UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 2, 1999 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 6,384,948 shares of common stock, par value $.001,
outstanding as of November 12, 1999.
Sun Hydraulics Corporation
INDEX
For the third quarter ended October 2, 1999
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of October 2, 1999 (unaudited)
and December 31, 1998 3
Consolidated Statements of Income for the
Three Months Ended October 2, 1999 (unaudited) and September 30, 1998 (unaudited) 4
Consolidated Statements of Income for the
Nine Months Ended October 2, 1999 (unaudited) and September 30, 1998 (unaudited) 5
Consolidated Statement of Changes in Shareholders' Equity and
Comprehensive Income for the Nine Months Ended October 2, 1999
(unaudited) and the Year Ended December 31, 1998 6
Consolidated Statements of Cash Flows
for the Nine Months Ended October 2, 1999 (unaudited) and September 30, 1998 (unaudited) 7
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
Forward Looking Information 18
PART II. OTHER INFORMATION 20
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 20
2
PART I: FINANCIAL INFORMATION
Item 1.
SUN HYDRAULICS CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
OCTOBER 2, DECEMBER 31,
1999 1998
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 1,087 $ 1,592
Accounts receivable, net of allowance for
doubtful accounts of $219 and $169 6,750 5,342
Inventories 7,237 8,125
Other current assets 752 891
------------ -------------
Total current assets 15,826 15,950
Property, plant and equipment, net 45,619 44,003
Investment in joint venture 162 246
Other assets 912 820
------------ -------------
Total assets $ 62,519 $ 61,019
============ =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,327 $ 2,877
Accrued expenses and other liabilities 1,633 2,065
Long-term debt due within one year 2,802 4,302
Notes payable to related parties due within one year 375 578
Dividends payable 255 254
Income taxes (receivable) payable (25) 245
------------- -------------
Total current liabilities 7,367 10,321
Long-term debt due after one year 10,621 6,461
Notes payable to related parties due after one year 201 566
Deferred income taxes 3,641 3,656
------------ -------------
Total liabilities 21,830 21,004
------------ -------------
Commitments and contingencies
Shareholders' equity:
Preferred stock - -
Common stock 6 6
Capital in excess of par value 24,486 24,386
Retained earnings 15,693 15,363
Accumulated other comprehensive income 504 260
------------ -------------
Total shareholders' equity 40,689 40,015
------------ -------------
Total liabilities and shareholders' equity $ 62,519 $ 61,019
============ ============
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
OCTOBER 2, SEPTEMBER 30,
1999 1998
---------- -------------
(UNAUDITED)
NET SALES $ 17,664 $ 17,664
Cost of sales 13,174 13,132
-------- --------
GROSS PROFIT 4,490 4,532
Selling, engineering and
administrative expenses 3,157 2,864
-------- --------
OPERATING INCOME 1,333 1,668
Interest expense 264 216
Miscellaneous expense (income) 151 (1,586)
-------- --------
INCOME BEFORE INCOME TAXES 918 3,038
Income tax provision 303 1,015
-------- --------
NET INCOME BEFORE EQUITY LOSS IN JOINT VENTURE 615 2,023
Equity loss in joint venture 27 --
-------- --------
NET INCOME $ 588 $ 2,023
======== ========
BASIC NET INCOME PER COMMON SHARE $ 0.09 $ 0.32
WEIGHTED AVERAGE SHARES OUTSTANDING 6,384 6,354
DILUTED NET INCOME (PER COMMON SHARE) $ 0.09 $ 0.31
WEIGHTED AVERAGE DILUTED SHARES OUTSTANDING 6,536 6,560
The accompanying Notes to the Consolidated Financial Statements
are an integral part of these financial statements.
4
SUN HYDRAULICS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NINE MONTHS ENDED
OCTOBER 2, SEPTEMBER 30,
1999 1998
---------- -------------
(UNAUDITED)
NET SALES $ 52,050 $ 54,381
Cost of sales 40,100 39,078
-------- --------
GROSS PROFIT 11,950 15,303
Selling, engineering and
administrative expenses 9,317 8,911
-------- --------
OPERATING INCOME 2,633 6,392
Interest expense 693 707
Miscellaneous expense (income) 228 (1,588)
-------- --------
INCOME BEFORE INCOME TAXES 1,712 7,273
Income tax provision 532 2,430
-------- --------
NET INCOME BEFORE EQUITY LOSS IN JOINT VENTURE 1,180 4,843
Equity loss in joint venture 84 --
-------- --------
NET INCOME $ 1,096 $ 4,843
======== ========
BASIC NET INCOME PER COMMON SHARE $ 0.17 $ 0.76
WEIGHTED AVERAGE SHARES OUTSTANDING 6,378 6,340
DILUTED NET INCOME PER COMMON SHARE $ 0.17 $ 0.74
WEIGHTED AVERAGE DILUTED SHARES OUTSTANDING 6,531 6,561
The accompanying Notes to the Consolidated Financial Statements
are an integral part of these financial statements.
