EXHIBIT 99.1
Sun Hydraulics Continues Double-Digit Sales and Earnings Growth,
Released New Electronic Products from WhiteOak Joint Venture
SARASOTA, FLA, May 9, 2006 – Sun Hydraulics Corporation (NASDAQ: SNHY) reported financial results for the first quarter of 2006 as follows:
(Dollars in millions except net income per share)
                         
    April 1,   April 2,    
    2006   2005   Increase
Three Months Ended
                        
Net Sales
   $ 34.2     $ 29.1       18 %
Net Income
   $ 4.2     $ 3.5       20 %
Net Income per share (1):
                        
Basic
   $ 0.38     $ 0.33       15 %
Diluted
   $ 0.38     $ 0.32       19 %
 
(1)   April 2, 2005 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.
“We saw a significant surge in demand in the first quarter that has continued through April and into May” reported Allen Carlson, Sun Hydraulics’ President and CEO. “Our major focus continues to be on delivery performance and satisfying our customers’ needs.”
“We remain committed to our global strategy of expanding our international footprint. International sales were up 25% over last year with sizable growth in the European and Asian markets,” Carlson added. “Domestic sales also continue to be strong, with a 10% year over year increase. With order rates remaining steady at a high level and our short book-to-ship cycle, we expect second quarter results will continue to show strength.”
“In April, we released the first products that have resulted from our WhiteOak joint venture, which we entered into last year,” Carlson explained. “These complementary electronic products are just the beginning of new, innovative technologies that will result from our association with WhiteOak.”
Outlook
2006 second quarter sales are estimated to be in the range of $36 million, a 16% increase over the same period last year. Second quarter earnings per share are estimated to be between $0.39 and $0.41 per share, compared to $0.32 per share last year.
Annual Report
Sun’s 2005 Annual Report is now available at the Investor Relations section of our website at www.sunhydraulics.com.To receive a copy by mail, please email requests to investor@sunhydraulics.com or call 941-362-1200.
Webcast
Sun Hydraulics Corporation will broadcast its first quarter financial results conference call live over the Internet at 2:30 P.M. E.T. tomorrow, May 10, 2006. 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 1-877-407-8033.
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 headings Item 1. “Business,” Item 1A. “Risk Factors” and Item 7. “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” in the Company’s Form 10-K for the year ended December 31, 2005. 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.

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SUN HYDRAULICS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share data)
                 
    Three Months Ended
    April 1, 2006   April 2, 2005
    (unaudited)   (unaudited)
Net sales
   $ 34,185     $ 29,079  
 
                
Cost of sales
     23,204       19,326  
     
 
                
Gross profit
     10,981       9,753  
 
                
Selling, engineering and administrative expenses
     4,671       4,220  
     
 
                
Operating income
     6,310       5,533  
 
                
Interest expense
     70       136  
Foreign currency transaction gain
     (41 )     (105 )
Miscellaneous expense/(income), net
     28       (16 )
     
 
                
Income before income taxes
     6,253       5,518  
 
                
Income tax provision
     2,073       2,052  
     
 
                
Net income
   $ 4,180     $ 3,466  
     
 
                
Basic net income per common share (1)
   $ 0.38     $ 0.33  
 
                
Weighted average basic shares outstanding (1)
     10,932       10,632  
 
                
Diluted net income per common share (1)
   $ 0.38     $ 0.32  
 
                
Weighted average diluted shares outstanding (1)
     11,001       10,724  
 
                
Dividends declared per share (1)
   $ 0.100     $ 0.050  
 
(1)   April 2, 2005 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.

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SUN HYDRAULICS CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands)
                 
    April 1, 2006     December 31,  
    (unaudited)     2005  
Assets
                
Current assets:
                
Cash and cash equivalents
   $ 7,341     $ 5,417  
Restricted cash
     52       413  
Accounts receivable, net of allowance for doubtful accounts of $98 and $110
     13,629       10,975  
Inventories
     8,592       7,870  
Income taxes receivable
     —       236  
Deferred income taxes
     782       782  
Other current assets
     1,065       864  
     
Total current assets
     31,461       26,557  
 
                
Property, plant and equipment, net
     46,061       45,181  
Other assets
     1,831       1,823  
     
 
                
Total assets
   $ 79,353     $ 73,561  
     
 
                
Liabilities and Shareholders’ Equity
                
Current liabilities:
                
