HLIO 10-K & 10-Q changes, risk factors and insider trading

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; and (vii) our ability to respond to changes in customer demand domestically and internationally, including as a result of standardization.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 heathhealth 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 and ongoing 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.

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 recentlypreviously announcedenacted and potentially contemplated tariffs by the newcurrent 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. 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.

Federal,Certain stategovernmental and local governments,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.

We are subject to intense competition. Our products currently, and will continue to,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 superior technological capabilities and financial resources, our competitors could be engaged in the internal development of products and technologies that are similar to, or may compete with, certain of our products and technologies.

The future prospects for our products are dependent upon our customers’ acceptance of our products as an alternative to their internally developed products.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, valves and other end-devices. If our customers fail to accept our full system products or seek to internally develop alternatives to our full system products using component parts sourced from our competitors, or if we are otherwise unable to develop or maintain strong relationships with our customers, our business, financial condition and results of operations would be materially and adversely affected.

The transformation of our business from a holding company into an integrated operating companyEfforts 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 beganhave thehad process of transforming our operating model from a holding company to an integrated operating company withvarious 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.

Our existing indebtedness could adversely affect our business and growth prospects. As of DecemberJanuary 28,3, 2024,2026, we had total indebtedness of approximately $451$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.

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 33.1%33% of total assets as of DecemberJanuary 28,3, 2024.2026. 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, Australian dollar, 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.

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 corporatecorporate, divestiture-related, and acquisition-related costs, are included in Corporate and Other.

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 networknetwork, we have the advantages of leveraging sales, marketing, innovation, customer relationships and operational excellencecapabilities across all our businesses. We continue to drive best practices across all of our businesses and are committed to furthering the mission of integrating the businesses and leveraging resources to best serve our customers and explore new opportunities.

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 providesprovided additional manufacturing know-how and expandsexpanded our business into new end markets with attractive secular tailwinds.

In May 2023, we completed the acquisition of i3 Product Development. i3i3PD is a custom engineering services firm, with engineers specializing in electronics, mechanical, industrial, embedded and software engineering. i3i3PD specializes in working to transformtransforming 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 2024,2024 and 2025, the Company continued to explore and evaluate potential acquisitions, but no acquisitions were executed.

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 2024,2024 afterand decreasing 4% in 2023 and increasing 20% in 2022.2023. In Europe, the CEMA Business Barometer reported in JanuaryDecember 2025 that the general business climate index for the European agricultural machinery industry has risendeclined furtherfrom butNovember continuesto in negative territory.December. The majority of survey participants expect incoming orders to risedecline in the coming six months fromas theirthe current depressedbusiness levelssituation andis assessed similarly to the confidenceprevious index for almost all European markets has improved.month. CEMA further reported that Tractor and harvesters’ manufacturers see a deterioration in the directcurrent customerssituation. 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 manufacturers,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 dealers, have still not been able to pass on all orders to the end customers and the dealer stocks continue with above-average levels in almost all European markets, though a considerable improvement can be seen compared to previous months. The Committee for European Construction Equipment business climate index bounced back slightly in later part of 2024 after consecutive months of decline. They reported that salesdecline in the EuropeanUnited market are still declining but the momentum decelerates. The expectations for next year are pretty diverse across the industry, as one third of companies anticipate a return to growth while almost the same share expects more declines to come.States.

The Federal Reserve’s Industrial Production Index, which measures the real output of all relevant establishments located in the U.S., reports productionoutput of semiconductors and other electronics components declinedincreased throughsequentially 2024each withquarter anin uptick at the end of December 2024.2025. The Institute of Printed Circuits Association (“IPC”) reported that total North American printed circuit board (“PCB”) shipments decreasedwere up 11% in December 2024after bybeing 0.3%up against21.1% in November and up 24.4% in October compared with the same monthmonths last year following a year over year increase in November of 4.7% and a year over year decline in October of 11.1%.year. PCB bookings increasedin 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 yearthe past three months divided by the value of sales in the lastsame quarterperiod, withwas Decemberabove up1.2 59.6%,for Novembereach upmonth, 29.1%indicating andthe Octoberstronger updemand 3.5%.environment that started the year continues. The IPC also reported that North American electronics manufacturing services (“EMS”) shipments decreased 7.8%0.4% in 2025, however increased 5.6% in December 2024 compared to the sameprior monthyear. lastEMS yearbookings followingincreased 5.1% in December year over year increasesafter decreasing 4.1% in OctoberNovember and Novemberincreasing of6.4% 14.7%in andOctober, 10.6%,highlighting respectively.the EMSsector's bookings also increased year over yearchoppiness in the last quarter with December up 28%, November up 8.1% and October up 6.6%. The significant year over year increase in both PCB and EMS bookings were attributed to orders being pulled forward due to tariff uncertainties.quarter.

