-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IvNRoPW4e2KViJ2hRiHxQBT2LN8NhvpJv3exmosSNP6tsYlytLMwLsCXKgOqmzil SIb/6OwtxxrFaTUIYRL6XQ== 0000950144-97-008953.txt : 19970814 0000950144-97-008953.hdr.sgml : 19970814 ACCESSION NUMBER: 0000950144-97-008953 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970813 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SUN HYDRAULICS CORP CENTRAL INDEX KEY: 0001024795 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS FABRICATED METAL PRODUCTS [3490] IRS NUMBER: 592754337 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-21835 FILM NUMBER: 97658089 BUSINESS ADDRESS: STREET 1: 1500 WEST UNIVERSITY PKWY CITY: SARASOTA STATE: FL ZIP: 34243 BUSINESS PHONE: 9413621200 MAIL ADDRESS: STREET 1: 1500 WEST UNIVERSITY PKWY CITY: SARASOTA STATE: FL ZIP: 34243 10-Q 1 SUN HYDRAULICS FORM 10-Q 1 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 June 30, 1997 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 6,310,002 shares of common stock, par value $.001, outstanding as of August 8, 1997. 2 Sun Hydraulics Corporation INDEX For the second quarter ended June 30, 1997
Page ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets as of June 30, 1997 (unaudited) and December 31, 1996 3 Consolidated Statements of Income for the Three Months Ended June 30, 1997 and 1996 (unaudited) 4 Consolidated Statements of Income for the Six Months Ended June 30, 1997 and 1996 (unaudited) 5 Consolidated Statement of Changes in Shareholders' Equity for the Six Months Ended June 30, 1997 (unaudited) 6 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1997 and 1996 (unaudited) 7 Notes to Consolidated Financial Statements 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Forward Looking Information 13 PART II. OTHER INFORMATION 15 Item 1. Legal Proceedings Item 2. Changes in Securities Item 3. Defaults Upon Senior Securities Item 4. Submission of Matters to a Vote of Security Holders Item 5. Other Information Item 6. Exhibits and Reports on Form 8-K
2 3 PART I: FINANCIAL INFORMATION Item 1. Sun Hydraulics Corporation CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
JUNE 30, DECEMBER 31, 1997 1996 (UNAUDITED) ASSETS Current assets: Cash and cash equivalents $ 1,807 $ 1,038 Accounts receivable, net of allowance for doubtful accounts of $60 and $62 5,544 3,535 Inventories 5,593 4,451 Other current assets 843 1,132 ------- ------- Total current assets 13,787 10,156 Property, plant and equipment, net 38,924 37,212 Other assets 15 1,048 ------- ------- Total assets $52,726 $48,416 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 2,504 $ 3,273 Accrued expenses and other liabilities 1,923 1,961 Long-term debt due within one year 2,562 2,340 Notes payable to related parties due within one year 704 655 Dividends payable 221 508 Income taxes payable, net 1,163 461 ------- ------- Total current liabilities 9,077 9,198 Long-term debt due after one year 6,844 12,314 Notes payable to related parties due after one year 1,544 1,909 Deferred income taxes 2,578 2,578 Other liabilities -- 20 ------- ------- Total liabilities 20,043 26,019 ------- ------- Contingencies and commitments -- -- Shareholders' equity: Common stock 6 2,179 Capital in excess of par value 24,092 2,719 Retained earnings 8,560 17,450 Equity adjustment for foreign currency translation 25 49 ------- ------- Total shareholders' equity 32,683 22,397 ------- ------- Total liabilities and shareholders' equity $52,726 $48,416 ======= =======
The accompanying Notes to the consolidated financial statements are an integral part of these financial statements. 3 4 Sun Hydraulics Corporation CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED JUNE 30, (UNAUDITED) 1997 1996 ---- ---- NET SALES $15,276 $13,831 Cost of sales 10,444 9,125 ------- ------- GROSS PROFIT 4,832 4,706 Selling, engineering and administrative expenses 2,849 2,929 ------- ------- OPERATING INCOME 1,983 1,777 Interest expense 216 218 Miscellaneous expense (income) 72 (63) ------- ------- INCOME BEFORE INCOME TAXES 1,695 1,622 Income tax provision 616 202 ------- ------- NET INCOME $ 1,079 $ 1,420 ======= ======= PRO FORMA INCOME DATA (NOTE 3): INCOME BEFORE INCOME TAXES $ 1,695 $ 1,622 Pro Forma Income tax provision 616 646 ------- ------- PRO FORMA NET INCOME $ 1,079 $ 976 ======= ======= PRO FORMA NET INCOME PER SHARE $ .17 $ .15 ======= ======= PRO FORMA AVERAGE SHARES OUTSTANDING 6,517 6,509 ======= =======
The accompanying Notes to the consolidated financial statements are an integral part of these financial statements. 4 5 Sun Hydraulics Corporation CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE DATA)