5
SUN HYDRAULICS CORPORATION
CONSOLIDATED STATEMENT OF CHANGES
IN SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
(IN THOUSANDS)
ACCUMULATED
CAPITAL IN OTHER
COMMON EXCESS OF RETAINED COMPREHENSIVE
SHARES STOCK PAR VALUE EARNINGS INCOME TOTAL
Balance, December 31, 1996 4,000 $ 2,179 $ 2,719 $ 17,450 $ 49 $ 22,397
Net proceeds from stock offering 2,300 2 19,250 19,252
Distributions to shareholders (10,545) (10,545)
Dividends declared (883) (883)
Merger with Sun Holdings (Note 2) (2,175) 2,123 (52)
Exercise of stock options 22 71 71
Comprehensive income:
Net income 4,710 4,710
Other comprehensive income:
Foreign currency translation
adjustments 50 50
---------
Comprehensive income 4,760
----- --------- -------- -------- --------- ---------
Balance, December 31, 1997 6,322 6 24,163 10,732 99 35,000
Dividends declared (1,016) (1,016)
Exercise of stock options 39 223 223
Comprehensive income:
Net income 5,647 5,647
Other comprehensive income:
Foreign currency translation
adjustments 161 161
---------
Comprehensive income 5,808
----- --------- -------- -------- --------- ---------
Balance, December 31, 1998 6,361 6 24,386 15,363 260 40,015
Dividends declared (766) (766)
Exercise of stock options 22 75 75
Issue of stock 2 13 13
Tax effect of non-qualified
stock options 12 12
Comprehensive income:
Net income 1,096 1,096
Other comprehensive income:
Foreign currency translation
adjustments 244 244
---------
Comprehensive income 1,340
----- --------- -------- -------- --------- ---------
Balance, October 2, 1999 (unaudited) 6,385 $ 6 $ 24,486 $ 15,693 $ 504 $ 40,689
===== ========= ======== ======== ========= =========
The accompanying Notes to the Consolidated Financial Statements
are an integral part of these financial statements.
6
SUN HYDRAULICS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
NINE MONTHS ENDED
OCTOBER 2, SEPTEMBER 30,
1999 1998
---------- -------------
(UNAUDITED)
Cash flows from operating activities:
Net income $ 1,096 $ 4,843
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 3,705 3,328
Loss on disposal of assets 139 --
Compensation expense-stock issued 13 --
Provision for deferred income taxes (3) --
(Increase) decrease in:
Accounts receivable (1,408) (1,208)
Inventories 888 (762)
Other current assets 139 31
Other assets (8) 162
Increase (decrease) in:
Accounts payable (550) 591
Accrued expenses and other liabilities (432) 92
Income taxes payable, net (270) 770
-------- --------
Net cash provided by operating activities 3,309 7,847
-------- --------
Cash flows from investing activities:
Investment in Korea Fluid Power (Note 3) -- (771)
Capital expenditures (5,517) (6,017)
Proceeds from dispositions of equipment 56 128
-------- --------
Net cash used in investing activities (5,461) (6,660)
-------- --------
Cash flows from financing activities:
Proceeds from debt 10,357 5,882
Repayment of debt (7,697) (5,977)
Repayment of notes payable to related parties (568) (558)
Proceeds from exercise of stock options 75 223
Dividends to shareholders (764) (728)
-------- --------
Net cash provided by (used in) financing activities 1,403 (1,158)
-------- --------
Effect of exchange rate changes on cash and
cash equivalents 244 196
-------- --------
Net (decrease) increase in cash and cash equivalents (505) 225
Cash and cash equivalents, beginning of period 1,592 1,249
-------- --------
Cash and cash equivalents, end of period $ 1,087 $ 1,474
======== ========
Supplemental disclosure of cash flow information:
Cash paid for:
Interest (including amounts capitalized) $ 777 $ 737
======== ========
Income taxes $ 805 $ 1,660
======== ========
Non-cash tax effect of non-qualified stock options $ 12 $ --
======== ========
Stock issued to employees $ 13 $ --
======== ========
The accompanying Notes to the Consolidated Financial Statements
are an integral part of these financial statements.
7
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, 1998, filed by Sun Hydraulics Corporation
(the "Company") with the Securities and Exchange Commission on March 30, 1999.