During 2024,2025, we incurred $5.2$1.6 of costs related to our restructuring activities, down from $12.1$5.3 in 2023.2024. Restructuring activities include activities within our Hydraulics segment related to the creation of our two new Regional Operational Centers of Excellence ("CoE") which are nearingnow completion.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. We have also recently initiated some restructuring activities to better optimize our European regional operations. We are transitioning some manufacturing of manifolds and integrated package assembly to our Roncolo, Italy location. These activities include in part the transferring of equipment and operations between facilities. The restructuring costs are comprised of non-recurring severance and termination benefits of $2.5 and $2.7 of travel and other expenses. The restructuring plans are expected to improve the global cost structure of the business.

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. He will continue to serve as Chief Financial Officer while the Company conducts a search process to identify a permanent Chief Financial Officer. In connection with Mr. Bagan’s appointment, Chairman Philippe Lemaitre, serving as Executive Chairman, resumed his role as Non-Executive Chairman.

20242025 Results and Comparison of Years Ended January 3, 2026 and December 28, 2024 and December 30, 2023 (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 DecemberJanuary 28,3, 20242026; comparisons are with the corresponding reporting period of 2023,2024, unless otherwise noted.

Net income andincreased $9.4, 24.1% while earnings per share (“EPS”) wereincreased favorably23.9% impactedin by2025. 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. TheyThere werewas unfavorablyno impactedimpact byfrom foreign currency transaction losses ofas losses were $1.3 in both 2025 and 2024 compared to a loss of $0.6 in 2023.. There was aan slight decreaseincrease in tax expense of $0.2 and an increase$2.5 in interest expense of $2.62025 compared to 2023.2024.

In 2024,2025, we continuedcompleted and are nearing completion of ourthe 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 $4.5$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 SEAoperating expenses.

During 2024,2025, gross profit declinedincreased $16.0,$9.0, 8.8%,5.4%, fromprimarily lowerdue volume andto higher direct labor costs.volume. Gross margin declinedincreased by 120140 basis points primarily due to lower fixed overhead costs leverage on lower volume and sales mix. Material costs as a percentage of sales weredriven relativelyby flat,leverage excludingon higher volume, increased productivity, and targeted pricing changes and acquisition-related sales. Changes in foreign currency exchange rates had an unfavorable impact of $0.1.actions.

Operating income as a percentage of sales decreasedincreased 4080 basis points to 16.1%.16.9% SEAdue to the higher gross margin partially offset by an increase in operating expenses. Operating expenses decreasedincreased $9.1,$4.0, 10.3%,5.0%, mainly due to lowerhigher labor and benefit costs, whichhigher includesresearch 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 2024,2024 and $1.2 in costs related to cleanup, repair and labor incurred as a reductiondirect in research and development costsresult of $0.6Hurricane andMilton. aOperating reduction in travel, professional services and other discretionary spend. SEAexpenses as a percent of sales decreasedincreased 8060 basis points to 14.8%15.4% in 2024.2025.

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 have beenwere collected in 2025, with $1.1 million outstanding to be collected.2025.

