230		$	8,744	$	2,561		$	1,237	$	3,299
(1) See Note 4 for information regarding the inputs used in determining the fair value of derivative assets and liabilities.
(1) See Note 3 for information regarding the inputs used in determining the fair value of derivative assets and liabilities.											(1) See Note 3 for information regarding the inputs used in determining the fair value of derivative assets and liabilities.

The amount of gains and losses related to the Company’s derivative financial instruments for the ~~nine~~three months ended ~~October~~April 2, ~~2021~~2022 and ~~September 26, 2020,~~April 3, 2021, are presented as follows:


		Amount of Gain or (Loss) Recognized in Other Comprehensive Income on Derivatives (Effective Portion)					Location of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income	Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Earnings (Effective Portion)							Amount of Gain or (Loss) Recognized in Other Comprehensive Income on Derivatives (Effective Portion)				Location of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income	Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Earnings (Effective Portion)
		October 2, 2021		September 26, 2020			into Earnings (Effective Portion)	October 2, 2021			September 26, 2020				April 2, 2022		April 3, 2021		into Earnings (Effective Portion)	April 2, 2022			April 3, 2021
Derivatives in cash flow hedging relationships:	Derivatives in cash flow hedging relationships:													Derivatives in cash flow hedging relationships:
Interest rate swap contracts		$	3,718	$	(2,807	)	Interest expense, net	$	(3,137	)	$	(2,630	)		$	7,374	$	2,210	Interest expense, net	$	(1,098	)	$	(1,079	)

Interest expense presented in the Consolidated Statements of Operations, in which the effects of cash flow hedges are recorded, totaled $~~12,965~~3,809 and $~~8,572~~4,751 for the ~~nine~~three months ended ~~October~~April 2, ~~2021~~2022 and ~~September 26, 2020,~~April 3, 2021, respectively.

1512

Amount of Gain or (Loss) Recognized
in Earnings on Derivatives

Location of Gain or (Loss) Recognized

Amount of Gain or (Loss) Recognized
in Earnings on Derivatives

Location of Gain or (Loss) Recognized

October 2, 2021

September 26, 2020

in Earnings on Derivatives

April 2, 2022

April 3, 2021

in Earnings on Derivatives

Derivatives not designated as hedging instruments:

Forward foreign exchange contracts

3,401

(2,513

)

Foreign currency transaction gain loss, net

1,577

2,402

Foreign currency transaction gain loss, net

Interest Rate Swap Contracts

The Company has entered into interest rate swap transactions to hedge the variable interest rate payments on its credit facilities. In connection with ~~these~~the transactions, the Company pays interest based upon a fixed rate as agreed upon with the respective counterparties and receives variable rate interest payments based on the one-month LIBOR. The interest rate swaps are designated as hedging instruments and are accounted for as cash flow hedges. The aggregate notional amount of the swaps was $~~170,000~~270,000 as of ~~October~~April 2, ~~2021.~~2022. The notional amount decreases periodically through the dates of expiration in April 2023 and October 2025. The contracts are settled with the respective counterparties on a net basis at each settlement date.

Forward Foreign Exchange Contracts

The Company has entered into forward contracts to economically hedge translational and transactional exposure associated with various business units whose local currency differs from the Company’s reporting currency. The Company’s forward contracts are not designated as hedging instruments for accounting purposes.

At ~~October~~April 2, ~~2021,~~2022, the Company had 87 forward foreign exchange contracts with an aggregate notional value of €~~52,333~~40,000, maturing at various dates through ~~March~~September 2023.

Net Investment Hedge

The Company utilizes foreign currency denominated debt to hedge currency exposure in foreign operations. The Company has designated €90,000 of borrowings on the revolving credit facility as a net investment hedge of a portion of the Company’s European operations. The carrying value of the euro denominated debt totaled $~~104,326~~99,432 as of ~~October~~April 2, ~~2021~~2022 and is included in the Revolving line of credit line item in the Consolidated Balance Sheets. The gain on the net investment hedge recorded in accumulated other comprehensive income ~~(“AOCI”)~~ as part of the currency translation adjustment was $~~4,303~~2,207, net of tax, for the ~~nine~~three months ended ~~October~~April 2, ~~2021.~~ 2022.

9.8. CREDIT FACILITIES

Total long-term non-revolving debt consists of the following:


	Maturity Date	October 2, 2021		January 2, 2021		Maturity Date	April 2, 2022		January 1, 2022
Long-term non-revolving debt:
Term loan with PNC Bank	Oct 2025	$	192,500	$	200,000	Oct 2025	$	186,250	$	190,000
Term loan with Intesa Sanpaolo S.p.A	Dec 2021		1,456		6,106
Term loan with Citibank	Nov 2023		325		400
Term loans with Citibank						Various		12,155		12,416
Other long-term debt	Various		136		264	Various		52		90
Total long-term non-revolving debt			194,417		206,770			198,457		202,506
Less: current portion of long-term non-revolving debt			15,368		16,229			18,141		18,125
Less: unamortized debt issuance costs			515		609			452		484
Total long-term non-revolving debt, net		$	178,534	$	189,932		$	179,864	$	183,897

Information on the Company’s revolving credit facilities is as follows:


		Balance				Available Credit					Balance				Available Credit
	Maturity Date	October 2, 2021		January 2, 2021		October 2, 2021		January 2, 2021		Maturity Date	April 2, 2022		January 1, 2022		April 2, 2022		January 1, 2022
Revolving line of credit with PNC Bank	Oct 2025	$	276,326	$	255,909	$	120,658	$	144,045	Oct 2025	$	238,932	$	242,312	$	157,987	$	157,487
Revolving line of credit with Citibank	Sept 2022		1,021		315		221		1,982	Jan 2023		1,154		711		1,363		548
		$	277,347	$	256,224	$	120,879	$	146,027

1613

Future maturities of total debt are as follows:


Year:
2021 Remaining	$	4,402
2022		15,951
2022 Remaining			$	14,694
2023		15,085		20,028
2024		20,000		24,889
2025		416,326		378,932
Total	$	471,764	$	438,543

Term Loan and Line of Credit with PNC Bank

The Company has a credit agreement that includes a revolving line of credit and term loan credit facility with PNC Bank, National Association, as administrative agent, and the lenders party thereto. The revolving line of credit allows for borrowings up to an aggregate maximum principal amount of $400,000.

~~The Company has exchanged a portion~~To hedge currency exposure in foreign operations, €90,000 of the ~~USD denominated~~ borrowings on the line of credit ~~for €90,000~~are denominated in ~~order to hedge currency exposure in foreign operations.~~euros. The borrowings have been designated as a net investment hedge, see additional information in Note 8.7.

The effective interest rate on the credit agreement at ~~October~~April 2, ~~2021~~2022 was ~~2.09~~2.35%. Interest expense recognized on the credit agreement during the ~~nine~~three months ended ~~October~~April 2, ~~2021~~2022 and ~~September 26, 2020,~~April 3, 2021, totaled $~~9,631~~2,574 and $~~5,863~~3,633, respectively. As of the date of this filing, the Company was in compliance with all debt covenants related to the credit agreement.

Term ~~Loan with Intesa Sanpaolo S.p.A.~~

~~The Company has an agreement with Intesa Sanpaolo S.p.A. that provides an unsecured term loan of €5,000. The facility bears interest at~~ ~~1.25%. Repayment of the facility began in January 2021 and is due in~~ 12 monthly installments. The loan bears a guarantee from SACE S.p.A. – the Italian export public credit agency operating in the insurance and financial services sectors – pursuant to the Law Decree No. 23 of April 8, 2020, converted (with amendments) into Law No. 40 of June 5, 2020.

~~Term Loan~~Loans and Line of Credit with Citibank

The Company has an uncommitted fixed asset facility agreement (the “Fixed Asset Facility”) ~~and~~, short-term revolving facility agreement (the “Working Capital Facility”) and term loan facility agreement (the "Shanghai Branch Term Loan Facility") with Citibank (China) Co., Ltd. Shanghai Branch, as lender.

Under the Fixed Asset Facility, the Company may, from time-to-time for a period of 180 days, borrow amounts on a secured basis up to a total of RMB ~~50,000~~6,000. The proceeds of such loans may be used for purchases of certain equipment. Outstanding borrowings under the Fixed Asset Facility accrue interest at a rate equal to the National Interbank Funding Center 1-year loan prime rate plus 1.50%, to be repaid on a specified schedule. Currently drawn funds have a final payment due ~~date of~~in ~~November~~May 2023.

Under the Working Capital Facility, the Company may, from time-to-time, borrow amounts on an unsecured revolving facility up to a total of RMB ~~15,000~~16,000. Proceeds may only be used for expenditures related to production at the Company’s facility located in Kunshan City, China. Outstanding borrowings under the Working Capital Facility accrue interest at a rate equal to the National Interbank Funding Center 1-year loan prime rate plus 0.50%. All outstanding balances will be due in ~~September 2022.~~January 2023.

Under the Shanghai Branch Term Loan Facility, the Company borrowed on a secured basis RMB 42,653. Outstanding borrowings under the Shanghai Branch Term Loan Facility accrue interest at a rate equal to the National Interbank Funding Center 1-year loan prime rate plus 1.50%, to be repaid on a specified schedule with the final payment due in October 2024.

The Company has a term loan facility agreement (the “Sydney Branch Term Loan Facility”) with Citibank, N.A., Sydney Branch, as lender. Under the Sydney Branch Term Loan Facility, the Company borrowed on a secured basis AUD 7,500. Outstanding borrowings under the Sydney Branch Term Loan Facility accrue interest at a rate equal to the Australian Bank Bill Swap Reference Rate plus 2.00%, to be repaid throughout the term of the loan with a final payment due date of December 2024.

