HLIO Helios Technologies, Inc. - 10-K
0001193125-26-087747Year-over-year tone shift - average net-tone change across Risk Factors and MD&A vs the prior 10-K. This filing is 0.21pp more bullish than last year's.
Why YoY instead of absolute: the LM lexicon has ~6.6× more negative words than positive (legal/risk-disclosure language is heavy on hedging), so every 10-K reads bearish on raw tone. Year-over-year change strips that bias and surfaces the actual shift in management's framing.
Tone shift by section
The two components the gauge averages: how Risk Factors and MD&A each shifted in net tone versus last year's 10-K. The headline above is their average, so a green needle over a soft section just means the other section carried it.
Sentence-level sentiment highlighting with category and subcategory filters is coming once the snippet-scoring pipeline lands. For now, dig into the actual section text on the Sections tab.
Language change vs prior 10-K
Risk Factors (Item 1A) - words with the biggest YoY frequency increase- adversely+10
- adverse+4
- unable+3
- expose+3
- claims+2
- able+2
- successful+2
- effective+2
- profitability+1
- successfully+1
Risk Factors (Item 1A)
10,544 words
ITEM 1A. RISK FACTORS
FACTORS INFLUENCING FUTURE RESULTS - FORWARD-LOOKING STATEMENTS This Annual Report contains “forward-looking statements” (within the meaning of the Private Securities Litigation Reform Act of 1995) that are based on current expectations, estimates, forecasts, projections, our beliefs and assumptions made by us, including (i) our strategies regarding growth, including our intention to develop new products and undertake acquisitions and divestitures; (ii) the effectiveness of creating and operating the Centers of Excellence; (iii) our financing plans; (iv) trends affecting our financial condition or results of operations; (v) our ability to continue to control costs and to meet our liquidity and other financing needs; (vi) the declaration and payment of dividends; (vii) our ability to respond to changes in customer demand domestically and internationally, including as a result of standardization; and (viii) our ability to mitigate the impacts of changes in trade policy on our business. In addition, we may make other written or oral statements, which constitute forward-looking statements, from time to time. Words such as “may,” “expects,” “projects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” variations of such words and similar expressions are intended to identify such forward-looking statements. Similarly, statements that describe our future plans, objectives or goals also are forward-looking statements. These statements are not guarantees of future performance and are subject to a number of risks and uncertainties, including those discussed below and elsewhere in this report. Our actual results may differ materially from what is expressed or forecasted in such forward-looking statements, and undue reliance should not be placed on such statements. All forward-looking statements are made as of the date hereof, and we undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.
Factors that could cause actual results to differ materially from what is expressed or forecasted in such forward-looking statements include, but are not limited to: (i) our ability to respond to global economic trends and changes in customer demand domestically and internationally, including as a result of standardization and the cyclical nature of our business, which can adversely affect the demand for capital goods, (ii) supply chain disruption and the potential inability to procure goods; (iii) conditions in the capital markets, including the interest rate environment and the continued availability of capital on terms acceptable to us, or at all; (iv) global and regional economic and political conditions, including trade policy, tariffs and other trade barriers, inflation (or hyperinflation), exchange rates, changes in the cost or availability of energy, transportation, the availability of other necessary supplies and services and recession; (v) changes in the competitive marketplace that could affect our revenue and/or cost basis, such as increased competition, lack of qualified engineering, marketing, management or other personnel and increased labor and raw materials costs; (vi) risks related to health epidemics, pandemics and similar outbreaks, which may have material adverse effects on our business, financial position, results of operations and/or cash flows; (vii) risks related to our international operations, including the potential impact from ongoing geopolitical conflicts in Ukraine and the Middle East; (viii) risks related to our recent management transitions; (ix) new product introductions, product sales mix and the geographic mix of sales nationally and internationally; (x) stakeholders', including regulators', views regarding our environmental, social and governance goals and initiatives, and the impact of factors outside of our control on such goals and initiatives; and (xi) the risk factors identified below together with other risks and uncertainties described elsewhere in this Annual Report and described from time to time in our future reports filed with the SEC.
Risk Factor Summary
Our business is subject to a number of risks and uncertainties. Some of these principal risks include the following:
Risks Relating to Our Business: Global Regulatory and Economic Conditions
General global economic trends and industry trends may affect our sales.
Our business could be harmed by adverse global and regional economic and political conditions, including inflation, changes in the cost or availability of energy, transportation and other necessary supplies and services, as well as the impact of tariffs.
Failure to comply with laws, regulations and policies, including the U.S. Foreign Corrupt Practices Act and U.K. Anti-Bribery Act or other applicable anti-corruption legislation, could result in fines, criminal penalties and an adverse effect on our business.
Our business is subject to a variety of governmental regulations that may restrict our business and may result in costs and penalties.
Our operations expose us to risks of non-compliance with numerous countries’ import and export laws and regulations.
Risks Relating to Our Business: Environmental, Health & Safety
We face various risks related to health epidemics, pandemics and similar outbreaks, which may have material adverse effects on our business, financial position, results of operations and/or cash flows.
Our operations are subject to environmental, health and safety laws and regulations, and we may face significant costs or liabilities associated with environmental, health and safety matters.
Climate change and increased focus by governmental and non-governmental organizations and customers on sustainability issues, including those related to climate change, may adversely affect our business and financial results.
Risks Relating to Our Business: Growth Strategy
We are subject to various risks relating to our growth strategy.
We may fail to successfully acquire or integrate companies that provide complementary products or technologies.
We are subject to intense competition.
Risks Relating to Our Business: Operations
A disruption in our supply chain or other factors impacting the distribution of our products could adversely affect our business.
If we are unable to continue our technological innovation and successful introduction of new commercial products in an efficient, cost-effective manner, our business will be adversely affected.
We are subject to fluctuations in the prices and availability of parts and raw materials and are dependent on our suppliers of these parts.
Unforeseen or recurring operational problems at any of our facilities, or other catastrophic loss of one of our key manufacturing facilities, may cause significant lost production and adversely affect our results of operations.
Efforts to improve productivity and advance product development efforts through our regional Centers of Excellence may not be successful in growing or enhancing our business.
Risks Relating to Our Business: Financial
We may need additional capital in the future, and it may not be available on acceptable terms, or at all.
Our existing indebtedness could adversely affect our business and growth prospects.
If our long-lived assets, goodwill or other intangible assets become impaired, we may be required to record significant non-cash charges to our earnings.
Fluctuations in exchange rates may affect our operating results and impact our financial condition.
Changes in tax rates, laws or regulations and the resolution of tax disputes could adversely impact our financial results.
Risks Relating to Our Business: Intellectual Property
The inability to protect our intellectual property could reduce or eliminate any competitive advantage and reduce our sales and profitability, and the cost of protecting our intellectual property may be significant.
If we are alleged to have infringed upon the intellectual property rights owned by others, our business and results of operations could be materially adversely affected.
If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.
Our use of open source software may expose us to additional risks.
Risks Relating to Our Business: Other
We are dependent upon key individuals and skilled personnel.
We are subject to risks relating to international sales.
Increased cybersecurity threats and more sophisticated and targeted computer crime and cybersecurity incidents could pose a risk to our data, systems, networks, products, solutions and services.
Due to the nature of our business and products, we may be liable for damages based on product liability and other tort and warranty claims.
We are subject to a variety of claims, investigations and litigation that could adversely affect our results of operations and harm our reputation.
Expectations relating to environmental, social and governance considerations expose the Company to potential liabilities, increased costs, reputational harm and other adverse effects on the Company's business.
Risks Relating to Our Common Stock
Future sales of our common stock in the public market or the issuance of securities senior to our common stock could adversely affect the trading price of our common stock and our ability to raise funds in new stock offerings.
We may not pay dividends on our common stock.
Risks Relating to Our Business: Global Regulatory and Economic Conditions
General global economic trends and industry trends may affect our sales. The capital goods industry in general, and our businesses, are subject to economic cycles that directly affect customer orders, lead times and sales volume. Economic downturns generally have a material adverse effect on our business and results of operations. Cyclical economic expansions provide a context where demand for capital goods is stimulated, creating higher incoming order rates for the products we produce. Higher demand can lead to part shortages, which drive costs up. If demand gets too strong, lead times can be extended, which may cause some customers to cancel orders. In the future, continued weakening or improvement in the economy will directly affect orders and influence results of operations.
Our business could be harmed by adverse global and regional economic and political conditions, including inflation, changes in the cost or availability of energy, transportation and other necessary supplies and services, as well as the impact of tariffs. We are subject to inflationary pressures on our operating costs, including labor, costs for supplies and costs for the transportation of our products. If we are not able to reduce our exposure to, mitigate the impact of or sufficiently increase our pricing to offset an increase in costs, it could materially and adversely affect our business, operating results and profitability.
Our success is dependent, in part, on our continued ability to reduce our exposure to or mitigate the impact of increases in the cost of raw materials, finished goods, energy, transportation and other necessary supplies and services through a variety of programs, including periodic purchases, future delivery purchases, long-term contracts, sales price adjustments and certain derivative instruments, while maintaining and improving margins and market share. Also, we rely on third-party manufacturers as a source for some of our products. These manufacturers are also subject to price volatility and labor cost and other inflationary pressures, which may, in turn, result in an increase in the amount we pay for sourced products. During periods of rising prices of raw materials, there can be no assurance that we will be able to pass any portion of such increases on to customers. Conversely, when raw material prices decline, customer demands for lower prices could result in lower sale prices and, to the extent we have existing inventory, lower margins. As a result, fluctuations in raw material prices could have a material adverse effect on our business, results of operations and financial condition.
Pricing and availability of finished goods, raw materials, energy, transportation and other necessary supplies and services for use in our businesses can be volatile due to numerous factors beyond our control, including general, domestic and international economic conditions, natural disasters, labor costs, production levels, competition, consumer demand, import duties and tariffs, currency exchange rates, international treaties and changes in laws, regulations and related interpretations and global political instability (such as related to the ongoing conflicts in Ukraine and in the Middle East).
Specifically, our operations and transactions depend upon favorable trade relations between the U.S. and those foreign countries in which our customers and suppliers have operations. A protectionist trade environment in either the U.S. or those foreign countries in which we do business or sell products, such as a change in the current tariff structures, export compliance laws, government subsidies or other trade policies, may adversely affect our ability to economically source materials, sell our products, or do business in foreign markets. Trade restrictions, including withdrawal from or modification of existing trade agreements, negotiation of new trade agreements and imposition of new (and retaliatory) tariffs, including the previously enacted and potentially contemplated tariffs by the current U.S. presidential administration, against certain countries or covering certain products, including developments in U.S.-China trade relations, could increase our costs, limit our ability to capitalize on current and future growth opportunities in international markets and impair our ability to expand the business. These trade restrictions, and changes in, or uncertainty surrounding, global trade policies may affect our competitive position.
Due to the fluidity of the tariff environment and potential subsequent changes to effective dates, amounts of announced tariffs, and various exemptions for imports into the U.S., we are unable to fully quantify the impact the tariffs will have on our results of operations when and if enacted. Though our expectation continues to involve leveraging our regional production capabilities, sourcing components from local suppliers, and raising our prices, which we believe may mitigate the impact of higher tariff costs, we are not able to provide assurances that we will be able to offset any or all tariff-related costs. Additionally, increased prices could impact demand for our products, including our ability to attract new customers or cause increases in existing customer attrition. If our attempts to mitigate tariff-related costs are not sufficient to offset our increased tariff-related costs adequately or in a timely manner, our business, results of operations, and our financial and/or operating costs may be adversely affected.