2. BUSINESS
Sun Hydraulics Corporation and its wholly-owned subsidiaries (the
"Company") 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, Germany, and Korea. Sun Hydraulics Corporation ("Sun
Hydraulics"), with its main offices 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
Sun Hydraulics, 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, "Sun GmbH"). Sun Ltd. operates a manufacturing and distribution
facility located in Coventry, England, and Sun GmbH, located in Erkelenz,
Germany, designs, manufactures and markets the Company's products in
German-speaking European markets. Sun Hydraulics Korea Corporation ("Sun
Korea"), a wholly-owned subsidiary of Sun Hydraulics, was acquired September
28, 1998 (see Note 3). Sun Korea, located in Inchon, South Korea, operates a
manufacturing and distribution facility.
3. ACQUISITION AND JOINT VENTURE
On September 28, 1998, Sun Hydraulics acquired 100% of the equity shares
of Korea Fluid Power Co. Ltd., which had been the Company's exclusive
distributor in South Korea since 1988. This wholly-owned subsidiary's name was
changed to Sun Hydraulics Korea Corporation in January 1999. The acquisition
price paid by the Company was $860. The amounts paid in excess of the net book
value have been capitalized as goodwill, and are amortized over a period of 15
years. Goodwill is recorded under other assets in the Company's financial
statements, and was $529, net of amortization as of October 2, 1999.
On November 1, 1998, Sun Hydraulics entered into a 50/50 joint venture
agreement ("joint venture") with Links Lin, the owner of Sun Hydraulics
Corporation's Taiwanese distributor.
8
This agreement provides for an initial capital contribution of $250, which is
recorded in Investment in joint venture in the Company's financial statements.
4. LONG-TERM DEBT (in thousands)
October 2, December 31,
1999 1998
---------- ------------
(unaudited)
Lines of credit agreements-unsecured $ 2,316 $ 3,974
Lines of credit agreements-secured 3,859 --
Secured notes payable-Korea 28 177
Mortgage note payable-U.S. Manatee County facility 4,760 4,864
Mortgage note payable-German facility 1,468 1,748
Secured notes payable-German equipment 992 --
-------- --------
13,423 10,763
Less amounts due within one year (2,802) (4,302)
-------- --------
$ 10,621 $ 6,461
======== ========
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.
On July 23, 1999, the Company replaced its $10,000 unsecured revolving
credit facility with a five year, secured, revolving credit facility of $7,500,
and a one-year unsecured, revolving credit facility of $5,000. The $7,500
credit facility has an interest rate equal to the bank lender's prime rate less
1% for the first year, and the treasury bill rate plus 1.75% for the remaining
four years. The $5,000 credit facility has 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 October 2, 1999, the interest rate for both
the secured and unsecured facilities was 7.25%, and the balances outstanding
were $3,859 and $2,300, respectively.
In February 1999, the Company negotiated three loans in Germany, secured
by equipment; a ten year 5.1% fixed interest rate loan for approximately $300,
a ten year 5.1% fixed interest rate loan for approximately $100, and a ten year
3.5% fixed interest rate loan for approximately $800. At October 2, 1999, the
outstanding balance on these facilities was $257, $0, and $735, respectively.
9
5. SEGMENT REPORTING
In 1998, the Company adopted Statement of Accounting Standards No. 131,
"Disclosures about Segments of Enterprise and Related Information" ("SFAS
131"). SFAS 131 supersedes SFAS 14, "Financial Reporting for Segments of a
Business Enterprise," replacing the "industry segment" approach with the
"management" approach of determining reportable segments of an organization.
The management approach designates the internal organization that is used by
management for making operational decisions and addressing performance as the
source of determining the Company's reportable segments. Management bases its
financial decisions by the geographical location of its operations.
The individual subsidiaries comprising the Company operate predominantly
in a single industry as manufacturers and distributors of hydraulic components.
The subsidiaries are multinational with operations in the United States, the
United Kingdom, Germany, and Korea. In computing earnings from operations for
the foreign subsidiaries, no allocations of general corporate expenses,
interest or income taxes have been made.
Identifiable assets of the foreign subsidiaries are those assets related
to the operation of those companies. United States assets consist of all other
operating assets of the Company.