As of the date of this filing, the Company was in compliance with all debt covenants related to the Fixed Asset Facility, ~~and~~ Working Capital ~~Facility.~~Facility and Term Loan Facilities.

1714

~~10.~~9. INCOME TAXES

The provision for income taxes for the three months ended ~~October~~April 2, ~~2021~~2022 and ~~September 26, 2020~~April 3, 2021 was ~~25.5~~22.4% and ~~20.7~~23.2% of pretax income, respectively. ~~The provision for income taxes for the nine months ended October 2, 2021 and September 26, 2020was~~ ~~22.0% and~~ ~~16.9% of pretax income, respectively, after adjusting the prior year for the impact of the goodwill impairment charge.~~ These effective rates fluctuate relative to the levels of income and different tax rates in effect among the countries in which the Company sells products.

At ~~October~~April 2, ~~2021,~~2022, the Company had an unrecognized tax benefit of $~~10,566~~9,710 including accrued interest. If recognized, $~~3,421~~2,289 of unrecognized tax benefit would reduce the effective tax rate in future periods. The Company recognizes interest and penalties related to income tax matters in income tax expense. Interest accrued as of ~~October~~April 2, ~~2021~~2022 is not considered material to the Company’s consolidated financial statements.

The Company remains subject to income tax examinations in the U.S. and various state and foreign jurisdictions for tax years ~~2009-2020.~~2009-2019. Although the Company is not currently under examination in most jurisdictions, limited transfer pricing disputes exist for years dating back to 2008. The Company estimates a net benefit ranging from $0 to $~~974~~207 could be recognized within the next 12 months due to the expiration of statutes of limitation.

~~11.~~10. STOCK-BASED COMPENSATION

Equity Incentive Plan

The Company’s 2019 Equity Incentive Plan ("2019 Plan") and its predecessor equity plan provide for the grant of shares of restricted stock, restricted ~~share~~stock units, stock options, stock appreciation rights, dividend or dividend equivalent rights, stock awards and other awards valued in whole or in part by reference to or otherwise based on the Company’s common stock, to officers, employees and directors of the Company.

Restricted Stock Units

The Company grants restricted stock units (“RSUs”) in connection with a long-term incentive plan. Awards with time-based vesting requirements primarily vest ratably over a three-year period. Awards with performance-based vesting requirements cliff vest after a three-year performance cycle and only after the achievement of certain performance criteria over that cycle. The number of shares ultimately issued for the performance-based units may vary from 0% to 200% of their target amount based on the achievement of defined performance targets.

Compensation expense recognized for RSUs totaled $~~4,168~~2,259 and $~~3,158~~1,360, respectively, for the ~~nine~~three months ended ~~October~~April 2, ~~2021~~2022 and ~~September 26, 2020.~~April 3, 2021.

The following table summarizes ~~restricted stock and~~ RSU activity for the ~~nine~~three months ended ~~October~~April 2, ~~2021:~~2022:

Number of

Weighted Average

Shares / Units

Grant-Date

(in thousands)

Fair Value per Share

Nonvested balance at January 2, 2021

239

$
38.95

Granted

102

54.79

Vested

(77
)

41.36

Forfeited

(19
)

45.36

Nonvested balance at October 2, 2021 (1)

245

$
44.28


				Weighted Average
	Number of Units			Grant-Date
	(in thousands)			Fair Value per Share
Nonvested balance at January 1, 2022		237		$	45.58
Granted		84			99.10
Vested		(74	)		48.09
Forfeited		(7	)		64.99
Nonvested balance at April 2, 2022 (1)		240		$	63.08

(1) Includes ~~106,566~~108,339 nonvested performance-based RSUs.

The Company had $~~7,131~~12,419 of total unrecognized compensation cost related to the RSU awards as of ~~October~~April 2, ~~2021.~~2022. That cost is expected to be recognized over a weighted average period of ~~1.8~~2.2 years.

1815

Stock Options

~~The following table summarizes~~In 2020 and 2021, the Company granted stock options ~~the Company has granted~~ to its ~~officers (in thousands, except per share data):~~officers. As of April 2, 2022, there were

October 2, 2021

Options

Option Exercise

Options

Options

Options

Date of Grant

Granted

(Strike) Price

Forfeited

Outstanding

Exercisable

February 28, 2020

18

$
39.75

11

5

2

July 1, 2020

5

35.04

—

3

2

January 28, 2021

18

55.30

1

17

—

Total

41

12

25

4

14,931 unvested options and 10,034 vested unexercised options. The exercise prices per share, which range from $35.04 to $55.30, are equal to the market price of Helios stock on the respective grant dates. The options vest ratably over a three-year period and have a 10-year expiration. The grant date fair value of the options was estimated using a Black Scholes valuation model. At ~~October~~April 2, ~~2021,~~2022, the Company had $~~357~~234 of unrecognized compensation cost related to the options, which is expected to be recognized over a weighted average period of ~~2.2~~1.7 years.

Director Compensation

Effective January 1, 2022, the board terminated the 2012 Non-Employee Director Fees Plan (the “2012 Directors Plan”) and approved a new Helios Technologies, Inc. Non-Employee Director Compensation Policy (the “Director Compensation Policy”), which revised the compensation for Non-Employee Directors. The Director Compensation Policy compensates Non-Employee Directors for their board service with cash awards and equity-based compensation through grants of RSUs, issued pursuant to the 2019 Plan, which vest over a one year period. Directors were granted 3,799 RSUs during the three months ended April 2, 2022. The Company recognized director stock compensation expense of $23 for the three months ended April 2, 2022.

Directors were granted 7,375 shares of stock and the Company recognized director stock compensation expense of $538 for the three months ended April 3, 2021, under the 2012 Directors Plan.

Employee Stock Purchase Plans

The Company maintains an Employee Stock Purchase Plan (“ESPP”) in which U.S. employees are eligible to participate. Employees who choose to participate are granted an opportunity to purchase common stock at 85 percent of market value on the first or last day of the quarterly purchase period, whichever is lower. Employees in the United Kingdom (“UK”), under a separate plan, are granted an opportunity to purchase the Company’s common stock at market value, on the first or last day of the quarterly purchase period, whichever is lower, with the Company issuing one additional free share of common stock for each 6 shares purchased by the employee under the plan. Employees purchased ~~22,747~~7,734 shares at a weighted average price of $~~57.93~~68.48, and ~~33,519~~7,408 shares at a weighted average price of $~~30.65~~44.90, under the ESPP and UK plans during the ~~nine~~three months ended ~~October~~April 2, ~~2021~~2022 and ~~September 26, 2020,~~April 3, 2021, respectively. The Company recognized $~~431~~91 and $~~220~~195 of compensation expense during the ~~nine~~three months ended ~~October~~April 2, ~~2021~~2022 and ~~September 26, 2020, respectively.~~

~~Nonemployee Director Fees Plan~~

~~The Company’s 2012 Nonemployee Director Fees Plan compensates nonemployee directors for their board service with shares of common stock. Directors were granted~~ ~~20,375~~ ~~and~~ ~~11,775~~ ~~shares for the nine months ended October 2,~~April 3, 2021, ~~and September 26, 2020, respectively. The Company recognized director stock compensation expense of $1,586~~ ~~and $480~~ ~~for the nine months ended October 2, 2021 and September 26, 2020,~~ respectively.

1916

~~12.~~11. ACCUMULATED OTHER COMPREHENSIVE LOSS

The following tables present changes in accumulated other comprehensive loss by component:


										Unrealized Gains and (Losses) on Derivative Instruments			Foreign Currency Items			Total
Balance at January 1, 2022										$	(1,334	)	$	(47,655	)	$	(48,989	)
Other comprehensive income (loss) before reclassifications											8,220			(9,998	)		(1,778	)
Amounts reclassified from accumulated other comprehensive loss, net of tax											(846	)		—			(846	)
Tax effect											(1,750	)		2,263			513
Net current period other comprehensive income (loss)											5,624			(7,735	)		(2,111	)
Balance at April 2, 2022										$	4,290		$	(55,390	)	$	(51,100	)

	Unrealized Gains and (Losses) on Derivative Instruments			Foreign Currency Items			Total			Unrealized Gains and (Losses) on Derivative Instruments			Foreign Currency Items			Total
Balance at January 2, 2021	$	(5,922	)	$	(28,418	)	$	(34,340	)	$	(5,922	)	$	(28,418	)	$	(34,340	)
Other comprehensive income (loss) before reclassifications		6,071			(17,944	)		(11,873	)		3,019			(11,562	)		(8,543	)
Amounts reclassified from accumulated other comprehensive loss, net of tax		(2,353	)		—			(2,353	)		(809	)		—			(809	)
Tax effect		(853	)		3,729			2,876			(505	)		2,444			1,939
Net current period other comprehensive income (loss)		2,865			(14,215	)		(11,350	)		1,705			(9,118	)		(7,413	)
Balance at October 2, 2021	$	(3,057	)	$	(42,633	)	$	(45,690	)

	Unrealized Gains and (Losses) on Derivative Instruments			Foreign Currency Items			Total
Balance at December 28, 2019	$	(5,372	)	$	(49,992	)	$	(55,364	)
Other comprehensive (loss) income before reclassifications		(4,781	)		9,389			4,608
Amounts reclassified from accumulated other comprehensive loss, net of tax		1,974			—			1,974
Tax effect		1,548			(2,152	)		(604	)
Net current period other comprehensive (loss) income		(1,259	)		7,237			5,978
Balance at September 26, 2020	$	(6,631	)	$	(42,755	)	$	(49,386	)
Balance at April 3, 2021										$	(4,217	)	$	(37,536	)	$	(41,753	)

~~13.~~12. SEGMENT REPORTING

The Company has 2 reportable segments: Hydraulics and Electronics. These segments are organized primarily based on the similar nature of products offered for sale, the types of customers served and the methods of distribution and are consistent with how the segments are managed, how resources are allocated and how information is used by the chief operating decision makers.