Our overall success as a global business depends, in part, upon our ability to succeed in differing economic, social and political conditions. We may not succeed in developing and implementing policies and strategies to counter the foregoing factors effectively in each location where we do business and the foregoing factors may cause a reduction in our sales, profitability or cash flows or cause an increase in our liabilities.
Failure to comply with laws, regulations and policies, including the U.S. Foreign Corrupt Practices Act and U.K. Anti-Bribery Act or other applicable anti-corruption legislation, could result in fines, criminal penalties and an adverse effect on our business. We are subject to regulation under a wide variety of U.S. federal and state and non-U.S. laws, regulations and policies, including anti-corruption laws, due to our global operations. In particular, the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act of 2010 and similar anti-bribery laws in other jurisdictions generally prohibit companies, their agents, consultants and other business partners from making improper payments to government officials or other persons (i.e., commercial bribery) for the purpose of obtaining or retaining business or other improper advantage. The laws also impose recordkeeping and internal control provisions on companies such as ours. We operate and/or conduct business,
and any acquisition target may operate and/or conduct business, in some parts of the world, such as China and India, that are recognized as having governmental and commercial corruption. In such countries, strict compliance with anti-bribery laws may conflict with local customs and practices. We cannot provide assurance that our or any acquisition target’s internal control policies and procedures have protected us, or will protect us, from unlawful conduct of our employees, agents, consultants and other business partners. In the event that we believe or have reason to believe that violations of anti-corruption laws may have occurred, we may be required to investigate and/or have outside counsel investigate the relevant facts and circumstances, which can be expensive and require significant time and attention from senior management. Violation may result in substantial civil and/or criminal fines, disgorgement of profits, sanctions and penalties, debarment from future work with governments, curtailment of operations in certain jurisdictions and imprisonment of the individuals involved. As a result, any such violations may materially and adversely affect our business, results of operations or financial condition. In addition, actual or alleged violations could damage our reputation and ability to do business. Any of these impacts could have a material adverse effect on our business, results of operations or financial condition.
Our business is subject to a variety of governmental regulations that may restrict our business and may result in costs and penalties. We are subject to a variety of federal, state and local laws and regulations relating to foreign business practices, labor and employment, construction, land use and taxation, among others. These laws and regulations are complex, change frequently and have tended to become more stringent over time. Failure to comply with these laws and regulations may result in a variety of administrative, civil and criminal enforcement measures, including assessment of monetary penalties and the imposition of corrective requirements. From time to time, as part of the regular overall evaluation of our operations, including newly acquired operations, we may be subject to compliance audits by regulatory authorities. In addition, any failure to comply with regulations related to the government procurement process at the federal, state or local level, or restrictions on political activities and lobbying, may result in administrative or financial penalties. These penalties may include being barred from providing services to governmental entities, which could have a material adverse effect on our results of operations.
Our operations expose us to risks of non-compliance with numerous countries’ import and export laws and regulations. Due to our significant foreign sales, we are subject to trade and import and export regulations in multiple jurisdictions, including the U.S. Treasury Department’s Office of Foreign Assets Control’s regulations. As a result, compliance with multiple trade sanctions and embargoes and import and export laws and regulations pose a constant challenge and risk to us. Furthermore, the laws and regulations concerning import activity, export recordkeeping and reporting, export control and economic sanctions are complex and constantly changing. Any failure to comply with applicable legal and regulatory trading obligations could result in criminal and civil penalties and sanctions, such as fines, imprisonment, debarment from governmental contracts, seizure of shipments, loss of import and export privileges, reputational damage and a reduction in the value of our common stock.
Risks Relating to Our Business: Environmental, Health & Safety
We face various risks related to health epidemics, pandemics and similar outbreaks, which may have material adverse effects on our business, financial position, results of operations and/or cash flows . We face various risks related to health epidemics, pandemics and similar outbreaks. The spreading of any one such health outbreaks may lead to disruption and volatility in the global capital markets, which increases the cost of capital and adversely impacts access to capital. If significant portions of our workforce are unable to work effectively, including because of illness, quarantines, government actions, facility closures or other restrictions in connection with the any health epidemic, pandemic or similar outbreak, our operations would likely be impacted. We may be unable to perform fully on our contracts, and our costs may increase as a result of such health outbreaks. These cost increases may not be fully recoverable or adequately covered by insurance.
It is possible that the spreading of any health epidemic, pandemic or similar outbreak could also cause further disruption in our supply chain; cause delay, or limit the ability of customers to perform, including in making timely payments to us; impact investment performance; and cause other unpredictable events. The nature and severity of health outbreak conditions are uncertain and adverse impacts and/or the degree of the nature and severity of such conditions may vary dramatically by geography and by business. As a result, the actions we take in response to any such conditions may also vary widely by geography and by business and will likely be made with incomplete information, and may prove to be premature, incorrect or insufficient and could have a material adverse impact on our business and results of operations.
We cannot at this time predict the impact of any health outbreaks and the effect to our workforce and potential material adverse effect on our business, financial position, results of operations and/or cash flows.
Our operations are subject to environmental, health and safety laws and regulations, and we may face significant costs or liabilities associated with environmental, health and safety matters. We are subject to a variety of federal, state, local and foreign environmental, health and safety laws and regulations concerning, among other things: the discharge of pollutants into the soil, air and water; the generation, storage, handling, use, release, disposal and transportation of hazardous materials and wastes; environmental cleanup; and the health and safety of our employees. Environmental, health and safety laws and regulations continue to evolve, and we may become subject to increasingly stringent environmental standards in the future, particularly related to air quality and water quality, which could require us to make changes to our operations or incur significant costs relating to compliance. We are also required to obtain and maintain environmental, health and safety permits and approvals for our facilities and operations. In addition, the potential impacts of climate change on our operations are highly uncertain. Although the financial impact of these potential changes is not reasonably estimable at this time, our operations in certain locations and those of our customers and suppliers could potentially be adversely affected, which could adversely affect our sales, profitability and cash flows. Our failure to comply with such laws, regulations, permits and approvals could subject us to increased employee healthcare and workers’ compensation costs, liabilities, fines and other penalties or compliance costs, and could have a material adverse effect on our business, financial condition and results of operations.
Climate change and increased focus by governmental and non-governmental organizations and customers on sustainability issues, including those related to climate change, may adversely affect our business and financial results. Scientists have concluded that increasing concentrations of greenhouse gases in the Earth’s atmosphere may produce climate changes that have significant physical effects, such as increased frequency and severity of storms, droughts, floods, wildfires and other climatic events. Increased frequency of extreme weather could cause increased incidence of disruption to the production and distribution of our products at these locations. Increasing natural disasters in connection with climate change could also be a direct threat to our third-party vendors, service providers or other stakeholders, including disruptions on supply chains or information technology or other necessary services for our operations.
Certain governmental bodies, as well as some of our customers, are beginning to respond to climate change issues. This increased focus on sustainability may result in new legislation or regulations and customer requirements that could negatively affect us as we may incur additional costs or be required to make changes to our operations in order to comply with any new regulations or customer requirements. Legislation or regulations that potentially impose restrictions, caps, taxes or other controls on emissions of greenhouse gases such as carbon dioxide, a by-product of burning fossil fuels such as those used in our supply chain, could adversely affect our operations and financial results.
More specifically, legislative, or regulatory actions related to climate change could adversely impact Helios by increasing our fuel costs and reducing fuel efficiency and could result in the creation of substantial additional capital expenditures and operating costs in the form of taxes, emissions allowances, or required equipment upgrades. Any of these factors could impair our operating efficiency and productivity and result in higher operating costs. In addition, revenues could decrease if we are unable to meet regulatory or customer sustainability requirements. These additional costs, changes in operations, or loss of revenues could have a material adverse effect on our business, financial condition and results of operations.
Risks Relating to Our Business: Growth Strategy
We are subject to various risks relating to our growth strategy . In pursuing our growth strategy, we intend to expand our presence in existing markets, enter new markets and pursue acquisitions and joint ventures to complement our business. Many of the expenses arising from expansion efforts may have a negative effect on operating results until such time, if at all, that these expenses are offset by increased revenues. We cannot assure that we will be able to improve our market share or profitability, recover our expenditures or successfully implement our growth strategy.
The expansion strategy also may require substantial capital investment for the construction of new facilities and their effective operation. We can give no assurance that additional financing will be available on terms favorable to us, or at all.
We may fail to successfully acquire or integrate companies that provide complementary products or technologies. A key component of our growth strategy and financial goals depends upon our ability to successfully identify and integrate acquisition targets that complement our existing products and services. Such a strategy involves the potential risks inherent in assessing the value, strengths, weaknesses, contingent or other liabilities and potential profitability of acquisition candidates, as well as integrating the operations of acquired companies. In addition, any acquisitions of businesses with foreign operations or sales may increase our exposure to risks inherent in doing business outside the U.S. From time to time, we may have acquisition discussions with potential target companies both domestically and internationally. Future acquisitions may or may not occur and, if an acquisition does occur, it may not be successful in enhancing our business for one or more of the following reasons:
Any business acquired may not be integrated successfully and may not prove profitable;
The price we pay for any business acquired may overstate the value of that business or otherwise be too high;
Liabilities we take on through the acquisition may prove to be higher than we expected;
There may be impairment of relationships with employees and customers of the business acquired, as a result of the change in ownership;
We may fail to achieve acquisition synergies; or
The focus on the integration of operations of acquired entities may divert management’s attention from the day-to-day operation of our businesses.
Inherent in any future acquisition is the risk of transitioning company cultures and facilities. The failure to efficiently and effectively achieve such transitions could increase our costs and decrease our profitability.
We also may incur significant costs such as transaction fees, professional service fees and other costs related to future acquisitions, as well as integration-related costs following the completion of any such acquisitions. Although we expect that the realization of efficiencies related to the integration of any acquired businesses will offset the incremental transaction and acquisition-related costs over time, this net financial benefit may not be achieved in the near term, or at all.
We are subject to intense competition. Our products currently face significant competition, both from other companies and from incumbent technologies and will continue to do so in the future. We believe that we contend with our competitors based upon quality, reliability, price, value, speed of delivery and technological characteristics. However, we cannot provide assurance that we will continue to be able to compete effectively with these companies.
Currently, certain of our customers purchase parts or products from us to meet a specific need in a system that cannot be filled by a component that they make themselves. However, given their technological capabilities and financial resources, our competitors could be engaged in the internal development of products and technologies that are similar to, or may compete with, certain of our products and technologies.
The future prospects for our products are dependent upon our customers’ acceptance of our products as an alternative to their internally developed products and products they can source from competitors. They also may decide to develop or acquire products that are similar to, or that may be substituted for, our products.
We also sell products into competitive markets. Within our primary markets, we compete with a range of companies that offer certain individual components of our full system solutions. Particularly within our Electronics segment, the components of our overall systems most commonly include displays, panels, sensors, and other end-devices. If our customers fail to accept our full system products or seek to internally develop alternatives to our full system products using component parts sourced from our competitors, or if we are otherwise unable to develop or maintain strong relationships with our customers, our business, financial condition and results of operations would be materially and adversely affected.
