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 31, 1998 Commission file number 0-21835
SUN HYDRAULICS CORPORATION
- --------------------------------------------------------------------------------
(Exact Name of Registration as Specified in its Charter)
FLORIDA 59-2754337
------------------------ ----------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) 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)
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 [ X ] No [ ]
The Registrant had 6,345,922 shares of common stock, par value $.001,
outstanding as of May 11, 1998.
Sun Hydraulics Corporation
INDEX
For the first quarter ended March 31, 1998
Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1998 (unaudited)
and December 31, 1997 3
Consolidated Statements of Income for the
Three Months Ended March 31, 1998 and 1997 (unaudited) 4
Consolidated Statement of Changes in Shareholders' Equity for the
Three Months Ended March 31, 1998 (unaudited) and the Year
Ended December 31, 1997 5
Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 1998 and 1997 (unaudited) 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
Forward Looking Information 14
PART II. OTHER INFORMATION 16
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
2
PART I: FINANCIAL INFORMATION
Item 1.
SUN HYDRAULICS CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
MARCH 31, DECEMBER 31,
1998 1997
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 2,967 $ 1,249
Accounts receivable, net of allowance for
doubtful accounts of $44 and $47 6,175 4,558
Inventories 6,503 6,775
Other current assets 732 932
------------ ------------
Total current assets 16,377 13,514
Property, plant and equipment, net 40,183 39,789
Other assets 113 86
------------ ------------
Total assets $ 56,673 $ 53,389
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,130 $ 2,847
Accrued expenses and other liabilities 2,039 2,174
Long-term debt due within one year 1,837 1,035
Notes payable to related parties due within one year 785 757
Dividends payable 253 221
Income taxes payable 1,245 380
------------ ------------
Total current liabilities 9,289 7,414
Long-term debt due after one year 6,688 6,620
Notes payable to related parties due after one year 945 1,152
Deferred income taxes 3,213 3,203
------------ ------------
Total liabilities 20,135 18,389
------------ ------------
Commitments and contingencies
Shareholders' equity:
Preferred stock - -
Common stock (Note 3) 6 6
Capital in excess of par value 24,175 24,163
Retained earnings 12,119 10,732
Equity adjustment for foreign currency translation 238 99
------------ ------------
Total shareholders' equity 36,538 35,000
------------ ------------
Total liabilities and shareholders' equity $ 56,673 $ 53,389
============ ============
The accompanying Notes to the Consolidated Financial Statements
are an integral part of these financial statements.
3
SUN HYDRAULICS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED
MARCH 31,
(UNAUDITED)
1998 1997
---- ----
NET SALES $ 19,133 $ 14,599
Cost of sales 13,347 10,202
--------------- --------------
GROSS PROFIT 5,786 4,397
Selling, engineering and
administrative expenses 3,014 2,717
--------------- -------------
OPERATING INCOME 2,772 1,680
Interest expense 260 152
Miscellaneous expense (income) 43 (58)
--------------- -------------
INCOME BEFORE INCOME TAXES 2,469 1,586
Income tax provision 829 568
--------------- -------------
NET INCOME $ 1,640 $ 1,018
=============== =============
BASIC NET INCOME PER COMMON SHARE $ 0.26 $ 0.16
WEIGHTED AVERAGE SHARES OUTSTANDING 6,325 6,300
DILUTED NET INCOME PER COMMON SHARE $ 0.25 $ 0.16
WEIGHTED AVERAGE SHARES OUTSTANDING 6,499 6,514
The accompanying Notes to the Consolidated Financial Statements
are an integral part of these financial statements.
4
SUN HYDRAULICS CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS)
EQUITY
ADJUSTMENT
CAPITAL IN FOR FOREIGN
COMMON EXCESS OF RETAINED CURRENCY
SHARES STOCK PAR VALUE EARNINGS TRANSLATION TOTAL
Balance, December 31, 1996 4,000,002 $ 2,179 $ 2,719 $ 17,450 $ 49 $ 22,397
Net proceeds from stock offering 2,300,000 2 19,250 19,252
Distributions to shareholders (10,545) (10,545)
Dividends declared (883) (883)
Net income 4,710 4,710
Merger with Sun Holdings (Note 2) (2,175) 2,123 (52)
Exercise of stock options 22,000 71 71
Adjustment for foreign
currency translation 50 50
--------- --------- ------------ -------- -------- ---------
Balance, December 31, 1997 6,322,002 6 24,163 10,732 99 35,000
Dividends declared (253) (253)
Net income 1,640 1,640
Exercise of stock options 3,920 12 12
Adjustment for foreign
currency translation 139 139
--------- --------- ------------ -------- -------- ---------
Balance, March 31, 1998 (unaudited) 6,325,922 $ 6 $ 24,175 $ 12,119 $ 238 $ 36,538
========= ========= ============ ======== ======== =========
The accompanying Notes to the Consolidated Financial Statements
are an integral part of these financial statements.
