EXHIBIT 99.1
Sun Hydraulics Corporation Reports Increased Second Quarter Earnings and Sales
SARASOTA, FLA, August 9, 2005 — Sun Hydraulics Corporation (NASDAQ: SNHY) reported financial results for the second quarter 2005 as follows:
(Dollars in millions except net income per share)
                         
    July 2,     June 26,        
    2005     2004     Increase  
Three Months Ended
                        
Net Sales
   $ 31.0     $ 26.5       17 %
Net Income
   $ 3.5     $ 2.6       35 %
Net Income per share (1):
                        
Basic
   $ 0.33     $ 0.25       32 %
Fully Diluted
   $ 0.32     $ 0.25       28 %
 
                        
Six Months Ended
                        
Net Sales
   $ 60.1     $ 47.9       25 %
Net Income
   $ 7.0     $ 3.9       79 %
Net Income per share (1):
                        
Basic
   $ 0.65     $ 0.39       66 %
Fully Diluted
   $ 0.65     $ 0.38       71 %
 
(1) The Company announced a 50% stock dividend to shareholders of record on June 30, 2005, payable on July 15, 2005. Prior to the stock dividend, the Company estimated net income for the second quarter to be between $0.45 and $0.48 per share. With the effect of the stock dividend, forecasted net income for the second quarter would have been between $0.30 and $0.32. All earnings per share and weighted average share information reflect the 50% stock dividend.
“Business conditions in the second quarter helped produce strong sales and record earnings,” said Allen Carlson, Sun Hydraulics’ president and CEO. “Our earnings continue to be bolstered by the high level of productivity throughout the company. Revenues continue to grow, being driven by our delivery performance, the Sun website, our global channel partners, sales of valve packages and our electrically actuated cartridges.”
“Last month we secured an equity position in WhiteOak Controls, which designs and produces complementary electronic control products,” Carlson continued. “We are working together with WhiteOak to develop electronic products that will enhance our next generation of valve package offerings.”
“We are pleased that our performance has resulted in our inclusion in this year’s Russell 2000® Index,” Carlson concluded. “This helps improve the visibility of Sun Hydraulics as an attractive long-term investment to the investment community.”
Outlook
The Company estimates sales for the third quarter to be $28 million, a 20% increase over the third quarter last year. Net income is forecasted to be between $0.24 and $0.27 per share, compared to $0.18 per share in the third quarter last year.
Webcast
Sun Hydraulics Corporation will broadcast its second quarter financial results conference call live over the Internet at 2:30 P.M. E.T. tomorrow, August 10, 2005. To listen to the webcast, go to http://investor.sunhydraulics.com/medialist.cfm. A copy of this earnings release is posted on the Investor Relations page of our website under “Press Releases”.

 

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Webcast Q&A
Questions may be submitted to the Company via email after reviewing this earnings release, by going to the Sun Hydraulics website, www.sunhydraulics.com, and clicking on Investor Relations on the left hand menu. Scroll down to the bottom of the page and click on contact email: investor@sunhydraulics.com, which will open an email window to type in your message. Sun management will then answer these and other questions during the Company’s webcast. If an individual wishes to ask questions directly during the webcast, the conference call may be accessed by dialing 1-800-406-5356.
Sun Hydraulics Corporation is a leading designer and manufacturer of high performance screw-in hydraulic cartridge valves and manifolds for worldwide industrial and mobile markets. For more information about Sun, please visit our website at www.sunhydraulics.com.
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 heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Form 10-Q for the quarter ended April 2, 2005, and under the heading “Business” and particularly under the subheading,
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“Business Risk Factors” in the Company’s Form 10-K for the year ended December 25, 2004. 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.
Sun Hydraulics Corporation
Consolidated Statements of Operations
(in thousands, except per share data)
                 
    Three months ended  
    July 2, 2005     June 26, 2004  
    (unaudited)     (unaudited)  
Net sales
   $ 31,014     $ 26,522  
 
                
Cost of sales
     20,928       18,136  
     
 
                
Gross profit
     10,086       8,386  
 
                
Selling, engineering and administrative expenses
     4,524       4,196  
     
 
                
Operating income
     5,562       4,190  
Interest expense
     147       134  
Foreign currency transaction gain
     (145 )     (31 )
Miscellaneous (income)/expense, net
     (23 )     (30 )
     
 
                
Income before income taxes
     5,583       4,117  
 
                
Income tax provision
     2,047       1,526  
     
 
                