The Company evaluates performance and allocates resources based primarily on segment operating income. Certain costs were not allocated to the business segments as they are not used in evaluating the results of, or in allocating resources to the Company’s segments. These costs are presented in the Corporate and other line item. For the ~~nine~~three months ended ~~October~~April 2, ~~2021,~~2022, the unallocated costs totaled $~~31,103~~9,269 and included certain corporate costs not deemed to be allocable to either business segment of $~~630~~311, ~~acquisition and integration-related expenses of $4,630, amortization of the acquisition-related inventory step up to fair value of $558~~ ~~and~~ amortization of acquisition-related intangible assets of $~~25,285~~6,980 and other acquisition and integration-related costs of $1,978. The accounting policies of the Company’s operating segments are the same as those used to prepare the accompanying Consolidated, Unaudited Financial Statements.

2017

The following table presents financial information by reportable segment:


	Three Months Ended						Nine Months Ended						Three Months Ended
	October 2, 2021			September 26, 2020			October 2, 2021			September 26, 2020			April 2, 2022			April 3, 2021
Net sales
Hydraulics	$	133,404		$	98,206		$	385,549		$	304,113		$	137,106		$	119,106
Electronics		89,837			24,439			265,950			67,309			103,441			85,738
Total	$	223,241		$	122,645		$	651,499		$	371,422		$	240,547		$	204,844
Operating income
Hydraulics	$	31,799		$	18,942		$	92,200		$	62,413		$	31,633		$	28,073
Electronics		18,445			4,683			56,324			10,400			20,523			18,280
Corporate and other		(9,495	)		(5,282	)		(31,103	)		(47,801	)		(9,269	)		(11,745	)
Total	$	40,749		$	18,343		$	117,421		$	25,012		$	42,887		$	34,608
Capital expenditures
Hydraulics	$	4,187		$	1,109		$	10,205		$	5,426		$	2,979		$	2,635
Electronics		2,562			831			6,849			1,729			2,651			2,401
Total	$	6,749		$	1,940		$	17,054		$	7,155		$	5,630		$	5,036


	October 2, 2021		January 2, 2021		April 2, 2022		January 1, 2022
Total assets
Hydraulics	$	849,003	$	765,155	$	822,540	$	821,836
Electronics		558,614		523,502		598,719		585,739
Corporate		10,375		8,322		13,622		7,771
Total	$	1,417,992	$	1,296,979	$	1,434,881	$	1,415,346

Geographic Region Information

Net sales are measured based on the geographic destination of sales. Tangible long-lived assets are shown based on the physical location of the assets and primarily include net property, plant and equipment and exclude right-of-use assets.


	Three Months Ended				Nine Months Ended				Three Months Ended
	October 2, 2021		September 26, 2020		October 2, 2021		September 26, 2020		April 2, 2022		April 3, 2021
Net sales
Americas	$	109,365	$	49,167	$	314,469	$	155,740	$	120,802	$	99,341
EMEA		55,952		33,628		166,183		102,680		64,703		52,602
APAC		57,924		39,850		170,847		113,002		55,042		52,901
Total	$	223,241	$	122,645	$	651,499	$	371,422	$	240,547	$	204,844


	October 2, 2021		January 2, 2021		April 2, 2022		January 1, 2022
Tangible long-lived assets
Americas	$	96,059	$	96,752	$	96,190	$	97,649
EMEA		33,970		31,091		34,511		35,829
APAC		17,541		18,718		18,186		17,956
Total	$	147,570	$	146,561	$	148,887	$	151,434

~~14.~~13. RELATED PARTY TRANSACTIONS

The Company purchases from, and sells inventory to, entities partially owned or managed by directors of Helios. For the ~~nine~~three months ended ~~October~~April 2, ~~2021~~2022 and ~~September 26, 2020,~~April 3, 2021, inventory sales to the entities totaled $~~2,516~~777 and $~~2,572~~749, respectively, and inventory purchases from the entities totaled $~~3,221~~0 and $~~2,942~~2,107, respectively.

At ~~October~~April 2, ~~2021~~2022 and January ~~2, 2021,~~1, 2022, amounts due from the entities totaled $~~492~~517 and $~~528, respectively, and amounts due to the entities totaled $~~0 ~~and $421~~344, respectively.

2118

In March 2022, the Company completed a sale of real estate to one of its executive officers for $1,850, which sale price was based on the valuation from an independent third-party appraisal. Concurrent with the sale, the Company also purchased real estate from the executive officer for $970, which purchase price reflected a below market valuation based on the original cost of the property to the executive officer, plus the cost of improvements funded by the executive officer.

~~15.~~14. COMMITMENTS AND CONTINGENCIES

Legal Proceedings

The Company is not a party to any legal proceedings other than routine litigation incidental to its business. In the opinion of management, the amount of ultimate liability with respect to these actions will not materially affect the results of operations, financial position or cash flows of the Company.

2219

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

This report on Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. The words "expects," "anticipates," "believes," "intends," "plans," "will" and similar expressions identify forward-looking statements. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. We undertake no obligation to publicly disclose any revisions to these forward-looking statements to reflect events or circumstances occurring subsequent to filing this Form 10-Q with the Securities and Exchange Commission. These forward-looking statements are subject to risks and uncertainties, including, without limitation, those discussed in this report and those identified in Part I, Item 1A, "Risk Factors" included in our Form 10-K. In addition, new risks emerge from time to time and it is not possible for management to predict all such risk factors or to assess the impact of such risk factors on our business. Accordingly, our future results may differ materially from historical results or from those discussed or implied by these forward-looking statements. Given these risks and uncertainties, the reader should not place undue reliance on these forward-looking statements.

OVERVIEW

We are a global ~~industrial~~leader in highly engineered motion control and electronic controls technology ~~leader that develops~~for diverse end markets, including construction, material handling, agriculture, energy, recreational vehicles, marine and ~~manufactures solutions for both the hydraulics~~health and electronics markets. We were originally founded in 1970 as Sun Hydraulics Corporation, which designed and manufactured cartridge valves for hydraulics systems. We changed the Company’s legal name on June 13, 2019, from Sun Hydraulics Corporation to Helios Technologies, Inc.wellness.

~~Today we~~We operate under two business segments: Hydraulics and Electronics. ~~These businesses design~~The Hydraulics segment designs and ~~manufacture~~manufactures hydraulic cartridge valves, hydraulic quick release couplings as well as engineers complete hydraulic systems. The Electronics segment designs and manufactures customized electronic controls systems and displays for a variety of end markets ~~as well as design complete hydraulic systems.~~including industrial and mobile, recreational and health and wellness.

~~Strategic Vision~~

~~Our strategic goals are~~In November 2016, we announced a vision to achieve $1$1.0 billion in sales ~~by the end of 2023~~in 2025, through a combination of organic growth and acquisitions, ~~while remaining a technology leader~~ and ~~delivering superior profitability,~~to deliver operating margins in excess of 20%. In 2021, we augmented our strategy and accelerated our growth plans to achieve the milestone of over $1.0 billion in sales with top tier adjusted EBITDA ~~margins~~margin of approximately 25%. We are augmenting our strategy with value streams that we expect to help us to execute our goals and potentially accelerate the achievement of our strategic vision by reaching the $1 billion revenue target two years ahead of our original plan, which was previously 2025. in 2023.

~~We believe the value streams will deliver~~Underpinning our expectation of compounded annual growth ~~diversification~~of approximately two times our market's growth rates, we have an active pipeline and ~~market leading financial performance as we develop into~~ a ~~more sophisticated, globally oriented, customer centric and learning organization. These are:~~

~~Protect the business~~ ~~through customer centricity and drive cash generation through the launch~~history of ~~new products and leveraging existing products;~~

~~Think and act globally~~ ~~to better leverage our assets, accelerate innovation and diversify end markets by driving intra- and inter-company initiatives and by building in the region for the region;~~

~~Diversify our markets and sources of revenue~~ by swarming commercial opportunities that leverage our products and technologies’ value in industries in which we currently do not operate, such as defense and commercial food service, thereby creating greater opportunities for growth while reducing risk and cyclicality; and

~~Develop our talent~~, our most critical resource, through a culture of customer-centricity through the embracement of diversity, engagement of the team, focus on shared, deeply rooted values and promotion of a learning organization. We provide training, development, educational and mentoring opportunities to our existing employeesacquiring companies with niche technologies, as well as ~~seek to attract and retain top talent throughout our global workforce.~~

Our strategy is underpinned by the execution of acquisitions, which we expect to include bolt-on, flywheel type acquisitions (up to $100 million in enterprise value) and the evaluation of more transformative type acquisitions (enterprise value in excess of $100 million). The objective of our acquisition strategy is to enhance Helios by:



~~Growing our current product portfolio or adding new technologies and capabilities that complement our current offerings;~~



~~Expanding geographic presence; and~~



~~Bringing new customers or markets.~~

~~To support the execution of our strategy, our financial strategy is oriented on delivering industry leading margins, a~~ strong ~~balance sheet and sufficient financial flexibility to support organic and acquisitive growth.~~profitability.

