EXHIBIT 99.1
SUN HYDRAULICS CORPORATION
CONFERENCE CALL TRANSCRIPT
Moderator: Rich Arter
May 11, 2005
1:30 p.m. CT
Good day and welcome everyone to this Sun Hydraulics first quarter 2005 financial
results conference call. Today’s call is being recorded.
At this time, I would like to turn the call over to Investor Relations spokesperson, Mr.
Rich Arter. Please go ahead, sir.
Thank you, Peter. Good afternoon and thank you for joining us to listen to Sun
Hydraulics’ first quarter 2005 financial results conference call.
With me are Dick Dobbyn, Sun’s CFO; and (Tricia Fulton), Corporate Finance. Allen
Carlson, Sun’s President and CEO is traveling and unable to participate in this call.
Once we have finished our prepared statements, we will open the lines for questions and
answers.
Before we begin, please be aware that any statements made in today’s presentation that
are not historical facts are considered forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934. For more information on forward-looking
statements, please see yesterday’s press release.
It is now my pleasure to introduce Dick Dobbyn.
Thank you, Rich. Good afternoon, everyone. 2004 was an excellent year for Sun in
all respects, and 2005 is shaping up to be even better. Orders continue to be strong, and
demand is up in all our markets.
Orders for the first quarter were 31 million, a 25 percent increase over the first
quarter of last year. April orders were 10 million, a 23 percent increase over last year.
We believe second quarter sales will be higher than the first, despite fewer working days,
and we expect to maintain our on time delivery performance.
We believe Sun’s strong financial condition and long-term success are largely due to
our philosophy of maintaining balance in our business, both externally and internally. As
stated in our just released annual report, balancing the interest of our customers,
shareholders, employees, distributors, and suppliers will remain at the heart of our
efforts.
Our primary focus continues to be on marketing efforts and investments to grow and
increase market share.
Our financial performance and second quarter outlook will now be discussed by (Tricia).
Thank you.
Thanks, Dick. First quarter net sales were up 36 percent to 29 million, compared
to Q1 last year. Net income was three and a half million compared to one and a half million
in 2004.
And basic and diluted earnings per share increased to 49 and 48 cents respectively,
versus 20 cents for last year. Continued strength in the North America manufacturing sector
helped increase North American sales by 44 percent, with shipments within the U.S. up 41
percent, and Canadian shipments up 71 percent.
European sales increased 43 percent to almost nine million. Sales to France were up 89
percent, Germany 31 percent, and the U.K. 13 percent. We also saw significant increases in
Sweden, Finland, Italy, and the Netherlands.
Asian sales increased 14 percent to four million, led by domestic sales in Korea and
China. Gross profits were up 55 percent to 10 million, compared to six and a half million
in Q1 last year. Gross profit as a percentage of net sales increased to 34 percent,
compared to 30 percent. This
Page 2
-2-
increase was primarily due to higher sales volumes. We had a moderate and selective sales
price increase in January of this year. This, coupled with improved productivity offset the
increased material cost for parts and raw materials.
Selling, engineering, and administrative expenses in Q1 were just over four million, a
slight increase compared to 2004. The increase was due primarily to higher audit fees,
including Sarbanes-Oxley 404 compliance.
The company declared quarterly dividends of seven and a half cents to shareholders of
record on March 31st, which were paid on April 15th.
Net sales from operations was 1.7 million, up 500,000 from last year. While net income
increased two million, it was offset by working capital changes related to the increased
volumes.
Day sales outstanding remained level at 39, and inventory turns improved from nine to
10.
Looking forward, as order rates remain strong through Q1 and into April, sales for the
second quarter are projected to be 30 million, a 13 percent increase over the second quarter
of 2004. Non-recurring refinancing costs and increased marketing expenses totaling $500,000
are anticipated for the second quarter.
Refinancing costs related to the replacement of our current debt structure by taking
advantage of our strong balance sheet to establish a long-term flexible credit facility. We
are also moving cash from our overseas operations back to the U.S.
