8-K

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 OR 15(d) of

The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported):  March 3, 2007

SUN HYDRAULICS CORPORATION

(Exact name of registrant as specified in its charter)

Florida	0-21835	59-2754337
(State or other jurisdiction	(Commission File Number)	(IRS Employer
of incorporation)		Identification No.)

1500 West University Parkway, Sarasota, Florida	34243
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code 941-362-1200

(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02. Results of Operations and Financial Condition.

On March 6, 2007, the Registrant issued the press release attached hereto as Exhibit 99.1 announcing its financial results for fiscal year 2006 and the fourth fiscal quarter of 2006.

Item 5.02. Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers; Compensatory Arrangements of Certain Officers

On March 3, 2007, the Board of Directors appointed Tim A. Twitty, 40, Officer, Operations of the Registrant. Mr. Twitty has been employed by the Registrant since November 1993, serving in positions of increasing responsibility in U.S. operations and automations during that period. Mr. Twitty has no specific term of office. Rather, he serves at the pleasure of the Board, subject to annual reappointment. Mr. Twitty does not have an employment agreement. He is paid an annual salary, which currently is $132,000.

Item 8.01 Other Events

On March 6, 2007, the Registrant issued the press release attached hereto as Exhibit 99.1 announcing the declaration of a $0.10 per share cash dividend on its common stock, payable on April 15, 2007, to shareholders of record as of March 31, 2007.

Item 9.01. Financial Statements and Exhibits.

(c) Exhibits.

99.1 Press Release of the Registrant dated March 6, 2007.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.

SUN HYDRAULICS CORPORATION
By:	/s/ Tricia L. Fulton
	Tricia L. Fulton
	Chief Financial Officer (Principal
	Financial and Accounting Officer)

Dated: March 7, 2006

EX-99.1

EXHIBIT 99.1

Sun Hydraulics 2006 Sales Rise 22% to $142 million, Net Income up 27%,

Board Declares First Quarter Dividend of $0.10

SNHY Celebrates 10 years on NASDAQ

SARASOTA, FLA, March 6, 2007 – Sun Hydraulics Corporation (NASDAQ: SNHY) reported financial results for the year and fourth quarter 2006 as follows:

(Dollars in millions except net income per share)
	December 30,		December 31,
	2006		2005		Increase
Twelve Months Ended
Net Sales	$	142.3	$	116.8	22	%
Net Income	$	16.2	$	12.8	27	%
Net Income per share:
Basic	$	1.49	$	1.18	26	%
Diluted	$	1.48	$	1.17	26	%
Three Months Ended
Net Sales	$	35.0	$	27.9	25	%
Net Income	$	3.8	$	2.9	31	%
Net Income per share:
Basic	$	0.35	$	0.26	35	%
Diluted	$	0.35	$	0.26	35	%

“Fourth quarter orders and shipments finished very strong and our 2006 financial results were even better than we had expected,” said Allen Carlson, Sun’s President and CEO. “While North America continued to hold up, we saw robust demand in Europe and Asia/Pacific. The strong order trends have continued through January and February and we anticipate first quarter 2007 results will continue to outpace the industry. We expect continued double digit growth in Q1 2007. This is exceptional given the strength of last year’s first quarter.”

“The keys to our success have not changed,” Carlson continued. “Shipping reliability, new complementary and differentiated products, a focus on integrated packages, our strong geographic presence and our website continue to help Sun gain market share. In the product area, we are excited about the launch of additional electro-hydraulic products at the Hannover Fair in Germany in April. Having the right products at the right time has been, and continues to be, our focus,” Carlson stated.

“Sun is proud to celebrate 10 years as a public company. During that time we have continued to grow both the top and bottom lines, and have returned to shareholders over $29 million in dividends,” confirmed Carlson. “For long-term investors, the value of an investment in Sun in January, 1997, has grown more than 300%, compared to a return of over 200% on the S&P 500 over the same 10-year period,” Carlson concluded.

Taxes

Year-end tax provision adjustments included additional taxes due from the repatriation of approximately $5 million from our U.K. and German operations. “While our tax rate was slightly higher than expected, we were able to pay down all U.S. debt in the fourth quarter with the cash brought back from Europe,” stated Tricia Fulton, Sun’s CFO. The effect on earnings per share from the year-end tax provision adjustments, including repatriation and other items, was approximately $0.03.

Dividend

On March 3, 2007, Sun Hydraulics Board of Directors declared a $0.10 per share dividend on its common stock. The dividend is payable on April 15, 2007, to shareholders of record as of March 31, 2007.

Outlook

2007 first quarter sales are estimated to be $39 million, a 14% increase over last year. First quarter earnings per share are estimated to be between $0.42 and $0.45 per share, compared to $0.38 per share last year.

Open House and Webcast

Sun Hydraulics Corporation will broadcast its 2006 financial results conference call live over the Internet at 4:00 P.M. E.T. tomorrow, March 7, 2007. 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 3:45 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 1-877-407-8033.

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.