Net sales for the Electronics segment declinedincreased by $1.1,$29.5, 0.4%. We experienced organic net sales decline of $4.2, 1.6%, which was partially offset by acquisition sales of $3.1. Organic sales declined11.0% in 20242025 fromcompared decreasedwith demandthe 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. HealthThe andrecreational wellnessend increasedmarket yearwas up over year25% anddriven almostby offsetstrong thedemand lossesfrom inour theOEM other end markets.customers. The APAC regionregion's sales increased driven by ahealth significantand increasewellness inend market sales to China. Sales in the EMEA region wereincreased relativelyyear flat.over year on generally improved demand. Discrete impacts to our organic sales included pricing changes that were favorable by $2.8,$1.9, 1.0%,0.7%. andFiscal unfavorable2025 changesalso inbenefited foreignfrom currencyan exchangeextra ratesweek of $0.2,sales 0.1%.due to our fiscal calendar compared to prior year.

In 2024, we continued and are nearing completion of ourhad restructuring activities within our Electronics segment to shift product lines to theour expandedlow 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 SEAoperating 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.

Operating income as a percentage of sales decreased 180780 basis points to 11.0%.3.2% SEAprimarily 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 $1.7,$4.1, 3.1%,7.0%, in 20242025 primarily from acquisitions, an increase in researchwages and developmentbenefits, costsmarketing expenses of $1.7,$0.6, whichand weretravel partiallyof offset$0.5. byThe 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. SEAOperating expenses as a percent of salessales, increasedexcluding 70the goodwill impairment, decreased 80 basis points to 21.2%20.4% in 2024 from 20.5% in 2023,2024, reflecting theincreased impactleverage of acquisitionsoperating andexpenses increasedas costsa referencedresult above.of higher sales.

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 DecemberJanuary 28,3, 2024,2026, these costs totaled $34.2$35.1 and included amortization of acquisition-related intangible assets of $31.5,$31.7, $1.9$2.0 primarily related to costs associated with the Divestiture activities and $1.4 related to officer transition costs and $0.8 related to other costs which was primarily acquisition and integration related activities.costs.

For the year ended December 30,28, 2023,2024, these costs totaled $38.1$34.2 and included amortization of acquisition-related intangible assets of $32.9,$31.5, $4.0$1.9 related to officer transition costs and $0.8 related to other costs which was primarily acquisition and integration activitiesrelated and $1.2 of officer transition costs.activities.

Net interest expense increaseddecreased $2.6$11.9 during 20242025 to $33.8$21.9 compared with $31.2$33.8 in 2023.2024. The change is attributable to higherlower average debt levels during 20242025, lower interest rates, and highernet impact of interest rates.rate swaps of $5.4. Average net debt increaseddecreased by $1.5$99.1 during 20242025 to $448.9.$349.8.

The provision for income taxes for the year ended DecemberJanuary 28,3, 2024,2026, was 22.8%22.5% of pretax income compared with 23.8%22.8% for the year ended December 30,28, 2023. The difference relates principally to a shift in the mix of the company's worldwide income and decrease in valuation allowance established.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, recently has proposedintroduced 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.

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 currentlyenacted madelegislation anyimplementing public announcement regarding implementation ofthe Pillar Two Framework.GloBE rules.

The company continues to evaluate the impact of Pillar Two and application of safe harbors. For the year ended DecemberJanuary 28,3, 2024,2026, there are no impacts to income tax expense related to Pillar Two. The company does not expect it to have a material impact in 20252026 to their effective tax rate.

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 2024,2025, net cash provided by operating activities totaled $122.1$127.3 and as of DecemberJanuary 28,3, 2024,2026, we had $44.1$73.0 of cash on hand and $352.4$393.6 of available credit on our revolving credit facilities. At year end 2024,2025, approximately half of the cash on hand was held in institutions in APAC, approximately 40%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.

Cash on hand increased $11.7$28.9 to $44.1$73.0 at the end of 2024.2025. 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 and favorably impacted by changes in exchange rates by $0.8 during the years ended January 3, 2026, and December 28, 2024, and December 30, 2023, 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.