Marketing expenses — expense increases include trade show costs and further
development of the design capability on our Web site. Net income per share for the second
quarter is expected to be 45 to 48 cents.
Thank you. Rich.
OK, Peter. Now that we’re done with that, we’d like to open it up questions and
answers.
Thank you. Today’s question-and-answer session will be conducted electronically. If
you would like to ask a question, please press the star key followed by the digit one on your
touch-tone telephone. Once again if you would like to ask a question, please press star one
at this time.
We’ll take our first question from Scott Macke, Robert W. Baird.
Good afternoon, everyone.
Hello, Scott.
Hi, Scott.
Wanted to — may have missed towards the end there. You said the cost for the debt
refinancing and the incremental marketing would be 500,000 combined?
Yes.
OK. Do you have a breakout between the two?
I think we’re just going to go with the total of the 500,000.
OK. And if I do my math correctly, that’s something like four cents per share?
Yes. It’s about 50/50 in the breakout of the — between the two.
OK. And this relates to — in terms of the debt there’s a — what, a five million
— excuse me, $11 million facility for five years, it’s
at LIBOR plus 190. . .
Yes.
... points? What would the new interest rate be?
We’re still talking to the banks right now, and we’re talking to several banks,
so we can’t really say that right now, we don’t have a commitment letter signed by anyone.
But we’re looking at just doing one long-term — longer term facility that would be a
revolving line of credit.
Page 3
Scott Macke:
|
OK. Next question, you talked about the order trend in April being 10 million. How did that compare to March? | |
(Tricia Fulton):
|
Well we have five weeks in March, and we only have four weeks in April. So you can’t really compare apples to apples, but the weekly order rate was about the same between March and April, but we did see a decrease throughout April, the order growth was flowing. | |
Scott Macke:
|
I see. First I want to step back into March. When you issued your prior — excuse me, your first quarter sales guidance, we did that, if I remember correctly, right at the start of March. So you had a pretty good feel for January and February sales. Did March end up exceeding your expectations then by the amount by which your first quarter sales exceeded your sales forecast? | |
(Tricia Fulton):
|
Yes, by a little bit, and orders were a little bit higher than we had thought, and some of them fall into that quarter, because our orders outlook is such short term. | |
Scott Macke:
|
OK. When you say the orders outlook is short term, how short term? Or what sort of visibility do you have? | |
(Tricia Fulton):
|
Only a few weeks. Our deliveries are about four weeks, but our visibility is even less than that. | |
Scott Macke:
|
OK, and one more question, and I’ll hope back in queue. I also understand that you pull your distributors for inventory levels. And was curious if you have done that recently, if so, what sort of trends you’ve seen in distributor inventory levels. | |
(Tricia Fulton):
|
We haven’t done that recently, we will be doing it shortly, but we don’t expect any big differences. | |
Scott Macke:
|
When you say you don’t expect any big differences, is there something in particular that you’re talking about? Or how do you gauge that sort of inventory level? | |
(Tricia Fulton):
|
Well we gauge it specifically by them reporting it. But since they haven’t reported it, and we don’t know of anyone that’s stocking up or, you know, not stocking, we — our tendency would be to believe that it’s going to stay about level. | |
Scott Macke:
|
OK. I will hop back in queue. Thank you. | |
Male:
|
Thanks, Scott. | |
Operator:
|
And once again, it is star one for questions. We’ll go next to Brian Rafn, Morgan Dempsey Capital Management. | |
Brian Rafn:
|
Good afternoon, guys. | |
Male:
|
Hey, Brian. | |
Male:
|
Hello, Brian. | |
Brian Rafn:
|
A question for you on the ramp up. You know, your comments that ’05 looks more robust than ’04, even with the modest accelerating in orders at the end of April. Relative to capacity utilization, we talked about this on the fourth quarter conference call, I think you guys have some adjacent land at (Manatee), and you’ve made something — discussion about you had some plans to add capacity or an expansion to the factory. When, and kind of why I guess I’m sensing, when’s the timing of a decision like that? Might that — is that an ’06 decision? Are you looking through ’05? Do we have enough spare operating capacity, or are we at the point where we’re looking at expanding? | |
Male:
|
Brian, we’re in good shape, as far as capacity in the short and intermediate term go. We’ve been able to bring some good people on in the past quarter, and over time is far from being excessive in total at this point. And we’re continuing to move non-critical parts and products outside. So at this point, we don’t think that we’ll have to activate any of those plans to build a new building for some time. | |
Brian Rafn:
|
OK, so that’s more of a three to five-year plan, or one to three, or what... | |
Male:
|
No, it’s just depending on what happens, so we’re watching it every month, and the plans are there, and there is no plan to do anything with the plans until we... |
-3-
Page 4
-4-
OK. No, I got you — I got you, yes, OK.