SIX MONTHS ENDED JUNE 30, (UNAUDITED) 1997 1996 ---- ---- NET SALES $29,874 $27,637 Cost of sales 20,646 18,616 ------- ------- GROSS PROFIT 9,228 9,021 Selling, engineering and administrative expenses 5,566 5,594 ------- ------- OPERATING INCOME 3,662 3,427 Interest expense 368 423 Miscellaneous expense (income) 14 (10) ------- ------- INCOME BEFORE INCOME TAXES 3,280 3,014 Income tax provision 1,184 491 ------- ------- NET INCOME $ 2,096 $ 2,523 ======= ======= PRO FORMA INCOME DATA (NOTE 3): INCOME BEFORE INCOME TAXES $ 3,280 $ 3,014 Pro Forma Income tax provision 1,184 1,200 ------- ------- PRO FORMA NET INCOME $ 2,096 $ 1,814 ======= ======= PRO FORMA NET INCOME PER SHARE $ .32 $ .28 ======= ======= PRO FORMA AVERAGE SHARES OUTSTANDING 6,517 6,509 ======= =======
The accompanying Notes to the consolidated financial statements are an integral part of these financial statements. 5 6 Sun Hydraulics Corporation CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (IN THOUSANDS)
EQUITY ADJUSTMENT CAPITAL IN FOR FOREIGN COMMON EXCESS OF RETAINED CURRENCY STOCK PAR VALUE EARNINGS TRANSLATION TOTAL Balance, December 31, 1996 $ 2,179 $ 2,719 $ 17,450 $ 49 $ 22,397 Net proceeds from stock offering 6 19,246 19,252 Distributions to shareholders (10,545) (10,545) Merger with Sun Holdings (Note 2) (2,175) 2,123 (52) Shares retired in stock offering (4) 4 -- Net income 2,096 2,096 Dividends declared (441) (441) Adjustment for foreign currency translation (24) (24) ------- ------- -------- ---- -------- Balance, June 30, 1997 (unaudited) $ 6 $24,092 $ 8,560 $ 25 $ 32,683 ======= ======= ======== ==== ========
The accompanying Notes to the consolidated financial statements are an integral part of these financial statements. 6 7 Sun Hydraulics Corporation Consolidated Statements of Cash Flows (IN THOUSANDS)
SIX MONTHS ENDED JUNE 30, 1997 1996 (UNAUDITED) (UNAUDITED) Cash flows from operating activities: Net income $ 2,096 $ 2,523 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation 1,852 1,723 (Increase) decrease in: Accounts receivable (2,009) (693) Inventories (1,142) (178) Other current assets 289 100 Other assets 1,033 (97) Increase (decrease) in: Accounts payable (769) (503) Accrued expenses and other liabilities (38) (47) Income taxes payable, net 702 488 Other liabilities (20) 25 -------- ------- Net cash provided by operating activities 1,994 3,341 -------- ------- Cash flows from investing activities: Capital expenditures (3,566) (7,568) Proceeds from dispositions of equipment 2 -- -------- ------- Net cash used in investing activities (3,564) (7,568) -------- ------- Cash flows from financing activities: Proceeds from debt 3,722 6,403 Repayment of debt (8,970) (2,835) Repayment of notes payable to related parties (316) (280) Proceeds from exercise of stock options -- 8 Issuance of stock options -- 79 Net proceeds from stock offering 19,252 -- Capital paid for Sun Holdings merger (Note 2) (52) -- Distributions to shareholders (11,273) (1,310) -------- ------- Net cash provided by financing activities 2,363 2,065 -------- ------- Effect of exchange rate changes on cash (24) (57) -------- ------- Net increase (decrease) in cash and cash equivalents 769 (2,219) Cash and cash equivalents, beginning of period 1,038 2,434 -------- ------- Cash and cash equivalents, end of period $ 1,807 $ 215 ======== ======= Supplemental disclosure of cash flow information: Cash paid for: Interest (including amounts capitalized) $ 616 $ 428 Income taxes $ 482 $ 3
The accompanying Notes to the consolidated financial statements are an integral part of these financial statements. 7 8 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) with and should be read in conjunction with the combined financial statements and related notes contained in the Annual Report on Form 10-K for the fiscal year ended December 31, 1996, filed by Sun Hydraulics Corporation (the "Company") with the Securities and Exchange Commission on March 31, 1997. 