5
SUN HYDRAULICS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31,
(UNAUDITED)
1998 1997
---- ----
Cash flows from operating activities:
Net income $ 1,640 $ 1,018
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 1,127 990
(Increase) decrease in:
Accounts receivable (1,617) (1,368)
Inventories 272 (284)
Income tax receivable, net - 344
Other current assets 200 1,034
Other assets (27) -
Increase (decrease) in:
Accounts payable 283 (977)
Accrued expenses and other liabilities (135) (105)
Income taxes payable, net 875 1,054
Other liabilities - (14)
--------- ---------
Net cash provided by operating activities 2,618 1,692
--------- ---------
Cash flows from investing activities:
Capital expenditures (1,521) (2,253)
Proceeds from dispositions of equipment - 2
--------- ----------
Net cash used in investing activities (1,521) (2,251)
--------- ---------
Cash flows from financing activities:
Proceeds from debt 2,182 1,610
Repayment of debt (1,312) (8,560)
Repayment of notes payable to related parties (179) (155)
Proceeds from exercise of stock options 12 -
Net proceeds from stock offering (Note 3) - 19,252
Cash paid for Sun Holdings merger (Note 3) - (52)
Dividends to shareholders (221) -
Distributions to shareholders (9,954)
--------- ---------
Net cash provided by financing activities 482 2,141
--------- ---------
Adjustment for foreign currency translation 139 (63)
--------- ---------
Net increase in cash and cash equivalents 1,718 1,519
Cash and cash equivalents, beginning of period 1,249 1,038
--------- ---------
Cash and cash equivalents, end of period $ 2,967 $ 2,557
========= =========
Supplemental disclosure of cash flow information:
Cash paid (received) for:
Interest (including amounts capitalized) $ 265 $ 400
========= =========
Income taxes $ (46) $ (291)
========= =========
The accompanying Notes to the Consolidated Financial Statements are an
integral part of these financial statements.
6
SUN HYDRAULICS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands except per share data)
1. INTERIM CONSOLIDATED FINANCIAL STATEMENTS
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 generally accepted accounting principles
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 31, 1997, filed by Sun Hydraulics Corporation
(the "Company") with the Securities and Exchange Commission on March 30, 1998.
2. BUSINESS
Sun Hydraulics Corporation and its wholly-owned subsidiary design,
manufacture and sell screw-in cartridge valves and manifolds used in hydraulic
systems. The Company has facilities in the United States, the United Kingdom
and Germany. Sun Hydraulics Corporation ("Sun Hydraulics"), located in
Sarasota, Florida, designs, manufactures and sells through independent
distributors in the United States. Sun Hydraulik Holdings Limited ("Sun
Holdings"), a wholly-owned subsidiary of the Company, was formed to provide a
holding company vehicle for the European market operations. Its wholly-owned
subsidiaries are Sun Hydraulics Limited (a British corporation, "Sun Ltd.") and
Sun Hydraulik GmbH (a German corporation, "GmbH"). Sun Ltd. was originally
formed in 1985 and operates a manufacturing and distribution facility located
in Coventry, England. GmbH was incorporated on January 1, 1991, to market the
Company's products in German-speaking European markets.
3. REORGANIZATION AND INITIAL PUBLIC OFFERING
The consolidated financial statements of the Company consist of the
financial position and results of operations of Sun Hydraulics and Sun
Holdings. In January 1997, Sun Hydraulics effected a 9.90372627 for 1 stock
split. All prior year share amounts reflected in the financial statements
include the effect of the stock split. Additionally, Sun Hydraulics issued
374,811 shares of common stock and made a nominal cash payment of $52 in
exchange for all of the issued and outstanding stock of Sun Holdings (the
"Reorganization"). The Reorganization was accounted for in a manner similar to
a pooling of interest except for shares held by the minority shareholders which
were accounted for at the fair market value of their proportionate share of
related assets and liabilities, which approximated book value on the date of
the transaction.
The Company filed a Registration Statement on Form S-1 with the Securities
and Exchange Commission effective January 9, 1997, and issued 2,300,000 shares
of common stock in an initial public offering ("IPO"), with an initial offering
price of $9.50. The IPO net proceeds of
7
$19,252, the exchange of shares with Sun Holdings, and the distribution of
previously taxed S Corporation retained earnings are reflected in the statement
of changes in shareholders' equity.
The $19,252 of net proceeds from the IPO were used as follows: an S
Corporation distribution of $9,446, representing 90% of the total distribution
of $10,545, $7,676 was paid to extinguish debt, $1,000 was paid to reduce the
mortgage on the manifold facility, and $1,130 was retained as working capital.
The Company has 20,000,000 authorized shares of common stock, par value
$0.001, with 6,325,922 shares outstanding at March 31, 1998. The Company also
has 2,000,000 authorized shares of preferred stock, par value $0.001, with no
shares outstanding.
4. EARNINGS PER SHARE
During the first quarter of 1997, Statement on Financial Accounting
Standards No. 128 ("SFAS 128"), "Earnings per Share," was issued. SFAS 128 is in
effect for the year ended December 31, 1997 and requires a restatement of
previously reported earnings per share. SFAS 128 requires the Company to report
both basic earnings per common share, which is based on the weighted average
number of common shares outstanding, and diluted earnings per common share,
which is based on the weighted average number of common shares outstanding and
all dilutive potential common shares outstanding. All prior years' earnings per
share data in this report have been recalculated to reflect the provisions of
SFAS 128.
