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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 3, 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 August 10, 1999.
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Sun Hydraulics Corporation
INDEX
For the second quarter ended July 3, 1999
Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of July 3, 1999 (unaudited)
and December 31, 1998 3
Consolidated Statements of Income for the
Three Months Ended July 3, 1999 (unaudited) and June 30, 1998 (unaudited) 4
Consolidated Statements of Income for the
Six Months Ended July 3, 1999 (unaudited) and June 30, 1998 (unaudited) 5
Consolidated Statement of Changes in Shareholders' Equity and Comprehensive
Income for the Three Months Ended July 3, 1999 (unaudited)
and the Year Ended December 31, 1998 6
Consolidated Statements of Cash Flows
for the Six Months Ended July 3, 1999 (unaudited) and June 30, 1998 (unaudited) 7
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13
Forward Looking Information 19
PART II. OTHER INFORMATION 21
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 21
2
PART I: FINANCIAL INFORMATION
Item 1.
SUN HYDRAULICS CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
JULY 3, DECEMBER 31,
1999 1998
------- -------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 844 $ 1,592
Accounts receivable, net of allowance for
doubtful accounts of $262 and $169 5,977 5,342
Inventories 7,367 8,125
Other current assets 915 891
------- -------
Total current assets 15,103 15,950
Property, plant and equipment, net 44,528 44,003
Investment in joint venture 189 246
Other assets 926 820
------- -------
Total assets $60,746 $61,019
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,007 $ 2,877
Accrued expenses and other liabilities 1,670 2,065
Long-term debt due within one year 5,191 4,302
Notes payable to related parties due within one year 502 578
Dividends payable 255 254
Income taxes payable 349 245
------- -------
Total current liabilities 9,974 10,321
Long-term debt due after one year 6,850 6,461
Notes payable to related parties due after one year 148 566
Deferred income taxes 3,624 3,656
------- -------
Total liabilities 20,596 21,004
------- -------
Commitments and contingencies
Shareholders' equity:
Preferred stock -- --
Common stock 6 6
Capital in excess of par value 24,473 24,386
Retained earnings 15,359 15,363
Accumulated other comprehensive income 312 260
------- -------
Total shareholders' equity 40,150 40,015
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Total liabilities and shareholders' equity $60,746 $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
JULY 3, JUNE 30,
1999 1998
------- --------
(UNAUDITED)
NET SALES $15,921 $17,584
Cost of sales 12,982 12,599
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GROSS PROFIT 2,939 4,985
Selling, engineering and
administrative expenses 3,068 3,033
------- -------
OPERATING INCOME (LOSS) (129) 1,952
Interest expense 176 231
Miscellaneous (income) expense 13 (45)
------- -------
INCOME (LOSS) BEFORE INCOME TAXES (318) 1,766
Income tax provision (benefit) (125) 586
------- -------
NET INCOME (LOSS) BEFORE EQUITY LOSS IN JOINT VENTURE (193) 1,180
Equity loss in joint venture 23 --
------- -------
NET INCOME (LOSS) $ (216) $ 1,180
======= =======
BASIC NET INCOME (LOSS) PER COMMON SHARE $ (0.03) $ 0.19
WEIGHTED AVERAGE SHARES OUTSTANDING 6,383 6,339
DILUTED NET INCOME (LOSS) PER COMMON SHARE $ (0.03) $ 0.18
WEIGHTED AVERAGE DILUTED SHARES OUTSTANDING 6,537 6,553
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)
SIX MONTHS ENDED
JULY 3, JUNE 30,
1999 1998
------- -------
(UNAUDITED)
NET SALES $34,386 $36,717
Cost of sales 26,927 25,946
------- -------
GROSS PROFIT 7,459 10,771
Selling, engineering and
administrative expenses 6,160 6,047
------- -------
OPERATING INCOME 1,299 4,724
Interest expense 429 491
Miscellaneous (income) expense 76 (2)
------- -------
INCOME BEFORE INCOME TAXES 794 4,235
Income tax provision 230 1,415
------- -------
NET INCOME BEFORE EQUITY LOSS IN JOINT VENTURE 564 2,820