Net cash from operations totaled $122.1$127.3 in 2024,2025, an increase of $38.2,$5.2, 45.5%,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, decreasedincreased by $1.0$16.4 compared to the prior year.year driven by higher volume and lower interest expense. However, changes in net operating assets and liabilities increaseddecreased cash by $39.2$11.1 compared to 2023,2024, primarily from reductionworking incapital inventories.dynamics. Reductions in inventory, net of acquisitions, increaseddecreased cash by $2.7 in 2025 compared with an increase in cash by $19.4 in 2024 compared with a decrease in cash by $17.9 in 2023.2024. Inventory on hand as of DecemberJanuary 28,3, 2024,2026, decreased by $25.0,$1.5, 11.6%,0.8%, compared to the 20232024 year end. The decrease is drivenrelated primarilyto the sale of Custom Fluidpower partially offset by the execution of management's inventory reduction efforts and improved inventory management in response to lowerhigher sales. Days of inventory on hand increaseddecreased to 134124 days for the 20242025 year, compared with 130134 days during the 20232024 year. Changes in accounts receivable, net of acquisitions, decreased cash by $16.5 and increased cash by $7.3 and $16.3 in 20242025 and 2023,2024, respectively. Days sales outstanding for the 20242025 year decreasedincreased slightly to 4751 days from 5047 days during 2023, as our collection patterns remain consistent with the prior year.2024. Changes in accounts payable, net of acquisitions, increased cash by $22.0 and decreased cash by $11.8 and $5.2 in 20242025 and 2023,2024, respectively. Days payables outstanding for the 20242025 year decreasedincreased to 49 days from 37 days from 45 days during 2023.2024, due to focused efforts to renegotiate terms with key suppliers.

We initiated some optimization activities at the beginning of 2026 that will result in the movement of production activities between locations in order to drive operational efficiencies and reduce costs. We arehave consolidatingconsolidated the North American operations of the Hydraulics Faster entity in Toledo, Ohio, and willare subsequently closeclosing the Faster operation in Quebec, Canada, that was obtained as part of the acquisition of the assets of Taimi R&D, Inc. in July 2022. The activities began in the first quarter of 2026 and were substantially completed at the end of the second quarter of 2026. Some wrap up activities remain that are expected to be completed byin the third quarter of 2026. In addition, we are moving additional production activities within our Electronics segment to our low cost manufacturing centerCenter of excellenceExcellence in Tijuana, Mexico. These activities were paused in 2025 as a result of the uncertain and changing tariff landscape and are now being re-initiated.re-initiated Transitionand activitiesexpected willto take place throughout 2026.

Restructuring costs totaled $0.6$1.8 and $0.3,$1.2, for the threesix months ended AprilJuly 4, 2026 and MarchJune 29,28, 2025.2025, respectively.

We expect the challenging macroeconomic conditions to continue, characterized by economic uncertainty and market disruption driven by inflationary pressures, volatile oil prices, political uncertainty, potential changes to current global trade policies and modifications of existing trade agreements, the potential negotiation of new trade agreements and imposition of new (and retaliatory) tariffs, and the ongoing geopolitical conflicts in Ukraine and the Middle East. We are continuously monitoring these economic and geopolitical conditions and remain focused on liquidity management, pricing discipline, cost savings initiatives and production efficiency as ways to mitigate the risks associated with the uncertainty.

Due to the fluidity of the tariff environment and potential subsequent changes to effective dates,dates of certain tariffs, amounts of announced tariffs, and various exemptions for imports into the U.S. (especially in light of the recent decisions invalidating certaintariffs previouslyimplemented announcedunder tariffsthe IEEPA), we are unable to fully quantify the impact suchany tariffs will have on our results of operations when and if enacted. Our expectation, however, is to continue to leverage our regional production capabilities, source components from local suppliers, and take certain pricing actions, which we believe may mitigate the impact of higher tariff costs. We cannot provide any assurances that these or other actions that we take 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 or executed in a timely manner, our business, results of operations, and our financial and/or operating costs may be adversely affected.

According to the National Fluid Power Association (the fluid power industry’s trade association in the U.S.), the U.S. index of shipments of hydraulic products increased 2%3% during the first threesix months of 2026 compared to the first threesix months of the prior year while the U.S. index of orders of hydraulic products increased 22%18% during the same period. In Europe, the CEMA (European Agricultural Machinery Association) Business Barometer reported in MarchJune 2026 that the general business climate index for the European agricultural machinery industry has droppeddeclined significantly, pushing the sector back into negativerecession territoryafter forjust the first time since its upturnover a year ago.year. The decline is driven by notable deterioration in both the overallcurrent indexbusiness is a downward adjustment in expectations for the coming six months, since the upturn has not materialized in many segments, particularly in harvestingevaluation and arable equipment. The report indicated the outlook appears to be slightly positive and the participants expect their company's turnover to increase in the single-digit range. Western and Northern Europe, as well as Oceania are continued to be viewed with confidence while North America is ranking at the bottom of the confidence index.expectations.