5. INVENTORIES (in thousands)
March 31, December 31,
1998 1997
(unaudited)
Raw materials $ 184 $ 214
Work in process 4,576 4,348
Finished goods 1,743 2,213
--------- -------
$ 6,503 $ 6,775
========== =======
8
6. LONG-TERM DEBT (in thousands)
March 31, December 31,
1998 1997
(unaudited)
Lines of credit agreements $ 1,696 $ 666
Mortgage note payable-U.S. Manifold facility 4,953 4,990
Mortgage note payable-German facility 1,876 1,999
----------- -----------
8,525 7,655
Less amounts due within one year (1,837) (1,035)
----------- -----------
$ 6,688 $ 6,620
=========== ===========
The Company has three revolving lines of credit; one in the United States,
one in England, and one in Germany. None of these arrangements contain
pre-payment penalties.
The United States had a $1,700 revolving credit agreement, secured by all
inventory and accounts receivable, bearing interest at the lender's prime rate
with a maturity date of March 1, 1997. In February 1997, the Company
negotiated a one-year, unsecured revolving credit facility to replace the
$1,700 revolving credit agreement. The new credit facility provides for a
maximum availability of $10,000, payable on demand at the lender's prime rate
of interest. There are no debt covenants related to this facility. In February
1998, the Company renegotiated this unsecured credit facility with a term of
one year and an interest rate equal to the bank lender's prime rate less 1%, or
LIBOR plus 1.9% for predetermined periods of time at the Company's option. At
March 31, 1998, $1,650 was outstanding under this credit facility.
In England, the Company has a $1,200 line of credit, denominated in British
pounds, which bears interest at a floating rate equal to 2.25% over the bank's
base rate and is a demand note. At March 31, 1998 there was no balance
outstanding on this credit facility.
The German line of credit is a demand note denominated in German Marks with
interest payable at the lender's prime rate. At March 31, 1998, $46 was
outstanding under this credit facility.
A 10-year mortgage note of $6,187 was obtained at a fixed interest rate of
8.25% for construction of the manifold facility. Terms on the construction
note were interest-only on the balance drawn down through the completion of
construction and then conversion to a 10-year mortgage note with a 15-year
amortization schedule. The Company applied $1,000 of the IPO proceeds toward
repayment of this note. In March 1998, this mortgage note was renegotiated to
an interest rate of 7.875%. Terms are monthly principal and interest payments
of $43 for 8.25 years with remaining principal due July 1, 2006.
9
In May 1996, the Company obtained a mortgage loan of approximately $2,400,
denominated in German marks, for the new facility in Erkelenz, Germany. The
loan has a term of 12 years and bears interest at 6.47%. At March 31, 1998,
$1,876 was outstanding under this credit facility.
10
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The Company is a leading designer and manufacturer of high-performance,
screw-in hydraulic cartridge valves and manifolds which control force, speed
and motion as integral components in fluid power systems. The Company sells its
products globally through independent distributors.
Demand for the first quarter was substantially the same as the record
first quarter of 1997, despite a sharp drop in demand in Asia. Management
believes distributors in Asia are adjusting their inventories to an anticipated
lower level of activity. Demand in all other major market areas was equal to
or greater than the first quarter of 1997. Distributor inventories in the
United States increased over 20% since the first of the year. Although this
increase is significant, when stated in the number of inventory turns, it is
generally in line with historical trends. At the current demand levels and
recent production rates, management believes a leveling off of net sales will
occur in the near term.
Customer delivery times improved during the first quarter of 1998, and the
published production lead times for many types of products were reduced.
However, management believes that the Company's responses to customer's product
delivery requests are still not satisfactory. As a result, the Company
continues to view the improvement of product availability as its major
challenge.
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1998 AND 1997
Net sales increased 31.1%, or $4.5 million to $19.1 million in the three
month period ended March 31, 1998, compared to $14.6 million in the three month
period ended March 31, 1997. Domestic net sales increased 39.6% or $3.7
million to $13.1 million in the three month period ended March 31, 1998. This
increase reflected strength in both the mobile and industrial equipment sectors
of the fluid power industry, and the Company's ability to continue to increase
production.
International net sales increased 16.0%, or $0.8 million to $6.1 million in
the three month period ended March 31, 1998. European net sales increased
27.0% and sales to Asia decreased 16.3%.
Gross profit increased 31.6% or $1.4 million to $5.8 million in the three
month period ended March 31, 1998, compared to $4.4 million in the three month
period ended March 31, 1997. This increase primarily was related to the
increase in net sales. Gross profit as a percentage of net sales was 30.2% in
the three month period ended March 31, 1998, compared to 30.1% in the three
month period ended March 31, 1997. The favorable effects of fixed cost
absorption by higher net sales were offset by unfavorable product mix and
material cost increases. The change in product mix was due to the increased
sales of high volume, lower margin, products produced in the recently completed
cellular production operation in the United States cartridge plant. Material
cost increases relate to product design improvements and the outsourcing of
parts to help improve product delivery times.
11
Selling, engineering and administrative expenses increased 10.9% or $0.3
million to $3.0 million in the three month period ended March 31, 1998,
compared to $2.7 million in the three month period ended March 31, 1997. This
increase was due to additional personnel and expenses now required in the new
manifold plant in the United States, and new system implementation costs in the
United Kingdom. Selling, engineering and administrative expenses as a
percentage of net sales decreased to 15.8% this quarter from 18.6% in the same
quarter last year.