You know what I mean?
Sure. No, that’s fine.
... any
Sure. Can you talk about you guys and — I want to get this right — the cartridge
market is a little over a billion in cartridge valves, and you guys are approximately nine
percent of the cartridge market. Can you talk about maybe (enrodes) in cartridge hydraulic
valves versus conventional? And if there are any (enrodes) taking place, or are the market
shares relative to last five years about the same between conventional and cartridge?
I don’t think we can — we have any hard data on that. But our sense is that we’re making
more and more (enrodes) into the conventional valves market.
OK. What — can you talk about maybe the mix of just whether the cartridge valve
market you list in your presentation yourself, (Hydroforus) integrated, and sterling, some of
those are private. Can you kind of give us a sense competitively what the other competitors
are doing? Are there any companies that might possibly be private, and in the process of
being sold? Or having financial problems, or kind of getting a sense as to where you guys are
in accumulating market share on the cartridge side.
You asked two or three questions with that one. Let me — let me back up and see I’ve got
your question right. One of them was do we know of any private companies that might be up for
sale that we’re competing with? Is that...
Right, exactly. Because I think integrated and sterling had a — some of the
cartridge competitors that you have are not public companies,
therefore the...
Right.
... information, unless you’re an insider, is probably rather obscure. And just
looking at kind of what the competitive structure is on the cartridge side.
Yes, I mean we can’t gauge Sun’s, you know, quarterly sales to the — to the sales of our
— of our competitors. The — I think you were getting at how do we know if we’re getting
market share?
Right, exactly.
Yes. All right, then we just know that the — generally speaking certain areas of the
business are inside for us, like our custom valve packs, are rising at very large increased
rates. And when we compare that to the Natural Fluid Power Association’s numbers, of which,
you know, our competitors are part of that base.
Right.
We know that in that area, we’re — we — well we don’t know, we’re quite confident that
we’re gaining share. And then particularly in like Germany where the total market is not
really going through the roof, and we’re doing very well, that that by deduction, we say, OK
we’re getting more market share.
OK. Can you kind of talk — give us a little update to how the electro-hydraulic
valves and maybe the stainless steel valves at the U.K. facility as doing as
we enter in ’05
here?
I really don’t want to get specifically into that, mainly just because the information is
proprietary. But generally speaking, the solenoid valve continues to bring in more custom
valve packages for us, and the stainless we’re just trickling it out into the marketplace at
this point.
OK. And I’m going to ask you one more on the commodity side. Without giving me
magnitudes, can you give us a sense of direction in your cost structure relative to steel
pricing, and not maybe magnitudes or numbers, I know you guys hesitated that. But are you —
are we plateauing? Is it decelerating, is it flattening? Can you give us a
sense in ’05?
Right now we feel that it’s kind of plateaued.
Page 5
-5-
OK. And then just can you give us a sense of kind of your Sarbanes-Oxley 404 costs
this year, or option expensing? And maybe what you’re seeing in freight surcharges for fuel.
I don’t know about the freight surcharges for fuel, I don’t — I don’t — obviously there
are some. It hasn’t leapt out at us in the numbers, and you know, I think I’ll go take a
look.