Segment information is as follows:
United United
States Korea Kingdom Germany Elimination Consolidated
NINE MONTHS
ENDED OCTOBER 2, 1999
Sales to unaffiliated
customers $ 36,933 $ 2,926 $ 8,240 $ 3,951 $ - $ 52,050
Intercompany sales 5,945 - 1,627 25 (7,597) -
Operating profits 1,226 51 1,007 253 96 2,633
Identifiable assets 47,126 2,753 8,689 6,299 (2,348) 62,519
Depreciation expense 2,806 56 609 234 - 3,705
Capital expenditures 4,007 54 1,090 366 - 5,517
NINE MONTHS
ENDED SEPTEMBER 30, 1998
Sales to unaffiliated
customers $ 41,455 $ - $ 9,231 $ 3,695 $ - $ 54,381
Intercompany sales 6,397 - 1,740 34 (8,171) -
Operating profits 4,652 - 1,669 131 (60) 6,392
Identifiable assets 43,602 2,430 8,416 5,900 (222) 60,126
Depreciation expense 2,643 - 529 156 - 3,328
Capital expenditures 4,342 77 1,123 475 - 6,017
10
United United
States Korea Kingdom Germany Elimination Consolidated
THREE MONTHS
ENDED OCTOBER 2, 1999
Sales to unaffiliated
customers $ 12,700 $ 1,052 $ 2,653 $ 1,259 $ - $ 17,664
Intercompany sales 2,108 - 546 11 (2,665) -
Operating profits 917 14 339 70 (7) 1,333
Depreciation expense 946 37 205 77 - 1,265
Capital expenditures 1,816 8 534 24 - 2,382
THREE MONTHS
ENDED SEPTEMBER 30, 1998
Sales to unaffiliated
customers $ 13,445 $ - $ 3,006 $ 1,213 $ - $ 17,664
Intercompany sales 2,291 - 610 8 (2,909) -
Operating profits 1,217 - 518 (1) (66) 1,668
Depreciation expense 817 - 182 60 - 1,059
Capital expenditures 1,460 77 438 413 - 2,388
Total liabilities attributable to foreign operations were $4,410, and
$5,384, at October 2, 1999, and September 30, 1998, respectively. Net foreign
currency losses reflected in results of operations were $123 and $97 for the
nine months ended October 2, 1999, and September 30, 1998, respectively.
Operating profit is total sales and other operating income less operating
expenses. In computing segment operating profit, interest expense and net
miscellaneous income (expense) have not been deducted (added).
11
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.
Orders in the third quarter of 1999 were $16.6 million, an increase of
$1.1 million, or 6.9%, from the second quarter of 1999. Domestic orders
increased $1.3 million, or 13.9%. As management expected, distributors reduced
their orders and, thus, inventories during the second quarter partially in
response to the Company's improved delivery times. Management believes that the
increase in domestic orders in the third quarter represents demand in line with
end-user requirements. An increase in Asian orders of $0.2 million was more
than offset by decreases in European orders of $0.4 million, and Canadian
orders of $0.1 million.
Net sales in the third quarter were $17.7 million, an increase of $1.7
million, or 11.0%, compared to the second quarter of 1999, and approximately
the same as net sales for the quarter ended September 30, 1998. The net sales
increase from the previous quarter was due primarily to an increase in
production output in the United States operations. Second quarter production
output in the United States was adversely affected by the implementation of a
fully-integrated operating system that began on May 1, 1999. The system affects
all aspects of the business, and many difficulties were encountered during
implementation. Third quarter production output, and the related net sales
increase, compared to the second quarter, represents a return to shipment
volumes achieved in the first quarter of 1999. Management believes productivity
will continue to improve as a result of the ongoing efforts to "fine tune" the
new operating system.
The Company implemented a new software system on November 1, 1999, in its
Coventry, England, operation. This system has been running parallel for several
months, and management expects minimal disruption to business operations due to
the implementation. However, as with any system conversion, there can be no
assurance that the timing of the conversion will be met precisely and that the
conversion process will not adversely impact operating results.
Production capacity expansion plans in the United States operation is
scheduled for completion by the end of 1999. The high-volume cartridge
production cell, currently operating in the Sarasota facility, will be moved to
the Manatee facility in December during the holiday shutdown to minimize
production disruptions associated with the physical movement of machinery. A
new, fully-automated assembly machine, that will become part of the high-volume
production cell, is currently operating in the Manatee facility. New test
stands and additional equipment for the cell are installed and operating in the
Manatee plant, and a new heat treat facility is scheduled for completion by the
end of the year.
Orders for the Company's electrically actuated cartridge valve products
(solenoid valves), introduced in Europe in April 1999, are not yet significant.
These new products were officially
12
released to the Company's North American distributors in September 1999.
Management anticipates that demand for these products will build slowly as
distributors evaluate the products' performance in initial applications and
begin to stock products. The solenoid valve products address a new market for
the Company, and management believes that, in time, solenoid sales will bring
additional demand for manifolds and non-solenoid cartridge valve sales.
The Company's joint venture in China has begun production of manifold
products and had a minimal amount of sales in the third quarter. The Korean
operation is seeing an improved business climate and has not experienced any
cash flow problems related to financial restructuring at it largest customer,
Daewoo Group. Management will continue to monitor this situation.
Gross profit as a percent of sales was 25.4%, in the quarter ended October
2, 1999, an increase over the previous three quarters. The gross profit
improvement is due primarily to reduced material costs in the United States
operation. Management anticipates there will be further improvements in the
cost and quality of purchased parts for cartridge valves resulting from a
supplier improvement initiative started at the end of 1998. Management also
anticipates that investments made in equipment for the manufacture of high
volume cartridge valves will result in increased productivity for these
products during the first quarter of 2000.