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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 September 30, 2006, 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 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
	December 30, 2006			December 31, 2005
Net sales	$	34,967		$	27,938
Cost of sales		23,916			19,884
Gross profit		11,051			8,054
Selling, engineering and administrative expenses		4,814			4,352
Operating income		6,237			3,702
Interest expense		77			56
Foreign currency transaction (gain) loss		124			(63	)
Miscellaneous income		(217	)		(124	)
Income before income taxes		6,253			3,833
Income tax provision		2,440			945
Net income	$	3,813		$	2,888
Basic net income per share	$	0.35		$	0.26
Basic weighted average shares outstanding		10,837			10,920
Diluted net income per share	$	0.35		$	0.26
Diluted weighted average share outstanding		10,894			10,994
Dividends declared per share	$	0.100		$	0.100

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SUN HYDRAULICS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share data)
	Twelve Months Ended
	December 30, 2006			December 31, 2005
Net sales	$	142,282		$	116,757
Cost of sales		98,350			79,839
Gross profit		43,932			36,918
Selling, engineering and administrative expenses		18,881			17,738
Operating income		25,051			19,180
Interest expense		312			441
Foreign currency transaction (gain) loss		187			(362	)
Miscellaneous income		(351	)		(36	)
Income before income taxes		24,903			19,137
Income tax provision		8,680			6,329
Net income	$	16,223		$	12,808
Basic net income per share	$	1.49		$	1.18
Basic weighted average shares outstanding		10,878			10,827
Diluted net income per share	$	1.48		$	1.17
Diluted weighted average share outstanding		10,939			10,918
Dividends declared per share	$	0.400		$	0.300

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SUN HYDRAULICS CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands)
	December 30, 2006		December 31, 2005
Assets
Current assets:
Cash and cash equivalents	$	9,379	$	5,417
Restricted cash		118		413
Accounts receivable, net of allowance for doubtful accounts of $140 and $110		13,917		10,975
Inventories		10,386		7,870
Income taxes receivable		—		236
Deferred income taxes		219		782
Other current assets		986		864
Total current assets		35,005		26,557
Property, plant and equipment, net		50,355		45,181
Other assets		1,825		1,823
Total assets	$	87,185	$	73,561
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	4,812	$	4,822
Accrued expenses and other liabilities		4,059		3,857
Long-term debt due within one year		426		398
Dividends payable		1,085		1,089
Income taxes payable		608		—
Total current liabilities		10,990		10,166
Long-term debt due after one year		646		1,986
Deferred income taxes		4,451		4,688
Other liabilities		298		281
Total liabilities		16,385		17,121
Shareholders’ equity:
Common stock		11		11
Capital in excess of par value		30,962		32,466
Unearned compensation related to outstanding restricted stock		—		(741	)
Retained earnings		35,284		23,406
Accumulated other comprehensive income		4,543		1,647
Treasury stock		—		(349	)
Total shareholders’ equity		70,800		56,440
Total liabilities and shareholders’ equity	$	87,185	$	73,561

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SUN HYDRAULICS CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
	Twelve Months Ended
	December 30, 2006			December 31, 2005
Cash flows from operating activities:
Net income	$	16,223		$	12,808
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		5,849			5,604
Loss on disposal of assets		12			22
Stock-based compensation expense		573			365
Stock options income tax benefit		(381	)		—
Allowance for doubtful accounts		30			(60	)
Provision for slow moving inventory		157			(96	)
Provision for deferred income taxes		326			(688	)
(Increase) decrease in:
Accounts receivable		(2,972	)		(2,304	)
Inventories		(2,673	)		(669	)
Income taxes receivable		236			(236	)
Other current assets		(122	)		(88	)
Other assets, net		(29	)		39
Increase (decrease) in:
Accounts payable		(10	)		2,286
Accrued expenses and other liabilities		1,385			306
Income taxes payable		989			(261	)
Other liabilities		15			(19	)
Net cash from operating activities		19,608			17,009
Cash flows used in investing activities:
Investment in WhiteOak		—			(400	)
Capital expenditures		(9,525	)		(8,813	)
Proceeds from dispositions of equipment		28			5
Net cash used in investing activities		(9,497	)		(9,208	)
Cash flows used in financing activities:
Proceeds from debt		7,000			11,599
Repayment of debt		(8,312	)		(21,469	)
Proceeds from exercise of stock options		162			2,487
Stock options income tax benefit		381			—
Proceeds from stock issued		238			157
Payments for purchase of treasury stock		(2,951	)		(1,588	)
Dividends to shareholders		(4,347	)		(2,701	)
Net cash used in financing activities		(7,829	)		(11,515	)
Effect of exchange rate changes on cash and cash equivalents		1,385			(218	)
Net (decrease) increase in restricted cash		(295	)		(49	)
Net (decrease) increase in cash and cash equivalents		3,962			(3,883	)
Cash and cash equivalents, beginning of period		5,830			9,762
Cash and cash equivalents, end of period	$	9,497		$	5,830
Supplemental disclosure of cash flow information:
Cash paid:
Interest	$	312		$	441
Income taxes	$	7,510		$	8,451

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	United States		Korea		Germany		United Kingdom		Elimination			Consolidated
Three Months
Ended December 30, 2006
Sales to unaffiliated customers	$	21,972	$	4,121	$	4,484	$	4,390	$	—		$	34,967
Intercompany sales		6,359		—		18		728		(7,105	)		—
Operating income		4,520		521		817		436		(57	)		6,237
Depreciation and amortization		1,044		38		142		252		—			1,476
Capital expenditures		1,822		76		33		400		—			2,331
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 and amortization		1,010		37		132		246		—			1,425
Capital expenditures		2,442		15		37		112		—			2,606
Twelve Months
Ended December 30, 2006
Sales to unaffiliated customers	$	89,077	$	16,368	$	19,128	$	17,709	$	—		$	142,282
Intercompany sales		25,809		—		106		2,990		(28,905	)		—
Operating income		16,608		2,212		4,046		2,330		(145	)		25,051
Depreciation and amortization		4,206		150		510		983		—			5,849
Capital expenditures		8,408		122		238		757		—			9,525
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 and amortization		3,944		149		473		1,025		—			5,591
Capital expenditures		7,007		29		843		934		—			8,813

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