Competitive actions, such as price reductions, consolidation in the industry, improved delivery, more successful utilization of data and other emerging technologies, like artificial intelligence, and other actions, could adversely affect our revenue and earnings. We could experience a material adverse effect to the extent that our competitors are successful in reducing our customers’ purchases of products and services from us. Competition could also cause us to lower our prices, which could reduce our margins and profitability.
Risks Relating to Our Business: Operations
A disruption in our supply chain or other factors impacting the distribution of our products could adversely affect our business . A disruption within our logistics or supply chain network at any of the freight companies that deliver components for our manufacturing operations or ship our products to our customers could adversely affect our business and result in lost sales or harm to our reputation. Our supply chain is dependent on third-party ocean-going container ships, rail, barge and trucking systems and, therefore, disruption in these logistics services because of weather-related problems, strikes, geopolitical conflicts, bankruptcies or other events could adversely affect our financial performance and financial condition, negatively impacting sales, profitability and cash flows. Additionally, we rely on supplied labor through a third-party provider to support key operations in Mexico. A disruption in the ability of this provider to deliver qualified personnel and to operate our facility in Mexico could have a material adverse effect on our business, financial condition and operating results.
In addition, supply shortages for a particular type of material can delay production or cause increases in the cost of manufacturing our products. If these shortages were to be prolonged or expanded in scope, there could be significant impact on our ability to manufacture and to deliver our products. Accordingly, such impact on our manufacturing operations and delivery limitations could have a material adverse effect on our business, financial condition, results of operations and cash flows.
If we are unable to continue our technological innovation and successful introduction of new commercial products in an efficient, cost-effective manner, our business will be adversely affected. Our business involves a significant level of product development activities. Industry standards, customer expectations or other products may emerge that could render one or more of our products or services less desirable or obsolete. Maintaining our market position requires continued investment in research and development (“R&D”). Our future growth will depend on our ability to gauge the direction of the commercial and technological progress in our markets, as well as our ability to acquire new product technologies or to fund and successfully develop, manufacture and market products in this constantly changing environment. During an economic downturn or a subsequent recovery, we may need to maintain our investment in R&D, which may limit our ability to reduce these expenses in proportion to a sales shortfall. In addition, increased investments in R&D may divert resources from other potential investments in our business, such as acquisitions or investments in our facilities, processes and operations. If these activities are not as successful as currently anticipated, are not completed on a timely basis or are more costly than currently anticipated, or if we are not able to produce newly developed products at a cost that meets the anticipated product cost structure, then our future sales, margins and/or earnings could be lower than expected, which could have a material adverse effect on our business, financial condition, results of operations and cash flows. Further, if we fail to keep pace with evolving technological innovations in the markets we serve, our business will be adversely affected.
We are subject to fluctuations in the prices of parts and raw materials and are dependent on our suppliers of these parts. We are dependent upon suppliers for parts and raw materials used in the manufacture of components that we sell, and some of our raw material costs are subject to commodity market price fluctuations. We may experience an increase in costs for parts or raw materials that we source from our suppliers, or we may experience a shortage of parts or raw materials for various reasons, such as the loss of a significant supplier, high overall demand creating shortages in parts and supplies we use, financial distress, work stoppages, natural disasters, fluctuations in commodity prices or production difficulties that may affect one or more of our suppliers. In particular, current or future global economic uncertainty may affect our key suppliers in terms of their operating cash flow and access to financing. This may, in turn, affect their ability to perform their obligations to us. In addition, quality and sourcing issues that our suppliers may experience can also adversely affect the quality and effectiveness of our products and services and may result in liability or reputational harm to us. Our customers rely on us to provide on-time delivery and have certain rights if our delivery standards are not maintained. A significant increase in our supply costs, including for raw materials that are subject to commodity price fluctuations, or a protracted interruption of supplies for any reason, could result in the delay of one or more of our customer contracts or could damage our reputation and relationships with our customers. Any of these events could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Unforeseen or recurring operational problems at any of our facilities, or other catastrophic loss of one of our key manufacturing facilities, may cause significant lost production and adversely affect our results of operations. Our manufacturing process could be affected by operational problems that could impair our production capability. Many of our manufacturing facilities contain high cost and sophisticated machines that are used in our manufacturing processes. Disruptions or shutdowns at any of our facilities could be caused by:
maintenance outages to conduct maintenance activities that cannot be performed safely during operations;
prolonged power failures or reductions;
breakdown, failure or substandard performance of any of our machines or other equipment;
noncompliance with, and liabilities related to, environmental requirements or permits;
disruptions in the transportation infrastructure, including railroad tracks, bridges, tunnels or roads;
fires, floods, earthquakes, tornadoes, hurricanes, microbursts or other catastrophic disasters, national emergencies, political unrest, war or terrorist activities; or
other operational problems.
If some of our facilities are shut down, they may experience prolonged startup periods, regardless of the reason for the shutdown. Those startup periods could range from several days to several weeks or longer, depending on the reason for the shutdown and other factors. Any prolonged disruption in operations at any of our facilities could cause a significant loss of production and adversely affect our results of operations and negatively impact our customers and dealers.
We currently have operations located in geographies susceptible to severe weather events, such as hurricanes, floods, earthquakes and tornadoes. A catastrophic event, whether resulting from severe weather or otherwise, could result in the loss of the use of all or a portion of one of our manufacturing facilities. Although we carry property and business interruption insurance, our coverage may not be adequate to compensate us for all losses that may occur. Any of these events individually or in the aggregate could have a material adverse effect on our business, financial condition and operating results.
Efforts to improve productivity and advance product development efforts through our regional Centers of Excellence may not be successful in growing or enhancing our business on the timelines we suspect, or at all. Over the past few years, we have had various initiatives to drive growth, including "in the region, for the region" manufacturing to better align supply chain and manufacturing value streams with customers geographically to shorten lead times, reduce inventory, optimize costs, and mitigate global supply risks and establishing and expanding manufacturing centers to provide scale in North America, Asia and Europe to meet growing global demand. While the majority of the restructuring activity necessary to shift manufacturing to regional operational Centers of Excellence has been completed, there still remains additional
transfers, integration activities and efficiency efforts. These restructuring activities may not be substantially completed in the expected timeframe or at all, may be more costly to implement than expected, or may not fully achieve the anticipated benefits for the business. Furthermore, such initiatives involve a significant amount of capital expenditures, organizational change and execution risk, which could have a negative impact on employee engagement, divert management’s attention from other initiatives, and if not properly managed, impact our ability to retain key employees, cause disruptions in our day-to-day operations and have a negative impact on our financial results.
Risks Relating to Our Business: Financial
We may need additional capital in the future, and it may not be available on acceptable terms, or at all. We may require additional capital in the future to:
fund our operations;
finance investments in equipment and infrastructure needed to maintain and expand our manufacturing and distribution capabilities;
enhance and expand the range of products we offer; and
respond to potential strategic opportunities, such as investments, acquisitions and international expansion.
We can give no assurance that additional financing will be available on terms favorable to us, or at all. The terms of available financing may place limits on our financial and operating flexibility. If adequate funds are not available on acceptable terms, we may be forced to reduce our operations or to delay, limit or abandon expansion opportunities. Moreover, even if we are able to continue our operations, the failure to obtain additional financing could reduce our competitiveness. Our senior credit facility limits our ability to incur additional debt and therefore we likely would have to issue additional equity to raise additional capital. If we issue additional equity, a shareholder’s interest in us will be diluted.
Our existing indebtedness could adversely affect our business and growth prospects. As of January 3, 2026, we had total indebtedness of approximately $368 million. Our indebtedness, or any additional indebtedness we may incur, could require us to divert funds identified for other purposes for debt service and impair our liquidity position. If we cannot generate sufficient cash flow from operations to service our debt, we may need to refinance our debt, dispose of assets or issue equity to obtain necessary funds. We do not know whether we would be able to take any of these actions on a timely basis, on terms satisfactory to us or at all.
Our indebtedness, the cash flow needed to satisfy our debt and the covenants contained in our senior credit facility have important consequences, including:
limiting funds otherwise available for financing our capital expenditures by requiring us to dedicate a portion of our cash flows from operations to the repayment of debt and the interest on this debt;
limiting our ability to incur additional indebtedness;
limiting our ability to capitalize on significant business opportunities;
placing us at a competitive disadvantage to those of our competitors that are less indebted than we are;
making us more vulnerable to rising interest rates; and
making us more vulnerable in the event of a downturn in our business.
More specifically, under the terms of our senior credit facility, we have agreed to certain financial covenants. In addition, our senior credit facility places limitations on our ability to acquire other companies. Any failure by us to comply with the financial or other covenants set forth in our senior credit facility in the future, if not cured or waived, could result in our senior lender accelerating the maturity of our indebtedness or preventing us from accessing availability under our senior credit facility. If the maturity of our indebtedness is accelerated, we may not have sufficient cash resources to satisfy our debt obligations and we may not be able to continue our operations as planned.
If our long-lived assets, goodwill or other intangible assets become impaired, we may be required to record significant non-cash charges to our earnings. We recognize impairments of goodwill when the fair value of any of our reporting units becomes less than its carrying value. Our estimates of fair value are based on assumptions about future cash flows of each reporting unit, discount rates applied to these cash flows and current market estimates of value. Based on the uncertainty of future revenue growth rates and other assumptions used to estimate our reporting units’ fair value, future reductions in our expected cash flows could cause material non-cash impairment charges, which could have a material adverse effect on our results of operations and financial condition. We also have certain long-lived assets and other intangible assets which could be at risk of impairment or may require reserves based upon anticipated future benefits to be derived from such assets. Any change in the valuation of such assets could have a material effect on our profitability. Goodwill makes up 33% of total assets as of January 3, 2026. Reference the Critical Accounting Policies and Estimates section for additional considerations.
Fluctuations in exchange rates may affect our operating results and impact our financial condition. Fluctuations in the value of the U.S. dollar may increase or decrease our sales or earnings. Because our consolidated financial results are reported in U.S. dollars, when we generate sales or earnings in other currencies, or we pay expenses in other currencies, the translation of those results into U.S. dollars can result in a significant increase or decrease in the reported amount of those sales or earnings. If the U.S. dollar strengthens relative to the value of the local currency, we may be less competitive. In addition, our debt service requirements are predominantly in U.S. dollars and a portion of our cash flow is generated in Chinese yuan, British pounds, Euros and other foreign currencies. Significant changes in the value of the foreign currencies relative to the U.S. dollar could impair our cash flow, results of operations and financial condition.
In addition, fluctuations in currencies relative to the U.S. dollar may make it more difficult to perform period-to-period comparisons of our reported results of operations. For purposes of accounting, the assets and liabilities of our foreign operations, where the local currency is the functional currency, are translated using period-end exchange rates, and the revenues and expenses of our foreign operations are translated using average exchange rates during each period.
In addition to currency translation risks, we incur currency transaction risk whenever we enter into either a purchase or a sales transaction using a currency other than U.S. dollars. Given the volatility of exchange rates, we may not be able to effectively manage our currency or translation risks. Volatility in currency exchange rates may decrease our sales and profitability and impair our financial condition. We periodically evaluate our need to hedge our exposures to foreign currencies and enter into forward foreign exchange contracts as we deem necessary, which contracts may not adequately hedge our exposure to foreign currencies.
