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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 28, 2020

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 0-21835 

 

HELIOS TECHNOLOGIES, INC.

(Exact Name of Registration as Specified in its Charter)

 

 

Florida

 

59-2754337

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

1500 WEST UNIVERSITY PARKWAY

SARASOTA, Florida

 

34243

(Address of Principal Executive Offices)

 

(Zip Code)

 

941/362-1200

(Registrant’s Telephone Number, Including Area Code)

 

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock $.001 Par Value

 

HLIO

 

The NASDAQ Global Select Market

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

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

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

 

Large accelerated filer

 

 

Accelerated filer

 

Non-accelerated filer

 

 

Smaller Reporting Company

 

 

 

 

 

Emerging growth company

 

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

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

The registrant had 32,081,445 shares of common stock, par value $.001, outstanding as of April 24, 2020.


Helios Technologies, Inc.

INDEX

For the quarter ended

March 28, 2020

 

 

 

Page

 

 

 

PART I. FINANCIAL INFORMATION

 

 

 

 

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

 

 

Consolidated Balance Sheets as of March 28, 2020 (unaudited) and December 28, 2019

 

3

 

 

 

 

 

Consolidated Statements of Operations for the Three Months Ended March 28, 2020 (unaudited) and March 30, 2019 (unaudited)

 

4

 

 

 

 

 

Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended March 28, 2020 (unaudited) and March 30, 2019 (unaudited)

 

5

 

 

 

 

 

Consolidated Statements of Shareholders’ Equity for the Three Months Ended March 28, 2020 (unaudited) and March 30, 2019 (unaudited)

 

6

 

 

 

 

 

Consolidated Statements of Cash Flows for the Three Months Ended March 28, 2020 (unaudited) and March 30, 2019 (unaudited)

 

7

 

 

 

 

 

Condensed Notes to the Consolidated, Unaudited Financial Statements

 

8

 

 

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

20

 

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

27

 

 

 

 

 

 

Item 4.

Controls and Procedures

 

27

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

28

 

 

 

 

 

 

Item 1A.

Risk Factors

 

28

 

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

29

 

 

 

 

 

 

Item 3.

Defaults Upon Senior Securities

 

29

 

 

 

 

 

 

Item 4.

Mine Safety Disclosures

 

29

 

 

 

 

 

 

Item 5.

Other Information

 

29

 

 

 

 

 

 

Item 6.

Exhibits

 

30

 

 

2


PART I: FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS.

Helios Technologies, Inc.

Consolidated Balance Sheets

(in thousands)

 

 

March 28, 2020

 

 

December 28, 2019

 

 

 

(unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

27,257

 

 

$

22,123

 

Restricted cash

 

 

37

 

 

 

39

 

Accounts receivable, net of allowance for doubtful accounts of $1,187 and $1,131

 

 

71,638

 

 

 

66,677

 

Inventories, net

 

 

86,727

 

 

 

85,195

 

Income taxes receivable

 

 

1,757

 

 

 

3,196

 

Other current assets

 

 

17,570

 

 

 

15,359

 

Total current assets

 

 

204,986

 

 

 

192,589

 

Property, plant and equipment, net

 

 

141,912

 

 

 

145,854

 

Deferred income taxes

 

 

9,668

 

 

 

5,803

 

Goodwill

 

 

343,815

 

 

 

377,569

 

Other intangible assets, net

 

 

288,989

 

 

 

294,651

 

Other assets

 

 

4,479

 

 

 

5,285

 

Total assets

 

$

993,849

 

 

$

1,021,751

 

Liabilities and shareholders' equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

33,145

 

 

$

29,730

 

Accrued compensation and benefits

 

 

13,376

 

 

 

16,898

 

Other accrued expenses and current liabilities

 

 

12,834

 

 

 

13,549

 

Current portion of contingent consideration

 

 

828

 

 

 

828

 

Current portion of long-term non-revolving debt, net

 

 

7,369

 

 

 