Equity loss in joint venture 57 --
------- -------
NET INCOME $ 507 $ 2,820
======= =======
BASIC NET INCOME PER COMMON SHARE $ 0.08 $ 0.45
WEIGHTED AVERAGE SHARES OUTSTANDING 6,375 6,332
DILUTED NET INCOME PER COMMON SHARE $ 0.08 $ 0.43
WEIGHTED AVERAGE DILUTED SHARES OUTSTANDING 6,528 6,524
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 (511) (511)
Exercise of stock options 22 75 75
Tax effect of non-qualified stock options 12 12
Comprehensive income:
Net income 507 507
Other comprehensive income:
Foreign currency translation adjustments 52 52
-------
Comprehensive income 559
------- -------- -------- ------- ---- -------
Balance, July 3, 1999 (unaudited) 6,383 $ 6 $ 24,473 $15,359 $312 $40,150
======= ======== ======== ======= ==== =======
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)
SIX MONTHS ENDED
JULY 3, JUNE 30,
1999 1998
------- --------
(UNAUDITED)
Cash flows from operating activities:
Net income $ 507 $ 2,820
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 2,440 2,269
Loss on disposal of assets 127 --
Provision for deferred income taxes (20) --
(Increase) decrease in:
Accounts receivable (635) (1,313)
Inventories 758 (338)
Other current assets (24) 118
Other assets (49) (130)
Increase (decrease) in:
Accounts payable (870) (180)
Accrued expenses and other liabilities (395) 220
Income taxes payable, net 104 561
------- -------
Net cash provided by operating activities 1,943 4,027
------- -------
Cash flows from investing activities:
Capital expenditures (3,135) (3,629)
Proceeds from dispositions of equipment 43 122
------- -------
Net cash used in investing activities (3,092) (3,507)
------- -------
Cash flows from financing activities:
Proceeds from debt 5,128 4,261
Repayment of debt (3,850) (2,244)
Repayment of notes payable to related parties (494) (365)
Proceeds from exercise of stock options 75 81
Dividends to shareholders (510) (474)
------- -------
Net cash provided by financing activities 349 1,259
------- -------
Effect of exchange rate changes on cash and
cash equivalents 52 286
------- -------
Net increase in cash and cash equivalents (748) 2,065
Cash and cash equivalents, beginning of period 1,592 1,249
------- -------
Cash and cash equivalents, end of period $ 844 $ 3,314
======= =======
Supplemental disclosure of cash flow information:
Cash paid for:
Interest (including amounts capitalized) $ 484 $ 496
======= =======
Income taxes $ 146 $ 854
======= =======
Non-cash tax effect of non-qualified stock options $ 12 $ --
======= =======
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, "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 $539, net of amortization as of July 3, 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. This agreement provides for an initial
capital contribution of $250, which is recorded in Investment in joint venture
in the Company's financial statements.
8
4. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 98-5, "Reporting on the Costs of
Start-up Activities" ("SOP 98-5"). SOP 98-5 requires that all costs incurred in
start-up activities be expensed as incurred. Start-up activities include the
costs associated with one-time activities related to opening a new facility,
introducing a new product or service, conducting business with a new class of
customer or initiating a new process in an existing facility. SOP 98-5 is
effective for financial statements for fiscal years beginning after December
15, 1998. The Company's start-up costs of $41 related to the acquisition of Sun
Korea was written off as administrative expense in the first quarter of 1999.
5. LONG-TERM DEBT (in thousands)
July 3, December 31,
1999 1998
----------- ------------
(unaudited)
Lines of credit agreements $ 4,772 $ 3,974
Secured notes payable-Korea 43 177
Mortgage note payable-U.S. Manatee County facility 4,797 4,864
Mortgage note payable-German facility 1,461 1,748
Secured notes payable-German equipment 968 --
-------- --------
12,041 10,763
Less amounts due within one year (5,191) (4,302)
-------- --------
$ 6,850 $ 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.