Interest expense was $0.3 million for the three month period ended March 31,
1998, an increase of $0.1 million compared to the three month period ended
March 31, 1997. This increase is due to increased debt related to the
completion of the new plants in Germany and the United States subsequent to the
first quarter of 1997 and working capital financing required during the first
quarter of 1998. Miscellaneous expense for the period ended March 31, 1998,
consists primarily of currency exchange losses in the United Kingdom, partially
offset by interest income in the United States. Interest income for the first
quarter of 1998 was lower than the first quarter of 1997, due to the temporary
investment of IPO proceeds in 1997.
The provision for income taxes in the three month period ended March 31,
1998, was 33.6% of pretax income compared to 35.8% of pretax income in the
three month period ended March 31, 1997. This decrease in rate is primarily due
to the change in mix of pretax income among the Company's three operating units
in Germany, the United Kingdom and the United States.
Net income for the three month period ended March 31, 1998, increased to
$1.6 million representing 8.6% of net sales compared to $1.0 million,
representing 7.0% for the three month period ended March 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company's primary source of capital has been cash
generated from operations, although short-term fluctuations in working capital
requirements have been met through borrowings under revolving lines of credit
as needed. The Company's principal uses of cash have been to pay operating
expenses, make capital expenditures, pay dividends to shareholders and service
debt.
At March 31, 1998, the Company had working capital of $7.1 million. Cash
flow from operations for the three months ended March 31, 1998, was $2.6
million compared to $1.7 million for the three months ended March 31, 1997.
Approximately, $0.6 million of the $0.9 million increase in cash flow from
operations was related to the increase in net income.
Capital expenditures for the three months ended March 31, 1998, were $1.5
million, primarily for machinery and equipment. This compares with $2.3 million
spent on capital in the three months ended March 31, 1997, $1.2 million of
which was for machinery and equipment and $1.1 million to complete the new
facilities in Germany and the United States.
The Company has three revolving lines of credit: one in the United States,
one in England, and one in Germany. None of these arrangements contain
pre-payment penalties.
12
In February 1998, the Company renegotiated its one-year, unsecured
revolving credit facility in the United States. The credit facility provides
for a maximum availability of $10.0 million, payable on demand and does not
contain any debt covenants. The interest rate is equal to the bank lender's
prime rate less 1%, or LIBOR plus 1.9% for predetermined periods of time, at
the Company's option. At March 31, 1998, there was $1.7 million outstanding
under this credit facility.
A 10-year mortgage note of $6.1 million was issued by the Company in May
1996, which bears interest at a fixed rate of 8.25% for construction of the new
manifold facility in Sarasota, Florida. Terms on the new mortgage note were
interest-only on the balance drawn down through the completion of construction
and then conversion to a 10-year note with a 15-year amortization schedule. In
March 1998, this mortgage note was renegotiated to an interest rate of 7.875%.
Terms are monthly principal and interest payments for 8.25 years with remaining
principal due July 1, 2006. At March 31, 1998, $5.0 million was outstanding on
this facility.
In addition, the Company has notes payable to former stockholders, which
bear interest at a weighted rate of 15%, and which have terms ranging from
three to five years. These notes were issued by the Company in 1989 and 1990,
in connection with the repurchase of shares of common stock from the former
shareholders, and do not allow for prepayment by the Company. At March 31,
1998, $1.7 million was outstanding under these notes.
The Company has submitted a business interruption insurance claim of $2.3
million to its insurance carrier. The claim is related to a fire in the manifold
plant in the United States which occurred while the plant was under
construction. The Company believes that this fire delayed the opening of the
new plant which, in turn, delayed the rearrangement of the cartridge operation
and the creation of the cellular production for high volume models. The
validity and amount of the claim continue to be evaluated by the Company's
insurance carrier. No amounts have been recorded related to this claim in the
Company's financial statements.
The Company believes that cash generated from operations and its borrowing
availability under its revolving lines of credit will be sufficient to satisfy
the Company's operating expenses and capital expenditures for the foreseeable
future.
The Company declared a quarterly dividend of $0.04 per share to
shareholders of record on March 31, 1998, which was paid on April 15, 1998.
YEAR 2000
Management believes that the computer systems in three of the Company's
four locations currently are capable of processing data related to the year
2000. The systems in the United States cartridge plant are not capable of
properly processing year 2000 data. The Company plans to replace the current
system in time to meet year 2000 requirements. The implementation process for
this new system began in the first quarter of 1998. The new system cost is not
expected to significantly impact the results of operations. As with any new
system implementation, there can be no assurance that the conversion will not
significantly impact operations. Also, there can be no assurance that the
systems of other companies on which the Company relies will be timely converted
or that any such failure to convert by another company will not have an adverse
effect on the Company's operations.
13
SEASONALITY AND INFLATION
The Company does not believe that inflation had a material effect on its
operations for the three months ended March 31, 1998 and March 31, 1997. There
can be no assurance, however, that the Company's business will not be affected
by inflation in the future.
FORWARD-LOOKING INFORMATION
Certain oral statements made by management from time to time and certain
statements contained herein that are not historical facts are "forward-looking
statements" within the meaning of Section 21E of the Securities Exchange Act of
1934 and because such statements involve risks and uncertainties, actual
results may differ materially from those expressed or implied by such
forward-looking statements. Forward-looking statements, including those in
Management's Discussion and Analysis of Financial Condition and Results of
Operations are statements regarding the intent, belief or current expectations,
estimates or projections of the Company, its Directors or its Officers about
the Company and the industry in which it operates, and assumptions made by
management, and include among other items, (i) the Company's strategies
regarding growth, including its intention to develop new products; (ii) the
Company's financing plans; (iii) trends affecting the Company's financial
condition or results of operations; (iv) the Company's ability to continue to
control costs and to meet its liquidity and other financing needs; (v) the
declaration and payment of dividends; and (vi) the Company's ability to respond
to changes in customer demand domestically and internationally, including as a
result of standardization. Although the Company believes that its expectations
are based on reasonable assumptions, it can give no assurance that the
anticipated results will occur.
