EXHIBIT 99.1
Sun Hydraulics Third Quarter Net Sales up 24% Over 2004, Net Income Rises 53%
SARASOTA, FLA, November 8, 2005 – Sun Hydraulics Corporation (NASDAQ: SNHY) today reported financial results for the third quarter 2005 as follows:
(Dollars in millions except net income per share)
| | | | | | | | | | | | | |
| | | October 1, | | September 25, | | |
| | | 2005 | | 2004 | | Increase |
| Three Months Ended | | | | | | | | | | | | |
| Net Sales | | $ | 28.7 | | | $ | 23.2 | | | | 24 | % |
| Net Income | | $ | 2.9 | | | $ | 1.9 | | | | 53 | % |
| Net Income per share: | | | | | | | | | | | | |
| Basic | | $ | 0.27 | | | $ | 0.18 | | | | 50 | % |
| Diluted | | $ | 0.27 | | | $ | 0.18 | | | | 50 | % |
| | | | | | | | | | | | | |
| Nine Months Ended | | | | | | | | | | | | |
| Net Sales | | $ | 88.8 | | | $ | 71.1 | | | | 25 | % |
| Net Income | | $ | 9.9 | | | $ | 5.8 | | | | 71 | % |
| Net Income per share: | | | | | | | | | | | | |
| Basic | | $ | 0.92 | | | $ | 0.57 | | | | 61 | % |
| Diluted | | $ | 0.91 | | | $ | 0.57 | | | | 60 | % |
| | |
| (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. |
Commenting on results, Allen Carlson, Sun’s CEO and President, said, “We had another excellent quarter with our sales increasing 24% bringing year to date sales to 25% over last year. We remain confident going into the fourth quarter, as economic indicators in the U.S. capital goods market remain strong. The PMI, which Sun’s business historically tracks, was published last week, and continues to show purchasing strength in the economy.
“We continue to strengthen our balance sheet by building cash and paying down debt,” Carlson continued. “In September, we doubled our quarterly dividend from $0.05 to $0.10. We are also in a great position to take advantage of potential future internal or external investment opportunities through utilization of our new $35 million credit facility.”
Carlson also announced that Sun CFO, Dick Dobbyn, will be retiring early next year and that Tricia Fulton will assume the CFO position. “Tricia has been with Sun since 1997 and has worked closely with Dick since she joined the company. I am proud that we were able to fill this important position from inside and have complete confidence that Tricia will do an outstanding job,” Carlson said. Carlson also indicated that Dick Dobbyn, who will retain the CFO position through the close of 2005, will continue to work with the Company in an advisory role, including work on special projects.
Outlook
Historically, demand in the fourth quarter slows compared to prior periods, particularly in foreign markets. Sun Hydraulics estimates sales for the fourth quarter will be $27 million, a 15% increase over the fourth quarter last year. Annual sales would be approximately $116 million, representing a 22% increase compared to 2004. Fourth quarter earnings per share are estimated to be between $0.20 and $0.23 per share, compared to $0.19 per share in the fourth quarter last year.
Independent Research Analysis
Robert W. Baird has provided independent research coverage on Sun Hydraulics since 1997. Sun Hydraulics is pleased to announce that Westminster Securities Corporation initiated independent research on Sun earlier this month.
Webcast
Sun Hydraulics Corporation will broadcast its third quarter financial results conference call live over the Internet at 2:30 P.M. E.T. tomorrow, November 9, 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”.
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 1-877-407-8033.
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 atwww.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’sForm 10-Q for the quarter ended July 2, 2005, and under the heading “Business” and particularly under the subheading, “Business Risk Factors” in the Company’sForm 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.