COMPARISON OF THREE MONTHS ENDED OCTOBER 2, 1999 AND SEPTEMBER 30, 1998
Net sales were $17.7 million for the quarter ended October 2, 1999, and
for the quarter ended September 30, 1998. The Korean operation, acquired in
September 1998, provided additional net sales of $0.7 million for the quarter
ended October 2, 1999. Excluding the Korean operation, net sales decreased
4.2%, or $0.7 million. Approximately $0.3 million of the decrease was due to a
slowdown in orders in the United Kingdom. Additionally, sales declined in the
United States operation as production output continued to be hampered by
problems associated with the implementation of a fully-integrated operating
system.
Gross profit was $4.5 million for the quarter ended October 2, 1999;
approximately the same as the quarter ended September 30, 1998. Gross profit as
a percentage of net sales was 25.4% for the third quarter of 1999, compared to
25.7% for the third quarter of 1998. Direct labor and manufacturing overhead
increases were offset by decreased material costs. The decrease in material
cost is due primarily to a supplier improvement initiative started at the end
of 1998.
Selling, engineering and administrative expenses increased 10.2%, or $0.3
million, to $3.2 million in the quarter ended October 2, 1999, compared to $2.9
million in the quarter ended September 30, 1998. This increase is due primarily
to the acquisition of the Korean operation.
Interest expense was $0.3 million for the quarter ended October 2, 1999,
compared to $0.2 million for the quarter ended September 30, 1998. This
increase was due to an increase in the average indebtedness outstanding under
secured and unsecured lines of credit.
Miscellaneous expense was $0.2 million for the quarter ended October 2,
1999, compared to miscellaneous income of $1.5 million in the quarter ended
September 30, 1998. The expense in
13
the quarter ended October 2, 1999, is due primarily to foreign currency
exchange losses, and the income in the quarter ended September 30, 1998, is due
primarily to the settlement of a business interruption insurance claim.
The provision for income taxes for the quarter ended October 2, 1999, was
33.0% of pretax income, compared to 33.4% of pretax income for the quarter
ended September 30, 1998. Tax savings were realized in the United States from
the Sun Hydraulics Foreign Sales Corporation and in Korea from provisions of
local law. Excluding income from the Korean operation, the provision for income
taxes was 33.2% of pretax income, approximately the same as the quarter ended
September 30, 1998.
COMPARISON OF NINE MONTHS ENDED OCTOBER 2, 1999 AND SEPTEMBER 30, 1998
Net sales decreased 4.3%, or $2.3 million, to $52.1 million in the nine
month period ended October 2, 1999, compared to $54.4 million in the nine month
period ended September 30, 1998. Adjusting for the incremental net sales
related to the Korean operation, acquired in September 1998, net sales
decreased 8.2%, or $4.4 million, to $50.0 million, in the nine month period
ended October 2, 1999, compared to the nine month period ended September 30,
1998. The decrease in net sales was due primarily to reduced production
associated with the implementation of a new fully integrated operating system
in the United States. Additionally, shipments and orders of manifolds and
"assemblies" (a combination of manifolds and cartridges), in the United States
operation were significantly less in the nine months ended October 2, 1999,
compared to the same period last year. Sales in the United Kingdom declined
$1.0 million for the nine months ended October 2, 1999, which was partially
offset by an increase in sales in the German operation of $0.3 million.
Gross profit decreased 21.9%, or $3.4 million, to $12.0 million in the
nine month period ended October 2, 1999, compared to $15.3 million in the nine
month period ended September 30, 1998. Gross profit as a percentage of net
sales was 23.0% in the nine month period ended October 2, 1999, compared to
28.1% in the nine month period ended September 30, 1998. The gross profit
percentage decrease was due to the net sales spread over an increased cost base
and production inefficiencies related to the implementation of the new
operating system in the United States. Additionally, the United States
operation's net sales of manifolds and assemblies, which have a higher margin
than individual cartridges, were a lower percentage of total net sales for the
nine month period ended October 2, 1999.
Selling, engineering and administrative expenses increased 4.6%, or $0.4
million, to $9.3 million in the nine month period ended October 2, 1999,
compared to $8.9 million in the nine month period ended September 30, 1998.
This increase was due primarily to the incremental expenses of the Korean
operation acquired in September 1998. Incremental operating system
implementation costs and increased wages were partially offset by decreases in
fringe benefit costs, and advertising and catalog costs.