2. INITIAL PUBLIC OFFERING The consolidated financial statements of the Company consist of the financial position and results of operations of Sun Hydraulics Corporation ("Sun Hydraulics") and Sun Hydraulik Holdings Limited ("Sun Holdings"). In January 1997, Sun Hydraulics effected a 9 for 1 stock split and issued 374,811 shares of common stock and made a nominal cash payment in exchange for all of the issued and outstanding stock of Sun Holdings. Accordingly, financial statements for 1997 are on a consolidated basis, and financial statements for 1996 are on a combined basis. The Company filed a Registration Statement on Form S-1 with the Securities and Exchange Commission effective January 9, 1997, and issued 2,300,000 shares of common stock in an initial public offering ("IPO"), with an initial offering price of $9.50. The IPO net proceeds of $19.3 million, the exchange of shares with Sun Holdings, and the distribution of previously taxed S Corporation retained earnings are reflected in the Statement of Changes in Shareholders' Equity. The $19.3 million of net proceeds from the IPO were used as follows: a payment of $9.5 million of the S Corporation distribution was made, representing 90% of the total distribution of $10.6 million, $7.7 million was paid to extinguish debt, and $2.1 million was retained as working capital. The Company has 20,000,000 authorized shares of common stock, par value $0.001, with 6,310,002 shares outstanding. The Company also has 2,000,000 authorized shares of preferred stock, par value $0.001, with no shares outstanding. 3. PRO FORMA NET INCOME AND EARNINGS PER SHARE Pro forma net income reflects a provision for income taxes as if Sun Hydraulics had been a C Corporation for all periods presented. The computation of pro forma earnings per share is based on the pro forma weighted average number of common shares outstanding during the period plus vested common stock equivalents, if dilutive, consisting of certain shares subject to stock options, after giving effect to the initial public offering (See Note 2). The assumed exercise of dilutive stock options less the number of treasury shares assumed to be purchased from the proceeds were calculated using the average market price for the period ended June 30, 1997. During the first quarter of 1997, Statement on Financial Accounting Standards NO. 128 ("SFAS 128"), "Earnings per Share", was issued. SFAS 128 will be effective for the year ending December 31, 1997 and will require a restatement of previously reported earnings per share. Under SFAS 128, basic and diluted earnings per share are not expected to be significantly different from primary and fully diluted earnings per share, respectively, as calculated by the Company. 8 9 4. INVENTORIES (IN THOUSANDS)
JUNE 30, DECEMBER 31, 1997 1996 (UNAUDITED) Raw materials $ 95 $ 147 Work in process 3,850 2,758 Finished goods 1,648 1,546 ------ ------ $5,593 $4,451 ====== ======
5. LONG-TERM DEBT (IN THOUSANDS)
JUNE 30, DECEMBER 31, 1997 1996 (UNAUDITED) Lines of credit agreements, interest payable at lender's prime rate (8.25% at June 30, 1997 and December 31, 1996) $ 2,156 $ 1,512 Secured equipment loan, interest only payable monthly at 8.25% at December 31, 1996 -- 2,874 8.25% mortgage note payable secured by real property due in monthly principal and interest installments of $20 -- 2,355 Notes payable secured by equipment, payable in monthly principal and interest installments with interest rates varying from 4.90% to 5.60% with maturity dates from March 1996 to June 1998 10 46 Construction lines of credit at 8.25% and 6.47% converted to mortgage notes in April 1997 payable at 8.25% and 6.47% with maturities of 15 years and 12 years, respectively 7,240 7,867 -------- -------- 9,406 14,654 Less amounts due within one year (2,562) (2,340) -------- -------- $ 6,844 $ 12,314 ======== ========
In February 1997, the Company negotiated a one year, unsecured revolving credit facility. The agreement provides for a maximum availability of $10.0 million, payable on demand at the lender's prime rate of interest. At June 30, 1997, $2.1 million was outstanding under this credit facility. 9 10 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The Company is a leading designer and manufacturer of high-performance, screw-in hydraulic cartridge valves and manifolds which control force, speed and motion as integral components in fluid power systems. The Company sells its products globally through independent distributors. The production capacity expansion for the United States manufacturing operations which began in March 1997 was completed during the quarter. Manifold production has been relocated to the Company's new Sarasota, Florida, facility. The original Sarasota plant has been reconfigured to take advantage of the increased floor capacity for the production of cartridge valves and to establish cellular production for high volume products. Management believes that the Company now has the production capability to increase net sales levels during the second half of the year. Net sales were $15.3 million for the quarter ended June 30, 1997, a 6.5% increase over the first quarter of 1997. Demand during the quarter