Changes in tax rates, laws or regulations and the resolution of tax disputes could adversely impact our financial results. As a global company, we are subject to taxation in the U.S. and numerous non-U.S. jurisdictions. Significant judgment is required to determine our consolidated income tax provision and related liabilities. The Company’s effective tax rate, cash flows and operating results could be affected by changes in the mix of earnings in countries with different statutory tax rates, as well as by changes in the local tax laws and regulations, or the interpretations thereof. In addition, the Company’s tax returns are subject to regular review and audit by U.S. and non-U.S. tax authorities. While we believe our tax provisions are appropriate, the final outcome of tax audits or disputes could result in adjustments to the Company’s tax liabilities, which could adversely affect our financial results.
Risks Relating to Our Business: Intellectual Property
The inability to protect our intellectual property could reduce or eliminate any competitive advantage and reduce our sales and profitability, and the cost of protecting our intellectual property may be significant. We have obtained and applied for some U.S. and foreign trademark and patent registrations and will continue to evaluate the registration of additional trademarks and patents, as appropriate. We cannot guarantee that any of our pending patent and trademark applications will be approved. Moreover, even if the applications are approved, third parties may seek to oppose or otherwise challenge them. An inability to obtain registrations in the U.S. or elsewhere could limit our ability to protect our trademarks and technologies and could impede our business. Further, the protection of our intellectual property rights may require expensive investment in protracted litigation and substantial management time, and there is no assurance we ultimately would prevail or that a successful outcome would lead to an economic benefit that is greater than the investment in the litigation. In the Electronics segment, the patents in our portfolio are scheduled to expire at various dates through 2043. In the Hydraulics segment, the patents in our portfolio are schedule to expire at various dates through 2044.
We may also face difficulties protecting our intellectual property rights in foreign countries. The laws of foreign countries in which our products are sold or manufactured may not protect our intellectual property rights to the same extent as the laws of the U.S. For example, we are attempting to increase our technical capabilities and sales in China, where laws may not afford the same intellectual property protections.
If we are alleged to have infringed upon the intellectual property rights owned by others, our business and results of operations could be materially adversely affected. Competitors or other third parties may allege that we, or consultants or other third parties retained or indemnified by us, infringe on their intellectual property rights. We also may face allegations that our employees have misappropriated intellectual property rights of their former employers or other third parties. From time to time, we receive notices from other companies that allege we may be infringing certain of their patents or other rights. If we are unable to resolve these matters satisfactorily, or to obtain licenses on acceptable terms, we may face litigation. Given the potential risks and uncertainties of intellectual property-related litigation, the assertion of an infringement claim against us may cause us to spend significant amounts to defend the claim (even if we ultimately prevail), pay significant money damages, lose significant revenues, be prohibited from using the relevant technologies or other intellectual property rights, cease offering certain products or services, or incur significant license royalty, or technology development expenses. Even in instances where we believe that claims and allegations of intellectual property infringement against us are without merit, defending against such claims is time consuming and expensive and could result in the diversion of time and attention of our management and employees. In addition, although in some cases a third party may have agreed to indemnify us for such costs, such indemnifying party may refuse or be unable to uphold its contractual obligations.
If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed. We maintain trade secrets, confidential and proprietary information in the course and scope of our business. In the Electronics segment particularly, we rely significantly on trade secrets such as unpatented software algorithms, know-how, technology and other proprietary information to maintain our competitive position. We seek to protect software algorithms through encryption mechanisms in the distribution of our binary files used in programming our engine control products. However, we cannot guarantee that these encryption techniques can protect all or any portion of these binary files. In practice, we seek to protect our trade secrets by entering into non-disclosure and confidentiality agreements with parties who have access to them, such as our employees, corporate collaborators, outside scientific collaborators, contract manufacturers, consultants, advisors and other third parties. The agreements obligate them to assign to us any inventions developed in the course of their work for us. However, we cannot guarantee that we have executed these agreements with each party that may have or has had access to our trade secrets or that the agreements we have executed will provide adequate protection. Despite these efforts, any of these parties may breach the agreements and disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches. As a result, we may be forced to bring claims against third parties, or defend claims that they bring against us, to determine ownership of what we regard as our intellectual property. Monitoring unauthorized disclosure is
difficult and we do not know whether the procedures we have followed to prevent such disclosure are, or will be, adequate. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, some courts inside and outside the U.S. may be less willing or unwilling to protect trade secrets. If any of our trade secrets were to be disclosed to, or independently developed by, a competitor, our competitive position would be harmed, which could have an adverse effect on our business and financial condition.
Our use of open source software may expose us to additional risks. We use open source software in our business, including in some of our products. While we try to monitor all use of open source software in our business to ensure that no open source software is used in such a way as to require us to disclose the source code to critical or fundamental elements of our software or technology, we cannot be certain that such use may not have inadvertently occurred in deploying our solutions. Furthermore, the terms of many open source licenses have not been interpreted by U.S. courts. As a result, there is a risk that these licenses could be construed in a way that could impose unanticipated conditions or restrictions on our ability to commercialize our products. The risks associated with usage of open source software cannot be eliminated and could potentially have a material adverse effect on our business, financial condition and results of operations.
Risks Relating to Our Business: Other
We are dependent upon key individuals and skilled personnel. Our success depends, to some extent, upon several key individuals. The loss of the services of one or more of these individuals could have a material adverse effect on our business. We have recently experienced turnover in our senior management. We have promoted employees to fill certain roles and are conducting internal and external searches for other roles. Future operating results depend to a significant degree upon the continued contribution of key management, technical personnel and the skilled labor force. As the Company continues to expand internationally, additional management and other key personnel will be needed. Competition for management and engineering personnel is intense, and other employers may have greater financial and other resources to attract and retain these employees. We conduct our global operations in North America, Europe and Asia Pacific and through a third-party supplier in Mexico. Our continued success is dependent on our ability to attract and retain a skilled labor force at these locations. There are no assurances that we will continue to be successful in attracting and retaining the personnel required to develop, manufacture and market our products and expand our operations.
We are subject to risks relating to international sales. International sales represent a significant proportion of our consolidated sales. Approximately 56% of our net sales were outside of the U.S. in 2025 and approximately 53% in 2024. We will continue to expand the scope of operations outside the U.S., both through direct investment and distribution, and we believe that international sales will continue to account for a substantial portion of net sales in future periods.
Our future results could be harmed by a variety of factors already stated in this Risk Section as well as those below:
expropriation of property without fair compensation;
governmental actions that result in the deprivation of contract or proprietary rights;
difficulty in staffing and managing geographically widespread operations;
the unionization of, or increased union activity, such as strikes or work stoppages, with respect to, our workforce outside the U.S.;
differing labor regulations;
requirements relating to withholding taxes on remittances and other payments by subsidiaries;
difficulty in enforcement of contractual obligations under non-U.S. law;
refusal or inability of foreign banks to make payment on letters of credit in connection with foreign sales, and our inability to collect from our foreign customers in such circumstances;
restrictions on our ability to own or operate subsidiaries, repatriate dividends or earnings from our foreign subsidiaries, or to make investments or acquire new businesses in these jurisdictions; and/or
the burden of complying with multiple and potentially conflicting laws.
Our international operations and sales also expose us to different local political, regulatory and business risks and challenges. For example, we are faced with potential difficulties in staffing and managing local operations, and we have to design local solutions to manage credit and legal risks of local customers and channel partners, which may not be effective. In addition, because some of our international sales are to suppliers that perform work for foreign governments, we are subject to the political and legal risks associated with foreign government projects. For example, certain foreign governments may require suppliers for a project to obtain products solely from local manufacturers or may prohibit the use of products manufactured in certain countries.
International growth and expansion into markets such as Europe, Asia and Latin America may cause us difficulty due to greater regulatory barriers than in the U.S., the necessity of adapting to new regulatory systems, problems related to entering new markets with different economic, social and political systems and conditions and significant competition from the primary participants in these markets, some of which may have substantially greater resources and political influence than we do. For example, unstable political conditions or civil unrest could negatively impact our order levels and sales in a region or our ability to collect receivables from customers or operate or execute projects in a region.
Increased cybersecurity threats and more sophisticated and targeted computer crime and cybersecurity incidents could pose a risk to our data, systems, networks, products, solutions and services. We are dependent on various information technologies throughout our Company to administer, store and support multiple business activities. Increased global cybersecurity threats and some sophisticated and targeted computer crime, including new potential threats enabled by the emergence of generative artificial intelligence, pose a risk to the security of our systems and networks and the confidentiality, availability and integrity of our data. While we attempt to mitigate these risks by employing a number of measures, including employee training, comprehensive monitoring of our networks and systems and maintenance of backup and protective systems, our systems, networks, products, solutions and services remain potentially vulnerable to advanced persistent threats. Cybersecurity incidents and similar attacks vary in their form and can include the deployment of harmful malware or ransomware, denial-of-services attacks, and other attacks, which may affect business continuity and threaten the availability, confidentiality and integrity of our systems and data. Cybersecurity incidents can also include employee or personnel failures, fraud, phishing or other social engineering attempts or other methods to cause confidential information, payments, account access or access credentials, or other data to be transmitted to an unintended recipient. Cybersecurity threat actors also may attempt to exploit vulnerabilities through in software including that is software commonly used by companies in cloud-based services and bundled software. Depending on their nature and scope, such threats could potentially lead to the compromising of confidential information, improper use of our systems and networks, manipulation and destruction of data, defective products, production downtimes and operational disruptions. In addition, a cybersecurity incident or failure or disruption relating to our information or systems or that of our third-party business partners, or any failure by us or our third-party business partners to effectively address, enforce and maintain our information technology infrastructure and cybersecurity requirements may result in substantial harm to our business strategy, results of operations and financial condition, including major disruptions to business operations, loss of intellectual property, release of confidential information, alteration or corruption of data or systems, costs related to remediation or the payment of ransom, and litigation including individual claims or consumer class actions, commercial litigation, administrative, and civil or criminal investigations or actions, regulatory intervention and sanctions or fines, investigation and remediation costs and possible prolonged negative publicity, which in turn could adversely affect our reputation, competitiveness and results of operations.
Due to the nature of our business and products, we may be liable for damages based on product liability and other tort and warranty claims. We face an inherent risk of exposure to claims in the event that the failure, use or misuse of our products results, or is alleged to result, in death, bodily injury, property damage or economic loss. In the past, we have been subject to product liability claims relating to our products, and we may be subject to additional product liability claims in the future for both past and current products.
Although we currently maintain product liability coverage, which we believe to be adequate for the continued operation of our business, such insurance may become difficult or impossible to obtain in the future on terms acceptable to us. Moreover, our insurance coverage includes customary exclusions and conditions, may not cover certain specialized applications and generally does not cover warranty. A successful product liability claim or series of claims against us, including one or more consumer claims purporting to constitute class actions or claims resulting from extraordinary loss events, in excess of or outside our insurance coverage, or a significant warranty claim or series of claims against us, could materially decrease our liquidity, impair our financial condition and adversely affect our results of operations. Furthermore, regardless of the outcome, product liability claims can be expensive to defend, divert the attention of management and other personnel for significant periods of time and cause reputational damage.