Interest expense was $0.7 million for the nine month period ended October
2, 1999, approximately the same as the nine month period ended September 30,
1998. Miscellaneous expense of $0.2 million for the period ended October 2,
1999, consisted primarily of a loss on the disposal of certain equipment in the
United States operation no longer used in production, and
14
losses on foreign currency exchange transactions. Miscellaneous income of $1.6
million for the nine months ended September 30, 1998, consisted primarily of a
business interruption insurance claim.
The provision for income taxes in the nine month period ended October 2,
1999, was 31.1% of pretax income compared to 33.4% of pretax income in the nine
month period ended September 30, 1998. Excluding income from the Korean
operation, the provision for income taxes in the nine months ended October 2,
1999, was 32.8%. Tax savings were realized in the United States from the Sun
Hydraulics Foreign Sales Corporation and in Korea from provisions of local law.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company's primary source of capital has been cash
generated from operations, although fluctuations in working capital
requirements have been met through borrowings under revolving lines of credit.
The Company's principal uses of cash have been to pay operating expenses, make
capital expenditures, pay dividends to shareholders and service debt.
At October 2, 1999, the Company had working capital of $8.5 million. Cash
flow from operations for the quarter ended October 2, 1999, decreased $4.5
million, to $3.3 million, compared to $7.8 million for the quarter ended
September 30, 1998. This decrease was due primarily to a decrease in income
from operations, reduced levels of inventory on hand, and the receipt, in 1998,
of a business insurance interruption claim. Capital expenditures, consisting
primarily of purchases of machinery and equipment, were $5.5 million for the
quarter ended October 2, 1999, compared to $6.0 million of capital expenditures
for the quarter ended September 30, 1998.
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.
As of the quarter ended July 3, 1999, the Company had a revolving credit
facility in the United States, which provided for a maximum availability of
$10.0 million, payable on demand with no debt covenants 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. On July 23, 1999, the
Company replaced the $10.0 million unsecured revolving credit facility with a
five year, secured, revolving credit facility of $7.5 million, and a one-year
unsecured, revolving credit facility of $5.0 million. The $7.5 million credit
facility has an interest rate equal to the bank lender's prime rate less 1% for
the first year, and the treasury bill rate plus 1.75% for the remaining four
years. The $5.0 million credit facility has 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 October 2, 1999, the interest rate for both
the secured and unsecured facilities was 7.25%, and the balances outstanding
were $3.9 million and $2.3 million, respectively.
A 10-year mortgage loan of $6.2 million was obtained, at a fixed interest
rate of 8.25%, for construction of the Manatee County 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-
15
year mortgage note with a 15-year amortization schedule. In April 1999, this
mortgage note was renegotiated to an interest rate of 7.375%. Terms are monthly
principal and interest payments with remaining principal due July 1, 2006. At
October 2, 1999, $4.8 million was outstanding under this mortgage loan.
In February 1999, the Company negotiated three loans in Germany secured by
equipment, a ten year 5.1% fixed interest rate loan for approximately $0.3
million, a ten year 5.1% fixed interest rate loan for approximately $0.1
million, and a ten year 3.5% fixed interest rate loan for approximately $0.8
million. At October 2, 1999, the outstanding balance on these facilities was
$1.0 million.
The Company has notes payable to five former shareholders that bear
interest at a weighted rate of 15% and have terms expiring in one to four
years. These notes were issued by the Company in 1989 and 1990, in connection
with the repurchase of shares of common stock from former shareholders and do
not allow for prepayment by the Company. At October 2, 1999, $0.6 million was
outstanding under these notes.
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 quarterly dividends of $0.04 per share to
shareholders of record on September 30, 1999, June 30, 1999, and March 31,
1999, which were paid on October 15, 1999, July 15, 1999, and April 15, 1999,
respectively.
YEAR 2000 READINESS DISCLOSURE
Management continues to evaluate the issues associated with the year 2000
in an effort to minimize the impact of the millennium date change on its
business operations, information technology systems, and production
infrastructure. In general, these issues arise from the fact that many existing
computer systems, including hardware, software and embedded technology, only
use the last two digits to refer to a year. Accordingly, many of these computer
systems will not properly recognize a year that begins with "20" instead of the
familiar "19." If not corrected, these computer systems could fail or create
erroneous results.
The Company has established the following four-phased approach to address
the year 2000 issue: (1) assessment, (2) testing, (3) renovation and (4)
validation. With regard to its internal operations, the assessment phase
consist of (i) the inventory of all systems, including hardware, software and
embedded systems (such as the Company's CNC equipment) in all of Company's
locations, (ii) the identification of all critical applications, and (iii) the
collection of all internal source codes. All material aspects of the internal
assessment phase are now complete.
With regard to its external relationships, the assessment phase includes
surveying the Company's material suppliers, distributors, and customers to
determine the potential exposure to the Company if such parties fail to correct
their year 2000 issues in a timely manner. The Company has now received
responses to all but five of its critical third party questionnaires.