continued at approximately the same level as the prior quarter, exceeding $18.0 million. The increase in backlog necessitated increased delivery lead times. Management believes that recent production rates will be reflected in increased sales for the remainder of the year; however, the incremental costs of maximizing shipments to customers will continue to have a negative impact on gross profit as a percentage of sales. Net income for the quarter ended June 30, 1997, did not increase proportionately to sales and remained at the first quarter level of approximately $1.0 million. The disruption and costs associated with the production expansion and reconfiguration were exacerbated by the increased costs of expediting and rescheduling. In addition, the implementation of manufacturing systems in the new manifold plant and the hiring and training of new personnel adversely affected the rate of production increase at both U.S. facilities. COMPARISON OF THREE MONTHS ENDED JUNE 30, 1997 AND 1996 Net sales increased 10.4%, or $1.4 million, to $15.3 million in the three month period ended June 30, 1997, compared to $13.8 million in the three month period ended June 30, 1996. Domestic net sales increased 2.3%, or $0.3 million to $9.7 million. Domestic shipments were restricted by reduced manifold production in the United States due to the move to the new plant. International net sales increased 28.0%, or $1.2 million to $5.6 million, reflecting a significant increase in production at the manufacturing plant in Coventry, England. European net sales increased $0.9 million or 31.6% to $3.7 million. Canada, Mexico and South American net sales increased $0.1 million to $0.8 million with Japan and Pacific Rim sales increasing $0.2 million to $1.1 million. 10 11 Gross Profit increased 2.7% or $0.1 million to $4.8 million in the three month period ended June 30, 1997, compared to $4.7 million in the three month period ended June 30, 1996. This increase primarily was related to the increase in net sales. Gross profit as a percentage of net sales decreased to 31.6% in the three month period ended June 30, 1997, from 34.0% for the three month period ended June 30, 1996. The decrease in the percentage of gross profit to net sales was due to increased manufacturing overhead costs related to the new facilities in the United States and Germany and production inefficiencies and start-up costs in the new manifold plant in the United States. Selling, engineering and administrative expenses decreased 2.7% or $0.1 million to $2.8 million in the three month period ended June 30, 1997, compared to $2.9 million in the three month period ended June 30, 1996. However, due to the timing of discretionary spending for marketing and other costs, such expenses for the three months ended June 30, 1996, were unusually high. Selling, engineering and administrative expenses as a percentage of sales decreased to 18.7% in the three month period ended June 30, 1997, compared to 21.2% in the three month period ended June 30, 1996. Interest expense was $0.2 million for the three month period ended June 30, 1997, approximately the same expense as the period ended June 30, 1996. Miscellaneous expense for the period ended June 30, 1997 was primarily due to exchange losses in Germany. The provision for income taxes in the three month period ended June 30, 1997, was 36.3% of pretax income compared to 39.8% of pro forma pretax income in the three month period ended June 30, 1996. The decrease in the effective tax rate was due to the change in the source of pretax income among the Company's three operations in the United States, the United Kingdom and Germany. Net income for the three month period ended June 30, 1997, increased to $1.1 million, or 10.6% over the three month period ended June 30, 1996, primarily as a result of the foregoing factors. COMPARISON OF SIX MONTHS ENDED JUNE 30, 1997 AND 1996 Net sales increased 8.1%, or $2.2 million, to $29.9 million in the six month period ended June 30, 1997, compared to $27.6 million in the six month period ended June 30, 1996. Domestic net sales increased 3.1%, or $0.6 million to $19.0 million. Net sales were restricted in the United States by production constraints and demand was substantially higher than shipments. International net sales increased 18.1%, or $1.7 million to $10.9 million. European net sales increased $0.9 million or 14.0% to $7.1 million. Canada, Mexico and South American net sales increased $0.3 million to $1.5 million with Japan and Pacific Rim sales increasing $0.5 million to $2.3 million. Gross Profit increased 2.3% or $0.2 million to $9.2 million in the six month period ended June 30, 1997, compared to $9.0 million in the six month period ended June 30, 1996. This increase is primarily related to the increase in net sales. Gross profit as a percentage of net sales decreased to 30.9% in the six month period ended June 30, 1997 from 32.6% for the six month period ended June 30, 1996. The decrease in the percentage of gross profit to net sales was due to increased manufacturing overhead costs related to the new facilities in the United States and Germany and production inefficiencies and start-up costs in the new manifold plant in the United States. 