7,623

 

Dividends payable

 

 

2,887

 

 

 

2,884

 

Income taxes payable

 

 

7,954

 

 

 

4,941

 

Total current liabilities

 

 

78,393

 

 

 

76,453

 

Revolving line of credit

 

 

204,865

 

 

 

208,708

 

Long-term non-revolving debt, net

 

 

82,197

 

 

 

84,062

 

Deferred income taxes

 

 

48,680

 

 

 

49,290

 

Other noncurrent liabilities

 

 

28,079

 

 

 

25,602

 

Total liabilities

 

 

442,214

 

 

 

444,115

 

Commitments and contingencies

 

 

 

 

 

 

Shareholders' equity:

 

 

 

 

 

 

 

 

Preferred stock, par value $0.001, 2,000 shares authorized,

   no shares issued or outstanding

 

 

 

 

 

 

Common stock, par value $0.001, 100,000 shares authorized,

   32,075 and 32,047 shares issued and outstanding

 

 

32

 

 

 

32

 

Capital in excess of par value

 

 

366,521

 

 

 

365,310

 

Retained earnings

 

 

247,548

 

 

 

267,658

 

Accumulated other comprehensive loss

 

 

(62,466

)

 

 

(55,364

)

Total shareholders' equity

 

 

551,635

 

 

 

577,636

 

Total liabilities and shareholders' equity

 

$

993,849

 

 

$

1,021,751

 

 

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

3


Helios Technologies, Inc.

Consolidated Statements of Operations

(in thousands, except per share data)

 

 

 

Three Months Ended

 

 

 

March 28, 2020

 

 

March 30, 2019

 

 

 

(unaudited)

 

 

(unaudited)

 

Net sales

 

$

129,483

 

 

$

146,851

 

Cost of sales

 

 

77,633

 

 

 

90,342

 

Gross profit

 

 

51,850

 

 

 

56,509

 

Selling, engineering and administrative expenses

 

 

25,664

 

 

 

26,156

 

Amortization of intangible assets

 

 

4,348

 

 

 

4,521

 

Goodwill impairment

 

 

31,871

 

 

 

 

Operating (loss) income

 

 

(10,033

)

 

 

25,832

 

Interest expense, net

 

 

2,951

 

 

 

4,385

 

Foreign currency transaction loss (gain), net

 

 

125

 

 

 

(439

)

Miscellaneous (income) expense, net

 

 

(94

)

 

 

108

 

Change in fair value of contingent consideration

 

 

 

 

 

719

 

(Loss) income before income taxes

 

 

(13,015

)

 

 

21,059

 

Income tax provision

 

 

4,208

 

 

 

4,655

 

Net (loss) income

 

$

(17,223

)

 

$

16,404

 

Basic and diluted net (loss) income per common share

 

$

(0.54

)

 

$

0.51

 

Basic and diluted weighted average shares outstanding

 

 

32,062

 

 

 

31,978

 

Dividends declared per share

 

$

0.09

 

 

$

0.09

 

 

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

 

 


4


Helios Technologies, Inc.

Consolidated Statements of Comprehensive Income (Loss)

(in thousands)

 

 

 

Three Months Ended

 

 

 

March 28, 2020

 

 

March 30, 2019

 

 

 

(unaudited)

 

 

(unaudited)

 

Net (loss) income

 

$

(17,223

)

 

$

16,404

 

Other comprehensive loss

 

 

 

 

 

 

 

 

Foreign currency translation adjustments, net of tax

 

 

(4,901

)

 

 

(4,831

)

Unrealized loss on interest rate swap, net of tax

 

 

(2,201

)

 

 

(1,082

)

Total other comprehensive loss

 

 

(7,102

)

 

 

(5,913

)

Comprehensive (loss) income

 

$

(24,325

)

 

$

10,491

 

 

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

 

5


Helios Technologies, Inc.