The Federal Reserve’s Industrial Production Index, which measures the real output of all relevant establishments located in the U.S., reports firstsecond quarter 2026 output of semiconductors and other electronics components decreasedincreased from the prior quarter. The Institute of Printed Circuits Association (“IPC”) reported that total North American printed circuit board (“PCB”) shipments were up 17.6%12.0% in February after being up 9.1% in JanuaryJune compared with the same monthsmonth last year. PCB bookings in 2026 were downup 4.3%31.5% in FebruaryJune compared to the prior year and decreasedJune 10.8%year to date bookings increased 29.0% for the same period last year. 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 1.11.3 for eachJune month,2026, indicating athe strongerstrong demand environment tothat startstarted the year.year continues. The IPC also reported that North American electronics manufacturing services (“EMS”) shipments increased 7.6%6.7% in FebruaryJune compared to the prior year while being flatup 5.2% and 3.1% year over year in January.May and April, respectively. EMS bookings increased 1.7%29.3% in FebruaryJune year over year after decreasingincreasing 3.3%28.7% and 4.6% in January,May and April, respectively, highlighting the sector's choppinessstrong demand in the quarter. On April 8, 2026, the Global Electronics Association released the "Annual Survey of the European EMA Industry 2026." The survey highlights that industrial electronics market shows early recovery signals while profitability stabilized or improved for many companies despite lower revenues. The sentiment for 2026 points to modest improvement, not a strong rebound.

2026 FirstSecond Quarter Results and Comparison of the Three Months Ended AprilJuly 4, 2026, and MarchJune 29,28, 2025 (In millions, except per share data)

The following is a discussion of our firstsecond quarter of 2026 results of operations and liquidity and capital resources. Comparisons are with the corresponding reporting period of 2025, unless otherwise noted.

FirstSecond quarter consolidated net sales increased $32.9,$19.4, 16.8%,9.1%, above the prior-year first quarter. Changes in foreign currency exchange rates had a favorable impact toon our firstsecond quarter sales of $5.6,$2.9, 2.5%.1.3%.

FirstSecond quarter sales were positively impacted by increased demand across several of our end markets, including mobile, recreational, mobile,agriculture, agriculture,and health and wellness,wellness andend markets. Demand in the industrial end markets.market Salesdecreased compared to the prior year period while sales focused on the marine category within recreational have remained depressed. Sales in the EMEAEMEA, Americas and AmericasAPAC regions were up while sales in the APAC region were down during the firstsecond quarter compared to the prior year. The year over year declinesmaller increase in sales in the APAC region is due to the business disposed of in the Divestiture. Excluding the Divestiture related sales of $14.2$15.0 in the firstsecond quarter of 2025, sales in the APAC region increased more significantly compared to the prior year.

FirstSecond quarter operating income as a percentage of sales increased 440370 basis points to 13.1% compared with the prior year period.14.0%. The increase is due to the gross margin level improvementchanges and fixedlower costoperating leverageexpenses as a resultpercentage of higher volume.revenue. Operating expenses were $2.1$2.2 higher than the prior year ago periodperiod, mainly due to higher wages and benefit costs, research and& development costs,expenses, asand wellbad asdebt expense partially offset by lower wages and lower amortization. The higher marketingamortization andin travelthe relatedprior costs.year period is primarily attributable to the HCEE restructuring activities in the prior year.

Net interest expense decreased by $2.3$0.4 to $5.1$4.7 in the firstsecond quarter of 2026 primarily due to lower debt outstanding compared to the prior year period and a lower spread on our credit facility borrowings,borrowings because of reduced leverage. Average net debt decreased to $289.2$273.9 during the firstsecond quarter of 2026 compared with $402.6$391.4 during the firstsecond quarter of 2025. Year to date interest expense totaled $9.8, a decrease of $4.6. Average net debt for the year-to-date period decreased to $296.3 compared with $394.3 during the prior-year period. The reduction in average net debt is due to the paying down of debt incurred from prior year acquisitions.

