EXHIBIT 99.1

Sun Hydraulics Reports 13th Consecutive Quarter of Double Digit Sales Growth, 11th Consecutive Quarter of Double Digit Growth in Earnings

SARASOTA, FL, Aug 08, 2006 (MARKET WIRE via COMTEX News Network) — Sun Hydraulics Corporation (NASDAQ: SNHY) reported financial results for the second quarter of 2006 as follows:

(Dollars in millions except net income per share)

 

    

July 1,

2006

  

July 2,

2005

   Increase  
          

Three Months Ended

        

Net Sales

   $ 36.9    $ 31.0    19 %

Net Income

   $ 4.3    $ 3.5    23 %

Net Income per share:

        

Basic

   $ 0.39    $ 0.33    18 %

Diluted

   $ 0.39    $ 0.32    22 %

Six Months Ended

        

Net Sales

   $ 71.1    $ 60.1    18 %

Net Income

   $ 8.5    $ 7.0    21 %

Net Income per share:

        

Basic

   $ 0.78    $ 0.65    20 %

Fully Diluted

   $ 0.77    $ 0.65    18 %

“We continued to see strong demand across all segments in the second quarter,” said Allen Carlson, Sun Hydraulics’ President and CEO. “Sun has reported double digit growth in sales and earnings going back to 2003 and we expect more of the same for the third quarter as orders heading into the quarter remain strong and steady.”

“Sales and orders were strong in the second quarter, although earnings were constrained due to additional material and fixed cost increases,” Carlson continued. “Productivity gains have offset much of the previous years’ cost increases. However, this year the additional costs have outpaced productivity gains. Consequently, in July, we implemented a mid-year price increase to stem further margin erosion and improve future earnings.”

“We are continually looking at better, more efficient ways to make our products,” Carlson explained. “To achieve this, we have accelerated capital investments that will further improve capacity and productivity.”

Concluding, Carlson said, “We expect strong sales, further productivity improvements and nearly a full quarter of the price increase to result in improved earnings next quarter.”

Stock Buyback

In June, 2006, the Board of Directors announced a stock buyback of up to $2.5 million. The stock buyback was completed in July 2006, with the entire $2.5 million being repurchased.

Recognition

During the quarter, Sun was included in Business Week’s “Top 100 Hot Growth Companies of 2006” (ranked #61) and also included in Fortune magazine’s “2006 Small Business 100” list (ranked #14). In addition, as of July 1, 2006, Sun qualified for and was included in the new NASDAQ Global Select Market, by meeting the highest initial listing standard established by NASDAQ when it became a stock exchange.


Outlook

2006 third quarter sales are estimated to be approximately $36 million, a 25% increase over the same period last year. Third quarter earnings per share are estimated to be between $0.38 and $0.40 per share, compared to $0.27 per share last year, approximately a 44% increase in earnings.

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 9, 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

 

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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 and “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” in the Company’s Form 10-Q for the quarter ended April 1, 2006. 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  
     July 1, 2006     July 2, 2005  
     (unaudited)     (unaudited)  

Net sales

   $ 36,928     $ 31,014  

Cost of sales

     25,689       20,928  
                

Gross profit

     11,239       10,086  

Selling, engineering and administrative expenses

     4,690       4,524  
                

Operating income

     6,549       5,562  

Interest expense

     66       147  

Foreign currency transaction loss/(gain)

     72       (145 )

Miscellaneous income, net

     (90 )     (23 )
                

Income before income taxes

     6,501       5,583  

Income tax provision

     2,187       2,047  
                

Net income

   $ 4,314     $ 3,536  
                

Basic net income per common share

   $ 0.39     $ 0.33  

Weighted average basic shares outstanding

     10,932       10,873  

Diluted net income per common share

   $ 0.39     $ 0.32  

Weighted average diluted shares outstanding

     10,995       10,975  

Dividends declared per share

   $ 0.100     $ 0.050  

 

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SUN HYDRAULICS CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands except per share data)

 

     Six months ended  
     July 1, 2006     July 2, 2005  
     (unaudited)     (unaudited)  

Net sales

   $ 71,114     $ 60,093  

Cost of sales

     48,895       40,254  
                

Gross profit

     22,219       19,839  

Selling, engineering and administrative expenses

     9,360       8,743  
                

Operating income

     12,859       11,096  

Interest expense

     136       283  

Foreign currency transaction loss/(gain)

     31       (257 )

Miscellaneous income, net

     (62 )     (32 )
                

Income before income taxes

     12,754       11,102  

Income tax provision

     4,260       4,100  
                

Net income

   $ 8,494     $ 7,002  
                

Basic net income per share

   $ 0.78     $ 0.65  

Basic weighted average shares outstanding

     10,932       10,750  

Diluted net income per share

   $ 0.77     $ 0.65  

Diluted weighted average share outstanding

     10,998       10,847  

Dividends declared per share

   $ 0.200     $ 0.125  

 

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SUN HYDRAULICS CORPORATION

CONSOLIDATED BALANCE SHEETS

(in thousands)