Consolidated Statements of Shareholders’ Equity (unaudited)

Three Months Ended

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital in

 

 

 

 

 

 

other

 

 

 

 

 

 

 

Preferred

 

 

Preferred

 

 

Common

 

 

Common

 

 

excess of

 

 

Retained

 

 

comprehensive

 

 

 

 

 

 

 

shares

 

 

stock

 

 

shares

 

 

stock

 

 

par value

 

 

earnings

 

 

(loss)

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 28, 2019

 

 

 

 

$

 

 

 

32,047

 

 

$

32

 

 

$

365,310

 

 

$

267,658

 

 

$

(55,364

)

 

$

577,636

 

Shares issued, restricted stock

 

 

 

 

 

 

 

 

 

 

21

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issued, other compensation

 

 

 

 

 

 

 

 

 

 

5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issued, ESPP

 

 

 

 

 

 

 

 

 

 

12

 

 

 

 

 

 

 

355

 

 

 

 

 

 

 

 

 

 

 

355

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,533

 

 

 

 

 

 

 

 

 

 

 

1,533

 

Cancellation of shares for payment of employee tax withholding

 

 

 

 

 

 

 

 

 

 

(10

)

 

 

 

 

 

 

(677

)

 

 

 

 

 

 

 

 

 

 

(677

)

Dividends declared

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,887

)

 

 

 

 

 

 

(2,887

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(17,223

)

 

 

 

 

 

 

(17,223

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,102

)

 

 

(7,102

)

Balance at March 28, 2020

 

 

 

 

$

 

 

 

32,075

 

 

$

32

 

 

$

366,521

 

 

$

247,548

 

 

$

(62,466

)

 

$

551,635

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 29, 2018

 

 

 

 

$

 

 

 

31,965

 

 

$

32

 

 

$

357,933

 

 

$

219,056

 

 

$

(46,253

)

 

$

530,768

 

Shares issued, other compensation

 

 

 

 

 

 

 

 

 

 

6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issued, ESPP

 

 

 

 

 

 

 

 

 

 

13

 

 

 

 

 

 

 

408

 

 

 

 

 

 

 

 

 

 

 

408

 

Shares issued, ESOP

 

 

 

 

 

 

 

 

 

 

24

 

 

 

 

 

 

 

1,092

 

 

 

 

 

 

 

 

 

 

 

1,092

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,368

 

 

 

 

 

 

 

 

 

 

 

1,368

 

Cancellation of shares for payment of employee tax withholding

 

 

 

 

 

 

 

 

 

 

(12

)

 

 

 

 

 

 

(606

)

 

 

 

 

 

 

 

 

 

 

(606

)

Dividends declared

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,881

)

 

 

 

 

 

 

(2,881

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

16,404

 

 

 

 

 

 

 

16,404

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,913

)

 

 

(5,913

)

Impact of adoption of ASU 2016-02, related to leases

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(134

)

 

 

 

 

 

 

(134

)

Balance at March 30, 2019

 

 

 

 

$

 

 

 

31,996

 

 

$

32

 

 

$

360,195

 

 

$

232,445

 

 

$

(52,166

)

 

$

540,506

 

 

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

 

 

 

 

 


6


Helios Technologies, Inc.

Consolidated Statements of Cash Flows

(in thousands)

 

 

Three Months Ended

 

 

 

March 28, 2020

 

 

March 30, 2019

 

 

 

(unaudited)

 

 

(unaudited)

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net (loss) income

 

$

(17,223

)

 

$

16,404

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

8,376

 

 

 

8,571

 

Loss on disposal of assets

 

 

24

 

 

 

71

 

Goodwill impairment

 

 

31,871

 

 

 

 

Stock-based compensation expense

 

 

1,533

 

 

 

1,368

 

Amortization of debt issuance costs

 

 

179

 

 

 

179

 

Benefit for deferred income taxes

 

 

(1,186

)

 

 

(322

)

Change in fair value of contingent consideration

 

 

 

 

 

719

 

Forward contract (gains) losses, net

 

 