~~We align our internal key performance indicators with our strategy to ensure our short-term actions will deliver long-term expectations.~~

Recent Acquisitions

~~In November 2020, we acquired Balboa Water Group, further diversifying~~Our acquisition activity, driven by our strategic vision, has enabled us to diversify our product offerings and the markets we serve and ~~also expanding~~expand our technological capabilities in electronics. Balboa is an innovative market leader of electronic controls for the health and wellness industry with proprietary and patented technology that enables end-to-end electronic control systems for therapy baths and spas. Headquartered in Costa Mesa, California, Balboa has manufacturing operations that support the business 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. The results of Balboa’s operations are reported in our Electronics segment and have been includedgeographic presence. Prior to 2016, we operated primarily in the ~~Consolidated Financial Statements since the acquisition date.~~Hydraulics market with a small presence in electronics.

In January 2021, we acquired all of the assets of BJN Technologies, LLC, an innovative engineering solutions provider that was founded in 2014. With the acquisition, we formed the Helios Center of Engineering Excellence to centralize our innovation and technology advancements ~~and new product development and~~to better leverage existing talents across the electronics segment initially, and then throughout all of Helios.

In July 2021, we ~~acquired~~completed another flywheel acquisition with NEM S.r.l. ("NEM"), an innovative hydraulic solutions company providing customized material handling, construction, industrial vehicle and agricultural applications to its global customer base, predominantly in Europe and Asia. NEM enhances ~~our~~the Helios electro-hydraulic product offering, ~~further develops our presence in OEM markets,~~ provides geographic expansion and adds scale to address new markets.

In October 2021, we ~~acquired~~completed the acquisition of assets related to the electronic control systems and parts business of Shenzhen Joyonway Electronics & Technology Co., Ltd and its related entities (collectively, ~~“Joyonway”~~"Joyonway"). AJoyonway is a fast-growing developer of control panels, software, systems and accessories for the health and wellness ~~industry,~~industry. Joyonway operates from two locations in ~~two cities,~~China, Shenzhen and Dongguan, both of which are in the hub of electronics and software development in China. This provides us a foothold for electronics manufacturing in Asia.

Global Economic Conditions

COVID-19 Update

~~Many of~~We continue to experience impacts to our ~~customers and end markets are recovering~~operations from the ~~substantial impacts~~effects of the ~~pandemic experienced during 2020. Demand~~COVID-19 pandemic. Most recently, at the beginning of the second quarter our locations in the first nine months of 2021 for our products exceeded our expectations as end market recovery occurred sooner and was stronger than we projected. Demand in the health and wellness and recreational marine markets has been favorably impacted by the pandemic as consumers are investing in leisure products and activities. China began to shut down periodically due to regulatory lockdown measures associated with a COVID-19 outbreak.

We continue to face constraints on our ability to source certain electronic and other components, which originated from the high demand for these products caused by the pandemic. While we have been able to mitigate the majority of the impact with our procurement efforts and production schedule adjustments, we are experiencing delays in shipments as well as material and logistics cost increases.

We are ~~not currently experiencing significant~~also facing some disruption to our workforce from the pandemic. InWhile the impact has not been significant, the absenteeism has caused labor inefficiencies in production. The Omicron variant impacted fourth quarter labor efficiency, and we continued to experience the effects through January 2022. Additionally, in certain locations we are facing pressure from competitive labor markets; however, to date we have been successful at minimizing the impact on our operations.

We are closely monitoring the various laws, regulations and executive orders that could impact future periods relating to government-imposed requirements regarding mandatory testing for COVID-19 in the workplace and/or vaccination requirements for ~~employees, including but not limited to the ETS published by OSHA on November 5, 2021.~~employees. The Company has taken and is in the process of taking necessary steps to comply with applicable requirements. At this time, we do not believe there will be a material impact on our operations due to these requirements.

Our outlook for the remainder of the ~~2021~~2022 fiscal year assumes the global economy continues to recover; however, we cannot at this time predict any future impacts. The Company continues to monitor developments, new strains and variants of COVID-19 and government requirements and recommendations at the national, state and local levels, as well as vaccine mandates, to evaluate whether to reinstate and/or extend certain initiatives it implemented to help contain the spread of COVID-19. Refer to ~~Part I,~~ Item 1A ~~“Risk Factors”~~"Risk Factors" of our Form 10-K for additional COVID-19 related discussion.

Russian Invasion of Ukraine

In February of 2022, Russia invaded Ukraine. As a result, several governments have enacted sanctions against Russia and Russian interests. The conflict has led to economic uncertainty and market disruptions, including significant volatility in commodity and energy prices and credit and capital markets. We do not have operations in the region, and less than 1% of our sales are to Russia and Ukraine customers. In Europe we are experiencing increased energy and raw material costs, logistics issues and reduced orders from customers who do business in the region. The broader consequences of the conflict could impact our business through increased inflation, further increases or fluctuations in commodity and energy prices, further disruptions to the global supply chain, reduced availability of certain natural resources and other adverse effects on macroeconomic conditions.

Industry Conditions

Market demand for our products is dependent on demand for the industrial goods in which the products are incorporated. The capital goods industries in general, and the Hydraulics and Electronics segments specifically, are subject to economic cycles. We utilize industry trend reports from various sources, as well as feedback from customers and distributors, to evaluate economic trends. We also rely on global government statistics such as Gross Domestic Product and Purchasing Managers Index to understand ~~macro-economic~~macroeconomic conditions.

Hydraulics

According to the National Fluid Power Association (the fluid power industry’s trade association in the U.S.), the U.S. index of shipments of hydraulic products increased ~~approximately 19%~~15.7% during the first ~~nine months~~quarter of ~~2021,~~2022, after ~~decreasing 20% in 2020.~~increasing 20.9% during 2021. In Europe, the CEMA Business Barometer reports that ~~in June 2021,~~ the general business climate index for the European agricultural machinery industry ~~rose~~continues to ~~its highest level since 2008.~~fall but is holding at a positive level. The favorable index peaked in June 2021 and has since continued to ~~decline slightly through October.~~decline. The report further noted that ~~uncertainty exists related to the ability to realize incoming orders due to extreme~~ price increases and shortages on the supplier ~~shortages, with~~side continue to challenge the industry heavily and many companies ~~expecting~~are planning a temporary production ~~stoppage~~stop due to ~~lack~~a shortage of ~~certain parts.~~parts in the upcoming weeks. The Committee for European Construction Equipment (“CECE”) business climate index reports that the ~~boom of~~index saw a large drop in March in 2022. Further noted was that incoming orders and sales in Europe remain on a consistent growth path but that supply-chain disruptions remain the European construction equipment sector continues and the index remains at extremely high levels. Consistent with the CEMA Business Barometer, the CECE business climate index reported that the strong demand cannot be fully realized due to supply side bottlenecks.greatest challenge for businesses.

Electronics

The Federal Reserve’s Industrial Production Index, which measures the real output of all relevant establishments located in the U.S., reports first quarter 2022 sales of semiconductors and other electronics components ~~increased slightly during~~was flat over the ~~second and third quarters~~fourth quarter of 2021 after ~~decreasing in~~increasing consistently since the ~~first quarter~~end of ~~2021. The index continues to exceed fourth quarter 2019 levels and surpassed fourth quarter 2020 levels during~~ the ~~second~~first quarter of 2021. The Institute of Printed Circuits Association (“IPC”) reported that total North American printed circuit board (“PCB”) shipments ~~increased 2.3%~~decreased 11.7% in ~~September 2021~~March 2022 compared with the same month last year; compared with ~~August 2021, September~~February 2022, March shipments grew ~~18.4%~~5.6%. The IPC also reported that North American electronics manufacturing services (“EMS”) shipments were ~~down 9.9%~~up 2.3% in ~~September 2021~~March 2022 compared with the same month last year; compared with ~~August 2021, September~~February 2022, March shipments ~~fell 0.8%~~grew 14.3%. ~~While the IPC reported that demand~~Demand continues to exceed supply for both PCB and EMS ~~production is high, shipments remain constrained due to component shortages~~products as the book-to-bill ratios were 1.05 and ~~other disruptions~~1.44 in March, respectively, as reported by the ~~supply chain. However,~~ICP. Further noted was the ~~report further indicated that the PCB sector saw strong shipment growth~~slowdown in ~~September,~~incoming orders in recent months, which ~~is a hopeful sign that production levels are improving after two months~~indicates early signs of ~~lower-than-expected deliveries.~~slowing demand.

~~2021 Third~~2022 First Quarter Results and Comparison of the Three ~~and Nine~~ Months Ended ~~October~~April 2, ~~2021~~2022 and ~~September 26, 2020~~April 3, 2021

(in millions except per share data)


	Three Months Ended											Three Months Ended
	October 2, 2021			September 26, 2020			$ Change		% Change			April 2, 2022			April 3, 2021			$ Change		% Change
Net sales	$	223.2		$	122.6		$	100.6		82.1	%	$	240.5		$	204.8		$	35.7		17.4	%
Gross profit	$	80.9		$	46.9		$	34.0		72.5	%	$	83.6		$	75.4		$	8.2		10.9	%
Gross profit %		36.2	%		38.3	%							34.8	%		36.8	%
Operating income	$	40.7		$	18.3		$	22.4		122.4	%	$	42.9		$	34.6		$	8.3		24.0	%
Operating income %		18.2	%		14.9	%							17.8	%		16.9	%
Net income	$	27.8		$	13.0		$	14.8		113.8	%	$	30.5		$	22.6		$	7.9		35.0	%
Basic and diluted net income per common share	$	0.86		$	0.40		$	0.46		115.0	%
Diluted net income per share												$	0.94		$	0.70		$	0.24		34.3	%

	Nine Months Ended
	October 2, 2021			September 26, 2020			$ Change		% Change
Net sales	$	651.5		$	371.4		$	280.1		75.4	%
Gross profit	$	238.5		$	143.5		$	95.0		66.2	%
Gross profit %		36.6	%		38.6	%
Operating income	$	117.4		$	25.0		$	92.4		369.6	%
Operating income %		18.0	%		6.7	%
Net income	$	81.0		$	8.7		$	72.3		831.0	%
Basic and diluted net income per common share	$	2.51		$	0.27		$	2.24		829.6	%

~~Third~~First quarter consolidated net sales ~~increased $100.6~~totaled $240.5 million, ~~82.1%, compared with~~an increase of $35.7 million over the prior-year ~~period.~~first quarter. Acquisition growth accounted for $7.2 million of the increase and we experienced significant organic growth of $28.5 million, 13.9%. Changes in foreign currency exchange rates ~~favorably impacted~~compared to the first quarter of 2021, had an unfavorable impact on sales for the quarter ~~by $1.1~~totaling $4.7 million, 0.5%, with no impact to earnings per share. Pricing changes impacted the 2021 third quarter organic sales by $0.7 million compared with the prior-year period. Acquisitive growth accounted for a large portion of the increase in sales, $63.7 million, over the prior-year period. In addition, we experienced strong organic growth of $36.9 million, 30.1%, compared with the prior-year period, which resulted from improved demand in all regions of both segments as our markets recovered from the significant impacts of the COVID-19 pandemic during the 2020 year.