Important factors that could cause the actual results to differ materially
from those in the forward-looking statements include, among other items, (i)
the economic cyclicality of the capital goods industry in general and the
hydraulic valve and manifold industry in particular, which directly affect
customer orders, lead times and sales volume; (ii) conditions in the capital
markets, including the interest rate environment and the availability of
capital; (iii) changes in the competitive marketplace that could affect the
Company's revenue and/or cost bases, such as increased competition, lack of
qualified engineering, marketing, management or other personnel, and increased
labor and raw materials costs; (iv) changes in technology or customer
requirements, such as standardization of the cavity into which screw-in
cartridge valves must fit, which could render the Company's products or
technologies noncompetitive or obsolete; (v) new product introductions, product
sales mix and the geographic mix of sales nationally and internationally; and
(vi) changes relating to the Company's international sales, including changes
in regulatory requirements or tariffs, trade or currency restrictions,
fluctuations in exchange rates, and tax and collection issues. Further
information relating to factors that could cause actual results to differ from
those anticipated is included but not limited to information under the headings
"Risk Factors" in the Form S-1 Registration Statement and Prospectus for the
Company's initial public offering, and "Business" in the Company's Form 10-K
for the year ended December 31, 1997. The Company disclaims any intention or
obligation to update or revise forward-looking statements, whether as a result
of new information, future events or otherwise.
14
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
None.
Item 3. Defaults upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
EXHIBIT EXHIBIT DESCRIPTION
NUMBER -------------------
------
3.1 Amended and Restated Articles of Incorporation of the Company (previously filed as
Exhibit 3.1 in the Pre-Effective Amendment No. 4 to the Company's Registration
Statement on Form S-1 filed on December 19, 1996 (File No. 333-14183) and
incorporated herein by reference).
3.2 Amended and Restated Bylaws of the Company (previously filed as Exhibit 3.2 in the
Pre-Effective Amendment No. 4 to the Company's Registration Statement on Form S-1
filed on December 19, 1996 (File No. 333-14183) and incorporated herein by
reference).
4.1 Revolving Credit Agreement, dated March 9, 1992, between Sun Hydraulics Corporation
and Northern Trust Bank of Florida/Sarasota, N.A. (previously filed as Exhibit 4.1 in
the Company's Registration Statement on Form S-1 filed on October 15, 1996 (File No.
333-14183) and incorporated herein by reference).
4.2 Modification Agreement, dated March 25, 1993, amending Revolving Credit Agreement
dated March 9, 1992, between Sun Hydraulics Corporation and Northern Trust Bank of
Florida, N.A. (previously filed as Exhibit 4.2 in the Company's Registration
Statement on Form S-1 filed on October 15, 1996 (File No. 333-14183) and incorporated
herein by reference).
15
4.3 Second Modification to Revolving Credit Agreement, dated May __, 1995, between Sun
Hydraulics Corporation and Northern Trust Bank of Florida, N.A. (previously filed as
Exhibit 4.3 in the Company's Registration Statement on Form S-1 filed on October 15,
1996 (File No. 333-14183) and incorporated herein by reference).
4.4 Revolving Line of Credit Renewal Note, dated May __, 1995, in the amount of
$1,700,000.00 given by Sun Hydraulics Corporation to Northern Trust Bank of Florida,
N.A. (previously filed as Exhibit 4.4 in the Company's Registration Statement on Form
S-1 filed on October 15, 1996 (File No. 333-14183) and incorporated herein by
reference).
4.5 Mortgage and Security Agreement, dated January 9, 1992, between Suninco, Inc., Sun
Hydraulics Corporation, and Northern Trust Bank of Florida, N.A. (previously filed as
Exhibit 4.5 in the Company's Registration Statement on Form S-1 filed on October 15,
1996 (File No. 333-14183) and incorporated herein by reference).
4.6 Loan Agreement, dated March 29, 1996, between Suninco, Inc., Sun Hydraulics
Corporation, and Northern Trust Bank of Florida, N.A. (previously filed as
Exhibit 4.6 in the Company's Registration Statement on Form S-1 filed on October 15,
1996 (File No. 333-14183) and incorporated herein by reference).
4.7 Security Agreement, dated March 29, 1996, between Suninco, Inc., Sun Hydraulics
Corporation, and Northern Trust Bank of Florida, N.A. (previously filed as
Exhibit 4.7 in the Company's Registration Statement on Form S-1 filed on October 15,
1996 (File No. 333-14183) and incorporated herein by reference).
4.8 Modification and Additional Advance Agreement, dated March 29, 1996, between Suninco,
Inc. and Northern Trust Bank of Florida, N.A. (previously filed as Exhibit 4.8 in the
Company's Registration Statement on Form S-1 filed on October 15, 1996 (File No. 333-
14183) and incorporated herein by reference).