During the quarter ended July 3, 1999, the Company had a revolving
credit facility in the United States, which provided for a maximum availability
of $10,000, payable on demand with no debt covenants. In February 1999, the
Company renegotiated this unsecured credit facility for an additional one year
term 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
July 3, 1999, the interest rate was 7.0%, and $4,750 was outstanding under this
credit facility.
On July 23, 1999, the Company replaced the $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
9
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.
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 lender's base rate and is payable on demand. At July 3, 1999, 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 July 3, 1999, the interest
rate was 5.25%, and $22 was outstanding under this credit facility.
Sun Korea has two notes denominated in Korean Won, and secured by
property, plant and equipment, with interest payable at fixed rates of 6% and
6.5% with maturities up to March of June 25, 2001, and September 25, 1999,
respectively. At July 3, 1999, $40 and $3 was outstanding under these credit
facilities, respectively.
In 1996, a 10-year mortgage loan of $6,187 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-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 of $42 with remaining principal due July 1, 2006. At July 3,
1999, $4,797 was outstanding under this mortgage note.
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 July 3, 1999,
$1,461 was outstanding under this mortgage note.
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
July 3, 1999, the outstanding balance on these facilities was $256, $0, and
$712, respectively.
10
6. 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
------- ------ ------- ------- ----------- ------------
SIX MONTHS
ENDED JULY 3, 1999
Sales to unaffiliated
customers $24,233 $1,874 $5,587 $2,692 $ -- $34,386
Intercompany sales 3,837 -- 1,081 14 (4,932) --
Operating profits 308 37 668 183 103 1,299
Identifiable assets 45,529 742 8,422 6,297 (244) 60,746
Depreciation expense 1,860 19 404 157 -- 2,440
Capital expenditures 2,191 46 556 342 -- 3,135
SIX MONTHS
ENDED JUNE 30, 1998
Sales to unaffiliated
customers $28,010 -- $6,225 $2,482 $ -- $36,717
Intercompany sales 4,106 -- 1,130 26 (5,262) --
Operating profits 3,435 -- 1,151 132 6 4,724
Identifiable assets 43,693 -- 9,274 5,544 (156) 58,355
Depreciation expense 1,826 -- 347 96 -- 2,269
Capital expenditures 2,882 -- 685 62 -- 3,629
11
United United
States Korea Kingdom Germany Elimination Consolidated
------- ------ ------- ------- ----------- ------------
THREE MONTHS
ENDED JULY 3, 1999
Sales to unaffiliated
customers $10,691 $1,152 $2,803 $1,275 $ -- $15,921
Intercompany sales 2,139 -- 483 7 (2,629) --
Operating profits (410) 9 215 40 17 (129)
Depreciation expense 944 19 203 75 -- 1,241
Capital expenditures 1,575 63 101 42 -- 1,781
THREE MONTHS
ENDED JUNE 30, 1998
Sales to unaffiliated
customers $13,193 -- $3,129 $1,262 $ -- $17,584
Intercompany sales 2,376 -- 555 9 (2,940) --
Operating profits 1,427 -- 506 33 (14) 1,952
Depreciation expense 913 -- 179 50 -- 1,142
Capital expenditures 1,747 -- 313 48 -- 2,108
Total liabilities attributable to foreign operations were $5,276, and
$4,265, at July 3, 1999, and June 30, 1998, respectively. Net foreign currency
gains (losses) reflected in results of operations were $22 and $(48) for the
six months ended July 3, 1999, and June 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).
12
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.