Consolidated net sales for the year-to-date period increased $280.1 million, 75.4%, compared with the prior-year period. Changes in foreign currency exchange rates favorably impacted sales for the first nine months of 2021 by $13.8 million, 2.1%2.0%, and earnings per share by ~~$0.05. The effect of pricing changes impacted~~$0.02. Price increases added $9.6 million to first quarter organic sales ~~by $0.7 million for~~compared with the ~~nine months ended October 2, 2021,~~prior-year period. Organic sales improved in all regions compared to the ~~prior-year period. Acquisition-related sales for the year-to-date period totaled $180.2 million and we experienced significant organic growth, $99.9 million, 26.9%, compared~~first quarter of 2021, with the ~~2020 period. The organic growth is attributable to improved demand~~Americas and Europe, the Middle East, and Africa ("EMEA") regions growing 21.5% and 18.7%, respectively, and Asia Pacific ("APAC") expanding by 4.0%, excluding the impact of changes in ~~all regions and~~foreign currency exchange rates. Sales in most of our end markets asimproved over the ~~economy recovered from~~first quarter of 2021, with our mobile equipment and health and wellness end markets leading the ~~COVID-19 pandemic. Year-to-date sales for 2020 were unfavorably impacted by facility closures, customer shut-downs and regulatory restrictions imposed on shipments.~~growth.

Gross profit ~~trended upward~~grew by $8.2 million in the ~~third~~first quarter of 2022 compared with the ~~third~~first quarter of ~~2020~~2021 primarily due to ~~the~~ increased sales volume. ~~Third quarter gross~~Gross margin declined by ~~2.1~~2.0 percentage points compared with the prior-year ~~period, as manufacturing labor efficiencies and improved leverage of our fixed cost base on the higher sales were offset~~first quarter driven by increases in logistics and raw material costs ~~and~~which were not fully absorbed by the addition of sales from our recently acquired businesses, which have different margin profiles compared to our historical businesses (higher material and production costs with lower selling, engineering and administrative (“SEA”) costs).price increases. Material costs as a percentage of sales, excluding pricing changes and acquisition-related sales, increased in the ~~third~~first quarter by ~~1.2~~4.1 percentage points compared to the ~~prior year third quarter driven by increasing raw material costs primarily from supply shortages, higher freight and logistics costs and a change in sales mix.~~prior-year first quarter. We have passed on certain material and freight cost increases to customers by implementing price ~~increases, some of which will primarily be realized in future quarters.~~increases.

Gross profit for the first nine months of 2021 increased $95.0 million, 66.2%, compared with the same period of 2020, primarily due to the increased sales volume and a favorable impact from changes in foreign currency exchange rates totaling $4.3 million. Gross margin declined 2.0 percentage points over the prior-year period as manufacturing labor efficiencies and improved leverage of our fixed cost base on the higher sales were offset by material and freight cost increases and the different margin profile of our recently acquired businesses. Material costs as a percentage of sales, excluding pricing changes and acquisition-related sales, increased in the year-to-date period by 3.2 percentage points compared to the prior year-to-date period, primarily a result of raw material price increases driven by supply shortages, higher freight and logistics costs and a change in sales mix.

Operating income as a percentage of sales increased ~~3.3~~0.9 percentage points to ~~18.2%~~17.8% in the ~~third~~first quarter of ~~2021~~2022 compared to ~~14.9%~~16.9% in the prior-year ~~period, primarily from continued cost management initiatives and improved~~period. Acquisition related amortization declined $3.2 million as the sales order backlog intangible acquired with the Balboa acquisition was fully amortized in the second quarter of 2021. Improved leverage of our selling, engineering and administrative ("SEA") level fixed cost base on the higher sales ~~volume. This positive impact~~volume was reduced by the gross margin level changes and increases in ~~acquisition-related~~payroll and benefit costs ~~of $2.8 million for intangible amortization, $0.6 million for amortization of inventory step-up~~ to fair value and $0.6 million of professional fees for acquisition and integration-related activities. The prior year third quarter included non-recurring costs totaling $0.6 million related to the separation of a former officer of the Company.

~~For the first nine months of 2021,~~support our operating income as a percentage of sales increased 11.3 percentage points to 18.0%. During the first quarter of 2020, current and expected economic impacts from the COVID-19 pandemic led to a goodwill impairment charge of $31.9 million. Excluding the impairment charge in 2020, operating income as a percentage of sales for the first nine months of 2021 improved 2.7 percentage points, up from 15.3%, as a result of continued cost management initiatives and improved leverage of our fixed cost base on higher sales volume, partially offset by increases in acquisition-related costs including $12.0 million for intangible amortization, $0.6 million for amortization of inventory step-up to fair value and $2.1 million of professional fees for acquisition and integration-related activities. Additionally, the 2020 year-to-date period included $2.4 million for CEO and officer transition costs.growth.

SEGMENT RESULTS

Hydraulics

The following table sets forth the results of operations for the Hydraulics segment (in millions):


	Three Months Ended											Three Months Ended
	October 2, 2021			September 26, 2020			$ Change		% Change			April 2, 2022			April 3, 2021			$ Change		% Change
Net sales	$	133.4		$	98.2		$	35.2		35.8	%	$	137.1		$	119.1		$	18.0		15.1	%
Gross profit	$	50.2		$	35.5		$	14.7		41.4	%	$	50.8		$	45.4		$	5.4		11.9	%
Gross profit %		37.6	%		36.1	%							37.1	%		38.1	%
Operating income	$	31.8		$	18.9		$	12.9		68.3	%	$	31.6		$	28.1		$	3.5		12.5	%
Operating income %		23.8	%		19.2	%							23.1	%		23.6	%

	Nine Months Ended
	October 2, 2021			September 26, 2020			$ Change		% Change
Net sales	$	385.5		$	304.1		$	81.4		26.8	%
Gross profit	$	146.5		$	112.7		$	33.8		30.0	%
Gross profit %		38.0	%		37.1	%
Operating income	$	92.2		$	62.4		$	29.8		47.8	%
Operating income %		23.9	%		20.5	%

~~Third~~First quarter net sales for the Hydraulics segment totaled ~~$133.4~~$137.1 million, an increase of ~~$35.2~~$18.0 million, ~~35.8%~~15.1%, compared with the prior-year ~~period.~~first quarter. Acquisition-related sales accounted for ~~$4.7~~$6.4 million of the increase and sales from our organic businesses improved ~~$30.5~~$11.6 million, ~~31.1%, over~~9.7%. Changes in foreign currency exchange rates compared to the ~~prior year third~~first quarter of 2021, had an unfavorable impact on sales totaling $4.5 million. Price increases added $3.9 million to first quarter sales compared with the prior-year first quarter. ~~The 2021 third quarter~~Sales growth benefited from continued end market recovery from the pandemic as we experienced improved demand in ~~all~~the Americas and EMEA regions, ~~and~~as well as many of our end markets ~~including U.S. and European agriculture and construction equipment markets as well as~~driven by the mobile and industrial equipment markets.

The segment’s supply chain ~~is experiencing~~continues to experience constraints on its ability to source certain components. While the effect on sales has been mitigated by our increased procurement efforts and production schedule adjustments, we estimate that approximately ~~$6.7~~$6.6 million of sales were delayed into future quarters due to the supply shortages. ~~Changes in foreign currency exchange rates favorably impacted sales for the quarter by $1.0 million. Pricing changes had minimal impact on third quarter sales compared with the prior-year quarter.~~

Year-to-date net sales totaled $385.5 million, an increase of $81.4 million, 26.8%, compared with the first nine months of 2020 primarily due to end market recovery from the pandemic. Changes in foreign currency exchange rates favorably impacted sales for the first nine months of 2021 by $13.5 million.