4.9 Consolidated Note, dated March 29, 1996, in the amount of $2,475,000.00, given by
Suninco, Inc. to Northern Trust Bank of Florida, N.A. (previously filed as
Exhibit 4.9 in the Company's Registration Statement on Form S-1 filed on October 15,
1996 (File No. 333-14183) and incorporated herein by reference).
4.10 Loan Agreement, dated May 20, 1996, between Sun Hydraulics Corporation and Northern
Trust Bank of Florida, N.A. (previously filed as Exhibit 4.10 in the Company's
Registration Statement on Form S-1 filed on October 15, 1996 (File No. 333-14183) and
incorporated herein by reference).
16
4.11 Security Agreement, dated May 20, 1996, between Sun Hydraulics Corporation and
Northern Trust Bank of Florida, N.A. (previously filed as Exhibit 4.11 in the
Company's Registration Statement on Form S-1 filed on October 15, 1996 (File No. 333-
14183) and incorporated herein by reference).
4.12 Consolidated Note, dated May 20, 1996, in the amount of $3,063,157.00, given by Sun
Hydraulics Corporation to Northern Trust Bank of Florida, N.A. (previously filed as
Exhibit 4.12 in the Company's Registration Statement on Form S-1 filed on October 15,
1996 (File No. 333-14183) and incorporated herein by reference).
4.13 Loan Agreement, dated June 14, 1996, between Sun Hydraulics Corporation, Suninco
Inc., and Northern Trust Bank of Florida, N.A. (previously filed as Exhibit 4.13 in
the Company's Registration Statement on Form S-1 filed on October 15, 1996 (File No.
333-14183) and incorporated herein by reference).
4.14 Mortgage, dated June 14, 1996, between Sun Hydraulics Corporation, Suninco Inc., and
Northern Trust Bank of Florida, N.A. (previously filed as Exhibit 4.14 in the
Company's Registration Statement on Form S-1 filed on October 15, 1996 (File No. 333-
14183) and incorporated herein by reference).
4.15 Security Agreement, dated June 14, 1996, between Sun Hydraulics Corporation and
Northern Trust Bank of Florida, N.A. (previously filed as Exhibit 4.15 in the
Company's Registration Statement on Form S-1 filed on October 15, 1996 (File No. 333-
14183) and incorporated herein by reference).
4.16 Promissory Note, dated June 14, 1996, in the amount of $6,187,000.00, given by Sun
Hydraulics Corporation and Suninco, Inc. to Northern Trust Bank of Florida, N.A.
(previously filed as Exhibit 4.16 in the Company's Registration Statement on Form S-1
filed on October 15, 1996 (File No. 333-14183) and incorporated herein by reference).
4.17 Revolving Loan Facility letter agreement, dated July 30, 1996, in the amount of
L.800,000, between Sun Hydraulics Ltd. and Lloyds Bank Plc. (previously filed as
Exhibit 4.17 in the Company's Registration Statement on Form S-1 filed on October 15,
1996 (File No. 333-14183) and incorporated herein by reference).
4.18 Overdraft and Other Facilities letter agreement, dated June 7, 1996, in an amount not
to exceed L.250,000, between Sun Hydraulics Ltd. and Lloyds Bank Plc. (previously
filed as Exhibit 4.18 in the Company's Registration Statement on Form S-1 filed on
October 15, 1996 (File No. 333-14183) and incorporated herein by reference).
17
4.19 Mortgage, dated April 11, 1996, between Sun Hydraulik GmbH and Dresdner Bank
(previously filed as Exhibit 4.19 in the Company's Registration Statement on Form S-1
filed on October 15, 1996 (File No. 333-14183) and incorporated herein by reference).
4.20 Amendment to Recommended Offer by Sun Hydraulics Corporation to acquire the whole of
the issued share capital of Sun Hydraulik Holdings Limited, dated December 17, 1996
(previously filed as Exhibit 2.1 in the Pre-Effective Amendment No. 4 to the
Company's Registration Statement on Form S-1 filed on December 19, 1996 (File No.
333-14183) and incorporated herein by reference).
4.21 Master Note, dated February 3, 1997, in the amount of $10,000,000.00, made by the
Company to evidence a line of credit granted to the Company by Northern Trust Bank of
Florida, N.A. (previously filed as Exhibit 4.21 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1996 and incorporated herein by reference).
4.22 Renewal Master Note, dated February 3, 1998, in the amount of $10,000,000.00, made by
the Company to evidence a line of credit granted to the Company by Northern Trust Bank
of Florida, N.A.
4.23 Modification Agreement, dated March 1, 1998, between the Company and Northern Trust Bank
of Florida, N.A.
4.24 Modification Note, dated March 1, 1998, in the amount of $4,965,524.51, between the Company
and Northern Trust Bank of Florida, N.A.
10.1 Form of Distributor Agreement (Domestic) (previously filed as Exhibit 10.1 in the
Company's Registration Statement on Form S-1 filed on October 15, 1996 (File No. 333-
14183) and incorporated herein by reference).
10.2 Form of Distributor Agreement (International) (previously filed as Exhibit 10.2 in
the Company's Registration Statement on Form S-1 filed on October 15, 1996 (File No.
333-14183) and incorporated herein by reference).