 

     July 1,
2006
    December 31,
2005
 
     (unaudited)        

Assets

    

Current assets:

    

Cash and cash equivalents

   $ 7,456     $ 5,417  

Restricted cash

     55       413  

Accounts receivable, net of allowance for doubtful accounts of $116 and $110

     15,074       10,975  

Inventories

     9,138       7,870  

Income taxes receivable

     —         236  

Deferred income taxes

     782       782  

Other current assets

     711       864  
                

Total current assets

     33,216       26,557  

Property, plant and equipment, net

     48,009       45,181  

Other assets

     1,865       1,823  
                

Total assets

   $ 83,090     $ 73,561  
                

Liabilities and Shareholders’ Equity

    

Current liabilities:

    

Accounts payable

   $ 4,830     $ 4,822  

Accrued expenses and other liabilities

     3,503       3,857  

Long-term debt due within one year

     413       398  

Dividends payable

     1,084       1,089  

Income taxes payable

     479       —    
                

Total current liabilities

     10,309       10,166  

Long-term debt due after one year

     4,332       1,986  

Deferred income taxes

     4,701       4,688  

Other liabilities

     272       281  
                

Total liabilities

     19,614       17,121  

Shareholders’ equity:

    

Common stock

     11       11  

Capital in excess of par value

     31,006       32,466  

Unearned compensation related to outstanding restricted stock

     —         (741 )

Retained earnings

     29,721       23,406  

Accumulated other comprehensive income

     3,312       1,647  

Treasury stock

     (574 )     (349 )
                

Total shareholders’ equity

     63,476       56,440  
                

Total liabilities and shareholders’ equity

   $ 83,090     $ 73,561  
                

 

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SUN HYDRAULICS CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS

(in thousands)

 

     Six months ended  
     July 1, 2006     July 2, 2005  
     (unaudited)     (unaudited)  

Cash flows from operating activities:

    

Net income

   $ 8,494     $ 7,002  

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation and amortization

     2,932       2,779  

Loss on disposal of assets

     62       7  

Provision for deferred income taxes

     13       (2 )

Allowance for doubtful accounts

     6       (7 )

Stock-based compensation expense

     309       165  

Stock options income tax benefit

     (42 )     —    

(Increase) decrease in:

    

Accounts receivable

     (4,105 )     (2,872 )

Inventories

     (1,268 )     (747 )

Income taxes receivable

     236       —    

Other current assets

     153       (390 )

Other assets, net

     (56 )     108  

Increase (decrease) in:

    

Accounts payable

     8       1,306  

Accrued expenses and other liabilities

     829       962  

Income taxes payable

     521       108  

Other liabilities

     (9 )     (10 )
                

Net cash provided by operating activities

     8,083       8,409  

Cash flows used in investing activities:

    

Investment in WhiteOak

     —         (400 )

Capital expenditures

     (4,816 )     (3,638 )

Proceeds from dispositions of equipment

     20       1  
                

Net cash used in investing activities

     (4,796 )     (4,037 )

Cash flows used in financing activities:

    

Proceeds from debt

     5,000       —    

Repayment of debt

     (2,639 )     (703 )

Proceeds from exercise of stock options

     73       2,273  

Proceeds from stock issued

     114       69  

Payments for purchase of treasury stock

     (2,665 )     (27 )

Dividends to shareholders

     (2,183 )     (1,065 )

Stock options income tax benefit

     42       —    
                

Net cash (used in) provided by financing activities

     (2,258 )     547  

Effect of exchange rate changes on cash and cash equivalents

     652       (205 )
                

Net increase in cash and cash equivalents

     1,681       4,714  

Cash and cash equivalents, beginning of period

     5,830       9,762  
                

Cash and cash equivalents, end of period

   $ 7,511     $ 14,476  
                

Supplemental disclosure of cash flow information:

    

Cash paid:

    

Interest

   $ 136     $ 283  

Income taxes

   $ 3,532     $ 4,605  

 

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     United
States
   Korea    Germany    United
Kingdom
   Elimination     Consolidated

Three Months Ended July 1, 2006

                

Sales to unaffiliated customers

   $ 23,332    $ 4,072    $ 5,193    $ 4,331    $ —       $ 36,928

Intercompany sales

     6,615      —        26      666      (7,307 )     —  

Operating income

     4,271      596      1,175      583      (76 )     6,549

Depreciation

     1,088      38      122      241      —         1,489

Capital expenditures

     2,534      18      49      251      —         2,852

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

Six Months Ended July 1, 2006

                

Sales to unaffiliated customers

   $ 44,193    $ 8,162    $ 9,770    $ 8,989    $ —       $ 71,114

Intercompany sales

     13,292      —        62      1,452      (14,806 )     —  

Operating income

     8,328      1,202      2,116      1,322      (109 )     12,859

Depreciation

     2,119      75      241      484      —         2,919

Capital expenditures

     4,406      21      62      327      —         4,816

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

 

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