(440

)

 

 

24

 

Other, net

 

 

136

 

 

 

549

 

(Increase) decrease in:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(6,838

)

 

 

(8,848

)

Inventories

 

 

(2,818

)

 

 

(3,729

)

Income taxes receivable

 

 

1,415

 

 

 

 

Other current assets

 

 

(2,740

)

 

 

(2,455

)

Other assets

 

 

1,213

 

 

 

1,088

 

Increase (decrease) in:

 

 

 

 

 

 

 

 

Accounts payable

 

 

3,867

 

 

 

662

 

Accrued expenses and other liabilities

 

 

(4,652

)

 

 

3,496

 

Income taxes payable

 

 

3,051

 

 

 

2,710

 

Other noncurrent liabilities

 

 

(701

)

 

 

(659

)

Net cash provided by operating activities

 

 

15,067

 

 

 

19,828

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(2,937

)

 

 

(8,792

)

Proceeds from dispositions of equipment

 

 

3

 

 

 

64

 

Cash settlement of forward contracts

 

 

1,634

 

 

 

 

Net cash used in investing activities

 

 

(1,300

)

 

 

(8,728

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Borrowings on revolving credit facility

 

 

2,000

 

 

 

35,282

 

Repayment of borrowings on revolving credit facility

 

 

(5,500

)

 

 

(48,000

)

Repayment of borrowings on long-term non-revolving debt

 

 

(2,100

)

 

 

(1,623

)

Proceeds from stock issued

 

 

355

 

 

 

408

 

Dividends to shareholders

 

 

(2,885

)

 

 

(2,878

)

Other financing activities

 

 

(815

)

 

 

(881

)

Net cash used in financing activities

 

 

(8,945

)

 

 

(17,692

)

Effect of exchange rate changes on cash, cash equivalents and restricted cash

 

 

310

 

 

 

(167

)

Net increase (decrease) in cash, cash equivalents and restricted cash

 

 

5,132

 

 

 

(6,759

)

Cash, cash equivalents and restricted cash, beginning of period

 

 

22,162

 

 

 

23,515

 

Cash, cash equivalents and restricted cash, end of period

 

$

27,294

 

 

$

16,756

 

 

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


7


HELIOS TECHNOLOGIES, INC.

CONDENSED NOTES TO THE CONSOLIDATED, UNAUDITED FINANCIAL STATEMENTS

(Currencies in thousands, except per share data)

 

 

1. COMPANY BACKGROUND

Helios Technologies, Inc. (“Helios” or the “Company”), together with its wholly-owned subsidiaries, is an industrial technology leader that develops and manufactures solutions for both the hydraulics and electronics markets.  Sun Hydraulics, LLC (“Sun Hydraulics” or “Sun”), Enovation Controls, LLC (“Enovation Controls”), Faster S.r.l. (“Faster”) and Custom Fluidpower Pty Ltd (“Custom Fluidpower”), are the wholly-owned operating subsidiaries of Helios.

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

 

 

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited interim consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission for reporting on Form 10-Q. Accordingly, certain information and footnotes required by accounting principles generally accepted in the United States of America (“U.S. GAAP”) for complete financial statements are not included herein. The financial statements are prepared on a consistent basis (including normal recurring adjustments) and should be read in conjunction with the consolidated financial statements and related notes contained in the Annual Report on Form 10-K for the fiscal year ended December 28, 2019, (“Form 10-K”), filed by Helios with the Securities and Exchange Commission on February 25, 2020. In management’s opinion, all adjustments necessary for a fair presentation of the Company’s financial statements are reflected in the interim periods presented.

The Company faces various risks related to health epidemics, pandemics and similar outbreaks, including the global outbreak of COVID-19. The Company cannot at this time predict the impact of the COVID-19 pandemic, but it could have a material adverse effect on the business, financial position, results of operations and/or cash flows. Operating results for the three months ended March 28, 2020, are not necessarily indicative of the results that may be expected for the fiscal year ending January 2, 2021.