Net sales in the second quarter were $15.9 million, a decrease of $2.5
million, or 13.8%, from the first quarter of 1999, and $1.7 million, or 9.5%,
from the quarter ended June 30, 1998. The decrease in net sales was due
primarily to the implementation, on May 1, 1999, of a new "Y2K" compliant
operating system in the United States operation. The fully-integrated system
affects all aspects of the business, and many difficulties were encountered
during implementation. None of these difficulties by themselves were large,
but, taken collectively, caused shipment delays and created production
inefficiencies. Management estimates that at least one week's worth of
shipments were missed in the second quarter of 1999, and further expects that
the system conversion will continue to have a negative impact on third quarter
1999 operating income. Since the system implementation on May 1, 1999,
shipments have been increasing each week and as of the end of July had reached
pre-implementation levels.
The Company is also in the process of implementing a new software
system for its Coventry, England, operation. This system has been running
parallel for some time and management expects to convert to the new system by
the end of the third quarter of 1999. However, as with any system conversion
there can be no assurances that the timing of the conversion will be met
precisely and that the conversion process will not adversely impact operating
results.
The Company's orders in the second quarter of 1999 were $15.5 million,
a decrease of $1.7 million, or 9.6%, from the first quarter of 1999. United
States distributors' inventories at the end of the second quarter of 1999
decreased over $1.0 million from the first quarter of 1999. Management believes
these decreases, at least in part, are related to the Company's improved
delivery times in the first quarter and the subsequent adjustments
distributors made in their order patterns. The National Fluid Power
Association reported that orders for the first quarter of 1999 for the United
States hydraulics industry decreased 9.8% and continued to be negative year
over year in the second quarter. However, the weekly order rate for the
Company's United States operation has shown an increase since the end of the
second quarter of 1999.
Net sales in the United States operations in the second quarter of
1999 decreased $2.9 million, or 21.0%, from the first quarter of 1999. This net
sales decrease, coupled with production inefficiencies, resulted in an
operating loss in the United States operations of $0.4 million, compared to
operating income of $0.7 million in the first quarter of 1999. The consolidated
operating loss in the second quarter of 1999 was $0.1 million, compared to
operating income in the first quarter of 1999 of $1.4 million.
Production capacity expansion plans are on track for the relocation of
the high-volume cartridge production cell from the Sarasota facility to the
Manatee facility by year-end. The new
13
fully automated assembly machine for the production cell is operational in the
Manatee facility, and is in the final testing stage. Test stands and other
equipment for the production cell are also in place and the new heat treat
operation is on schedule for completion by the end of the year.
The Korean operation, acquired in September of 1998, received ISO 9002
certification in June 1999. Net sales for this operation for the quarter ended
July 3, 1999, increased 59.6%, or $0.4 million, to $1.2 million, compared to
$0.7 million, in the quarter ended April 3, 1999. Sun Korea's largest customer
is Daewoo Group. Daewoo has recently indicated that it is restructuring its
finances, which may delay payments to vendors due to cash flow problems.
Orders for the Company's electrically actuated cartridge valve
products (solenoid valves), introduced in Europe in April 1999, are not yet
significant. However, quotations for custom manifolds have been steadily
increasing and it is estimated that 20% of these quotes incorporate the new
solenoid product. 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.
COMPARISON OF THREE MONTHS ENDED JULY 3, 1999 AND JUNE 30, 1998
Net sales decreased 9.5%, or $1.7 million, to $15.9 million in the
quarter ended July 3, 1999, compared to $17.6 million in the quarter ended June
30, 1998. Adjusting for the incremental net sales related to the Korean
operation acquired in September 1998, net sales decreased 13.9%, or $2.5
million. As described in the Overview, the decrease in net sales was due
primarily to shipment delays and productivity problems in the United States
operations, which were caused by the implementation of a fully-integrated
operating system. Net sales to Asia (excluding Korea) and Canada were adversely
affected because the United States operation sells product directly to
distributors in Asia and Canada as well as the United States. Net sales in the
United Kingdom operation decreased $0.3 million or 10.4% due to a slowdown in
orders. Net sales in Germany increased 1.1%, compared to the period ended June
30, 1998.