Net income
   $ 3,536     $ 2,591  
     
 
                
Basic net income per common share (1)
   $ 0.33     $ 0.25  
 
                
Weighted average basic shares outstanding (1)
     10,873       10,170  
 
                
Diluted net income per common share (1)
   $ 0.32     $ 0.25  
 
                
Weighted average diluted shares outstanding (1)
     10,975       10,250  
 
                
Dividends declared per share
   $ 0.050     $ 0.050  
 
(1) The Company announced a 50% stock dividend to shareholders of record on June 30, 2005, payable on July 15, 2005. Prior to the stock dividend, the Company estimated net income for the second quarter to be between $0.45 and $0.48 per share. With the effect of the stock dividend, forecasted net income for the second quarter would have been between $0.30 and $0.32. All earnings per share and weighted average share information reflect the 50% stock dividend.
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Sun Hydraulics Corporation
Consolidated Statements of Operations
(in thousands, except per share data)
                 
    Six months ended  
    July 2, 2005     June 26, 2004  
    (unaudited)     (unaudited)  
Net sales
   $ 60,093     $ 47,912  
 
                
Cost of sales
     40,254       33,221  
     
 
                
Gross profit
     19,839       14,691  
 
                
Selling, engineering and administrative expenses
     8,743       8,260  
     
 
                
Operating income
     11,096       6,431  
 
                
Interest expense
     283       282  
Foreign currency transaction gain
     (257 )     (33 )
Miscellaneous (income)/expense, net
     (32 )     (17 )
     
 
                
Income before income taxes
     11,102       6,199  
 
                
Income tax provision
     4,100       2,251  
     
 
                
Net income
   $ 7,002     $ 3,948  
     
 
                
Basic net income per common share (1)
   $ 0.65     $ 0.39  
 
                
Weighted average basic shares outstanding (1)
     10,750       10,154  
 
                
Diluted net income per common share (1)
   $ 0.65     $ 0.38  
 
                
Weighted average diluted shares outstanding (1)
     10,847       10,310  
 
                
Dividends declared per share
   $ 0.125     $ 0.090  
 
(1) The Company announced a 50% stock dividend to shareholders of record on June 30, 2005, payable on July 15, 2005. Prior to the stock dividend, the Company estimated net income for the second quarter to be between $0.45 and $0.48 per share. With the effect of the stock dividend, forecasted net income for the second quarter would have been between $0.30 and $0.32. All earnings per share and weighted average share information reflect the 50% stock dividend.
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Sun Hydraulics Corporation
Consolidated Balance Sheets
(in thousands, except share data)
                 
    July 2, 2005     December 25, 2004  
    (unaudited)          
Assets
                
Current assets:
                
Cash and cash equivalents
   $ 14,051     $ 9,300  
Restricted cash
     425       462  
Accounts receivable, net of allowance for doubtful accounts of $163 and $170
     11,490       8,611  
Inventories
     7,852       7,105  
Deferred income taxes
     392       392  
Other current assets
     1,166       776  
     
 
                
Total current assets
     35,376       26,646  
 
                
Property, plant and equipment, net
     43,187       43,687  
Other assets
     1,767       1,475  
     
 
                
Total assets
   $ 80,330     $ 71,808  
     
 
                
Liabilities and shareholders’ equity
                
Current liabilities:
                
Accounts payable
   $ 3,842     $ 2,536  
Accrued expenses and other liabilities
     4,513       4,609  
Long-term debt due within one year
     1,003       1,058  
Dividends payable
     545       522  
Taxes payable
     695       1,198  
     
Total current liabilities
     10,598       9,923  
 
                
Long-term debt due after one year
     10,548       11,196  
Deferred income taxes
     4,984       4,986  
Other noncurrent liabilities
     290       300  
     
Total liabilities
     26,420       26,405  
 
                
Commitments and contingencies
     —       —  
 
                
Shareholders’ equity:
                
Preferred stock, 2,000,000 shares authorized, par value $0.001, no shares outstanding
     —       —  
Common stock, 20,000,000 shares authorized, par value $0.001, 10,889,531 and 10,441,920 shares outstanding
     11       10  
Capital in excess of par value
     32,566       28,579  
Unearned compensation related to outstanding restricted stock
     (457 )     (608 )
Retained earnings
     19,780       13,867  
Accumulated other comprehensive income
     2,010       3,566  
Treasury stock
     —       (11 )
     