OK, all right.
But the Sarbanes-Oxley costs, we are estimating incremental outside costs of approximately
half a million dollars.
OK. I’ll get back in queue. Thanks, guys.
Thank you, Brian.
And again, that is star one for questions. We’ll go next to Michael Braig, private
investor.
First of all question on the revolver extension, or the credit extension. Do you
intend to pay any debt down as a part of that move?
Yes, we’re bringing some money back from our European — or actually all of our
foreign subsidiaries, right now we’re in the process of that, and that will be part of going
through the refinancing, we will pay down as much of the debt as we can. With the money that
we’re able to bring back from there, we’re trying to work through some tax issues to figure
out how much we can bring back, but probably somewhere between four and five million.
OK. And can you comment at all on the tax rate considering the pattern for the
last two years has been for a declining tax rate as the quarters proceed?
Right now we have — we anticipate there could be a decrease coming forth from
the American Jobs Creation Act as we go through the year. But it’s going to be minimal for
the first year, we wouldn’t anticipate that it would be any more than one percent decrease.
OK. And finally in the past, occasionally you’ve indicated at least the relative
size of large customers. Have you at all indicated recently the approximate size of your
large diesel engine customer?
We haven’t indicated that, Mike, and at this point I don’t — I don’t feel comfortable
doing that. Except that it is growing.
Is there anything I could do to increase your discomfort to a level where you might
offer that information?
If you could place an order for about 20,000 cartridge valves, that might help.
Don’t need them, thank you.
We’ll go next to Scott Macke.
Hello again.
Hi, Scott.
Hey, Scott.
In terms of capacity, you made a comment about overtime. And if I recall correctly
from the last conference call, the fact that you had people working overtime is new. Is that
correct?
It’s new to the past year.
To the past year.
Yes.
When you say that, how many quarters have you had shifts that were running overtime?
We started with — in the second quarter, and it’s been steadily increasing. In the first
quarter we actually shipped 30 percent without any additional overtime to speak of. We work
on a four-day, 10 hour a day workweek. So we have comfortable room for expansion on Fridays
to start with, and then — and then perhaps Saturdays.
Page 6
-6-
OK, so for us, non-manufacturing, or the financial types anywhere, then there’s
capacity available on Fridays, and then potentially on Saturdays if
I. . .
Exactly.
... understand that correctly. And then beyond that, then that’s when you would
start talking about perhaps new manufacturing space in Florida?
Well we also can — the second shift is not — is not a full shift, so we can work like the
devil to fill up the second shift. And then also we can outsource some of the activities that
we have.
And when you talk about the second shift not being a full shift, that’s in terms of
just the number of employees you have working that shift?
Correct.
How full is that shift?
It’s about a third of the regular shift.
I see. OK. And then in terms I guess, maybe another way to ask this question about
the additional space in Florida, from what — from whatever point in time that you would
ultimately decide to go ahead with that space, if you were to do so, how long would it take
from making that decision to opening up the additional space, to actually having that space
coming online?
That’s really a tough one, Scott.
I mean just in a broad sense, is this something that would take a year, is this
something that would take. . .
No, it’s — we’re talking a year.
OK.
Probably, at least.
OK. I will — that’s very helpful. I’ll hop back in queue. Thank you.
All right, thanks, Scott.
And we’ll go back to Brian Rafn.
Yes. Could you guys put a number on — you mentioned a modest price increase in
January — can you give us a sense? Not a — I’m sure that’s not uniform across all products,
but can you give us a sense of the magnitude of that?
We don’t want to get too deep in some of the numbers that’s relatively proprietary, but we
did mention last time that the sales — the modest sales increase in January would be more
than enough to cover the material cost increases we had seen and expected to see in the first
quarter.
OK. Can you kind of give us a sense, your strategy going forward, relative to
capturing market share competitively, is it strictly driving units? Is it — is it a quality,
durability of the product, reliability, is it — is it price discounting? Is it speed of
delivery? What kind of is your thesis going forward in this, you know, fairly difficult
competitive market landscape?