Gross profit decreased 41.0%, or $2.0 million, to $2.9 million in the
quarter ended July 3, 1999, compared to $5.0 million in the quarter ended June
30, 1998. Gross profit as a percentage of net sales was 18.5% for the second
quarter of 1999, compared to 28.3% for the second quarter of 1998. The
decrease in gross profit as a percentage of net sales was mainly due to the
productivity decrease and lower net sales in the United States operation.
Material cost as a percentage of net sales in the United States operation,
which increased throughout 1998, showed approximately 1% improvement in the
second quarter of 1999 compared to the second quarter of 1998. Decreases in
gross profit in the United Kingdom operation decreased 21.0% in the quarter
ended July 3, 1999, compared to the quarter ended June 30, 1998, mainly due to
lower net sales.
Selling, engineering and administrative expenses were $3.1 million in
the quarter ended July 3, 1999, approximately the same as the quarter ended
June 30, 1998. Expenses increased due to advertising and the implementation of
a new software system in the United Kingdom operation, as well as incremental
costs from the Korean operation acquired in September. These expenses were
offset by decreased expenses in the United States operation related to fringe
benefits and advertising and catalog costs.
Interest expense was $0.2 million for the quarter ended July 3, 1999,
approximately the same as the quarter ended June 30, 1998.
14
The income tax benefit in the quarter ended July 3, 1999, was 39.3% of
pretax loss compared to a provision of 33.2% of pretax income in the quarter
ended June 30, 1998. Excluding income from the Korean operation, the benefit
was 34.2% of pretax loss. Tax savings were realized in the United States from
the Sun Hydraulics Foreign Sales Corporation and in Korea from provisions of
local law.
COMPARISON OF SIX MONTHS ENDED JULY 3, 1999 AND JUNE 30, 1998
Net sales decreased 6.3%, or $2.3 million, to $34.4 million in the six
month period ended July 3, 1999, compared to $36.7 million in the six month
period ended June 30, 1998. Adjusting for the incremental net sales related to
the Korean operation acquired in September 1998, net sales decreased 10.0%, or
$3.7 million, to $33.0 million, in the six month period ended July 3, 1999
compared to the six month period ended June 30, 1998. As described in the
Overview, the decrease in net sales of $3.7 million was due primarily to
reduced production in the second quarter connected with the implementation of a
new operating system in the United States. Additionally, shipments of manifolds
and "assemblies" (a combination of manifolds and cartridges), in the United
States operation for the six month period ended July 3, 1999, were
significantly less than the same period last year.
Gross profit decreased 30.8%, or $3.3 million, to $7.5 million in the
six month period ended July 3, 1999, compared to $10.8 million in the six month
period ended June 30, 1998. Gross profit as a percentage of net sales was 21.7%
in the six month period ended July 3, 1999, compared to 29.3% in the six month
period ended June 30, 1998. The gross profit percentage decrease was due to the
lower 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 six month period
ended July 3, 1999.
Selling, engineering and administrative expenses increased 1.9%, or
$0.1 million, to $6.2 million in the six month period ended July 3, 1999,
compared to $6.0 million in the six month period ended June 30, 1998. This
increase was due to the incremental expenses of the Korean operation acquired
in September 1998, operating system implementation costs and increased wages.
These increases were partially offset by decreases in fringe benefit costs, and
advertising and catalog costs.
Interest expense was $0.4 million for the six month period ended July
3, 1999, approximately the same as the six month period ended June 30, 1998.
Miscellaneous expense for the period ended July 3, 1999, consisted primarily of
a loss of $0.1 million on the disposal of certain equipment in the United
States operations, no longer used in production, partially offset by exchange
rate gains.
The provision for income taxes in the six month period ended July 3,
1999, was 29.0% of pretax income compared to 33.4% of pretax income in the six
month period ended June 30, 1998. Tax savings were realized from the Sun
Hydraulics Foreign Sales Corporation in the United States and in Korea from
provisions of local law. Excluding income from Korea, the provision for income
taxes in the six month period ended July 3, 1999, was 32.4%.
15
Net income for the six month period ended July 3, 1999, decreased to
$0.5 million, or 1.5% of net sales, compared to $2.8 million, or 7.7% of net
sales, for the six month period ended June 30, 1998.