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Sun Hydraulics Corporation
Consolidated Statements of Operations
(in thousands, except per share data)
| | | | | | | | | |
| | | Three months ended | |
| | | October 1, 2005 | | | September 25, 2004 | |
| | | (unaudited) | | | (unaudited) | |
| |
Net sales | | $ | 28,726 | | | $ | 23,164 | |
| |
| Cost of sales | | | 19,701 | | | | 16,117 | |
| | | |
| | | | | | | | | |
Gross profit | | | 9,025 | | | | 7,047 | |
| | | | | | | | | |
| Selling, engineering and administrative expenses | | | 4,644 | | | | 4,002 | |
| | | |
| | | | | | | | | |
Operating income | | | 4,381 | | | | 3,045 | |
| | | | | | | | | |
| Interest expense | | | 102 | | | | 123 | |
| Foreign currency transaction gain | | | (23 | ) | | | (43 | ) |
| Miscellaneous expense/(income), net | | | 100 | | | | (7 | ) |
| | | |
| | | | | | | | | |
Income before income taxes | | | 4,202 | | | | 2,972 | |
| | | | | | | | | |
| Income tax provision | | | 1,284 | | | | 1,092 | |
| | | |
| | | | | | | | | |
Net income | | $ | 2,918 | | | $ | 1,880 | |
| | | |
| | | | | | | | | |
Basic net income per common share (1) | | $ | 0.27 | | | $ | 0.18 | |
| | | | | | | | | |
Weighted average basic shares outstanding (1) | | | 10,894 | | | | 10,343 | |
| | | | | | | | | |
Diluted net income per common share (1) | | $ | 0.27 | | | $ | 0.18 | |
| | | | | | | | | |
Weighted average diluted shares outstanding (1) | | | 10,991 | | | | 10,459 | |
| | | | | | | | | |
Dividends declared per share | | $ | 0.100 | | | $ | 0.050 | |
| | |
| (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. |
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Sun Hydraulics Corporation
Consolidated Statements of Operations
(in thousands, except per share data)
| | | | | | | | | |
| | | Nine months ended | |
| | | October 1, 2005 | | | September 25, 2004 | |
| | | (unaudited) | | | (unaudited) | |
| |
Net sales | | $ | 88,819 | | | $ | 71,077 | |
| | | | | | | | | |
| Cost of sales | | | 59,956 | | | | 49,338 | |
| | | |
| | | | | | | | | |
Gross profit | | | 28,863 | | | | 21,739 | |
| | | | | | | | | |
| Selling, engineering and administrative expenses | | | 13,387 | | | | 12,262 | |
| | | |
| | | | | | | | | |
Operating income | | | 15,476 | | | | 9,477 | |
| | | | | | | | | |
| Interest expense | | | 385 | | | | 405 | |
| Foreign currency transaction gain | | | (290 | ) | | | (75 | ) |
| Miscellaneous expense/(income), net | | | 78 | | | | (25 | ) |
| | | |
| | | | | | | | | |
Income before income taxes | | | 15,303 | | | | 9,172 | |
| | | | | | | | | |
| Income tax provision | | | 5,384 | | | | 3,343 | |
| | | |
| | | | | | | | | |
Net income | | $ | 9,919 | | | $ | 5,829 | |
| | | |
| | | | | | | | | |
Basic net income per common share (1) | | $ | 0.92 | | | $ | 0.57 | |
| | | | | | | | | |
Weighted average basic shares outstanding (1) | | | 10,797 | | | | 10,217 | |
| | | | | | | | | |
Diluted net income per common share (1) | | $ | 0.91 | | | $ | 0.57 | |
| | | | | | | | | |
Weighted average diluted shares outstanding (1) | | | 10,893 | | | | 10,304 | |
| | | | | | | | | |
Dividends declared per share | | $ | 0.225 | | | $ | 0.140 | |
| | |
| (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. |
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Sun Hydraulics Corporation
Consolidated Balance Sheets
(in thousands, except share data)
| | | | | | | | | |
| | | October 1, 2005 | | | December 25, 2004 | |
| | | (unaudited) | | | | | |
Assets | | | | | | | | |
| Current assets: | | | | | | | | |
| Cash and cash equivalents | | $ | 6,809 | | | $ | 9,300 | |
| Restricted cash | | | 423 | | | | 462 | |
| Accounts receivable, net of allowance for doubtful accounts of $160 and $170 | | | 10,697 | | | | 8,611 | |