11 12 Selling, engineering and administrative expenses were $5.6 million for the six month period ended June 30, 1997, approximately the same expense as the six month period ended June 30, 1996. However, due to the timing of discretionary spending for marketing and other costs, such expenses for the three months ended June 30, 1996, were unusually high. Selling, engineering and administrative expenses as a percentage of sales decreased to 18.6% in the six month period ended June 30, 1997 compared to 20.2% in the six month period ended June 30, 1996. Interest expense was $0.4 million for the six month period ended June 30, 1997, approximately the same expense, as the period ended June 30, 1996. The provision for income taxes in the six month period ended June 30, 1997, was 36.1% of pretax income compared to 39.8% of pro forma pretax income in the six month period ended June 30, 1996. The decrease in the effective tax rate primarily was due to the change in the source of pretax income among the Company's three operations in the United States, the United Kingdom and Germany. Net income for the six month period ended June 30, 1997, increased to $2.1 million, or 15.5% over the six month period ended June 30, 1996, primarily as a result of the foregoing factors. LIQUIDITY AND CAPITAL RESOURCES In January 1997, the Company received $20.3 million of gross proceeds from its initial public offering of common stock. Net proceeds after expenses were approximately $19.3 million. In January 1997, approximately 90% or $9.5 million of the S Corporation distribution was paid and the balance of $1.0 million was paid in May 1997. Also in January 1997, the capital equipment loan balance of $2.9 million and the mortgage balance of $2.4 million on the original United States facility were paid in full. In March 1997, $1.0 million was paid to reduce the mortgage on the new plant in the United States to a balance of $5.2 million. In February and March 1997, $1.4 million was used to repay the entire revolving line of credit in the United States. In February 1997, the Company negotiated a $10.0 million unsecured revolving credit facility with a term of one year and an interest rate equal to the bank lender's prime rate. This replaced a $1.7 million revolving line of credit, which had been secured by the Company's inventories and accounts receivable. At June 30, 1997, $2.1 million had been drawn down under this credit facility. Cash generated from operations in the six month period ended June 30, 1997, was $2.0 million compared to $3.3 million in the six month period ended June 30, 1996. The cash flow reduction reflected an increase in inventory of $1.1 million to provide for higher volume shipments and the various production moves and an accounts receivable increase of $2.0 million as a result of a higher shipment level at the end of the second quarter. Capital expenditures in the six-month period ended June 30, 1997, were $3.6 million. This was comprised of $1.4 million related to the construction of the new facilities in the United States and Germany and $2.2 million spent for machinery and equipment. The Company believes that cash generated from operations and its borrowing availability under the $10 million revolving line of credit will be sufficient to satisfy the Company's operating expenses and capital expenditures for the foreseeable future. 