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 July 3, 1999, the Company had working capital of $5.1 million. Cash
flow from operations for the quarter ended July 3, 1999, decreased $2.1
million, to $1.9 million, compared to $4.0 million for the quarter ended June
30, 1998. This decrease was due primarily to a $2.3 million decrease in net
income. Net cash used in investing activities for the quarter ended July 3,
1999, was $3.1 million, compared to $3.5 million for the quarter ended June 30,
1998, and was used primarily for the purchase of machinery and equipment.
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.
During 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. The interest rate
was 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 July 3, 1999, the
interest rate was 7.0%, and $4.8 million was outstanding under this credit
facility.
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.
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-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 July 3, 1999,
$4.8 million was outstanding on this facility.
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 July 3, 1999, the outstanding balance on these
facilities was $1.0 million.
16
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 July 3, 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 June 30, 1999, and March 31, 1999, which were paid on
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. The internal assessment phase is now
substantially completed.
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 approximately seventy percent of its third party
questionnaires. The Company anticipates the completion of this external
assessment prior to November 1, 1999.
The Company is currently testing all critical applications for year
2000 readiness and anticipates completion of this testing by the third quarter
of 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 prior to the end of the fourth quarter of 1999.
As a result of such testing, the Company has entered its renovation
phase by replacing the computer systems in its United States Sarasota facility,
and is in the process of replacing its computer system in its United Kingdom
facility with "enterprise manufacturing systems" that,
17
according to representations made by the systems' manufacturers, are currently
year 2000 ready. The implementation of these new "enterprise manufacturing
systems" has negatively impacted the Company's sales. See the Overview of
Management's Discussion and Analysis. 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, to be completed by the end of the fourth quarter of 1999.
However, there can be no assurance that these deadlines will be met or
precisely when the Company will be year 2000 ready.
The Company has not yet obtained information sufficient to quantify
the potential effects of possible internal and external year 2000
non-compliance so as to determine the likely worst-case scenarios or to develop
contingency plans to deal with such scenarios. However, 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. 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. While the Company intends to develop appropriate
contingency plans, there can be no assurances that the Company's contingency
plans, once developed, 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 $1.0 million incurred
through July 3, 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 as 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 July 3, 1999, and June 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.
18
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 July 3, 1999, the Company had approximately $4.8 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.
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 timely 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
19
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
July 3, 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.
20
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.
The Annual Meeting of Shareholders of the Company was held on May 22,
1999. At the meeting, the following actions were taken by the shareholders:
Taco van Tijn and David N. Wormley were reelected as Directors to
serve until the Annual Meeting in 2002, and until their successors are
elected and qualified or until their earlier resignation, removal from
office or death. The votes cast for and against each were as follows:
For Withheld
Taco van Tijn 5,255,000 71,021
David N. Wormley 5,257,100 68,921
The appointment of Pricewaterhouse Coopers, LLP, as the Company's
independent certified public accountants for the year 1999 was ratified and
approved. The voting on the proposal was as follows:
FOR 5,321,445
AGAINST 3,476
ABSTAIN 1,100
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
21
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).
4.5 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).
22
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).
23
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.
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.
24
4.28 Security Agreement, dated July 23, 1999, between the Company and
Northern Trust Bank of Florida, N.A.
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.
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 June 4, 1999, announcing a $0.04 per share
dividend on its common stock payable on July 15, 1999, to shareholders
of record on June 30, 1999, as well as year end and fourth quarter
results.
25
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 August 12, 1999.
SUN HYDRAULICS CORPORATION
By: /s/ Richard J. Dobbyn
---------------------------------
Richard J. Dobbyn
Chief Financial Officer (Principal
Financial and Accounting Officer)
26
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).
4.5 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).
27
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).
28
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.
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.
29
4.28 Security Agreement, dated July 23, 1999, between the Company and
Northern Trust Bank of Florida, N.A.
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.
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.
30