| Inventories | | | 7,911 | | | | 7,105 | |
| Deferred income taxes | | | 392 | | | | 392 | |
| Other current assets | | | 900 | | | | 776 | |
| | | |
| Total current assets | | | 27,132 | | | | 26,646 | |
| | | | | | | | | |
| Property, plant and equipment, net | | | 44,315 | | | | 43,687 | |
| Other assets | | | 1,796 | | | | 1,475 | |
| | | |
| | | | | | | | | |
Total assets | | $ | 73,243 | | | $ | 71,808 | |
| | | |
| | | | | | | | | |
Liabilities and shareholders’ equity | | | | | | | | |
| Current liabilities: | | | | | | | | |
| Accounts payable | | $ | 3,740 | | | $ | 2,536 | |
| Accrued expenses and other liabilities | | | 4,511 | | | | 4,609 | |
| Long-term debt due within one year | | | 454 | | | | 1,058 | |
| Dividends payable | | | 1,091 | | | | 522 | |
| Taxes payable | | | 302 | | | | 1,198 | |
| | | |
| Total current liabilities | | | 10,098 | | | | 9,923 | |
| | | | | | | | | |
| Long-term debt due after one year | | | 2,021 | | | | 11,196 | |
| Deferred income taxes | | | 4,980 | | | | 4,986 | |
| Other noncurrent liabilities | | | 286 | | | | 300 | |
| | | |
| Total liabilities | | | 17,385 | | | | 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, 10,906,248 and 10,441,920 shares outstanding | | | 11 | | | | 10 | |
| Capital in excess of par value | | | 32,686 | | | | 28,579 | |
| Unearned compensation related to outstanding restricted stock | | | (381 | ) | | | (608 | ) |
| Retained earnings | | | 21,607 | | | | 13,867 | |
| Accumulated other comprehensive income | | | 1,935 | | | | 3,566 | |
| Treasury stock | | | — | | | | (11 | ) |
| | | |
| Total shareholders’ equity | | | 55,858 | | | | 45,403 | |
| | | |
| | | | | | | | | |
Total liabilities and shareholders’ equity | | $ | 73,243 | | | $ | 71,808 | |
| | | |
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Sun Hydraulics Corporation
Consolidated Statements of Cash Flows
(in thousands)
| | | | | | | | | |
| | | Nine Months ended | |
| | | October 1, 2005 | | | September 25, 2004 | |
| | | (unaudited) | | | (unaudited) | |
| |
Cash flows from operating activities: | | | | | | | | |
| Net income | | $ | 9,919 | | | $ | 5,829 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | |
| Depreciation and amortization | | | 4,172 | | | | 4,073 | |
| Loss on disposal of assets | | | 18 | | | | 43 | |
| Provision for deferred income taxes | | | (6 | ) | | | (93 | ) |
| Allowance for doubtful accounts | | | (10 | ) | | | 6 | |
| Stock-based compensation expense | | | 245 | | | | 186 | |
| (Increase) decrease in: | | | | | | | | |
| Accounts receivable | | | (2,076 | ) | | | (2,211 | ) |
| Inventories | | | (806 | ) | | | (173 | ) |
| Other current assets | | | (124 | ) | | | (56 | ) |
| Other assets | | | 72 | | | | 31 | |
| Increase (decrease) in: | | | | | | | | |
| Accounts payable | | | 1,204 | | | | (226 | ) |
| Accrued expenses and other liabilities | | | 960 | | | | 1,533 | |
| Taxes payable | | | (286 | ) | | | 2,050 | |
| Other liabilities | | | (14 | ) | | | (23 | ) |
| | | |
| Net cash provided by operating activities | | | 13,268 | | | | 10,969 | |
| | | | | | | | | |
Cash flows from investing activities: | | | | | | | | |
| Equity method investment | | | (400 | ) | | | | |
| Capital expenditures | | | (6,207 | ) | | | (3,531 | ) |
| Proceeds from dispositions of equipment | | | 1 | | | | 19 | |
| | | |
| Net cash used in investing activities | | | (6,606 | ) | | | (3,512 | ) |
| | | | | | | | | |
Cash flows from financing activities: | | | | | | | | |
| Proceeds from debt | | | 10,099 | | | | — | |
| Repayment of debt | | | (19,878 | ) | | | (5,837 | ) |
| Proceeds from exercise of stock options | | | 2,348 | | | | 1,387 | |
| Proceeds from stock issued | | | 111 | | | | — | |
