Exhibit 99.1
Sun Hydraulics Reports 2005 Sales of $117 million and Net Income of $12.8 million
SARASOTA, FLA, March 6, 2006 — Sun Hydraulics Corporation (NASDAQ: SNHY) reported financial results for the year and fourth quarter 2005 as follows:
(Dollars in millions except net income per share)
                         
    December 31,   December 25,    
    2005   2004   Increase
Twelve Months Ended
                        
Net Sales
   $ 116.8     $ 94.5       24 %
Net Income
   $ 12.8     $ 7.8       64 %
Net Income per share (1):
                        
Basic
   $ 1.18     $ 0.76       55 %
Diluted
   $ 1.17     $ 0.76       54 %
 
                        
Three Months Ended
                        
Net Sales
   $ 27.9     $ 23.4       19 %
Net Income
   $ 2.9     $ 2.0       45 %
Net Income per share (1):
                        
Basic
   $ 0.26     $ 0.19       37 %
Diluted
   $ 0.26     $ 0.19       37 %
 
(1)   All earnings per share and weighted average share information reflects a three-for-two stock split effective at the close of business on July 15, 2005.
“2005 was another great year for Sun,” said Allen Carlson, Sun’s President and CEO. “We grew in all geographic segments and believe we gained market share. Sales in 2005 were up 24%, following 33% growth in 2004. We are very pleased with this year’s results and look forward to 2006.
“Order rates accelerated going into the new year, and have continued throughout the first quarter with run rates up over 28%,” continued Carlson. “Capacity in our U.S. manufacturing facilities continues to increase as we refine production processes and add new machinery. Shipping on time to our customers is still our main focus, and remains one of the keys to our success.”
Sarbanes-Oxley
Sun completed documentation and testing for 2005 related to compliance with Sarbanes-Oxley, Section 404. “We are pleased that the first year of SOX is behind us,” commented Tricia Fulton, Sun’s in-coming CFO. “Our goal throughout the project was to comply fully with the law, contain project costs, and keep the disruption of the exercise on work flow to a minimum. We were able to accomplish this in year one and expect that we will do the same in year two.”
Outlook
2006 first quarter sales are estimated to be in the range of $34 million, a 21% increase over last year on a calendarized basis. First quarter earnings per share are estimated to be between $0.35 and $0.37 per share, compared to $0.32 per share last year.
Open House and Webcast
Sun Hydraulics Corporation will broadcast its 2005 financial results conference call live over the Internet at 4:15 P.M. E.T. tomorrow, March 7, 2006. The conference call will be in conjunction with an Investor Open House to be held at the Company’s facility at 701 Tallevast Road, Sarasota, Florida, starting at 4:00 P.M. 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”.
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 top 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 1-877-407-0778.

 

 

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 October 1, 2005, and under the heading “Business” and particularly under the subheading, “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
    December 31,   December 25,
    2005   2004
Net sales
   $ 27,938     $ 23,426  
 
                
Cost of sales
     19,884       16,630  
     
 
                
Gross profit
     8,054       6,796  
 
                
Selling, engineering and administrative expenses
     4,352       3,979  
     
 
                
Operating income
     3,702       2,817  
 
                
Interest expense
     56       122  
Foreign currency transaction (gain) loss
     (63 )     75  
Miscellaneous (income) expense
     (124 )     59  
     
 
                
Income before income taxes
     3,833       2,561  
 
                
Income tax provision
     945       560  
     
 
                
Net income
   $ 2,888     $ 2,001  
     
 
                
Basic net income per share (1)
   $ 0.26     $ 0.19  
 
                
Basic weighted average shares outstanding (1)
     10,920       10,425  
 
                
Diluted net income per share (1)
   $ 0.26     $ 0.19  
 
                
Diluted weighted average share outstanding (1)
     10,994       10,521  
 
                
Dividends declared per share (1)
   $ 0.100     $ 0.050  
 
(1)   All earnings per share, weighted average share and dividend information reflects a three-for-two stock split effective at the close of business on July 15, 2005.

 

 

SUN HYDRAULICS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share data)
                 
    Twelve Months Ended
    December 31,   December 25,
    2005   2004
Net sales
   $ 116,757     $ 94,503  
 
                
Cost of sales
     79,839       65,968  
     
 
                
Gross profit
     36,918       28,535  
 
                
Selling, engineering and administrative expenses
     17,738       16,241  
     
 
                
Operating income
     19,180       12,294  
 
                
Interest expense
     441       527  
Foreign currency transaction (gain) loss
     (362 )     —  
Miscellaneous (income) expense
     (36 )     35  
     
 
                
Income before income taxes
     19,137       11,732  
 
                
Income tax provision
     6,329       3,902  
     
 
                
Net income
   $ 12,808     $ 7,830  
     
 
                
Basic net income per share (1)
   $ 1.18     $ 0.76  
 
                
Basic weighted average shares outstanding (1)
     10,827       10,269  
 
                
Diluted net income per share (1)
   $ 1.17     $ 0.76  
 
                
Diluted weighted average share outstanding (1)
     10,918       10,346  
 
                
Dividends declared per share (1)
   $ 0.300     $ 0.143  
 
(1)   All earnings per share, weighted average share and dividend information reflects a three-for-two stock split effective at the close of business on July 15, 2005.