12 13 The Company declared a dividend of $.035 per share to shareholders of record on March 31, 1997, which was paid on April 15,1997. The Company also declared a dividend of $.035 per share to shareholders of record July 3, 1997, which was paid on July 15, 1997. SEASONALITY AND INFLATION The Company experiences 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 six months ended June 30, 1997 and June 30, 1996. There can be no assurance, however, that the Company's business will not be affected by inflation in the future. FORWARD-LOOKING INFORMATION Certain oral statements made by management from time to time and certain statements contained herein that are not historical facts are "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934 and because such statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. Forward-looking statements, including those in Management's Discussion and Analysis of Financial Condition and Results of Operations are statements regarding the intent, belief or current expectations, estimates or projections of the Company, its Directors or its Officers about the Company and the industry in which it operates, and assumptions made by management, and include among other items, (i) the Company's strategies regarding growth, including its intention to develop new products; (ii) the Company's financing plans; (iii) trends affecting the Company's financial condition or results of operations; (iv) the Company's ability to continue to control costs and to meet its liquidity and other financing needs; (v) the declaration and payment of dividends; and (vi) the Company's ability to respond to changes in customer demand domestically and internationally, including as a result of standardization. Although the Company believes that its expectations are based on reasonable assumptions, it can give no assurance that the anticipated results will occur. Important factors that could cause the actual results to differ materially from those in the forward-looking statements include, among other items, (i) the economic cyclicality of the capital goods industry in general and the hydraulic valve and manifold industry in particular, which directly affect customer orders, lead times and sales volume; (ii) conditions in the capital markets, including the interest rate environment and the availability of capital; (iii) changes in the competitive marketplace that could affect the Company's revenue and/or cost bases, such as increased competition, lack of qualified engineering, marketing, management or other personnel, and increased labor and raw materials costs; (iv) changes in technology or customer requirements, such as standardization of the cavity into which screw-in cartridge valves must fit, which could render the Company's products or technologies noncompetitive or obsolete; (v) new product introductions, product sales mix and the geographic mix of sales nationally and internationally; and (vi) changes relating to the Company's international sales, including changes in regulatory requirements or tariffs, trade or currency restrictions, fluctuations in exchange rates, and tax and collection issues. Further information relating to factors that could cause actual results to differ from those anticipated is included but not limited to information under the headings "Risk Factors" in the Form S-1 Registration Statement and Prospectus for the 13 14 Company's initial public offering, and "Business" in the Company's Form 10-K for the year ended December 31, 1996. The Company disclaims any intention or obligation to update or revise forward-looking statements, whether as a result of new information, future events or otherwise. 14 15 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 June 21, 1997. At the meeting, the following actions were taken by the shareholders: 1. Arthur B. Bodley was reelected as a Director to serve until the Annual Meeting in 1998, and Robert E. Koski and James G. March were reelected to serve until the Annual Meeting in 2000, 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 --- -------- Arthur B. Bodley 5,817,156 7,495 Robert E. Koski 5,822,016 2,635 James G. March 5,822,016 2,635
2. The appointment of Price Waterhouse, LLP, as the Company's independent certified public accountants for the year 1997 was ratified and approved. The voting on the proposal was as follows: FOR 5,726,637 AGAINST 93,364 ABSTAIN 4,650 Item 5. Other Information. None. 15 16 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits:
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)). 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)). 4.1* Revolving Credit Agreement, dated March 9, 1992, between Sun Hydraulics Corporation and Northern Trust Bank of Florida/Sarasota, N.A. (previously filed as Exhibit 4.1 in the Company's Registration Statement on Form S-1 filed on October 15, 1996 (File No. 333- 14183)). 4.2* Modification Agreement, dated March 25, 1993, amending Revolving Credit Agreement dated March 9, 1992, between Sun Hydraulics Corporation and Northern Trust Bank of Florida, N.A. (previously filed as Exhibit 4.2 in the Company's Registration Statement on Form S-1 filed on October 15, 1996 (File No. 333-14183)).