16
The Company is testing its critical applications for year 2000 readiness
and anticipates completion of this testing during December 1999. The Company
defines "year 2000 ready" to mean that neither the performance nor
functionality of any of its critical systems, including both information
technology and non-information technology systems, will be materially affected
by dates prior to, during and after the year 2000. Certain software subsystems
and routines have been identified which require modification to be fully year
2000 compliant. Management believes that these modifications will be completed
during December 1999.
As a result of such testing, the Company has entered its renovation phase
by replacing the computer operating systems in its United States Sarasota
facility, and is in the process of replacing its computer operating system in
its United Kingdom facility, with "enterprise manufacturing systems" that,
according to representations made by the systems' manufacturers, are currently
year 2000 ready. The Company believes that its other locations' systems are
year 2000 ready.
The final phase of the Company's year 2000 readiness plan is a validation
phase, during which upgraded systems will be re-tested. The Company anticipates
all phases of its year 2000 readiness plan, including the validation phase,
will be completed during December 1999.
The most likely worst-case scenario which might result from a lack of
Company or third party year 2000 readiness would be a temporary but significant
interruption in the Company's production capability. The Company has developed
contingency plans that focus primarily on continued production without the
availability of internal computer systems. Alternative sources for external
supply of critical components have been identified, although no backup or
contingent orders have been placed. Most critical components can be produced
in-house at additional cost. Major manufacturing equipment is capable of being
reset to an appropriate date that mirrors the year 2000 to allow continued
production as necessary. Production scheduling and related administrative
functions necessary to maintain production output can be accomplished manually
until alternative processes can be put in place. A significant interruption in
the Company's business due to a year 2000 non-compliance issue could have a
material adverse effect on the Company's financial position, operations, and
liquidity. There can be no assurance that the Company will be year 2000 ready
or that the systems of other companies upon which the Company relies similarly
will be year 2000 ready by December 31, 1999. Additionally, there can be no
assurance that the Company's contingency plans will substantially reduce the
risk of year 2000 non-compliance.
The Company estimates that the total costs of its year 2000 project will
be $1.3 million, including costs of approximately $1.2 million incurred through
October 2, 1999. These expenditures are being funded through operating cash
flows. Although there can be no assurances thereof, the estimated costs of the
year 2000 project are not expected to have a material impact on the Company's
business, operations or financial condition in future periods.
SEASONALITY AND INFLATION
The Company generally has experienced reduced activity during the fourth
quarter of the year, largely a result of fewer working days due to holiday
shutdowns. The Company does not believe that inflation had a material effect on
its operations for the periods ended October 2,
17
1999, and September 30, 1998. There can be no assurance, however, that the
Company's business will not be affected by inflation in the future.
EURO
On January 1, 1999, eleven member countries of the European Union
established fixed conversion rates between their national currencies and the
"euro," which will ultimately result in the replacement of the currencies of
these participating countries with the euro (the "Euro Conversion"). The
Company is currently assessing the potential impact of the Euro Conversion and
has initiated an internal analysis to plan for the conversion and implement
remediation measures. The Company's analysis will encompass the costs and
consequences of incomplete or untimely resolution of any required systems
modifications, various technical and operational challenges and other risks
including possible effects on the Company's financial position and results of
operations. Costs associated with the Euro Conversion are being expensed by the
Company during the period in which they are incurred and are not currently
anticipated to be material. The Company presently believes that, with
remediation measures, any material risks associated with the Euro Conversion
can be mitigated.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in interest rates on
borrowed funds, which could affect its results of operations and financial
condition. At October 2, 1999, the Company had approximately $6.2 million in
variable-rate debt outstanding and, as such, the market risk is immaterial
based upon a 10% increase or decrease in interest rates. The Company manages
this risk by selecting debt financing at its U.S. bank lender's prime rate less
1%, or the Libor rate plus 1.9%, whichever is the most advantageous.
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; (vi) the Company's Year 2000 readiness
plans and costs; and (vii) 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.
18
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; (vi)
the Company's ability to become Year 2000 ready, including the Company's
ability to identify all critical systems that will be impacted by the Year
2000, the Company's ability, in a cost-efficient manner, to correct, upgrade or
replace such systems, and the Year 2000 readiness of third parties with which
the Company has material relationships; and (vii) 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, "Business" in the Company's Form 10-K for the year ended December 31,
1998, and "Management's Discussion and Analysis of Financial Conditions and
Results of Operations" in the Form 10-Q for the quarter ended October 2, 1999.
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.
19
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:
20
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
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).
21
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 (pound)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 (pound)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).
22
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. (previously filed as Exhibit 4.22 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998 and incorporated herein by reference).