A lot of it going forward is a lot of what we’ve done to get here, and that is the quality,
and the performance of the valve at south end, and the broad offering that we give to a
hydraulic engineer. We believe that in the past year or so, we have gained, and perhaps will
gain even more market share as a result of our excellent on-time delivery performance, where
others perhaps struggling at this time to keep up with the demand.
The new products continues to be a driver for us, and the — we intend to keep
expanding the solenoid, thus expanding the capability to make even more varied custom valve
packages. And — excuse me — in our Web site, as we mentioned of spending some money on
right now, you know, we view as just a fantastic marketing tool to get in the hands of the
end user, not only just to look up to Sun to what’s available, and what it might cost them,
but also to actually get in there and fiddle around and build some things.
Page 7
-7-
Also, you know, our geographic, you know, we’re quite global, considering the size of
the company, and we continue to do things in that front, including at looking at what we
might do next in China, and that sort of thing.
OK. Can you give — can you give — put some numerical quantification of your
on-time delivery cycle? Are you — are you meeting, you know, 98 percent of your orders
within a four-week period? Or what can you — or is it, you know, the kind of where you’re at
duration wise?
Yes, I’d be proud to give you those numbers. We measure against a customer request
date. And understand that a customer request date of three days doesn’t bother us, because
our pricing structure compensates for the scrambling we have to do. . .
OK.
... and we do our darnedest to meet it. But our on-time delivery performance runs
an average of 90 plus percent, and the majority of the 10 percent that isn’t on time clears in
a week to a week and a half.
Has — Dick, has that diminished at all as you’ve, obviously, ramped up the operating
leverage in the business volumes?
Well, I’ll be honest with you, we’re seeing a few bumps where a supplier might have
been pressed to the wall and, you know, it might jump up for a week, but then we go in, break
the — break the bottle neck, and it flows again. So, I mean, it — you know, it’s not as
easy as it was two years ago, but generally we’re still on those numbers.
OK. Can you talk too about — you mentioned new products as one of your areas to,
you know, kind of build the business, do you have any sense of measuring the number of new
products say launched in the last three to five years, and what percentage of that would be —
constitute top line revenue?
We just started tracking that, and so we don’t have a good history on it, and so I
really am reluctant to give those numbers out.
Is that a number you’d divulge in the future, or will that be at the CIA Headquarters
in (Langley)?
Well actually, we were — we were going to set up a post in Afghanistan and
((inaudible)).
Brian, if I could chime in a bit.
Sure.
These — many of the new products are so complimentary to the overall product line that
their impact — there’s a — there’s a true pull-through impact on the rest of the products,
and I think that measure is reflected in the top line sales role.
Yes. It’s just difficult for us to measure that when you’re — when you’re saying
that one specific product. . .
Right.
... goes into that one custom valve pack, and it brings with it 14 other cartridges.
Right.
OK.
That’s our problem.
Yes, OK. Excellent job, guys. Keep it up. Thanks.
Thank you, Brian.
Thanks, Brian.
And we’ll go back to Scott Macke.
Can’t get rid of me. And I apologize for not saying so sooner — congratulations on
an excellent quarter.
Page 8
-8-
Well thank you, Scott.
Thank you.
Where do I want to follow up with? One, talking about international sales, and
earlier you give the example of Germany were plus or minus in a flat market and sales in the
first quarter were up 36 percent. How much of international growth overall is attributable to
just what I will call organic growth? And how much is attributable to adding new
distributors?
I don’t think we’ve really
added. I don’t think adding new distributors...
No.
... has been a major factor. So then I would say it’s mostly organic growth.
OK. And certainly looking back, just call it over the last five quarter or so then,
the rate of growth in that United States segment has outpaced that internationally. Is that a
trend that you expect to continue, both in terms of your second quarter forecast, and maybe
thinking more long term, or in general 2005 as well?