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


	Three Months Ended									Three Months Ended
	October 2, 2021		September 26, 2020		$ Change		% Change			April 2, 2022		April 3, 2021		$ Change			% Change
Americas	$	45.2	$	27.7	$	17.5		63.2	%	$	43.1	$	34.3	$	8.8			25.7	%
EMEA		44.8		32.1		12.7		39.6	%		52.9		43.3		9.6			22.2	%
APAC		43.4		38.4		5.0		13.0	%		41.1		41.5		(0.4	)		(1.0	)%
Total	$	133.4	$	98.2						$	137.1	$	119.1

	Nine Months Ended
	October 2, 2021		September 26, 2020		$ Change		% Change
Americas	$	121.2	$	99.4	$	21.8		21.9	%
EMEA		134.7		96.7		38.0		39.3	%
APAC		129.6		108.0		21.6		20.0	%
Total	$	385.5	$	304.1

Demand in the Americas region improved during the ~~third~~first quarter of ~~2021~~2022 compared to the prior-year ~~third~~first quarter as sales increased ~~$17.5~~$8.8 million, ~~63.2%~~25.7%. ~~Increased~~Improved demand ~~primarily in the agriculture and construction equipment end markets,~~ and our recent acquisition in the region generated an increase in sales to the EMEA region of ~~$12.7~~$9.6 million, ~~39.6%~~22.2%, compared with the ~~2020 third~~2021 first quarter, or ~~38.0%~~29.6% excluding ~~positive~~negative impacts from foreign currency exchange rate fluctuations totaling ~~$0.5~~$3.2 million. Sales to the APAC region ~~grew $5.0~~declined $0.4 million, ~~13.0%~~1.0%, compared with the ~~third~~first quarter of ~~2020, or 11.7%~~2021, but improved 2.2% excluding ~~positive~~negative impacts from foreign currency exchange rate fluctuations totaling ~~$0.5~~$1.3 million. ~~The APAC growth primarily resulted from increased demand in Korea and China.~~

Demand in the Americas region improved during the first three quarters of 2021 compared to the prior-year period as sales increased $21.8 million, 21.9%. We experienced significant sales growth in the EMEA region during the 2021 year-to-date period, an increase of $38.0 million, 39.3%, over the prior-year period, or 30.9% excluding positive impacts from foreign currency exchange rate fluctuations totaling $8.1 million. The increase was primarily driven by demand in the European agriculture and construction equipment end markets as well as our recent acquisition in the region. APAC sales improved by $21.6 million, 20.0%, over the prior year-to-date period, or 14.9% after excluding positive impacts from foreign currency exchange rate fluctuations totaling $5.5 million. Demand in China, Korea and Australia were the primary contributors to sales growth in the APAC region.23

In the ~~third~~first quarter of ~~2021,~~2022, gross profit increased ~~$14.7~~$5.4 million, ~~41.4%~~11.9%, compared with the same quarter of the prior year primarily due to ~~the~~ higher sales volume. Changes in foreign currency exchange rates compared to the first quarter of 2021 reduced gross profit by $1.5 million. Gross profit margin ~~improved~~declined over the ~~third quarter of 2020, increasing 1.5~~same period by 1.0 percentage point to ~~37.6%. Fixed~~37.1% as price increases and fixed cost leverage on the higher sales ~~production~~were more than offset by increases in material, logistics and labor ~~efficiencies~~costs and ~~a favorable sales mix led to~~ the ~~improvement. Increases in freight and logistics costs totaling $0.9 million negatively impacted third quarter gross margin.~~

~~During the year-to-date, period gross profit improved by $33.8 million, 30.0%, over the prior-year period due to sales volume and a favorable impact~~unfavorable impacts from ~~changes in~~ foreign currency rates of $4.1 million. Gross profit margin for the first nine months of 2021 increased 0.9 percentage points to 38.0% as we benefited from improved leverage of our fixed manufacturing costs on the higher sales volume and improved labor efficiencies, which were offset by increased material and freight costs. Increases in freight and logistics costs, totaling $3.0 million, negatively impacted gross margin for the year-to-date period.exchange rates. Material costs as a percentage of sales, excluding pricing changes and acquisition-related sales, increased in the first ~~nine months of 2021~~quarter by ~~2.1~~1.8 percentage points compared to the ~~prior-year period, a result of a change in sales mix and the higher freight and material prices.~~prior year first quarter.

SEA expenses increased ~~$1.8~~$1.9 million, ~~10.8%~~11.0%, in the ~~third~~first quarter of ~~2021~~2022 compared with the same period of the prior year. ~~During 2020, we instituted strict cost control measures~~SEA costs from our recent acquisitions and increases in ~~light of~~payroll and benefit costs were the ~~COVID-19 pandemic and its expected impacts on~~primary drivers. Additionally, the ~~world economies and our operations. While~~segment incurred $0.3 million in costs related to travel and marketing continue to be low, 2021 SEA costs represent a return to a more normalized level. Personnel costs are increasing as we scale up to support increased demand and expect higher payout of performance-based incentive compensation.various restructuring activities during the first quarter. Increased leverage of our fixed cost base on higher sales led to SEA as a percent of sales decreasing ~~3.1~~0.5 percentage points during the quarter to ~~13.8%~~14.0% compared to the ~~2020 third~~2021 first quarter.

Year-to-date SEA expenses increased $4.0 million, 8.0%, in 2021 compared with the prior-year period driven primarily by personnel cost and higher R&D spend. SEA as a percent of sales decreased 2.5 percentage points to 14.1% in 2021 from 16.5% in 2020, a result of improved leverage of fixed costs on the higher sales.

As a result of the impacts to gross profit and SEA noted above, ~~third~~first quarter operating income increased ~~$12.9~~$3.5 million, ~~68.3%~~12.5%, compared with the ~~third~~first quarter of the prior year, ~~and~~while operating margin ~~improved 4.6~~declined 0.5 percentage points to ~~23.8%~~23.1%. ~~Operating income for the year-to-date period increased $29.8 million, 47.8%, with operating margin strengthening 3.4 percentage points to 23.9% compared to the same period of the prior year.~~

Electronics

The following table sets forth the results of operations for the Electronics segment (in millions):


	Three Months Ended											Three Months Ended
	October 2, 2021			September 26, 2020			$ Change		% Change			April 2, 2022			April 3, 2021			$ Change		% Change
Net sales	$	89.8		$	24.4		$	65.4		268.0	%	$	103.4		$	85.7		$	17.7		20.7	%
Gross profit	$	31.3		$	11.4		$	19.9		174.6	%	$	32.8		$	30.0		$	2.8		9.3	%
Gross profit %		34.9	%		46.8	%							31.7	%		35.0	%
Operating income	$	18.4		$	4.7		$	13.7		291.5	%	$	20.5		$	18.3		$	2.2		12.0	%
Operating income %		20.5	%		19.2	%							19.8	%		21.4	%

	Nine Months Ended
	October 2, 2021			September 26, 2020			$ Change		% Change
Net sales	$	266.0		$	67.3		$	198.7		295.2	%
Gross profit	$	92.5		$	30.8		$	61.7		200.3	%
Gross profit %		34.8	%		45.7	%
Operating income	$	56.3		$	10.4		$	45.9		441.3	%
Operating income %		21.2	%		15.5	%

~~Third~~First quarter net sales for the Electronics segment totaled ~~$89.8~~$103.4 million, an increase of ~~$65.4~~$17.7 million compared with the prior-year period. Acquisition-related sales totaling $59.0 million were contributed by Balboa Water Group. The segment also realized solid organic growth of $6.4 million, 26.2%, compared with the prior year thirdfirst quarter. During the 2020 year, we experienced significant demand reductions caused by the COVID-19 pandemic as many of our customers shut down operations for a period of time and several of our large OEM customers adjusted the timing of order request dates into later quarters. Pricing changesPrice increases added ~~$0.7~~$5.7 million of sales to the 2022 first quarter compared to the 2021 ~~third quarter organic~~first quarter. Changes in foreign currency exchange rates minimally impacted sales ~~compared with~~for the ~~prior-year period.~~quarter.

Year-to-date net sales for the Electronics segment totaled $266.0 million, an increase of $198.7 million compared with the prior-year period. Acquisition-related sales totaling $175.5 million were contributedFirst quarter growth was primarily driven by ~~Balboa Water Group. The segment also realized considerable organic growth~~improved demand in the first nine months of 2021 totaling $23.2 million, 34.5%, compared with the same period of 2020. Price increases on organic sales during the first nine months of 2021 compared with the prior-year period totaled $1.2 million.

~~Demand in the~~our health and wellness ~~industries has been strengthened by the pandemic as consumers invest in health and leisure products. The same trend is occurring in the U.S. recreational vehicle~~ and recreational ~~marine~~end markets, ~~in which demand~~as well as successful capacity improvement initiatives. The segment's supply chain continues to remain strong. We have taken swift and successful actions to expand production capacity in an effort to fulfill the high incoming order levels for our products. The segments’ supply chain is experiencingexperience constraints on its ability to source certain electronic and other components. While the effect on sales has been mitigated by our increased procurement efforts and production schedule adjustments, we estimate that approximately ~~$9.8~~$11.0 million of sales were delayed into future quarters due to the ~~supply~~ shortages. ~~Changes in exchange rates had a minimal impact on third quarter and year-to-date sales.~~

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


	Three Months Ended									Three Months Ended
	October 2, 2021		September 26, 2020		$ Change		% Change			April 2, 2022		April 3, 2021		$ Change		% Change
Americas	$	64.2	$	21.4	$	42.8		200.0	%	$	77.7	$	65.0	$	12.7		19.5	%
EMEA		11.1		1.5		9.6		640.0	%		11.8		9.3		2.5		26.9	%
APAC		14.5		1.5		13.0		866.7	%		13.9		11.4		2.5		21.9	%
Total	$	89.8	$	24.4						$	103.4	$	85.7

	Nine Months Ended
	October 2, 2021		September 26, 2020		$ Change		% Change
Americas	$	193.3	$	56.4	$	136.9		242.7	%
EMEA		31.5		5.9		25.6		433.9	%
APAC		41.2		5.0		36.2		724.0	%
Total	$	266.0	$	67.3

During the ~~third~~first quarter ~~and year-to-date period~~ of ~~2021,~~2022, we experienced ~~significant growth in all regions, which was primarily attributable to the acquisition of Balboa Water Group as well as robust organic~~strong growth in all regions. ~~Sales~~Shipments to the Americas region improved during the first ~~three quarters~~quarter of ~~2021 accounted for 72.7% of total segment~~2022 compared to the prior-year first quarter as sales ~~a decrease from 83.8% in~~increased $12.7 million, 19.5%. Sales to the ~~2020 comparable period, which is due to a variation in the regional footprint of Balboa. Similarly, sales to~~ EMEA and APAC regions increased by $2.5 million each compared to ~~11.8% and 15.5% of total segment sales for~~ the ~~year-to-date period, respectively.~~2021 first quarter.