4.23 Modification Agreement, dated March 1, 1998, between the
Company and Northern Trust Bank of Florida, N.A. (previously
filed as Exhibit 4.23 to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1998 and
incorporated herein by reference).
4.24 Renewal Master Note, dated as of February 3, 1998, in the
amount of $4,965,524.51, between the Company and Northern
Trust Bank of Florida, N.A. (previously filed as Exhibit 4.24
to the Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1998 and incorporated herein by reference).
4.25 Renewal Master Note, dated of February 3, 1999, in the amount
of $4,965,524.51, between the Company and Northern Trust Bank
of Florida, N.A. (previously filed as Exhibit 4.25 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
April 3, 1999 and incorporated herein by reference).
4.26 Renewal Master Note, dated July 23, 1999, in the amount of
$5,000,000.00 between the Company and Northern Trust Bank of
Florida, N.A. (previously filed as Exhibit 4.26 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
July 3, 1999 and incorporated herein by reference).
4.27 Loan Agreement, dated July 23, 1999, in the amount of
$7,500,000.00, between the Company and Northern Trust Bank of
Florida, N.A. (previously filed as Exhibit 4.27 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
July 3, 1999 and incorporated herein by reference).
23
4.28 Security Agreement, dated July 23, 1999, between the Company
and Northern Trust Bank of Florida, N.A. (previously filed as
Exhibit 4.28 to the Company's Quarterly Report on Form 10-Q
for the quarter ended July 3, 1999 and incorporated herein by
reference).
4.29 Promissory Note, dated July 23, 1999, in the amount of
$7,500,000.00, between the Company and Northern Trust Bank of
Florida, N.A. (previously filed as Exhibit 4.29 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
July 3, 1999 and incorporated herein by reference).
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 period ended July 3, 1999 (for SEC
purposes only).
+ Executive management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K.
Report on Form 8-K dated July 29, 1999, announcing an expected second
quarter loss of between $0.03 and $0.05 per share.
Reports on Form 8-K and 8-K/A dated August 11, 1999, announcing results
for the quarter ended July 3, 1999.
Report on Form 8-K dated September 20, 1999, announcing a $0.04 per
share dividend on its common stock payable on October 15, 1999, to
shareholders of record on September 30, 1999.
24
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 November 15, 1999.
SUN HYDRAULICS CORPORATION
By: /s/ Richard J. Dobbyn
----------------------------------
Richard J. Dobbyn
Chief Financial Officer (Principal
Financial and Accounting Officer)
25
EXHIBIT INDEX
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
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).
26
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 (pound)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 (pound)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).
27
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.
(previously filed as Exhibit 4.22 to the Company's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1998 and incorporated
herein by reference).
4.23 Modification Agreement, dated March 1, 1998, between the Company
and Northern Trust Bank of Florida, N.A. (previously filed as
Exhibit 4.23 to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998 and incorporated herein by reference).
4.24 Renewal Master Note, dated as of February 3, 1998, in the amount of
$4,965,524.51, between the Company and Northern Trust Bank of
Florida, N.A. (previously filed as Exhibit 4.24 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1998
and incorporated herein by reference).
4.25 Renewal Master Note, dated of February 3, 1999, in the amount of
$4,965,524.51, between the Company and Northern Trust Bank of
Florida, N.A. (previously filed as Exhibit 4.25 to the Company's
Quarterly Report on Form 10-Q for the quarter ended April 3, 1999
and incorporated herein by reference).
4.26 Renewal Master Note, dated July 23, 1999, in the amount of
$5,000,000.00 between the Company and Northern Trust Bank of
Florida, N.A. (previously filed as Exhibit 4.26 to the Company's
Quarterly Report on Form 10-Q for the quarter ended July 3, 1999
and incorporated herein by reference).
28
4.27 Loan Agreement, dated July 23, 1999, in the amount of
$7,500,000.00, between the Company and Northern Trust Bank of
Florida, N.A. (previously filed as Exhibit 4.27 to the Company's
Quarterly Report on Form 10-Q for the quarter ended July 3, 1999
and incorporated herein by reference).
4.28 Security Agreement, dated July 23, 1999, between the Company and
Northern Trust Bank of Florida, N.A. (previously filed as Exhibit
4.28 to the Company's Quarterly Report on Form 10-Q for the quarter
ended July 3, 1999 and incorporated herein by reference).
4.29 Promissory Note, dated July 23, 1999, in the amount of
$7,500,000.00, between the Company and Northern Trust Bank of
Florida, N.A. (previously filed as Exhibit 4.29 to the Company's
Quarterly Report on Form 10-Q for the quarter ended July 3, 1999
and incorporated herein by reference).
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 period ended July 3, 1999 (for SEC
purposes only).
+ Executive management contract or compensatory plan or arrangement.
29