We are subject to a variety of claims, investigations and litigation that could adversely affect our results of operations and harm our reputation. In the normal course of our business, we are subject to claims and lawsuits, including from time to time claims for damages related to product liability and warranties, investigations by governmental agencies, litigation alleging the infringement of intellectual property rights and litigation related to employee matters and commercial disputes. Defending these lawsuits and becoming involved in these investigations may divert our management’s attention, and may cause us to incur significant expenses, even if there is no evidence that our systems or components were the cause of the claim. In addition, we may be required to pay damage awards, penalties or settlements, or become subject to injunctions or other equitable remedies, that could have a material adverse effect on our business, financial condition, results of operations and cash flows. Moreover, any insurance or indemnification rights that we have may be insufficient or unavailable to protect us against potential loss exposures.
Expectations relating to environmental, social and governance considerations expose the Company to potential liabilities, increased costs, reputational harm and other adverse effects on the Company's business. Many governments, regulators, investors, employees, customers and other stakeholders are increasingly focused, occasionally in conflicting manners, on environmental, social and governance considerations relating to businesses, including climate change and greenhouse gas emissions, human capital and diversity, equity and inclusion. Responding to these environmental, social and governance considerations and implementation of these goals and initiatives involves risks and uncertainties, requires investments and are impacted by factors that may be outside the Company’s control. In addition, some stakeholders may disagree with the Company’s goals and initiatives and the focus of stakeholders may change and evolve over time. Stakeholders also may have very different views on where environmental, social and governance focus should be placed, including differing views of regulators in various jurisdictions in which we operate. Any failure, or perceived failure, by the Company to achieve its goals, further its initiatives, adhere to its public statements, comply with federal, state or international environmental, social and governance laws and regulations, or meet evolving and varied stakeholder expectations and standards could result in legal and regulatory proceedings against the Company and materially adversely affect the Company’s business, reputation, results of operations, financial condition and stock price.
Risks Relating to Our Common Stock
Future sales of our common stock in the public market or the issuance of securities senior to our common stock could adversely affect the trading price of our common stock and our ability to raise funds in new stock offerings. Sales by us or our shareholders of a substantial number of shares of our common stock in the public markets, or the perception that these sales might occur, could cause the market price of our common stock to decline or could impair our ability to raise capital through a future sale of, or pay for acquisitions using, our equity securities.
We may issue common stock or equity securities senior to our common stock in the future for a number of reasons, including to finance our operations and business strategy, as consideration in acquisitions or for other reasons. We cannot predict the effect, if any, that future sales or issuances of shares of our common stock or other equity securities, or the availability of shares of our common stock or any other equity securities for future sale or issuance, will have on the trading price of our common stock.
Additional issuances of equity securities would dilute the ownership of existing shareholders and could reduce our earnings per share. We may issue equity securities in the future in connection with capital raising activities, acquisitions, strategic transactions or for other purposes. To the extent we issue additional equity securities, the ownership of our existing shareholders would be diluted and our earnings per share could be reduced.
We may not pay dividends on our common stock. Holders of our common stock are only entitled to receive such dividends as our Board of Directors may declare out of funds legally available for such payments and as permitted by our debt agreements. Although historically we have paid a continuous quarterly dividend and a periodic special dividend, we are not required to declare cash dividends on our common stock, and the payment of future quarterly and special dividends is subject to the discretion of our Board of Directors. In determining the amount of any future quarterly or special dividends, our Board of Directors will consider economic and market conditions, our financial condition and operating results. Any change in our historical dividend practice could adversely affect the market price of our common stock. If our Board of Directors decides not to pay dividends in the future, then a return on investment in our common stock will only occur if our stock price appreciates.
Language change vs prior 10-K
MD&A (Item 7) - words with the biggest YoY frequency increase- impairment+5
- divestiture+5
- restructuring+3
- unable+3
- deterioration+1
- effective+10
- favorable+5
- benefited+5
- improvement+3
- leadership+3
MD&A (Item 7)
8,697 words
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The operating results of the Hydraulics and Electronics segments included in Management’s Discussion and Analysis of Financial Condition and Results of Operations are presented on a basis consistent with our internal management reporting. Segment information included in Note 16 of the Notes to the Consolidated Financial Statements included in this Annual Report is also presented on this basis. All differences between our internal management reporting basis and accounting principles generally accepted in the U.S. (“U.S. GAAP”), specifically the allocation of certain corporate, divestiture-related, and acquisition-related costs, are included in Corporate and Other.
Overview
We are a global leader in highly engineered motion control and electronic controls technology for diverse end markets, including construction, material handling, agriculture, industrial, mobile, energy, recreational vehicles, marine and health and wellness.
We operate under two business segments: Hydraulics and Electronics. The Hydraulics segment designs and manufactures hydraulic motion control and fluid conveyance technology products, including cartridge valves, manifolds, and quick release couplings as well as engineers hydraulic solutions and in some cases complete systems. The Electronics segment designs and manufactures customized electronic controls systems, displays, wire harnesses, and software solutions for a variety of end markets.
With our global operating network, we have the advantages of leveraging sales, marketing, innovation, customer relationships and operational capabilities across all our businesses. We continue to drive best practices across all of our businesses and are committed to leveraging resources to best serve our customers and explore new opportunities.
Acquisitions
Our acquisition activity over the past three years, driven by our strategic vision, has enabled us to diversify our product offerings and the markets we serve and expand our geographic presence.
In January 2023, we completed the acquisition of Schultes Precision Manufacturing, Inc. Schultes is a highly trusted specialist in manufacturing precision machined components and assemblies for customers requiring very tight tolerances, superior quality, and exceptional value-added manufacturing processes. Currently serving the hydraulic, aerospace, communication, food services, medical device, and dental industries, Schultes brings the manufacturing quality, reliability, and responsiveness critical to its customers’ success. Schultes provided additional manufacturing know-how and expanded our business into new end markets with attractive secular tailwinds.
In May 2023, we completed the acquisition of i3 Product Development. i3PD is a custom engineering services firm, with engineers specializing in electronics, mechanical, industrial, embedded and software engineering. i3PD specializes in transforming customer’s ideas into industrial design solutions through rapid prototyping and creating 3D models in-house. Their solutions are used across many sectors, including medical, off-highway, recreational and commercial marine, power sports, health and wellness, agriculture, consumer goods, industrial, sports and fitness.
In 2024 and 2025, the Company continued to explore and evaluate potential acquisitions, but no acquisitions were executed.
Global Economic Conditions
Geo-Political Conflict
We continue to monitor the ongoing conflicts in Ukraine and in the Middle East and evaluate the broader economic impact those conflicts could have on our operations, supply channels and the operations of our partners and customers. We do not have operations in these regions at this time and those conflicts have not and are not expected to have a material impact on our financial condition or results. Refer to Item 1A Risk Factors of this Annual Report for additional discussion about geo-political risks.
Tariffs
During the fiscal year 2025, additional tariffs were imposed on goods imported into the U.S. from China, Mexico and Canada. In addition, tariffs on steel and aluminum were increased and various reciprocal tariffs were also imposed. These costs are reflected in the cost of sales on our Consolidated Statements of Operations. Such tariffs were implemented under several legal frameworks, including the International Emergency Economic Powers Act ("IEEPA"). Courts have found that IEEPA does not authorize the President of the United States to impose tariffs, and the enforcement of other tariffs may prove inconsistent over time. It remains to be seen whether the federal government may impose further tariffs under other statutory regimes or legal theories. These decisions introduce future uncertainty regarding potential refund processes and future trade policy actions and could affect the Company's cost structure and supply chain planning. We are unable to predict the ultimate outcome or effectiveness of any current or future tariff policies.
We export products from our U.S. locations to more than 40 countries. Our total U.S. exports were approximately $133.2 or 15.9% of total sales in the year ended January 3, 2026, of which exports to China were $13.4 or 1.6% of total sales in the period. Trade relations between the U.S. and other countries are fluid and we are unable to predict if tariffs (including retaliatory tariffs) imposed by other countries on our U.S. exports will change in the future.
Due to the fluidity of the tariff environment and potential subsequent changes to effective dates, amounts of announced tariffs, and various exemptions for imports into the U.S. (especially in light of the recent federal court decisions invalidating certain previously announced tariffs), we are unable to fully quantify the impact the tariffs will have on our results of operations when and if enacted. Our current expectation, however, is to leverage our regional production capabilities, source components from local suppliers, and raise our prices, which we believe may mitigate the impact of higher tariff costs, though we are not able to provide assurances that we will be able to offset any or all tariff-related costs. Additionally, increased prices could impact demand for our products, including our ability to attract new customers or cause increases in existing customer attrition. If our attempts to mitigate tariff-related costs are not sufficient to offset our increased tariff-related costs adequately or in a timely manner, our business, results of operations, and our financial and/or operating costs may be adversely affected.
Industry Conditions
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 higher level economic 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 decreased 4% in 2025, after decreasing 15% in 2024 and decreasing 4% in 2023. In Europe, the CEMA Business Barometer reported in December 2025 that the general business climate index for the European agricultural machinery industry has declined from November to December. The majority of survey participants expect incoming orders to decline in the coming six months as the current business situation is assessed similarly to the previous month. CEMA further reported that Tractor and harvesters’ manufacturers see a deterioration in the current situation. A comparison of countries shows a slight improvement for the current situation in German and France, while in Spain the situation has deteriorated. Export business has been improving for three months due to improved orders outside of the EU. Australia and New Zealand are expected to be areas of growth ahead of Western Europe and Africa. This is expected to help compensate for the decline in the United States.
Electronics
The Federal Reserve’s Industrial Production Index, which measures the real output of all relevant establishments located in the U.S., reports output of semiconductors and other electronics components increased sequentially each quarter in 2025. The Institute of Printed Circuits Association (“IPC”) reported that total North American printed circuit board (“PCB”) shipments were up 11% in December after being up 21.1% in November and up 24.4% in October compared with the same months last year. PCB bookings in 2025 were up 11.0% in December compared to the prior year, while bookings for the full year were higher by 15.0%. The book to bill ratio, calculated as the value of orders booked over the past three months divided by the value of sales in the same period, was above 1.2 for each month, indicating the stronger demand environment that started the year continues. The IPC also reported that North American electronics manufacturing services (“EMS”) shipments decreased 0.4% in 2025, however increased 5.6% in December compared to the prior year. EMS bookings increased 5.1% in December year over year after decreasing 4.1% in November and increasing 6.4% in October, highlighting the sector's choppiness in the quarter.
Restructuring Activities
During 2025, we incurred $1.6 of costs related to our restructuring activities, down from $5.3 in 2024. Restructuring activities include activities within our Hydraulics segment related to the creation of our two new Regional Operational Centers of Excellence ("CoE") which are now complete. We also continue to add capabilities and activities to our recently expanded Tijuana, Mexico facility to support our Electronics segment. Initial efforts have focused on circuit board assembly and wire harness production.
The initial phase of the restructuring activities to better optimize our European regional operations is complete. This included transitioning some manufacturing of manifolds and integrated package assembly to our Roncolo, Italy location. To create capacity in Roncolo, we moved some turning and lathing operations from Roncolo to our Rivolta, Italy location. These activities included transferring equipment and operations between facilities. Additional phases of this project are currently paused, we continue to evaluate plans for restructuring activities to optimizing operations in the European Region.
In January 2025, the Company began restructuring the Helios Center of Engineering Excellence (“HCEE”). Consistent with the Company's previously announced restructuring plan, during the end of the second quarter 2025, management ceased operations at the San Antonio office and reassigned resources to the operations at our other major facilities across the business, and eliminated certain positions. As a result of this planned change in the HCEE business operations, the workforce intangible asset associated with the HCEE acquisition was reviewed by management and it was determined that the remaining net book value of the asset should be accelerated and amortized over a useful life ending June 2025.