In the first quarter, you know, we had about the same increase in North America as we — in
Europe as we did in North America. The year-to-year comparison with Asia showed, you know, a
percentage — what 13 or 15...
Fourteen.
...14 percent. So I think we’re going to see a relatively same mix with Europe and the
U.S. And with Asia, you know, with a nice increase, but not to the levels that we saw last
year.
And to what would you attributed that disparity between, say the Asian growth rate,
and the European growth rate?
Well I don’t think there’s any question that the machines coming out of Japan and Korea
going into China are in less demand — going into China, that that demand or growth rate has
slowed.
That would make sense.
Yes.
And then, just in terms of that United States segment, if I noted correctly, then a
certain portion of the sales recorded in the United States segment actually go to
international customers, as well. Is that correct? Or I mean beyond...
Yes, the operations segment does go to — go to Asia and some other parts of the world,
even some to Europe. Now when we talked about a 43 percent growth in North America, we’re
talking about only sales in North America.
OK. So if I look at that — at that United States segment for the first quarter, I
believe the growth rate was 40 percent year-over-year, and you’re telling me that the growth
rate to just North America out of that segment was 43 percent?
Do I understand that...
Yes
... correctly?
... and that also includes the 70 some percent increase to Canada — 70, 71 percent.
That’s included?
Both Canada and the U.S. are in that 43 percent increase year-to-year.
That’s very helpful. Thank you. And then in terms of price and cost, if I
understand correctly, in general, the strategy has been to hold the line, more or less, on
price. Will that continue to be the strategy going forward?
I can’t really say that we’ve said OK, that’s going to be our strategy going forward, I —
so I really — I really can’t answer that, but I’ll ask Al when he gets back, but we haven’t
had a lot of discussions about it, let me put it that way.
Page 9
-9-
OK. And then I’ll hop back in queue in case somebody else wants to ask, but I do
have a couple of follow-up housekeeping items. Let me hop back in queue right now though.
All right, thanks.
OK.
We’ll go next to Brian Rafn.
A question you mentioned on the capacity side that you talked about, you have an
ability to outsource some of your production. I would take that’s machining cartridges or
something. Does that — has that at all — the outsourcing and not controlling that in-house
proprietary, been a detriment to quality or your cycle time deliveries?
No, it’s not a — it’s not a detriment at all, and what we tend to outsource in the case of
finished product would be our relatively simple manifolds.
OK.
And then in terms of parts, there are parts unrelated to our finishing — the parts that
have either not gone, that have not gone through our finishing processes. But we keep — we
keep everything in-house that relates to all the finishing, lapping, grinding, honing, because
that’s where we need the quality and we get it.
OK.
It would be the parts prior to that.
OK. And then you talked about your Web site. Is the thought on the Web site in
engineering sense and creating an interest and showing a product line? And you mentioned
something about the ability to build a composite design or something, does the Web site at
some point become a direct sales function, or is it strictly just a, you know, a specification
function type engineering tool?
At this point, I’m going to ask Rich to give us the answer, because he’s kind of heading up
that whole task force with the Web site.
Brian, we’ve built the Web site to be — its fundamental focus is the delivery of
information, and it’s really made for engineers. We have always had difficulty communicating
the breadth of our product to all the markets around the world that we serve, and the Web has
just turned into the perfect way to do that.
Some of the tools we’re working on is allowing people to go through more of a
configuration process to marry cartridges and manifolds together, and get composite
information on those products. We do provide the price, and we provide everything else.
Right now, there’s no — there’s no plan to go to online ordering, but the ability to
configure products is there now, and it’s going to become — get even better in the future.
Those are some of the projects we’re working on right now.
OK and then just one final on the labor pool. Any — as you build business, you
talked about the ability to start perhaps on a Friday, or add Saturday, adding some volume
capacity to the second shift. Do you see — without building a new building, without getting
into that, do you see looking at raising headcount as we get into the back half of the year?