10.3+ 1996 Sun Hydraulics Corporation Stock Option Plan (previously filed as Exhibit 10.3
in the Pre-Effective Amendment No. 4 to the Company's Registration Statement on Form
S-1 filed on December 19, 1996 (File No. 333-14183) and incorporated herein by
reference).
10.4+ Amendment No. 1 to 1996 Stock Option Plan (previously filed as Exhibit 10.4 to the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997 and
incorporated herein by reference).
10.5+ Form of Indemnification Agreement (previously filed as Exhibit 10.4 in the Pre-
Effective Amendment No. 4 to the Company's Registration Statement on Form S-1 filed
on December 19, 1996 (File No. 333-14183) and incorporated herein by reference).
27.1 Financial Data Schedule for quarter ended March 31, 1998 (for SEC purposes only)
18
+ Executive management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K.
Report on Form 8-K dated March 5, 1998, announcing year end and
fourth quarter results, as well as a $0.04 per share dividend on its
common stock payable on April 15, 1998, to shareholders of record
on March 31, 1998.
19
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Sarasota, State of Florida on May 13, 1998.
SUN HYDRAULICS CORPORATION
By: /s/ Richard J. Dobbyn
------------------------------------
Richard J. Dobbyn
Chief Financial Officer (Principal
Financial and Accounting
Officer)
20
EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------ -------------------
3.1 Amended and Restated Articles of Incorporation of the Company (previously filed as
Exhibit 3.1 in the Pre-Effective Amendment No. 4 to the Company's Registration
Statement on Form S-1 filed on December 19, 1996 (File No. 333-14183) and incorporated
herein by reference).
3.2 Amended and Restated Bylaws of the Company (previously filed as Exhibit 3.2 in the Pre-
Effective Amendment No. 4 to the Company's Registration Statement on Form S-1 filed on
December 19, 1996 (File No. 333-14183) and incorporated herein by reference).
4.1 Revolving Credit Agreement, dated March 9, 1992, between Sun Hydraulics Corporation and
Northern Trust Bank of Florida/Sarasota, N.A. (previously filed as Exhibit 4.1 in the
Company's Registration Statement on Form S-1 filed on October 15, 1996 (File No. 333-
14183) and incorporated herein by reference).
4.2 Modification Agreement, dated March 25, 1993, amending Revolving Credit Agreement dated
March 9, 1992, between Sun Hydraulics Corporation and Northern Trust Bank of Florida,
N.A. (previously filed as Exhibit 4.2 in the Company's Registration Statement on Form
S-1 filed on October 15, 1996 (File No. 333-14183) and incorporated herein by
reference).
4.3 Second Modification to Revolving Credit Agreement, dated May __, 1995, between Sun
Hydraulics Corporation and Northern Trust Bank of Florida, N.A. (previously filed as
Exhibit 4.3 in the Company's Registration Statement on Form S-1 filed on October 15,
1996 (File No. 333-14183) and incorporated herein by reference).
4.4 Revolving Line of Credit Renewal Note, dated May __, 1995, in the amount of
$1,700,000.00 given by Sun Hydraulics Corporation to Northern Trust Bank of Florida,
N.A. (previously filed as Exhibit 4.4 in the Company's Registration Statement on Form
S-1 filed on October 15, 1996 (File No. 333-14183) and incorporated herein by
reference).
4.5 Mortgage and Security Agreement, dated January 9, 1992, between Suninco, Inc., Sun
Hydraulics Corporation, and Northern Trust Bank of Florida, N.A. (previously filed as
Exhibit 4.5 in the Company's Registration Statement on Form S-1 filed on October 15,
1996 (File No. 333-14183) and incorporated herein by reference).
4.6 Loan Agreement, dated March 29, 1996, between Suninco, Inc., Sun Hydraulics
Corporation, and Northern Trust Bank of Florida, N.A. (previously filed as Exhibit 4.6
in the Company's Registration Statement on Form S-1 filed on October 15, 1996 (File No.
333-14183) and incorporated herein by reference).
21
4.7 Security Agreement, dated March 29, 1996, between Suninco, Inc., Sun Hydraulics
Corporation, and Northern Trust Bank of Florida, N.A. (previously filed as Exhibit 4.7
in the Company's Registration Statement on Form S-1 filed on October 15, 1996 (File No.
333-14183) and incorporated herein by reference).
4.8 Modification and Additional Advance Agreement, dated March 29, 1996, between Suninco,
Inc. and Northern Trust Bank of Florida, N.A. (previously filed as Exhibit 4.8 in the
Company's Registration Statement on Form S-1 filed on October 15, 1996 (File No. 333-
14183) and incorporated herein by reference).
4.9 Consolidated Note, dated March 29, 1996, in the amount of $2,475,000.00, given by
Suninco, Inc. to Northern Trust Bank of Florida, N.A. (previously filed as Exhibit 4.9
in the Company's Registration Statement on Form S-1 filed on October 15, 1996 (File No.
333-14183) and incorporated herein by reference).
4.10 Loan Agreement, dated May 20, 1996, between Sun Hydraulics Corporation and Northern
Trust Bank of Florida, N.A. (previously filed as Exhibit 4.10 in the Company's
Registration Statement on Form S-1 filed on October 15, 1996 (File No. 333-14183) and
incorporated herein by reference).
4.11 Security Agreement, dated May 20, 1996, between Sun Hydraulics Corporation and Northern
Trust Bank of Florida, N.A. (previously filed as Exhibit 4.11 in the Company's
Registration Statement on Form S-1 filed on October 15, 1996 (File No. 333-14183) and
incorporated herein by reference).