Executive Officer Transition
In July 2024, the Board of Directors terminated the former President and Chief Executive Officer, Josef Matosevic. Sean Bagan was immediately appointed to serve as Interim President and Chief Executive Officer in addition to his role as Chief Financial Officer, and Philippe Lemaitre as Executive Chairman in addition to his role as Chairman, while the search for a replacement was underway. On January 6, 2025, the Company announced that the Board of Directors of the Company promoted Sean Bagan to President and Chief Executive Officer of the Company, effective January 6, 2025. In connection with Mr. Bagan’s appointment, Chairman Philippe Lemaitre, serving as Executive Chairman, resumed his role as Non-Executive Chairman.
The Board subsequently nominated Mr. Bagan for election to the Board at the 2025 Annual Meeting of Shareholders. Mr. Bagan also continued to serve as Chief Financial Officer while the Company conducted a search process to identify a permanent Chief Financial Officer to backfill his previous role.
On March 13, 2025, Mr. Lemaitre notified the Company of his decision to retire and not seek re-nomination at the 2025 Annual Meeting of Shareholders. He had served on Helios’ Board since 2007 and as Chair since 2013. On March 13,
2025, the Board elected Laura Dempsey Brown to serve as the new Non-Executive Chair of the Board, effective March 13, 2025.
On March 31, 2025, Lee Wichlacz, the President of Electronics, was separated from the Company, and Billy Aldridge was named as Senior Vice President, Managing Director, Electronics Segment. Mr. Aldridge has served as the Senior Vice President, Managing Director of Enovation Controls since May 3, 2021, and will now have responsibility for the complete group of operations that comprise the Electronics segment.
On June 5, 2025, the Board appointed Ian Walsh to serve as a member of the Board effective June 5, 2025. Mr. Walsh was also appointed to serve on the Board's Audit Committee and Governance Committee. He serves as a member of the class of directors whose term will expire at the 2026 Annual Meeting of Shareholders.
On August 28, 2025, the Board, announced that Michael Connaway had been appointed to the corporate officer position of Executive Vice President, Chief Financial Officer, effective as of October 13, 2025. In connection with Mr. Connaway's appointment, Sean Bagan, President, Chief Executive Officer, and Chief Financial Officer, no longer held the corporate officer position of Chief Financial Officer as of October 13, 2025.
On August 28, 2025, the Board also announced that Jeremy Evans had been appointed to the corporate officer position of Senior Vice President, Chief Accounting Officer and Corporate Controller, effective September 1, 2025.
On November 17, 2025, the Board, announced that Jeremy Evans had been named the Company’s Executive Vice President and Chief Financial Officer effective immediately. Mr. Evans succeeded Michael Connaway who was separated from the Company, previously joining Helios on October 13, 2025. Mr. Connaway’s departure was not related to any disagreement with the Company on any matter relating to its accounting practices, financial statements, internal controls or operations.
2025 Results and Comparison of Years Ended January 3, 2026 and December 28, 2024
(In millions, except per share data)
The following is a discussion of our results of operations and liquidity and capital resources for the year ended January 3, 2026; comparisons are with the corresponding reporting period of 2024, unless otherwise noted.
The following table presents our consolidated results of operations:
For the year ended
January 3, 2026
December 28, 2024
$ Change
% Change
Net sales
Gross profit
Gross profit %
Operating income
Operating income %
Net income
Diluted net income per share
Consolidated net sales for the 2025 year increased $33.1, 4.1%. Sales were impacted most by stronger demand for products in our mobile and recreational marine markets. Sales in the industrial end market declined year over year while sales in the agriculture and health and wellness end markets were flat to slightly up year over year. The demand environment improved as the year progressed with consolidated net sales growth realized in the second half of the year more than offsetting year over year sales decline in the first half. In 2025, consolidated net sales were up in all regions, with sales to EMEA outpacing sales to the Americas and APAC. There was an favorable impact of $4.4 on consolidated net sales from changes in foreign currency exchange rates during the year. Fiscal 2025 also benefited from an extra week of sales due to our fiscal calendar compared to prior year.
The year-over-year comparison is impacted by the sale of the outstanding equity interest in Guwing Holdings Pty. Ltd. ("Guwing"), and Guwing's 100% ownership of the share capital of Custom Fluidpower Pty. Ltd. ("CFP") to a non-related party (the "Divestiture") that was completed on September 27, 2025. As a result of the Guwing and CFP sales were impacted approximately $14.3 in 2025.
Gross profit increased $18.9, 7.5%, in 2025 driven by higher volume and lower direct labor costs of $3.8 partially offset by higher material costs of $17.0. Gross margin was up 100 basis points year-over-year. The margin improvement was primarily due to lower overhead costs as a percentage of sales driven by leverage on higher volume and increased productivity, partially offset by a slight increase in material costs as a percentage of sales and the net impact of tariffs.
Operating income as a percentage of sales decreased 230 basis points to 7.9% in 2025 compared with the prior year period. Operating margin was unfavorably impacted during 2025 most significantly from a goodwill impairment of $25.9 in the third quarter of 2025 related to our i3PD business. Prior to the goodwill impairment charge, 2025 operating income as a percentage of sales increased 80 basis points to 11.0% compared with the prior year period. The increase is primarily due to the gross margin improvement, lower selling, engineering and administrative ("SEA") restructuring costs of $3.7, and lower research and development costs of $1.1 partially offset by higher payroll and benefit costs compared with the prior year period. The prior year period payroll and benefit costs included a $5.5 reversal of unvested stock compensation in connection with the officer transition in July 2024.
Net income increased $9.4, 24.1% while earnings per share (“EPS”) increased 23.9% in 2025. The current year benefited from a $15.2 net gain after tax related to the Divestiture and a decrease in interest expense of $11.9 compared to 2024, including the favorable impact of $5.4 interest rate swap gain recognized in the fourth quarter. The prior year benefited from a contingent gain of $3.8 related to the insurance reimbursement for business interruption losses incurred in the third quarter of 2023 at a manufacturing location in Italy. There was no impact from foreign currency transaction losses as losses were $1.3 in both 2025 and 2024 . There was an increase in tax expense of $2.5 in 2025 compared to 2024.
Segment Results
Hydraulics
The following table presents the results of operations for the Hydraulics segment:
For the year ended
January 3, 2026
December 28, 2024
$ Change
% Change
Net sales
Gross profit
Gross profit %
Operating income
Operating income %
Net sales for the Hydraulics segment increased by $3.6, 0.7%. Net Sales increased in 2025 due to improved demand in the mobile end market. Net sales in the agriculture market were relatively flat year-over-year, although there was stabilization of sales throughout the year and growth in the second half. Net sales in the industrial end market declined year-over-year and remained depressed throughout the year. There was increased demand in the EMEA region while sales to the Americas and APAC declined from prior year. The decline in APAC sales was primarily driven by the Divestiture in the third quarter of 2025. Discrete impacts to our organic sales included nominal favorable pricing changes of $3.1, 0.7%, and a favorable change in foreign currency exchange rates of $4.4, 0.8%. Fiscal 2025 also benefited from an extra week of sales due to our fiscal calendar compared to prior year.
The following table presents net sales based on the geographic region of the sale for the Hydraulics segment:
For the year ended
January 3, 2026
December 28, 2024
$ Change
% Change
Americas
EMEA
APAC
Total
In 2025, we completed the restructuring activities within our Hydraulics segment related to the creation of our two new regional operational Centers of Excellence. We also initiated some restructuring activities to better optimize our European regional operations. We incurred $1.3 of restructuring costs related to these activities in 2025 including labor, travel and other expenses associated with the manufacturing relocation. $0.4 of the costs are included in cost of goods sold and $0.9 are reflected in operating expenses. In 2024, we incurred $4.5 restructuring costs related to the creation of the two new regional operational Centers of Excellence and optimization of our European regional operations. $3.3 of the costs are included in cost of goods sold and $1.2 are reflected in operating expenses.
During 2025, gross profit increased $9.0, 5.4%, primarily due to higher volume. Gross margin increased by 140 basis points primarily due to lower overhead costs as a percentage of sales driven by leverage on higher volume, increased productivity, and targeted pricing actions.
Operating income as a percentage of sales increased 80 basis points to 16.9% due to the higher gross margin partially offset by an increase in operating expenses. Operating expenses increased $4.0, 5.0%, mainly due to higher labor and benefit costs, higher research and development costs of $0.8, and higher travel costs of $0.7. The prior year operating expenses included a $3.7 reversal of unvested stock compensation in connection with the officer transition in July 2024 and $1.2 in costs related to cleanup, repair and labor incurred as a direct result of Hurricane Milton. Operating expenses as a percent of sales increased 60 basis points to 15.4% in 2025.
In the third quarter of 2023, the Company experienced aggregate losses related to a fire and a weather-related incident at one of its manufacturing locations in Italy resulting in the shut-down of operations for a period of time and disruption in production as recovery efforts ensued. Impacted operations were restored. At the end of 2024 we recorded a contingent gain related to the open insurance claims. The total reimbursement recorded was $9.1, of which $5.3 was offset against actual costs as a result of the incident and the remaining $3.8 was recorded as a gain in 2024 included in Other Income. The reimbursement payments were collected in 2025.
In October 2024, the corporate headquarters and Hydraulics segment operations located in Sarasota, Florida were impacted by Hurricane Milton. Operations were impacted for eighteen shifts leading up to and following the storm. Actual costs for cleanup, repair and labor related to the Hydraulics segment were $1.2. There were no insurance reimbursements received nor are expected to be received for this event.
Electronics
The following table presents the results of operations for the Electronics segment:
For the year ended
January 3, 2026
December 28, 2024
$ Change
% Change
Net sales
Gross profit
Gross profit %
Operating income
Operating income %
Net sales for the Electronics segment increased by $29.5, 11.0% in 2025 compared with the prior year period, with growth across all regions. Sales increased in the America’s region within several of our end markets including recreational, industrial and mobile. The recreational end market was up over 25% driven by strong demand from our OEM customers. The APAC region's sales increased driven by health and wellness end market sales to China. Sales in the EMEA region increased year over year on generally improved demand. Discrete impacts to our organic sales included pricing changes that were favorable by $1.9, 0.7%. Fiscal 2025 also benefited from an extra week of sales due to our fiscal calendar compared to prior year.
The following table presents net sales based on the geographic region of the sale for the Electronics segment:
For the year ended
January 3, 2026
December 28, 2024
$ Change
% Change
Americas
EMEA
APAC
Total
In 2024, we had restructuring activities within our Electronics segment to shift product lines to our low cost manufacturing facility in Tijuana and to adjust our labor base in line with current demand levels. We incurred $0.7 of restructuring costs including labor, travel and other expenses associated with the manufacturing relocation. $0.1 of the costs are included in cost of goods sold and $0.6 are reflected in operating expenses. In 2025, we paused our restructuring activities related to shifting product lines to the low cost manufacturing facility in Tijuana as a result of the uncertainty around trade tariffs. Costs incurred in 2025 as part of the HCEE restructuring which reallocated resources across the organization as well as eliminated certain positions and subsequent leadership change totaled $0.7.