Goodwill

Goodwill, which represents the excess of the purchase price of an acquisition over the fair value of the net assets acquired, is carried at cost.  Goodwill is tested for impairment annually, in the third and fourth quarters, or more frequently if events or circumstances indicate a reduction in the fair value below the carrying value.  As part of the impairment test, the Company has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after this optional qualitative assessment, the Company determines that impairment is more likely than not, then the Company performs the quantitative impairment test. The carrying value of assets is calculated at the reporting unit level. An impairment loss is recorded to the extent that the carrying value of the reporting unit exceeds its fair value, with the impairment loss limited to the amount of goodwill allocated to the reporting unit.

8


During the first quarter of 2020, the Company determined that, based on current economic conditions and potential future impacts from the COVID-19 pandemic, it was more likely than not that the fair value of the Faster reporting unit was less than its carrying value. Upon completion of the interim impairment testing, the Company determined that the carrying value of goodwill was impaired. See Note 6 for discussion of interim impairment testing.

Contract Assets & Liabilities

Contract assets are recognized when the Company has a conditional right to consideration for performance completed on contracts. Contract asset balances totaled $2,741 and $2,796 at March 28, 2020 and December 28, 2019, respectively, and are presented in Other current assets in the Consolidated Balance Sheets. Accounts receivable balances represent unconditional rights to consideration from customers and are presented separate from contract assets in the Consolidated Balance Sheets.

Contract liabilities are recognized when payment is received from customers prior to revenue being recognized. Contract liabilities totaled $253 and $353 at March 28, 2020 and December 28, 2019, respectively, and are presented in Other accrued expenses and current liabilities in the Consolidated Balance Sheets.  

Research and Development

The Company conducts research and development (“R&D”) to create new products and to make improvements to products currently in use. R&D costs are charged to expense as incurred and totaled $4,107, and $3,900 for the three months ended March 28, 2020 and March 30, 2019, respectively.

Earnings Per Share

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

 

 

Three Months Ended

 

 

 

March 28, 2020

 

 

March 30, 2019

 

Net (loss) income

 

$

(17,223

)

 

$

16,404

 

Basic and diluted weighted average shares outstanding

 

 

32,062

 

 

 

31,978

 

Basic and diluted net (loss) income per common share

 

$

(0.54

)

 

$

0.51

 

 

Recently Adopted Accounting Standards

In January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-04, Intangibles – Goodwill and Other: Simplifying the Test for Goodwill Impairment. ASU 2017-04 eliminates the second step in the goodwill impairment test, which requires an entity to determine the implied fair value of the reporting unit’s goodwill. Instead, an entity should recognize an impairment loss if the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, with the impairment loss not to exceed the amount of goodwill allocated to the reporting unit. The Company adopted the standard for the fiscal year beginning December 29, 2019, and conducted its interim impairment testing accordingly.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses. The standard replaces the incurred loss model with the current expected credit loss (“CECL”) model to estimate credit losses for financial assets measured at amortized cost and certain off-balance sheet credit exposures. The CECL model requires a Company to estimate credit losses expected over the life of the financial assets based on historical experience, current conditions and reasonable and supportable forecasts. The Company adopted the standard for the fiscal year beginning December 29, 2019. Adoption of the standard did not have a material impact on the Consolidated, Unaudited Financial Statements.

9


Recently Issued Accounting Standards

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

 

3.  FAIR VALUE OF FINANCIAL INSTRUMENTS

The following tables provide information regarding the Company’s assets and liabilities measured at fair value on a recurring basis at March 28, 2020 and December 28, 2019.

 

 

March 28, 2020

 

 

 

 

 

 

 

Quoted  Market

 

 

Significant Other Observable

 

 

Significant Unobservable

 

 

 

Total

 

 

Prices (Level 1)

 

 

Inputs (Level 2)

 

 

Inputs (Level 3)

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forward foreign exchange contracts

 

$

710