| Payments for purchase of treasury stock | | | (27 | ) | | | (657 | ) |
| Proceeds from reissuance of treasury stock | | | — | | | | 589 | |
| Dividends to shareholders | | | (1,609 | ) | | | (885 | ) |
| | | |
| Net cash used in financing activities | | | (8,956 | ) | | | (5,403 | ) |
| | | | | | | | | |
| Effect of exchange rate changes on cash and cash equivalents | | | (236 | ) | | | 359 | |
| | | |
| | | | | | | | | |
| Net increase in cash and cash equivalents | | | (2,530 | ) | | | 2,413 | |
| | | | | | | | | |
| Cash and cash equivalents, beginning of period | | | 9,762 | | | | 5,219 | |
| | | |
| | | | | | | | | |
| Cash and cash equivalents, end of period | | $ | 7,232 | | | $ | 7,632 | |
| | | |
| | | | | | | | | |
| Supplemental disclosure of cash flow information: | | | | | | | | |
| Cash paid: | | | | | | | | |
| Interest | | $ | 385 | | | $ | 405 | |
| Income taxes | | $ | 6,286 | | | $ | 1,386 | |
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| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | United | | | | | | | | | | United | | | | |
| | | States | | Korea | | Germany | | Kingdom | | Elimination | | Consolidated |
| |
Three Months Ended October 1, 2005 | | | | | | | | | | | | | | | | | | | | | | | | |
| Sales to unaffiliated customers | | $ | 18,118 | | | $ | 2,992 | | | $ | 3,736 | | | $ | 3,880 | | | $ | — | | | $ | 28,726 | |
| Intercompany sales | | | 5,179 | | | | — | | | | 16 | | | | 721 | | | | (5,916 | ) | | | — | |
| Operating income | | | 3,121 | | | | 377 | | | | 617 | | | | 270 | | | | (4 | ) | | | 4,381 | |
| Depreciation | | | 973 | | | | 37 | | | | 121 | | | | 255 | | | | — | | | | 1,386 | |
| Capital expenditures | | | 1,733 | | | | 7 | | | | 712 | | | | 117 | | | | — | | | | 2,569 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Three Months Ended September 25, 2004 | | | | | | | | | | | | | | | | | | | | | | | | |
| Sales to unaffiliated customers | | $ | 14,676 | | | $ | 1,900 | | | $ | 3,390 | | | $ | 3,198 | | | $ | — | | | $ | 23,164 | |
| Intercompany sales | | | 4,112 | | | | — | | | | 19 | | | | 465 | | | | (4,596 | ) | | | — | |
| Operating income | | | 1,921 | | | | 201 | | | | 791 | | | | 135 | | | | (3 | ) | | | 3,045 | |
| Depreciation | | | 960 | | | | 34 | | | | 132 | | | | 259 | | | | — | | | | 1,385 | |
| Capital expenditures | | | 883 | | | | 32 | | | | 38 | | | | 99 | | | | — | | | | 1,052 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Nine Months Ended October 1, 2005 | | | | | | | | | | | | | | | | | | | | | | | | |
| Sales to unaffiliated customers | | $ | 55,821 | | | $ | 8,909 | | | $ | 11,914 | | | $ | 12,175 | | | $ | — | | | $ | 88,819 | |
| Intercompany sales | | | 16,614 | | | | — | | | | 59 | | | | 2,068 | | | | (18,741 | ) | | | — | |
| Operating income | | | 10,855 | | | | 1,174 | | | | 2,705 | | | | 923 | | | | (181 | ) | | | 15,476 | |
| Depreciation | | | 2,934 | | | | 112 | | | | 340 | | | | 779 | | | | — | | | | 4,165 | |
| Capital expenditures | | | 4,565 | | | | 14 | | | | 806 | | | | 822 | | | | — | | | | 6,207 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Nine Months Ended September 25, 2004 | | | | | | | | | | | | | | | | | | | | | | | | |
| Sales to unaffiliated customers | | $ | 44,566 | | | $ | 6,744 | | | $ | 9,860 | | | $ | 9,907 | | | $ | — | | | $ | 71,077 | |
| Intercompany sales | | | 12,029 | | | | — | | | | 52 | | | | 1,301 | | | | (13,382 | ) | | | — | |
| Operating income | | | 6,361 | | | | 776 | | | | 2,013 | | | | 338 | | | | (11 | ) | | | 9,477 | |
| Depreciation | | | 2,835 | | | | 102 | | | | 341 | | | | 795 | | | | — | | | | 4,073 | |
| Capital expenditures | | | 2,921 | | | | 40 | | | | 105 | | | | 465 | | | | — | | | | 3,531 | |
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