During 2025, gross profit increased $9.9, 11.4%, primarily due to higher volume and increased productivity, partially offset by higher material costs and freight and duties. Freight and duties included a $2.4 expense related to a product import classification change. Gross margin increased 10 basis points over the same period to 32.3%. Excluding the freight and duties expense related to the product import classification change, gross margin was 33.1%, an improvement of 90 basis points over the prior year.
Operating income as a percentage of sales decreased 780 basis points to 3.2% primarily due to the goodwill impairment recorded in our i3PD reporting unit during the third quarter. Prior to the goodwill impairment charge, operating income as a percentage of sales increased 100 basis points to 12.0% compared to the prior year period. Operating expenses increased $4.1, 7.0%, in 2025 primarily from an increase in wages and benefits, marketing expenses of $0.6, and travel of $0.5. The prior year operating expenses included the benefit of a $1.8 reversal of unvested stock compensation in connection with the officer transition in July 2024. Operating expenses as a percent of sales, excluding the goodwill impairment, decreased 80 basis points to 20.4% in 2024, reflecting increased leverage of operating expenses as a result of higher sales.
Corporate and Other
Certain costs are excluded from business segment results as they are not used in evaluating the results of, or allocating resources to, our operating segments. For the year ended January 3, 2026, these costs totaled $35.1 and included amortization of acquisition-related intangible assets of $31.7, $2.0 primarily related to costs associated with the Divestiture activities and $1.4 related to officer transition costs.
For the year ended December 28, 2024, these costs totaled $34.2 and included amortization of acquisition-related intangible assets of $31.5, $1.9 related to officer transition costs and $0.8 related to other costs which was primarily acquisition and integration related activities.
Interest Expense, net
Net interest expense decreased $11.9 during 2025 to $21.9 compared with $33.8 in 2024. The change is attributable to lower average debt levels during 2025, lower interest rates, and net impact of interest rate swaps of $5.4. Average net debt decreased by $99.1 during 2025 to $349.8.
Income Taxes
The provision for income taxes for the year ended January 3, 2026, was 22.5% of pretax income compared with 22.8% for the year ended December 28, 2024. The effective rate typically fluctuates relative to the levels of income and different tax rates in effect from year to year among the countries in which we sell our products.
The Organization for Economic Cooperation and Development (“OECD”), under its Pillar Two initiative, introduced a framework set of Global Anti-Base Erosion (“GloBE”) rules to impose a minimum tax on income earned by multinational enterprises (“MNE”). Specifically, the GloBE rules impose a minimum tax of 15 percent on MNE income that arises in each participating jurisdiction. Several countries, including the UK and EU member states, have agreed to adopt the OECD’s minimum tax rules and several countries, including the UK, have already implemented these rules.
On December 20, 2022, the OECD published Pillar Two guidance on safe harbors and penalty relief (the “Safe Harbor Guidance”). The Safe Harbor Guidance includes a Transitional Country-by-Country Report (“CbCR”) Safe Harbor, which would deem a MNE’s top-up tax for a jurisdiction to be zero and would allow the MNE to avoid undertaking detailed GloBE calculations in respect of that jurisdiction during the Transition Period if it can demonstrate one of the three transitional tests.
The Helios Technologies Inc Group is a MNE group that is within the scope and subject to the GloBE rules. The United States has not enacted legislation implementing the Pillar Two GloBE rules.
The company continues to evaluate the impact of Pillar Two and application of safe harbors. For the year ended January 3, 2026, there are no impacts to income tax expense related to Pillar Two. The company does not expect it to have a material impact in 2026 to their effective tax rate.
On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted in the U.S. The OBBBA includes significant provisions, such as the permanent extension of certain expiring provisions of the Tax Cuts and Jobs Act, modifications to
the international tax framework and the restoration of favorable tax treatment for certain business provisions. The legislation has multiple effective dates, with certain provisions effective in 2025 and others implemented through 2027. While we expect certain provisions of the OBBBA to change the timing of cash payments in the current fiscal year and future periods, we do not currently expect the legislation to have a material impact on our consolidated financial statements.
2024 Results and Comparison of Years Ended December 28, 2024 and December 30, 2023
For the discussion and analysis of our 2024 results compared with our 2023 results, refer to our Annual Report on Form 10-K for the fiscal year ended December 28, 2024, filed with the SEC on February 25, 2025. The discussion is incorporated herein by reference.
Liquidity and Capital Resources
Historically, our primary source of capital has been cash generated from operations. We have also used borrowings on our credit facilities to fund acquisitions. During 2025, net cash provided by operating activities totaled $127.3 and as of January 3, 2026, we had $73.0 of cash on hand and $393.6 of available credit on our revolving credit facilities. At year end 2025, approximately half of the cash on hand was held in institutions in APAC, approximately 38% was held in institutions in EMEA, and the remainder was held in institutions in the Americas. We also have a $400.0 accordion feature available on our credit facility, which is subject to certain pro forma compliance requirements and is 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 and capital expenditures for the foreseeable future. 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 borrowing. Capital expenditures could be postponed since they primarily pertain to long-term improvements in operations, operating expense reductions could be made and the dividend to shareholders could be reduced or suspended.
Cash flows
The following table summarizes our cash flows for the periods:
For the year ended
January 3, 2026
December 28, 2024
$ Change
Net cash provided by operating activities
Net cash provided by (used in) investing activities
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase in cash and cash equivalents
Cash on hand increased $28.9 to $73.0 at the end of 2025. Cash and cash equivalents were favorably impacted by changes in exchange rates by $3.2 and unfavorably impacted by changes in exchange rates by $1.7 during the years ended January 3, 2026, and December 28, 2024, respectively. 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 also paying down borrowings on our credit facilities.
Operating activities
Net cash from operations totaled $127.3 in 2025, an increase of $5.2, 4.3%, compared with the prior year. 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 $16.4 compared to the prior year driven by higher volume and lower interest expense. However, changes in net operating assets and liabilities decreased cash by $11.1 compared to 2024, primarily from working capital dynamics. Reductions in inventory, net of acquisitions, decreased cash by $2.7 in 2025 compared with an increase in cash by $19.4 in 2024. Inventory on hand as of January 3, 2026, decreased by $1.5, 0.8%, compared to the 2024 year end. The decrease is related to the sale of Custom Fluidpower partially offset by higher sales. Days of inventory on hand decreased to 124 days for the 2025 year, compared with 134 days during the 2024 year. Changes in accounts receivable, net of acquisitions, decreased cash by $16.5 and increased cash by $7.3 in 2025 and 2024, respectively. Days sales outstanding for the 2025 year increased slightly to 51 days from 47 days during 2024. Changes in accounts payable, net of acquisitions, increased cash by $22.0 and decreased cash by $11.8 in 2025 and 2024, respectively. Days payables outstanding for the 2025 year increased to 49 days from 37 days during 2024, due to focused efforts to renegotiate terms with key suppliers.
Investing activities
Cash provided in investing activities totaled $20.3 in 2025 compared to cash used in investing activities of $30.3 in 2024. The proceeds from the sale of our Custom Fluidpower business in the third quarter of 2025 accounted for $47.3 of the fluctuation. Capital expenditures were $23.7 during 2025, $3.3, or 12.2%, lower than the prior year. Capital expenditures for 2026 are forecasted to be approximately 3.75% to 4.75% of sales for improvements to manufacturing technology and maintaining and replacing existing machine capabilities.
Financing activities
Net cash used in financing activities totaled $121.9 in 2025, compared with net cash used by financing activities of $78.4 in 2024. In 2025, repayments, net of borrowings, totaled $94.9. Cash paid for acquisitions in 2024 was primarily financed with borrowings on our credit facility. Repayments, net of borrowings, totaled $68.0 in 2024.
Borrowings on our term loans and revolving credit facilities as of January 3, 2026, totaled $262.5 and $105.5, respectively. See Note 10 of the Notes to the Consolidated Financial Statements included in this Annual Report for additional information regarding our credit facilities.
In connection with the debt refinancing in June 2024, while the term loan credit facility aggregate principle amount of $300.0 remained unchanged, the cash flow activity reflects repayments and borrowings on the non-revolving debt that were direct results of the refinancing. The company also incurred $3.1 of debt issuance costs in connection with the debt refinancing. These costs are captured within the Other Financing Activities caption in the Statement of Cash Flows. Additionally in June 2024, the Company received $7.1 in proceeds in connection with the termination of the interest rate swaps.
In May 2023, we entered into an incremental facility amendment to our credit agreement with PNC Bank, National Association, as administrative agent, and various lenders party thereto. With the amendment we incurred a new term loan with an aggregate principal amount of $150.0 for which the proceeds were used to repay outstanding balances on our revolving credit facility.
On June 25, 2024, the Company amended and restated its credit agreement (the “Third Amended and Restated Credit Agreement”) with PNC Bank, National Association, as administrative agent, and the lenders party thereto. The amendment extended the debt maturity for five years and increased the Company’s revolving credit facility (the “Revolving Credit Facility) to $500.0, with the aggregate principle amount of the term loan credit facility (the “Term Loan Facility”) remaining at $300.0. The amendment also revised the accordion feature to permit an increase of up to an additional $400.0. Borrowings under the line of credit bear interest at defined rates plus an applicable margin based on the Company’s leverage ratio. Scheduled principal payments under the Term Loan Facility are payable in quarterly installments beginning on September 28, 2024 and continuing on the last day of each following fiscal quarter, beginning at $3.75 before increasing to $5.6 in June 2026 and $7.5 in June 2028. All remaining principal and unpaid accrued interest are due on the Term Loan Facility maturity date, which is June 25, 2029.
In May 2024, $0.5 was paid to the former owners of Balboa Water Group in connection with payment due on the contingent consideration liability. The contingent consideration liability was revalued and final payment is payable in 2026.
We have historically declared regular quarterly dividends to shareholders of $0.09 per share. We paid dividends totaling $12.0 and $11.9 for the years ended January 3, 2026 and December 28, 2024, respectively. The declaration and payment of future dividends is subject to the sole discretion of the Board of Directors, and any determination as to the payment of future dividends will depend upon our profitability, financial condition, capital needs, acquisition opportunities, future prospects and other factors deemed pertinent by the Board of Directors.
Contractual obligations
Credit facilities
Information on our credit facilities, including future maturities, is presented in Note 10 of the Notes to the Consolidated Financial Statements included in this Annual Report. Our revolving credit facility with PNC Bank matures and is payable in full in June 2029; however, we may make earlier payments. Our term loan with PNC Bank is payable in quarterly installments of $5.6 million through March 2028 with our next payment due December 2026 and quarterly installments of $7.5 million thereafter through the maturity date of June 2029, at which time the remaining balance will be due in full.
Interest rates on our credit facilities range from 3.7% to 5.5% as of January 3, 2026. Future interest payments are estimated to total $62.6, with annual payments ranging from $7.7 to $19.5 payable through the last maturity date of June 2029. Future payments assume the current interest rate environment, current currency exchange rates, future required payments on term loans and revolver borrowings consistent with January 3, 2026 debt levels. Future payments do not include an estimate of impacts from our derivative instruments.
Contingent consideration payments
Our contingent consideration liabilities total $0.4 as of January 3, 2026. The balance represents the fair value estimate of contractual contingent payment related to our acquisition of Balboa Water Group, which is payable in 2026.