~~Third~~24

First quarter gross profit increased ~~$19.9~~$2.8 million compared with the ~~third~~first quarter of the prior year, primarily due to the increased sales volume. Gross profit margin for the same period decreased by ~~11.9~~3.3 percentage ~~points, primarily from the addition of sales from Balboa, which have a different margin profile compared~~points. The segment continues to ~~our historical business (higher material and production costs with lower SEA costs). Additionally, the segment experienced an increase~~experience increases in raw material and freight and logistics costs, ~~during the quarter~~ due to ~~the~~ high demand and shortages of materials in the market for electronic and other components used in our products. We have been implementing price increases, which have offset some of the impact. Material costs as a percentage of sales, excluding pricing changes, ~~and acquisition-related sales,~~ increased in the ~~third~~first quarter by ~~10.5 percentage points compared to the prior year third quarter, a result of the raw material and freight costs increases.~~

For the first nine months of 2021 gross profit increased $61.7 million compared with the 2020 period. Gross profit margin for the same period decreased 10.9 percentage points driven by our acquisition of Balboa, which has a different margin profile from our historical business and the rising raw material and freight and logistics costs. Material costs as a percentage of sales, excluding pricing changes and acquisition-related sales, increased in the year-to-date period by 8.26.8 percentage points compared to the prior-year ~~period, a result of~~quarter. Additionally, increases in overhead costs related to wages, depreciation, maintenance and supplies also unfavorably impacted the ~~raw material and freight costs increases.~~

results for the quarter compared to the prior-year first quarter.

SEA expenses increased by ~~$6.2~~$0.6 million in the ~~third~~first quarter of ~~2021,~~2022, compared with the ~~third~~first quarter of ~~2020, primarily from the addition of Balboa.~~2021. SEA costs as a percentage of sales decreased 1.8 percentage points to ~~14.4%~~11.9% in the ~~third~~first quarter of ~~2021~~2022 compared to ~~27.5%~~13.7% in the prior-year ~~third quarter. SEA expenses increased by $15.8 million in the~~ first nine months of 2021 compared with the same period of 2020. SEA costs as a percentage of sales decreased to 13.6% in the current year-to-date period compared to 30.3% in the prior-year period. The improvement in SEA as a percentage of sales is due to the cost structure of Balboa as well asquarter from increased leverage onof our fixed costs ~~due to~~on the higher sales, ~~in our legacy business,~~ partially offset by an increase in personnel costs to support ~~the~~our increase in ~~operations and expected higher payout of performance-based incentive compensation.~~operations.

As a result of the impacts to gross profit and SEA costs noted above, operating income increased ~~$13.7 million and $45.9~~$2.2 million during the ~~third~~first quarter ~~and year-to-date period of 2021, respectively,~~ compared to the prior-year ~~periods.~~period and operating margin declined 1.6 percentage points.

Corporate and Other

Certain costs are excluded from business segment results as they are not used in evaluating the results of, or in allocating resources to, our operating segments. For the ~~third~~first quarter of ~~2021,~~2022, these costs totaled ~~$9.5~~$9.3 million for (i) transition costs for one of ~~which $7.4~~our executive officers of $0.3 million, ~~was~~(ii) amortization of acquisition-related intangible assets ~~$1.5~~of $7.0 million ~~was for~~and (iii) $2.0 million related to other acquisition and integration-related costs and $0.6 million was for acquisition-related inventory step up amortization. Year-to-date, corporate and other costs totaled $31.1 million, of which $25.3 million was amortization of acquisition-related intangible assets, $4.6 million was for other acquisition and integration-related costs, $0.6 million was for acquisition-related inventory step up amortization and $0.6 million costs related to the separation of a corporate officer.integration activities.

Interest Expense, net

Net interest expense ~~increased~~decreased $1.0 million to $3.8 million in the ~~third~~first quarter of ~~2021~~2022 compared with ~~$2.7~~$4.8 million in the prior-year first quarter. The ~~change~~decrease is ~~attributable to increased borrowings used to fund~~primarily a result of lower debt balances during the ~~acquisitions~~first quarter of ~~Balboa in November 2020 and NEM in July 2021.~~2022. Average net debt ~~increased~~decreased to ~~$413.2 million for the third quarter compared with $239.2~~$410.8 million during the ~~third~~first quarter of ~~2020. Year-to-date net interest expense was up to $13.0 million~~2022 compared with ~~$8.6~~$431.7 million during the ~~comparable 2020 period. Average net debt for the 2021 year-to-date period totaled $430.4 million compared with $253.1 million in the same period~~first quarter of ~~2020. The increase is due to borrowings used to fund the acquisitions of Balboa and NEM.~~2021.

Income Taxes

The provision for income taxes for the ~~third~~first quarter of ~~2021~~2022 was ~~25.5%~~22.4% of pretax income compared to ~~20.7%~~23.2% for the prior-year ~~third~~first quarter. ~~The year-to-date provision was 22.0% and 16.9% of pretax income for 2021 and 2020, respectively, after adjusting for the impact of the 2020 goodwill impairment charge.~~ These effective rates fluctuate relative to the levels of income and different tax rates in effect among the countries in which we sell our products.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was enacted into law in response to the COVID-19 pandemic. The Company has evaluated the various income and payroll tax provisions and expects little or no impact to income tax expense. However, the Company is taking advantage of the various payment deferments allowed and employee retention credits afforded by the CARES Act and other similar state and/or foreign liquidity measures. The CARES Act allowed employers to defer the deposit and payment of the employer's share of Social Security taxes. ~~The total amount~~We deferred as50% of the $1.7 million in payroll taxes normally due between March 27, 2020 and December 31, ~~2020~~2020. We paid 50% of this amount during the fourth quarter of 2021. The remaining balance will be paid during the fourth quarter of 2022 and is ~~$1.5 million, of which 50% is due by December 31, 2021~~included in the Accrued compensation and ~~50% is due by December 31, 2022.~~benefits line item in the accompanying Consolidated Balance Sheets.

3125

LIQUIDITY AND CAPITAL RESOURCES

Historically, our primary source of capital has been cash generated from operations. In recent years, we have used borrowings on our credit facilities to fund acquisitions. During the first ~~nine~~three months of ~~2021,~~2022, cash provided by operating activities totaled ~~$82.0~~$14.7 million. At the end of the ~~third~~first quarter, we had ~~$47.7~~$33.0 million of available cash and cash equivalents on hand and ~~$120.9~~$159.4 million of available credit on our revolving credit facilities. We also have a $300.0 million accordion feature available on our credit facility, subject to certain pro forma compliance requirements, intended to support potential future acquisitions.

Our principal uses of cash have been paying operating expenses, making capital expenditures, servicing debt, making acquisition-related payments and paying dividends to shareholders.

We believe that cash generated from operations and our borrowing availability under our credit facilities will be sufficient to satisfy our operating expenses. In the event that economic conditions were to severely worsen for a protracted period of time, we would have several options available to ensure liquidity in addition to increased borrowings. Capital expenditures could be postponed since they primarily pertain to long-term improvements in operations, operating expense reductions could be made and finally, the dividend to shareholders could be reduced or suspended.

Cash Flows

The following table summarizes our cash flows for the periods (in millions):


	Nine Months Ended									Three Months Ended
	October 2, 2021			September 26, 2020			$ Change			April 2, 2022			April 3, 2021			$ Change
Net cash provided by operating activities	$	82.0		$	77.0		$	5.0		$	14.7		$	15.1		$	(0.4	)
Net cash used in investing activities		(68.2	)		(9.0	)		(59.2	)		(2.7	)		(7.5	)		4.8
Net cash provided by (used in) financing activities		4.3			(54.3	)		58.6
Net cash used in financing activities											(8.8	)		(9.5	)		0.7
Effect of exchange rate changes on cash		4.4			(3.4	)		7.8			1.3			2.6			(1.3	)
Net increase in cash	$	22.5		$	10.3		$	12.2		$	4.5		$	0.7		$	3.8

Cash on hand increased ~~$22.5~~$4.5 million from ~~$25.3~~$28.6 million at the end of ~~2020~~2021 to ~~$47.7~~$33.1 million as of ~~October~~April 2, ~~2021.~~2022. Changes in exchange rates during the ~~nine~~three months ended ~~October~~April 2, ~~2021~~2022 favorably impacted cash and cash equivalents by ~~$4.4~~$1.3 million. Cash balances on hand are a result of our cash management strategy, which focuses on maintaining sufficient cash to fund operations while reinvesting cash in the Company and paying down borrowings on our credit facilities.