4.12 Consolidated Note, dated May 20, 1996, in the amount of $3,063,157.00, given by Sun
Hydraulics Corporation to Northern Trust Bank of Florida, N.A. (previously filed as
Exhibit 4.12 in the Company's Registration Statement on Form S-1 filed on October 15,
1996 (File No. 333-14183) and incorporated herein by reference).
4.13 Loan Agreement, dated June 14, 1996, between Sun Hydraulics Corporation, Suninco Inc.,
and Northern Trust Bank of Florida, N.A. (previously filed as Exhibit 4.13 in the
Company's Registration Statement on Form S-1 filed on October 15, 1996 (File No. 333-
14183) and incorporated herein by reference).
4.14 Mortgage, dated June 14, 1996, between Sun Hydraulics Corporation, Suninco Inc., and
Northern Trust Bank of Florida, N.A. (previously filed as Exhibit 4.14 in the Company's
Registration Statement on Form S-1 filed on October 15, 1996 (File No. 333-14183) and
incorporated herein by reference).
22
4.15 Security Agreement, dated June 14, 1996, between Sun Hydraulics Corporation and
Northern Trust Bank of Florida, N.A. (previously filed as Exhibit 4.15 in the Company's
Registration Statement on Form S-1 filed on October 15, 1996 (File No. 333-14183) and
incorporated herein by reference).
4.16 Promissory Note, dated June 14, 1996, in the amount of $6,187,000.00, given by Sun
Hydraulics Corporation and Suninco, Inc. to Northern Trust Bank of Florida, N.A.
(previously filed as Exhibit 4.16 in the Company's Registration Statement on Form S-1
filed on October 15, 1996 (File No. 333-14183) and incorporated herein by reference).
4.17 Revolving Loan Facility letter agreement, dated July 30, 1996, in the amount of
L.800,000, between Sun Hydraulics Ltd. and Lloyds Bank Plc. (previously filed as
Exhibit 4.17 in the Company's Registration Statement on Form S-1 filed on October 15,
1996 (File No. 333-14183) and incorporated herein by reference).
4.18 Overdraft and Other Facilities letter agreement, dated June 7, 1996, in an amount not
to exceed L.250,000, between Sun Hydraulics Ltd. and Lloyds Bank Plc. (previously filed
as Exhibit 4.18 in the Company's Registration Statement on Form S-1 filed on
October 15, 1996 (File No. 333-14183) and incorporated herein by reference).
4.19 Mortgage, dated April 11, 1996, between Sun Hydraulik GmbH and Dresdner Bank
(previously filed as Exhibit 4.19 in the Company's Registration Statement on Form S-1
filed on October 15, 1996 (File No. 333-14183) and incorporated herein by reference).
4.20 Amendment to Recommended Offer by Sun Hydraulics Corporation to acquire the whole of
the issued share capital of Sun Hydraulik Holdings Limited, dated December 17, 1996
(previously filed as Exhibit 2.1 in the Pre-Effective Amendment No. 4 to the Company's
Registration Statement on Form S-1 filed on December 19, 1996 (File No. 333-14183) and
incorporated herein by reference).
4.21 Master Note, dated February 3, 1997, in the amount of $10,000,000.00, made by the
Company to evidence a line of credit granted to the Company by Northern Trust Bank of
Florida, N.A. (previously filed as Exhibit 4.21 to the Company's Annual Report on Form
10-K for the year ended December 31, 1996 and incorporated herein by reference).
4.22 Renewal Master Note, dated February 3, 1998, in the amount of $10,000,000.00, made by
the Company to evidence a line of credit granted to the Company by Northern Trust Bank
of Florida, N.A.
4.23 Modification Agreement, dated March 1, 1998, between the Company and Northern Trust Bank
of Florida, N.A.
4.24 Modification Note, dated March 1, 1998, in the amount of $4,965,524.51, between the Company
and Northern Trust Bank of Florida, N.A.
10.1 Form of Distributor Agreement (Domestic) (previously filed as Exhibit 10.1 in the
Company's Registration Statement on Form S-1 filed on October 15, 1996 (File No. 333-
14183) and incorporated herein by reference).
23
10.2 Form of Distributor Agreement (International) (previously filed as Exhibit 10.2 in the
Company's Registration Statement on Form S-1 filed on October 15, 1996 (File No. 333-
14183) and incorporated herein by reference).
10.3+ 1996 Sun Hydraulics Corporation Stock Option Plan (previously filed as Exhibit 10.3 in
the Pre-Effective Amendment No. 4 to the Company's Registration Statement on Form S-1
filed on December 19, 1996 (File No. 333-14183) and incorporated herein by reference).
10.4+ Amendment No. 1 to 1996 Stock Option Plan (previously filed as Exhibit 10.4 to the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997 and
incorporated herein by reference).
10.5+ Form of Indemnification Agreement (previously filed as Exhibit 10.4 in the Pre-
Effective Amendment No. 4 to the Company's Registration Statement on Form S-1 filed on
December 19, 1996 (File No. 333-14183) and incorporated herein by reference).
27.1 Financial Data Schedule for quarter ended March 31, 1998 (for SEC purposes only).
+ Executive management contract or compensatory plan or arrangement.
24