Supplier purchases
We regularly place purchase orders with our suppliers for inventory and capital expenditures to be used in the ordinary course of business. Open purchase orders as of January 3, 2026 total $48.0 for purchases expected in 2026 and $0.1 for purchases expected in 2027.
Building purchase commitment
The Company is negotiating a lease-to-buy agreement for the purchase of a building with the option to purchase the building at any time during the lease period. Under the draft agreement, the company would commit to purchasing the building at the end of the 6-year lease term. The approximate purchase price is €27.0; however, the actual purchase price will be reduced by 60% of the payments made during the lease term.
Leases
We regularly enter into operating lease agreements for the use of machinery, equipment, vehicles, buildings and office space. Future maturities of our operating lease liabilities are presented in Note 7 of the Notes to the Consolidated Financial Statements included in this Annual Report.
Critical Accounting Policies and Estimates
We prepare our Consolidated Financial Statements in conformity with U.S. GAAP, which requires management to make certain estimates and assumptions that affect reported amounts and related disclosures. Actual results could differ from those estimates. Management bases its estimates on historical experience and on various other assumptions it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. The following policies are considered by management to be the most critical in understanding the judgments, estimates and assumptions that are involved in the preparation of our Consolidated Financial Statements.
Business Combinations
Business combinations are accounted for under the acquisition method of accounting, which requires recognition separately from goodwill, the assets acquired and the liabilities assumed at their acquisition date fair values. Assigning fair market values to the assets acquired and liabilities assumed at the date of an acquisition requires knowledge of current market values, and the values of assets in use, and often requires the application of judgment regarding estimates and assumptions. While the ultimate responsibility resides with management, for certain acquisitions we retain the services of certified valuation specialists to assist with assigning estimated values to certain acquired assets and assumed liabilities, including intangible assets and tangible long-lived assets. Acquired intangible assets, excluding goodwill, are valued using various methodologies such as the discounted cash flow method, which is based on future cash flows specific to the type of intangible asset purchased and the relief from royalty method, which is based on the present value of savings resulting from the right to manufacture or sell products that incorporate the intangible asset without having to pay a license for its use. These methodologies incorporate various estimates and assumptions, the most significant being estimated royalty rates, projected revenue growth rates, profit margins and forecasted cash flows based on the discount rate.
Intangible assets consist primarily of customer relationships, technology, trade names and brands and supply agreements. Amortization is on a straight-line basis over their estimated useful lives and the amortization is reflected in the Consolidated Statements of Operations. The useful lives used are as follows: Customer Relationships - 8 to 26 years; Trade Names and Brands - 10 to 20 years; Technology - 5 to 13 years; and Supply Agreements - 10 years. Intangible assets are tested for impairment if certain circumstances arise that would indicate the carrying amount of the assets may not be recoverable. Such circumstances can include, but are not limited to, a decrease in market price, economic decline, changes in the market, change in business operations or plans for disposition. The assessment of fair value for impairment purposes requires significant judgment by management, which could be negatively impacted by economic decline, market deterioration and changes in other market conditions. Additional information about intangible assets, including the gross and net carrying values for the reported periods and historical and future estimated amortization expense is presented in Note 8 of the Notes to the Consolidated Financial Statements included in this Annual Report. Additional information about our acquisitions, including acquired intangible assets deemed material to the Company’s financial results, is presented in Note 3 of the Notes to the Consolidated Financial Statements included in this Annual Report.
Goodwill
Goodwill represents the excess of the purchase price of an acquisition over the fair value of the net assets acquired. We test goodwill for impairment at the reporting unit level, as of the third quarter period end date, on an annual basis and between annual tests whenever events or circumstances indicate the carrying value of a reporting unit may exceed its fair value. Examples of such circumstances could include, but are not limited to, a significant loss of market share, significant decline in operating results, change in management strategy or operations, economic decline, and other such significant disruptions to the business. The carrying value of assets is calculated at the reporting unit level. An impairment loss is recorded to the extent that the fair value of the goodwill within the reporting unit is less than its carrying value.
There are multiple steps in our process for testing goodwill impairment. The first step is identification of our operating segments, followed by the identification of the reporting units, such that the reporting unit has discrete financial information, its operating results are reviewed regularly by management, and its economic characteristics are different from the economic characteristics of the other components of the operating segment. As part of the annual test of goodwill impairment the Company considers economic factors and current business operations when assessing the reporting unit structures for the purposes of goodwill impairment testing. The reporting units comprised of our four prominent businesses and the 2023 acquisition of i3PD.
In certain circumstances the Company may elect to test goodwill using a qualitative assessment, assessing whether it is more likely than not that the fair value of the reporting unit is less than the carrying value. More often the Company will test goodwill using the income based and market based valuation methods, as quoted market prices are not available for all reporting units. When possible, we generally use a combination of market and income approach methodologies to estimate the fair value of our reporting units. The assessment of fair value for impairment purposes requires significant judgment by management. Management’s assumptions include projected future performance, expected future costs, expected new product releases and expected future economic and market conditions (i.e. inflation, tax rates, end-market growth or decline, and expected market share performance). If these assumptions and estimates are not met or operations are impacted by other factors the reporting units could be subject to goodwill impairment.
The income approach is generally based on a discounted cash flow analysis, which estimates the present value of the projected free cash flows to be generated by the reporting unit. Assumptions used in the analysis include estimated future revenues and expenses, working capital, capital expenditures and other variables. Assumptions made for future cash flows are developed based on consideration of current and future economic conditions, recent and expected sales trends, planned timing of product launches and other relevant variables. Each reporting unit regularly prepares discrete operating forecasts and long range plans and uses these forecasts as the basis for the assumptions in the discounted cash flow analysis. Within the discounted cash flow models, the Company uses a discount rate, commensurate with its cost of capital but adjusted for inherent business risks, and an appropriate terminal growth factor.
The market approach estimates the value of reporting units by comparing to guideline public companies or guideline transactions. Various valuation multiples of companies that are economically and operationally similar are used as data points for selecting multiples for the reporting units, which are deemed to be market-adjusted multiples based on key data points for guideline public companies. Changes in assumptions or estimates could materially affect the estimated fair value of our reporting units and the potential for impairment. We also reconcile the estimated aggregate fair value of our reporting units resulting from these procedures to our overall market capitalization.
The Company completed its annual goodwill impairment testing for 2025. In the second quarter of 2025, the Company announced a leadership change in the Electronics segment from Lee Wichlacz to Billy Aldridge. Under the new leadership in the third quarter of 2025, the Company evaluated the strategy and financial projections related to i3 Product Development ("i3PD"), a custom engineering services firm we acquired in May of 2023 that is part of our Electronics segment. That evaluation led to a reduction in the i3PD projected profit contributions to the Company over the short and mid-term due to de-emphasizing i3PD sales that do not align with the Company's core business. We performed a test for goodwill impairment as of the third quarter period end date and concluded goodwill was impaired.
The fair value of the i3PD reporting unit was determined based on an income approach methodology. A market approach methodology was evaluated but not used as the Company determined information for companies comparable to i3PD was not readily available. The income approach utilized a discounted cash flow analysis, which estimates the present
value of the projected free cash flows to be generated by the reporting unit. Principal assumptions used in the analysis included the Company's estimates of future revenue and terminal growth rates, margin assumptions and discount rates. While assumptions utilized are subject to a high degree of judgment and complexity, the Company made every effort to estimate future cash flows as accurately as possible, given the high degree of economic uncertainty that existed. The Company concluded that the estimated fair value of the i3PD reporting unit was less than its carrying value, and as a result, recorded a non-cash, non-tax-deductible goodwill impairment charge of $25.9. This represents the full amount of goodwill for the i3PD reporting unit.
In 2024 and 2023 it was determined that the carrying amount of goodwill for each reporting unit was not impaired. In addition, in management’s assessment of reporting units for GWI testing, it was determined that the two prominent Electronics businesses share very similar economic characteristics, are operationally interdepended, and should be aggregated and tested as a single reporting unit. The test for goodwill impairment was performed for each business and for the consolidated reporting unit. Neither test indicated any impairment.
A third party was used to assist in the valuation and testing of the fair value of the reporting units. The third party provided estimates such as risk premiums, select multiples and discount rates, used in conjunction with Management’s estimates and assumptions to calculate the fair value of the reporting unit. These estimates require significant judgment. If there is economic decline, expectations for growth are not met, product launches are delayed, there is a change to management’s operating outlook, operational restructuring, or any other significant change to the assumptions, estimates or other risks previously mentioned, the reporting units could be subject to impairment.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. To the extent the Company determines that it is more likely than not a deferred income tax asset will not be realized, a valuation allowance is established. The recoverability analysis of the deferred income tax assets and the related valuation allowances requires significant judgment and relies on estimates. At January 3, 2026, valuation allowances against deferred tax assets were $3.2 million. Refer to our Note 12 to our consolidated financial statements for additional information on the composition of these valuation allowances.
Our annual tax rate fluctuates based on our income, statutory tax rates and tax planning opportunities available to us in the various jurisdictions in which we operate. Tax laws are complex and subject to different interpretations by the taxpayer and respective government taxing authorities. Significant judgment is required in determining our tax expense and in evaluating our tax positions, including evaluating uncertainties. We review our tax positions quarterly and adjust the balances as new information becomes available. Indefinite reinvestment is determined by management’s judgment about, and intentions concerning, our future operations.
On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted in the U.S. The OBBBA includes significant provisions, such as the permanent extension of certain expiring provisions of the Tax Cuts and Jobs Act, modifications to the international tax framework and the restoration of favorable tax treatment for certain business provisions. The legislation has multiple effective dates, with certain provisions effective in 2025 and others implemented through 2027. While we expect certain provisions of the OBBBA to change the timing of cash payments in the current fiscal year and future periods, we do not currently expect the legislation to have a material impact on our consolidated financial statements.
We recognize and measure uncertain tax positions in accordance with ASC 740. The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. We adjust these reserves, as well as the
related interest and penalties, where appropriate in light of changing facts and circumstances. Settlement of any particular position could require the use of cash. We recognize interest and penalties, if any, related to unrecognized tax benefits in income tax expense.
See Note 12 of the Notes to the Consolidated Financial Statements included in this Annual Report for income tax amounts, including reserves.
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.
- Exhibit 19.1: Insider Trading Policieshlio-ex19_1.htm · 53.2 KB
- Exhibit 21.1: Subsidiaries of the Registranthlio-ex21_1.htm · 59.2 KB
- Exhibit 23.1: Consent of Independent Auditorshlio-ex23_1.htm · 7.9 KB
- Exhibit 31.1: Rule 13a-14(a) Certification (CEO)hlio-ex31_1.htm · 14.4 KB
- Exhibit 31.2: Rule 13a-14(a) Certification (CFO)hlio-ex31_2.htm · 13.8 KB
- Exhibit 32.1: Section 1350 Certification (CEO)hlio-ex32_1.htm · 5.2 KB
- Exhibit 32.2: Section 1350 Certification (CFO)hlio-ex32_2.htm · 4.6 KB
- 0001193125-26-087747-index-headers.html0001193125-26-087747-index-headers.html
- Ticker
- HLIO
- CIK
0001024795- Form Type
- 10-K
- Accession Number
0001193125-26-087747- Filed
- Mar 3, 2026
- Period
- Jan 3, 2026 (Q1 26)
- Industry
- Miscellaneous Fabricated Metal Products
External resources
Permalink
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