Operating activities

Cash from operations totaled ~~$82.0~~$14.7 million during the first ~~three quarters~~quarter of ~~2021, an increase~~2022, a decrease of ~~$5.0~~$0.4 million compared to the prior-year period. ~~Year-to-date~~Current quarter cash earnings (calculated as net income plus adjustments to reconcile net income to net cash provided by operating activities, excluding changes in net operating assets and liabilities) increased by ~~$55.9~~$6.9 million over the prior-year ~~period; however, changes~~first quarter. Changes in net operating assets and liabilities reduced cash by ~~$50.9~~$7.3 million, compared to the prior-year ~~period,~~first quarter, as higher working capital levels ~~are~~were required to support our significant increase in operations. ~~Changes~~Strategic investments in inventory reduced cash by ~~$35.8~~$15.5 million and $10.8 million in the first ~~nine months~~quarter of 2022 and 2021, ~~compared to an~~respectively. The increase in ~~cash of $7.8 million during the first nine months of 2020. Supply shortages, primarily in the Electronics segment, are driving up~~ inventory levels is primarily from supply chain challenges such as ~~we are purchasing inventory~~(i) making earlier purchases of material to avoid shortages, ~~and~~(ii) inventory on hand that is waiting on ~~parts~~delayed components to complete ~~products.~~and (iii) delayed orders by customers after we have already started the production process. Days of inventory on hand ~~decreased~~increased to 92100 days as of ~~October~~April 2, ~~2021,~~2022, compared with 9881 days as of ~~September 26, 2020, positively impacted by the addition of Balboa’s operations.~~April 3, 2021. Changes in accounts receivable reduced cash by ~~$36.6~~$17.4 million and ~~$4.7~~$28.1 million in the first ~~nine months~~quarter of ~~2021~~2022 and ~~2020,~~2021, respectively. Days sales outstanding increased slightly to 5657 days as of ~~October~~April 2, ~~2021~~2022 from 5355 days as of ~~September 26, 2020,~~April 3, 2021, as our collection patterns remain fairly consistent with the prior period.

3226

Investing activities

Capital expenditures totaled ~~$17.1~~$5.6 million for the first ~~nine months~~quarter of ~~2021,~~2022, an increase of ~~$9.9~~$0.6 million over the prior-year comparable period. ~~Due to the economic conditions and uncertainty of future cash flows during the 2020 period, the Company only funded critical capital expenditure projects.~~ Capital expenditures for ~~2021~~2022 are forecasted to be approximately ~~$25.0 to $27.0 million, primarily~~3%-5% of sales, for investments in machinery and equipment for capacity expansion projects, improvements to manufacturing technology and maintaining/replacing existing machine capabilities.

Cash ~~used for acquisition-related~~provided from acquisition related activities in the first ~~three quarters~~quarter of 2022 totaled $1.3 million, compared to cash used in the 2021 ~~totaled $50.9~~first quarter of $3.4 million. ~~The cash outflows were primarily used to fund the acquisition of NEM and acquire the net assets of BJN Technologies, LLC.~~

Financing activities

Cash ~~provided by~~used for financing activities totaled ~~$4.3~~$8.8 million during the first ~~nine months~~quarter of ~~2021,~~2022, compared with cash used of ~~$54.3~~$9.5 million in the prior-year ~~period. During the 2021 period, the Company received proceeds from borrowings on its revolving credit facility to fund the acquisition of NEM. Borrowings,~~first quarter. Repayments, net of ~~repayments,~~borrowings, on our credit facilities totaled ~~$14.5~~$4.3 million for the first ~~three quarters~~quarter of ~~2021~~2022 compared to net repayments of ~~$44.7~~$5.9 million during the same period of ~~2020.~~2021.

During the ~~third~~first quarter of ~~2021,~~2022, we declared a quarterly cash dividend of $0.09 per share payable on ~~October~~April 20, ~~2021,~~2022, to shareholders of record as of ~~October~~April 5, ~~2021.~~2022. The declaration and payment of future dividends is subject to the sole discretion of the ~~Board~~board of ~~Directors,~~directors, and any determination as to the payment of future dividends will depend upon our profitability, financial condition, capital needs, future prospects and other factors deemed pertinent by the ~~Board~~board of ~~Directors.~~directors.

Off Balance Sheet Arrangements

We do not engage in any off-balance sheet financing arrangements. In particular, we do not have any material interest in variable interest entities, which include special purpose entities and structured finance entities.

Inflation

As more fully described in Item 2 above, we are experiencing supply shortages and increasing material and logistics costs. Continued increases in the global demand for the materials used in our products could result in significant increases in the costs of the components we purchase, and we may not be able to fully offset such higher costs through price increases. There is no assurance that our business will not be materially affected by inflation in the future.

Critical Accounting Policies and Estimates

We currently apply judgment and estimates that may have a material effect on the eventual outcome of assets, liabilities, revenues and expenses for impairment of long-lived assets, inventory, goodwill, accruals, income taxes and fair value measurements. Our critical accounting policies and estimates are included in our Form 10-K, and any changes made during the first ~~nine~~three months of ~~2021,~~2022, are disclosed in Note 2 to the Consolidated, Unaudited Financial Statements.

3327

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

See “Item 7A – Quantitative and Qualitative Disclosures about Market Risk” in our Form 10-K. There were no material changes during the ~~nine~~three months ended ~~October~~April 2, ~~2021.~~2022.

Item 4. CONTROLS AND PROCEDURES.

The Company’s management, with the participation of the Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of the Company’s “disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report, have concluded that our disclosure controls and procedures are effective and are designed to ensure that the information we are required to disclose is recorded, processed, summarized and reported within the necessary time periods. Our disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in reports that we file or submit pursuant to the Securities Exchange Act of 1934, as amended, is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

There were no changes in our internal control over financial reporting identified in management's evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Securities Exchange Act of 1934, as amended, during the period covered by this report that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

3428

PART II: OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS.

None.

Item 1A. RISK FACTORS.

In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the risk factors that affect our business and financial results that are discussed in Part I, Item 1A, “Risk Factors” of our Form 10-K. These factors could materially adversely affect our business, financial condition, liquidity, results of operations and capital position, and could cause our actual results to differ materially from our historical results or the results contemplated by the forward-looking statements contained in this report. There have been no material changes to such risk factors.

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

In July 2021, we issued 134,621 shares of Helios common stock in a private placement under Section 4(2) of the Securities Act of 1933. The shares of Helios common stock were issued to the sellers as partial funding of our acquisition of HE-DI S.r.l., an Italian limited liability company and the owner of 100% of the share capital of NEM. The sellers are not entitled to registration rights.None.

Item 3. DEFAULTS UPON SENIOR SECURITIES.

None.

Item 4. MINE SAFETY DISCLOSURES.

Not applicable.

Item 5. OTHER INFORMATION.

None.

3529

Item 6. EXHIBITS.

Exhibits:


Exhibit Number		Exhibit Description

31.1		CEO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		CFO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		CEO Certification pursuant to 18 U.S.C. § 1350.

32.2		CFO Certification pursuant to 18 U.S.C. § 1350.

101.INS		XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

101.SCH		XBRL Schema Document

101.CAL		XBRL Calculation Linkbase Document

101.DEF		XBRL Definition Linkbase Document

101.LAB		XBRL Label Linkbase Document

101.PRE		XBRL Presentation Linkbase Document

104		The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended ~~October~~April 2, ~~2021,~~2022, has been formatted in Inline XBRL.

3630

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


Date: ~~November 9, 2021~~May 10, 2022	HELIOS TECHNOLOGIES, INC.

	By:	/s/ Tricia L. Fulton
		Tricia L. Fulton
		Chief Financial Officer (Principal Financial and Accounting Officer)

3731


																Accumulated			��
										Capital in						other
	Preferred		Preferred		Common			Common		excess of			Retained			comprehensive
	shares		stock		shares			stock		par value			earnings			loss				Total

Balance at January 2, 2021		—	$	—		32,120		$	32	$	371,778		$	270,320		$	(34,340	)		$	607,790
Shares issued, restricted stock						43					36										36
Shares issued, other compensation						19															—
Shares issued, ESPP						32					1,318										1,318
Shares issued, acquisition						197					14,014										14,014
Stock-based compensation											6,233										6,233
Cancellation of shares for payment of employee tax withholding						(4	)				(1,335	)									(1,335	)
Shares repurchased						(7	)				(583	)									(583	)
Dividends declared														(8,719	)						(8,719	)
Net income														81,042							81,042
Other comprehensive loss																	(11,350	)			(11,350	)
Balance at October 2, 2021		—	$	—		32,400		$	32	$	391,461		$	342,643		$	(45,690	)		$	688,446

Balance at December 28, 2019		—	$	—		32,047		$	32	$	365,310		$	267,658		$	(55,364	)		$	577,636
Shares issued, restricted stock						12															—
Shares issued, other compensation						12															—
Shares issued, ESPP						35					1,027										1,027
Shares issued, discretionary contribution						1					45										45
Stock-based compensation											3,830										3,830
Cancellation of shares for payment of employee tax withholding						(11	)				(702	)									(702	)
Dividends declared														(8,665	)						(8,665	)
Net income														8,667							8,667
Other comprehensive income																	5,978				5,978
Balance at September 26, 2020		—	$	—		32,096		$	32	$	369,510		$	267,660		$	(49,386	)		$	587,816


	Number of			Weighted Average
	Shares / Units			Grant-Date
	(in thousands)			Fair Value per Share
Nonvested balance at January 2, 2021		239		$	38.95
Granted		102			54.79
Vested		(77	)		41.36
Forfeited		(19	)		45.36
Nonvested balance at October 2, 2021 (1)		245		$	44.28


					October 2, 2021
	Options		Option Exercise		Options		Options		Options
Date of Grant	Granted		(Strike) Price		Forfeited		Outstanding		Exercisable
February 28, 2020		18	$	39.75		11		5		2
July 1, 2020		5		35.04		—		3		2
January 28, 2021		18		55.30		1		17		—
Total		41				12		25		4

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller Reporting Company

Emerging growth company