16 17 4.3* Second Modification to Revolving Credit Agreement, dated May __, 1995, between Sun Hydraulics Corporation and Northern Trust Bank of Florida, N.A. (previously filed as Exhibit 4.3 in the Company's Registration Statement on Form S-1 filed on October 15, 1996 (File No. 333-14183)). 4.4* Revolving Line of Credit Renewal Note, dated May __, 1995, in the amount of $1,700,000.00 given by Sun Hydraulics Corporation to Northern Trust Bank of Florida, N.A. (previously filed as Exhibit 4.4 in the Company's Registration Statement on Form S-1 filed on October 15, 1996 (File No. 333-14183)). 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)). 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)). 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)). 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)). 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)). 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)).
17 18 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)). 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)). 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)). 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)). 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)). 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)). 4.17* Revolving Loan Facility letter agreement, dated July 30, 1996, in the amount of L.800,000, between Sun Hydraulics Ltd. and Lloyds Bank Plc. (previously filed as Exhibit 4.17 in the Company's Registration Statement on Form S-1 filed on October 15, 1996 (File No. 333- 14183)). 4.18* Overdraft and Other Facilities letter agreement, dated June 7, 1996, in an amount not to exceed L.250,000, between Sun Hydraulics Ltd. and Lloyds Bank Plc. (previously filed as Exhibit 4.18 in the Company's Registration Statement on Form S-1 filed on October 15, 1996 (File No. 333-14183)).
18 19 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)). 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)). 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). 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)). 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)). 10.3*+ Sun Hydraulics Corporation 1996 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)). 10.4+ Amendment No. 1 to 1996 Stock Option Plan. 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)). 11.1 Statement regarding Computation of Earnings Per Share. 27.1 Financial Data Schedule for quarter ended June 30, 1997. (For SEC purposes only)
- --------------------------- * Previously filed. + Executive management contract or compensatory plan or arrangement. 19 20 (b) Reports on Form 8-K Report on Form 8-K dated June 23, 1997, announcing a $0.035 per share dividend on its common stock payable on July 15, 1997, to shareholders of record on July 3, 1997, and reporting comments made by management at the Registrant's annual shareholders' meeting held on June 21, 1997. 20 21 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 13, 1997. SUN HYDRAULICS CORPORATION By: /s/ Richard J. Dobbyn ------------------------------------ Richard J. Dobbyn Chief Financial Officer (Principal Financial and Accounting Officer) 21 22 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)). 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)). 4.1* Revolving Credit Agreement, dated March 9, 1992, between Sun Hydraulics Corporation and Northern Trust Bank of Florida/Sarasota, N.A. (previously filed as Exhibit 4.1 in the Company's Registration Statement on Form S-1 filed on October 15, 1996 (File No. 333- 14183)). 4.2* Modification Agreement, dated March 25, 1993, amending Revolving Credit Agreement dated March 9, 1992, between Sun Hydraulics Corporation and Northern Trust Bank of Florida, N.A. (previously filed as Exhibit 4.2 in the Company's Registration Statement on Form S-1 filed on October 15, 1996 (File No. 333-14183)).
23 4.3* Second Modification to Revolving Credit Agreement, dated May __, 1995, between Sun Hydraulics Corporation and Northern Trust Bank of Florida, N.A. (previously filed as Exhibit 4.3 in the Company's Registration Statement on Form S-1 filed on October 15, 1996 (File No. 333-14183)). 4.4* Revolving Line of Credit Renewal Note, dated May __, 1995, in the amount of $1,700,000.00 given by Sun Hydraulics Corporation to Northern Trust Bank of Florida, N.A. (previously filed as Exhibit 4.4 in the Company's Registration Statement on Form S-1 filed on October 15, 1996 (File No. 333-14183)). 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)). 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)). 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)). 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)). 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)). 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)).