Right now we’re continuing to hire, because we do have a certain amount of attrition built
in with people who prefer to go back to Ohio, or whatever. And — but and — so we are
continuing to hire. And the way that we attract people is, basically, that is working
environment, and a fair pay, and excellent benefits.
Yes. Would you — would you
characterize going into ’05 year, Dick, that you’re
growing beyond just the net retirement attrition that you’re actually adding headcount?
We really can only see out four to six weeks. So, I mean, we can’t really say what
our needs are going to be at that point.
Page 10
-10-
OK. But if the demands were such, and we had a follow through end of the year,
Florida would give you the opportunity you feel comfortable that you
could — you could...
Yes — no, we think there’s still plenty of room and plenty of good people out there
to join the company if we need them. No
OK. Thanks, guys.
You bet. Thanks a lot, Brian.
And we’ll go back to Scott Macke.
Hello again.
Hey, Scott.
Housekeeping questions. First off, I was curious, the share count and tax rate that
were built into your second quarter forecast?
The second quarter tax rate is flat to the first. And the share count is the
same as well. We didn’t forecast any increase.
OK. With respect to the tax rate, then — I know we’ve talked a couple of times
about the Jobs Creation Act maybe shaving 100 points off that tax rate. If I’ve got this
information correctly, then last year we were talking about a 33 percent tax rate, are — for
the full year. Are we talking about 100 points lower based on that 33 percent tax rate? Or
are we talking about 100 points lower than this 37 percent tax rate in the first quarter?
It’s actually 100 points lower than the tax rate that we have in the U.S., which
is running just over 37 percent. But we do — because we were having all these incomes from
the different countries, Germany has a very high tax rate, and their income is very good. So
we — the rate tends to go up because the — or the Germany and the U.S. are putting a lot of
money into the profit pool, and they’re in the highest tax jurisdictions. But the 100 points
just shaved off the U.S. side.
OK. Thank you for the clarification. And then when you talked about repatriating
some earnings, bringing some cash back, if I understand correctly, you have tax credits that
will offset the five percent tax on those earnings repatriated?
Yes. For any money we bring back from the U.K. and Germany, we already have
previously taxed income that will cover that. We did bring back some money from Korea, and
there was a small amount, about 400,000, that will be taxed at a normal tax rate less any tax
credits that we generate from 2004 tax returns.
But when we talk about this potential for — I believe the number was something four
to five million that might be brought back in the future, then the tax credits will, in
general, cover...
Yes.
... that?
Yes.
Very good. What did currency contribute to first quarter sales?
It was only a two percent difference. It’s up 36 percent overall, and 34 percent
without the currency effect. So it’s very minimal.
OK. And is that — is that spread, I guess, roughly equally through the segments?
Or does that have a tendency to manifest itself in certain segments more than others?
It was a little bit higher in Korea and Germany. It was flat in the U.K.
OK. And then when we talk about these marketing expenses in the second quarter, I
believe you mentioned trade shows and Web site, are those things that we can expect to
continue in the future, meaning that would expect increased level of work, or cost on the Web
site going forward, and perhaps increased participation in trade shows? Or are these things
that will happen in the second quarter and then sort of dissipate going forward?
Page 11
END
-11-
The trade show expenses are a one-shot thing. We had a big trade show in Europe
that we participated in that was in April. The costs for the Web site are probably going to
be ongoing, we’re still looking at them to determine what can be capitalized and what needs to
be expensed of them. But there will probably be some smaller amount of ongoing related to
that.
OK. That’s what I had. Thank you very much.
Thank you.
Thanks a lot, Scott.
And there appear to be no further questions at this time.
Great. Well we’d like to thank you all for joining us and listening. I’d like to remind
all the shareholders that our Annual Meeting of Shareholders will be on Saturday, June 11th,
at 10:00 a.m. here in Sarasota, Florida at our Tallevast Road Facility. Thank you for joining
us.
This does conclude today’s conference. Thank you for your participation. You may now
disconnect.