Total shareholders’ equity
     53,910       45,403  
     
 
                
Total liabilities and shareholders’ equity
   $ 80,330     $ 71,808  
     
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Sun Hydraulics Corporation
Consolidated Statements of Cash Flows
(in thousands)
                 
    Six Months ended  
    July 2, 2005     June 26, 2004  
    (unaudited)     (unaudited)  
 
                
Cash flows from operating activities:
                
Net income
   $ 7,002     $ 3,948  
Adjustments to reconcile net income to net cash provided by operating activities:
                
Depreciation
     2,779       2,687  
Loss on disposal of assets
     7       43  
Provision for deferred income taxes
     (2 )     (87 )
Allowance for doubtful accounts
     (7 )     11  
Stock-based compensation expense
     165       130  
(Increase) decrease in:
                
Accounts receivable
     (2,872 )     (3,466 )
Inventories
     (747 )     (92 )
Other current assets
     (390 )     (85 )
Other assets
     108       66  
Increase (decrease) in:
                
Accounts payable
     1,306       213  
Accrued expenses and other liabilities
     962       1,572  
Taxes payable
     108       1,065  
Other liabilities
     (10 )     (25 )
     
Net cash provided by operating activities
     8,409       5,980  
 
                
Cash flows from investing activities:
                
Equity method investment
     (400 )     —  
Capital expenditures
     (3,638 )     (2,478 )
Proceeds from dispositions of equipment
     1       19  
     
Net cash used in investing activities
     (4,037 )     (2,459 )
 
                
Cash flows from financing activities:
                
Repayment of debt
     (703 )     (3,422 )
Proceeds from exercise of stock options
     2,273       1,173  
Proceeds from stock issued
     69       —  
Payments for purchase of treasury stock
     (27 )     (558 )
Proceeds from reissuance of treasury stock
     —       48  
Dividends to shareholders
     (1,065 )     (540 )
     
Net cash provided by (used in) financing activities
     547       (3,299 )
 
                
Effect of exchange rate changes on cash and cash equivalents
     (205 )     269  
     
 
                
Net increase in cash and cash equivalents
     4,714       491  
 
                
Cash and cash equivalents, beginning of period
     9,762       5,219  
     
 
                
Cash and cash equivalents, end of period
   $ 14,476     $ 5,710  
     
 
                
Supplemental disclosure of cash flow information:
                
Cash paid:
                
Interest
   $ 283     $ 282  
Income taxes
   $ 4,605     $ 1,273  
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    United                     United              
    States     Korea     Germany     Kingdom     Elimination     Consolidated  
Three Months
Ended July 2, 2005
                                                
Sales to unaffiliated customers
   $ 19,557     $ 3,251     $ 4,097     $ 4,109     $ —     $ 31,014  
Intercompany sales
     5,573       —       20       745       (6,338 )     —  
Operating income
     3,862       467       915       334       (16 )     5,562  
Depreciation
     985       38       110       256       —       1,389  
Capital expenditures
     1,457       2       33       608       —       2,100  
 
                                                
Three Months
Ended June 26, 2004
                                                
Sales to unaffiliated customers
   $ 16,972     $ 2,548     $ 3,473     $ 3,529     $ —     $ 26,522  
Intercompany sales
     4,195       —       21       480       (4,696 )     —  
Operating income
     2,949       310       696       238       (3 )     4,190  
Depreciation
     955       33       110       263       —       1,361  
Capital expenditures
     1,239       3       36       232       —       1,510  
 
                                                
Six Months
Ended July 2, 2005
                                                
Sales to unaffiliated customers
   $ 37,703     $ 5,917     $ 8,179     $ 8,294     $ —     $ 60,093  
Intercompany sales
     11,435       —       42       1,348       (12,825 )     —  
Operating income
     7,734       798       2,089       652       (177 )     11,096  
Depreciation
     1,962       75       219       523       —       2,779  
Capital expenditures
     2,832       7       94       705       —       3,638  
 
                                                
Six Months
Ended June 26, 2004
                                                
Sales to unaffiliated customers
   $ 29,889     $ 4,844     $ 6,470     $ 6,709     $ —     $ 47,912  
Intercompany sales
     7,918       —       33       835       (8,786 )     —  
Operating income
     4,439       574       1,222       204       (8 )     6,431  
Depreciation
     1,874       67       210       536       —       2,687  
Capital expenditures
     2,038       8       66       366       —       2,478  

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