 

 

SUN HYDRAULICS CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands)
                 
    December 31,   December 25,
    2005   2004
Assets
                
Current assets:
                
Cash and cash equivalents
   $ 5,417     $ 9,300  
Restricted cash
     413       462  
Accounts receivable, net of allowance for doubtful accounts of $110 and $170
     10,975       8,611  
Inventories
     7,870       7,105  
Income taxes receivable
     236       —  
Deferred income taxes
     782       392  
Other current assets
     864       776  
     
Total current assets
     26,557       26,646  
 
                
Property, plant and equipment, net
     45,181       43,687  
Other assets
     1,823       1,475  
     
 
                
Total assets
   $ 73,561     $ 71,808  
     
 
                
Liabilities and Shareholders’ Equity
                
Current liabilities:
                
Accounts payable
   $ 4,822     $ 2,536  
Accrued expenses and other liabilities
     3,857       4,609  
Long-term debt due within one year
     398       1,058  
Dividends payable
     1,089       522  
Income taxes payable
     —       1,198  
     
Total current liabilities
     10,166       9,923  
 
                
Long-term debt due after one year
     1,986       11,196  
Deferred income taxes
     4,688       4,986  
Other liabilities
     281       300  
     
 
                
Total liabilities
     17,121       26,405  
 
                
Shareholders’ equity:
                
Common stock
     11       10  
Capital in excess of par value
     32,466       28,579  
Unearned compensation related to outstanding restricted stock
     (741 )     (608 )
Retained earnings
     23,406       13,867  
Accumulated other comprehensive income
     1,647       3,566  
Treasury stock
     (349 )     (11 )
     
Total shareholders’ equity
     56,440       45,403  
     
 
                
Total liabilities and shareholders’ equity
   $ 73,561     $ 71,808  
     

 

 

SUN HYDRAULICS CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
                 
    Twelve Months Ended
    December 31,   December 25,
    2005   2004
Cash flows from operating activities:
                
Net income
   $ 12,808     $ 7,830  
Adjustments to reconcile net income to net cash provided by operating activities:
                
Depreciation and amortization
     5,604       5,465  
Loss on disposal of assets
     22       73  
Stock-based compensation expense
     365       289  
Allowance for doubtful accounts
     (60 )     (17 )
Provision for slow moving inventory
     (96 )     110  
Provision for deferred income taxes
     (688 )     138  
(Increase) decrease in:
                
Accounts receivable
     (2,304 )     (2,379 )
Inventories
     (669 )     (594 )
Income taxes receivable
     (236 )     —  
Other current assets
     (88 )     (252 )
Other assets, net
     39       149  
Increase (decrease) in:
                
Accounts payable
     2,286       97  
Accrued expenses and other liabilities
     306       2,392  
Income taxes payable
     (261 )     1,437  
Other liabilities
     (19 )     (28 )
     
Net cash from operating activities
     17,009       14,710  
 
                
Cash flows used in investing activities:
                
Investment in WhiteOak
     (400 )     —  
Capital expenditures
     (8,813 )     (4,987 )
Proceeds from dispositions of equipment
     5       61  
     
Net cash used in investing activities
     (9,208 )     (4,926 )
 
                
Cash flows used in financing activities:
                
Proceeds from debt
     11,599       —  
Repayment of debt
     (21,469 )     (5,953 )
Proceeds from exercise of stock options
     2,487       1,672  
Proceeds from stock issued
     157       —  
Payments for purchase of treasury stock
     (1,588 )     (781 )
Proceeds from reissuance of treasury stock
     —       613  
Dividends to shareholders
     (2,701 )     (1,230 )
     
Net cash used in financing activities
     (11,515 )     (5,679 )
 
                
Effect of exchange rate changes on cash and cash equivalents
     (218 )     438  
     
 
                
Net (decrease) increase in restricted cash
     (49 )     37  
Net (decrease) increase in cash and cash equivalents
     (3,883 )     4,506  
     
 
                
Cash and cash equivalents, beginning of period
     9,762       5,219  
     
 
                
Cash and cash equivalents, end of period
   $ 5,830     $ 9,762  
     
 
                
Supplemental disclosure of cash flow information:
                
Cash paid:
                
Interest
   $ 441     $ 527  
Income taxes
   $ 8,451     $ 2,617  

 

 

                                                 
    United                   United        
    States   Korea   Germany   Kingdom   Elimination   Consolidated
Three Months Ended December 31, 2005
                                                
Sales to unaffiliated customers
   $ 18,177     $ 2,695     $ 3,186     $ 3,880     $ —     $ 27,938  
Intercompany sales
     4,626       —       21       804       (5,451 )     —  
Operating income
     2,587       345       440       337       (7 )     3,702  
Depreciation
     1,010       37       132       246       —       1,425  
Capital expenditures
     2,442       15       37       112       —       2,606  
 
                                                
Three Months Ended December 25, 2004
                                                
Sales to unaffiliated customers
   $ 15,281     $ 1,979     $ 2,699     $ 3,467     $ —     $ 23,426  
Intercompany sales
     3,673       —       14       512       (4,199 )     —  
Operating income
     2,056       151       386       144       80       2,817  
Depreciation
     957       35       134       267       —       1,393  
Capital expenditures
     1,344       2       36       75       —       1,457  
 
                                                
Twelve Months Ended December 31, 2005
                                                
Sales to unaffiliated customers
   $ 73,998     $ 11,604     $ 15,101     $ 16,054     $ —     $ 116,757  
Intercompany sales
     21,239       —       80       2,873       (24,192 )     —  
Operating income
     13,443       1,520       3,145       1,260       (188 )     19,180  
Depreciation
     3,944       149       473       1,025       —       5,591  
Capital expenditures
     7,007       29       843       934       —       8,813  
 
                                                
Twelve Months Ended December 25, 2004
                                                
Sales to unaffiliated customers
   $ 59,847     $ 8,723     $ 12,558     $ 13,375     $ —     $ 94,503  
Intercompany sales
     15,702       —       66       1,812       (17,580 )     —  
Operating income
     8,417       926       2,399       483       69       12,294  
Depreciation
     3,792       137       475       1,061       —       5,465  
Capital expenditures
     4,264       42       141       540       —       4,987