The provision for income taxes for the firstsecond quarter of 2026 was 23.1%22.1% of pretax income compared to 23.5%23.8% for the prior-year firstsecond quarter. The year-to-date provision was 22.6% and 23.7% of pretax income for 2026 and 2025, respectively. These effective rates fluctuate relative to the levels of income and different tax rates in effect among the countries in which we sell our products.

On 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 Consolidatedconsolidated Financialfinancial Statements.statements.

FirstSecond quarter net sales for the Hydraulics segment increased by $12.8,$5.5, 10.1%,3.9%, compared with the prior year firstsecond quarter. The increase in sales in the firstsecond quarter was driven by improved demand in the mobile and agriculture end markets. Prior year sales included $14.2$15.0 in sales related to the Divestiture. Changes in foreign currency exchange rates had a favorable impact of $5.3,$2.4, 3.8%.1.7%.

Regional sales performance in the firstsecond quarter compared to the prior year quarter was driven by:

FirstSecond quarter gross profit increased $6.9,$4.1, 18.4%8.8% compared to the prior year first quarter primarily due to higher volume.volume and net tariff impacts, partially offset by higher freight and energy costs. Gross margin improved 220160 basis points, primarily due to better fixed cost leverage on higher volume, the Divestiture,Divestiture and lower material costs partially offset by higher direct labor and variable overhead costs as a percentage of sales.

Operating income as a percentage of sales increased 300200 basis points to 16.8%19.7% in the firstsecond quarter of 2026 due to the gross margin level improvement and fixed cost leverage as a result of higher volume. Operating expenses were $0.9$0.4 higher than the prior year ago period, mainlyprimarily due to higher wagesbenefit costs and benefit costs, as well as higher research and development costs.expenses.

FirstSecond quarter net sales for the Electronics segment increased $20.1,$13.9, 29.1%,19.4%, compared with the prior year period. Compared to the prior year period, the firstsecond quarter sales increase was driven by the recreational, health and wellness, and mobile end markets. Sales in the industrial end markets increased slightly, while sales to the agriculture end market decreased slightly. Changes in foreign currency exchange rates had minimal$0.5 impact.

Sales increased across allmost regions.end The increasemarkets in both the Americas and EMEA is primarily due to the recreational and marketregions in the firstsecond quarter comparedand toyear-to-date period. APAC sales increased over the priorcomparable year.second Thequarter yearand overyear-to-date year increaseperiod in APAC salesdriven is primarily due to demand inby the health and wellness end market.

FirstSecond quarter gross profit increased $8.1,$8.6, 36.0%41.0% compared to the prior year firstsecond quarter, primarily due to higher volume.volume and net tariff impacts. Gross margin improved 170530 basis points, primarily due to the impact of higher fixed costs leverage on higher volume andvolume, lower direct labor costs as a percentage of salessales, and lower material costs as a percentage of sales, partially offset by unfavorable customer mix. The prior year period included a $2.4 freight and duties expense related to a product import classification change.

Operating income as a percentage of sales increased 430490 basis points to 15.9%13.1% in the firstsecond quarter of 2026 compared to the prior year period due to the higher gross margin andpartially fixedoffset costby leveragean increase in operating expenses as a resultpercentage of higher volume.sales. Operating expenses were $2.0$3.3 higher than the prior year ago period mainlyprimarily due to higheran wagesincrease andin benefit costs, as well as higher research and development costs.expenses, and bad debt expense.

Certain costs are excluded from business segment results as they are not used in evaluating the results of, or in allocating resources to, our operating segments. For the firstsecond quarter of 2026, these costs totaled $7.7$7.6 for amortization of acquisition-related intangible assets of $7.6$7.5 and $0.1 for depreciation.costs related to the divestiture and officer transition costs. Compared to the firstsecond quarter of 2025, these costs decreased by $0.7,$1.4, primarily due to reduction of amortization related to acquired intangible assets.assets and officer transition costs. Year-to-date, corporate and other costs totaled $15.3 for amortization of acquisition related intangible assets of $15.1 and $0.2 related to the divestiture and officer transition costs. This compared to $17.4 in the 2025 year-to-date period that included amortization of acquisition related intangible assets of $16.5, $0.5 for officer transition costs, and $0.4 for divestiture activities.