Accounts payable
   $ 3,637     $ 4,822  
Accrued expenses and other liabilities
     3,437       3,857  
Long-term debt due within one year
     391       398  
Dividends payable
     1,093       1,089  
Income taxes payable
     1,362       —  
     
Total current liabilities
     9,920       10,166  
 
                
Long-term debt due after one year
     3,348       1,986  
Deferred income taxes
     4,687       4,688  
Other liabilities
     277       281  
     
 
                
Total liabilities
     18,232       17,121  
 
                
Shareholders’ equity:
                
Common stock
     11       11  
Capital in excess of par value
     32,594       32,466  
Unearned compensation related to outstanding restricted stock
     —       (741 )
Retained earnings
     26,492       23,406  
Accumulated other comprehensive income
     2,024       1,647  
Treasury stock
     —       (349 )
     
Total shareholders’ equity
     61,121       56,440  
     
 
                
Total liabilities and shareholders’ equity
   $ 79,353     $ 73,561  
     

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SUN HYDRAULICS CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
                 
    Three Months Ended
    April 1, 2006   April 2, 2005
    (unaudited)   (unaudited)
Cash flows from operating activities:
                
Net income
   $ 4,180     $ 3,466  
Adjustments to reconcile net income to net cash provided by operating activities:
                
Depreciation and amortization
     1,437       1,390  
Loss (gain) on disposal of assets
     26       (1 )
Provision for deferred income taxes
     (1 )     3  
Allowance for doubtful accounts
     (12 )     (29 )
Stock-based compensation expense
     152       81  
Stock options income tax benefit
     (31 )     —  
(Increase) decrease in:
                
Accounts receivable
     (2,642 )     (3,366 )
Inventories
     (722 )     (754 )
Income taxes receivable
     236       —  
Other current assets
     (201 )     (315 )
Other assets, net
     (16 )     (19 )
Increase (decrease) in:
                
Accounts payable
     (1,185 )     614  
Accrued expenses and other liabilities
     760       526  
Income taxes payable
     1,393       79  
Other liabilities
     (4 )     (5 )
     
Net cash provided by operating activities
     3,370       1,670  
 
                
Cash flows used in investing activities:
                
Capital expenditures
     (1,965 )     (1,538 )
Proceeds from dispositions of equipment
     2       1  
     
Net cash used in investing activities
     (1,963 )     (1,537 )
 
                
Cash flows used in financing activities:
                
Proceeds from debt
     1,500       —  
Repayment of debt
     (145 )     (371 )
Proceeds from exercise of stock options
     49       2,056  
Proceeds from stock issued
     50       32  
Payments for purchase of treasury stock
     (244 )     (27 )
Dividends to shareholders
     (1,089 )     (522 )
Stock options income tax benefit
     31       —  
     
Net cash provided by financing activities
     152       1,168  
 
                
Effect of exchange rate changes on cash and cash equivalents
     4       116  
     
 
                
Net increase in cash and cash equivalents
     1,563       1,417  
     
 
                
Cash and cash equivalents, beginning of period
     5,830       9,762  
     
 
                
Cash and cash equivalents, end of period
   $ 7,393     $ 11,179  
     
 
                
Supplemental disclosure of cash flow information:
                
Cash paid:
                
Interest
   $ 70     $ 136  
Income taxes
   $ 476     $ 2,488  

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    United                   United        
    States   Korea   Germany   Kingdom   Elimination   Consolidated
Three Months Ended April 1, 2006
                                                
Sales to unaffiliated customers
   $ 20,861     $ 4,090     $ 4,577     $ 4,657     $ —     $ 34,185  
Intercompany sales
     6,677       —       36       786       (7,499 )     —  
Operating income
     4,058       607       940       739       (34 )     6,310  
Depreciation
     1,031       37       119       243       —       1,430  
Capital expenditures
     1,873       3       13       76       —       1,965  
 
                                                
Three Months Ended April 2, 2005
                                                
Sales to unaffiliated customers
   $ 18,146     $ 2,667     $ 4,081     $ 4,185     $ —     $ 29,079  
Intercompany sales
     5,862       —       23       602       (6,487 )     —  
Operating income
     3,872       330       1,174       318       (161 )     5,533  
Depreciation
     977       37       109       267       —       1,390  
Capital expenditures
     1,375       5       61       97       —       1,538  

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