24 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)). 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)). 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)). 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)). 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)). 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)). 4.17* Revolving Loan Facility letter agreement, dated July 30, 1996, in the amount of L.800,000, between Sun Hydraulics Ltd. and Lloyds Bank Plc. (previously filed as Exhibit 4.17 in the Company's Registration Statement on Form S-1 filed on October 15, 1996 (File No. 333- 14183)). 4.18* Overdraft and Other Facilities letter agreement, dated June 7, 1996, in an amount not to exceed L.250,000, between Sun Hydraulics Ltd. and Lloyds Bank Plc. (previously filed as Exhibit 4.18 in the Company's Registration Statement on Form S-1 filed on October 15, 1996 (File No. 333-14183)).
25 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)). 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)). 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). 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)). 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)). 10.3*+ Sun Hydraulics Corporation 1996 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)). 10.4+ Amendment No. 1 to 1996 Stock Option Plan. 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)). 11.1 Statement regarding Computation of Earnings Per Share. 27.1 Financial Data Schedule for quarter ended June 30, 1997. (For SEC purposes only)
- --------------------------- * Previously filed. + Executive management contract or compensatory plan or arrangement. EX-10.4 2 AMENDMENT NO. 1 TO 1996 STOCK OPTION PLAN 1 EXHIBIT 10.4 SUN HYDRAULICS CORPORATION AMENDMENT NO. 1 TO 1996 STOCK OPTION PLAN WHEREAS, SUN HYDRAULICS CORPORATION, a Florida corporation (the "Company"), sponsors the Sun Hydraulics Corporation 1996 Stock Option Plan (the "Plan"); and WHEREAS, Section 19 of the Plan provides that the Plan may be amended by the Board of Directors (the "Board") of the Company; and WHEREAS, the Board has determined that it is in the best interest of the Company and its stockholders to amend the Plan, effective as of February 24, 1997, in the manner contemplated below; NOW, THEREFORE, the Plan is hereby amended as follows: 1. Section 15 of the Plan is amended by deleting the phrase "three (3) months" in the first paragraph of Section 15 regarding death of an optionee and replacing it with the following: "twelve (12) months" 2. This Amendment shall be effective as of February 24, 1997. Except as otherwise amended hereby, the Plan shall remain in full force and effect. IN WITNESS WHEREOF, the undersigned, being the duly elected and authorized Secretary of the Company, hereby certifies that this Amendment No. 1 to 1996 Stock Option Plan was legally and validly approved by the Board of Directors of the Company on February 24, 1997. SUN HYDRAULICS CORPORATION By: /s/ Gregory C. Yadley ---------------------------------- Gregory C. Yadley, Secretary EX-11.1 3 STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS 1 Statement regarding Computation of Per Share Earnings EXHIBIT 11.1 (in thousands, except per share data)
Six months ended June 30 1997 1996 ------ ------ PRIMARY Net income (Note 3) $2,096 $1,814 ====== ====== Weighted average shares outstanding 6,517 6,509 Primary EPS $ .32 $ .28 ====== ====== FULLY DILUTED Net income (Note 3) $2,096 $1,814 ====== ====== Weighted average shares outstanding 6,523 6,488 Fully diluted EPS $ .32 $ .28 ====== ======
The treasury stock method was used in the calculation of the average shares outstanding for EPS. The denominator includes the shares outstanding during the year plus the number of shares from assumed exercise of all vested outstanding stock options less the number of treasury shares that would be repurchased from the proceeds of such exercise. For primary EPS, the average stock price for the year is used; in the calculation for fully diluted EPS, the quarter end stock price is used. For the periods presented, the number of shares issued in the initial public offering are also included in the denominator as though the shares had been outstanding since the beginning of each year, in accordance with Regulation S-X, Article 11. EX-27.1 4 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF THE REGISTRANT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 1,807 0 5,544 0 5,593 843 38,924 0 52,726 9,077 0 0 0 6 32,677 52,726 29,874 29,874 20,646 20,646 0 0 368 3,280 1,184 2,096 0 0 0 2,096 .32 .32 NET OF ALLOWANCE FOR DOUBTFUL AMOUNTS OF $60. NET OF ACCUMULATED DEPRECIATION OF $15,873.
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