Historically, our primary source of capital has been cash generated from operations. We also use borrowings on our credit facilities to fund acquisitions. During the first threesix months of 2026, cash provided by operating activities totaled $23.9.$65.8. At the end of the firstsecond quarter, we had $64.2$68.0 of available cash and cash equivalents on hand and $395.4$393.8 of available credit on our Revolvingrevolving Creditcredit Facilities.facilities. We also have a $400.0 accordion feature available under our Third Amended and Restated Credit Agreement, subject to certain pro forma compliance requirements, that is intended to support potential future acquisitions.

Cash on hand decreased $8.8$5.0 in the first quartertwo quarters of 2026 to $64.2$68.0 as of AprilJuly 4, 2026. Changes in exchange rates during the threesix months ended AprilJuly 4, 2026, negatively impacted cash and cash equivalents $0.7.$1.0. Cash balances on hand are a result of our cash management strategy, which focuses on maintaining sufficient cash to fund operations while reinvesting cash in the Company and paying down borrowings on our credit facilities.

Year-to-date cash from operations increased by $4.9$9.8 to $23.9.$65.8. 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 $11.3$24.7 in the first quartertwo quarters of 2026 compared to the priorsame period.period in 2025. Changes in net operating assets and liabilities negatively impacted cash flow by $6.4$15.0 in the firstsecond quarter, compared to the prior year period, primarily duefrom toa higher increase in accounts receivable and inventory, a smaller increase in accounts payable partially and offset by an increase in other current assets,assets along with increases in inventory and accounts receivable, partially offsetdriven by a decrease in accounts payable.prepayments. Changes in inventory decreased cash by $3.7$7.9 in comparison to an increase of cash by $1.1$1.7 in the first quartertwo quarters of 2026 and 2025, respectively. Days of inventory on hand decreased to 112115 days as of AprilJuly 4, 2026, compared with 126130 days as of MarchJune 29,28, 2025. Changes in accounts receivable reduced cash by $22.4$27.3 and $15.3$23.4 in the first quartertwo quarters of 2026 and 2025, respectively. Days sales outstanding decreased slightly to 55 days as of AprilJuly 4, 2026, compared with 5662 days as of MarchJune 29,28, 2025. Changes in accounts payable increased cash by $11.8$13.0 and $21.4 in comparisonthe tofirst antwo increasequarters of cash of $4.8 in 2026 and 2025, respectively. Days payables outstanding for the 2026 year increased to 53 days in 2026 from 4153 days duringin 2025.

Cash used in investing activities totaled $7.2$19.2 in the first quartertwo quarters of 2026, compared to $6.8$13.2 in the first quartertwo quarters of the prior year. The year-over-year increase reflects an increase in capital expenditures to support organic growth opportunities.

Capital expenditures totaled $6.7,$18.0, 2.9%,3.9%, of sales for the first quartertwo quarters of 2026, an increase of $0.6$6.5 over the prior year comparable period. Capital expenditures for 2026 are forecasted to be approximately 3.8% to 4.8% of sales, for investments in machinery and equipment, improvements to manufacturing technology and maintaining or replacing existing machine capabilities.

Net cash used in financing activities totaled $24.8$50.6 during the first quartertwo quarters of 2026, compared to $11.3$38.5 in the same period of the prior year. In the first quartertwo quarters of 2026, repayments, net of borrowings, totaled $16.9$33.1 compared to $7.8$25.6 in the first quartertwo quarters of 2025.

Borrowings on our term loans and revolving credit facilities as of AprilJuly 4, 2026, totaled $245.6$226.9 and $103.7,$105.4, respectively. See Note 9 of- theCredit Condensed Notes to the Consolidated, Unaudited Financial Statements included in this Quarterly ReportFacilities, for additional information regarding our credit facilities.