(Dollars in millions except net income per share) December 27, December 29, Increase/ 2008 2007 Decrease Twelve Months Ended Net Sales $ 178.3 $ 167.4 7% Net Income $ 25.7 $ 22.1 16% Net Income per share: Basic $ 1.55 $ 1.35 15% Diluted $ 1.55 $ 1.34 16% Three Months Ended Net Sales $ 32.9 $ 41.3 -20% Net Income $ 2.5 $ 5.1 -51% Net Income per share: Basic $ 0.15 $ 0.31 -52% Diluted $ 0.15 $ 0.31 -52%Sun Hydraulics reported significant sales and earnings growth for the first nine months of 2008, leading the way to record sales and earnings. Despite a drastic slowdown in the last three months of the year, 2008 sales were up 7% compared to 2007 and net income was up 16%. Commenting on the year, Allen Carlson, Sun Hydraulics' president and CEO, said, "Everyone at Sun continues to work hard to exceed our customers' expectations. In 2008, we introduced new products and maintained our industry-leading delivery performance. We are extremely proud of our accomplishments." Regarding the deteriorating conditions in the fourth quarter, Carlson said, "Business began rapidly slowing in October. Because our book-to-ship cycle is so short, about four weeks, we began to feel the slowdown immediately, and that is reflected in our fourth quarter results." Carlson, in explaining that this is not the first time the Company has experienced a downturn, said, "We will not stop investing for the future, but will be mindful of the tough economic times. Our focus remains on developing new products and enhancing productivity. We have the resources to do what we believe is necessary to take the next step in our growth." Shared Distribution The Company's Board of Directors voted to again provide a shared distribution to Sun employees and shareholders. Totaling approximately $4.5 million, the distribution provides a special $0.09 per share dividend to shareholders and a 9% contribution to Sun's employee retirement accounts. The dividend is payable on March 31, 2009, to shareholders of record as of March 15, 2009. "When we announced the concept of a shared distribution last spring, we said we would consider it on an annual basis," commented Ferdinand Megerlin, Sun Hydraulics' Chairman of the Board. "Given our performance in 2008, we felt it was appropriate to reward our employees for their diligent work and our shareholders for their support." The employee portion of the shared distribution reduced EPS for the fourth quarter and for the year by $0.06 per share. Outlook The slowdown in business activity that began in October continued in the first two months of 2009. During this slowdown Sun has taken actions to reduce discretionary expenses while continuing to invest in people, processes, equipment, and product development. Sun's 2009 first quarter sales are expected to be approximately $25 million with net income near breakeven. As in past business cycles, Sun's investments at the bottom of the cycle directly translate into new business and increased market share as the economy recovers and that recovery in the business cycle often happens unannounced and at a rapid pace. Webcast Sun Hydraulics Corporation will broadcast its 2008 financial results conference call live over the Internet at 9:00 A.M. E.T. tomorrow, March 3, 2009. To listen to the webcast, go to http://investor.sunhydraulics.com/eventdetail.cfm?EventID=64991. Webcast Q&A If an individual wishes to ask questions directly during the webcast, the conference call may be accessed by dialing 1-877-397-0250. Questions also may be submitted to the Company via email 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. A copy of this earnings release is posted on the Investor Relations page of our website under "Press Releases." 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 September 27, 2008, 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 27, 2008. 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 27, December 29, 2008 2007 Net sales $ 32,936 $ 41,289 Cost of sales 24,726 27,943 ------------ ------------ Gross profit 8,210 13,346 Selling, engineering and administrative expenses 5,536 5,282 ------------ ------------ Operating income 2,674 8,064 Interest income, net (293) (129) Foreign currency transaction gain, net (309) (44) Miscellaneous expense, net 122 39 ------------ ------------ Income before income taxes 3,154 8,198 Income tax provision 674 3,071 ------------ ------------ Net income $ 2,480 $ 5,127 ============ ============ Basic net income per common share $ 0.15 $ 0.31 Weighted average basic shares outstanding 16,647 16,485 Diluted net income per common share $ 0.15 $ 0.31 Weighted average diluted shares outstanding 16,675 16,530 Dividends declared per share $ 0.090 $ 0.090 SUN HYDRAULICS CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands except per share data) Twelve Months Ended December 27, December 29, 2008 2007 Net sales $ 178,278 $ 167,374 Cost of sales 119,161 112,524 ------------ ------------ Gross profit 59,117 54,850 Selling, engineering and administrative expenses 22,740 21,215 ------------ ------------ Operating income 36,377 33,635 Interest income, net (793) (411) Foreign currency transaction gain, net (467) (42) Miscellaneous income, net (92) (283) ------------ ------------ Income before income taxes 37,729 34,371 Income tax provision 11,994 12,240 ------------ ------------ Net income $ 25,735 $ 22,131 ============ ============ Basic net income per common share $ 1.55 $ 1.35 Weighted average basic shares outstanding 16,603 16,437 Diluted net income per common share $ 1.55 $ 1.34 Weighted average diluted shares outstanding 16,634 16,498 Dividends declared per share $ 0.450 $ 0.337 SUN HYDRAULICS CORPORATION CONSOLIDATED BALANCE SHEETS (in thousands) December 27, December 29, 2008 2007 Assets Current assets: Cash and cash equivalents $ 35,176 $ 19,191 Restricted cash 127 146 Accounts receivable, net of allowance for doubtful accounts of $92 and $215 12,502 17,029 Inventories 9,960 11,421 Income taxes receivable 1,353 - Deferred income taxes 259 301 Other current assets 1,290 1,210 ------------ ------------- Total current assets 60,667 49,298 Property, plant and equipment, net 57,726 56,999 Other assets 3,992 4,483 ------------ ------------- Total assets $ 122,385 $ 110,780 ============ ============= Liabilities and Shareholders' Equity Current liabilities: Accounts payable $ 3,258 $ 5,668 Accrued expenses and other liabilities 5,546 4,857 Long-term debt due within one year 147 417 Dividends payable 1,499 1,484 Income taxes payable - 674 ------------ ------------- Total current liabilities 10,450 13,100 Long-term debt due after one year 125 284 Deferred income taxes 4,871 5,108 Other liabilities 383 406 ------------ ------------- Total liabilities 15,829 18,898 Shareholders' equity: Common stock 17 16 Capital in excess of par value 38,042 34,390 Retained earnings 70,099 51,844 Accumulated other comprehensive income (1,602) 5,632 ------------ ------------- Total shareholders' equity 106,556 91,882 ------------ ------------- Total liabilities and shareholders equity $ 122,385 $ 110,780 ============ ============= SUN HYDRAULICS CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS (in thousands) Twelve Months Ended December 27, December 29, 2008 2007 Cash flows from operating activities: Net income $ 25,735 $ 22,131 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 7,096 6,341 (Gain) loss on disposal of assets 138 (74) Stock-based compensation expense 896 735 Stock options income tax benefit (55) (748) Allowance for doubtful accounts (123) 75 Provision for slow moving inventory 102 251 Provision for deferred income taxes (195) 575 (Increase) decrease in: Accounts receivable 4,650 (3,187) Inventories 1,359 (1,286) Income taxes receivable (1,353) - Other current assets (80) (224) Other assets, net 465 (310) Increase (decrease) in: Accounts payable (2,410) 856 Accrued expenses and other liabilities 2,944 2,184 Income taxes payable (619) 814 Other liabilities (23) 108 ------------ ------------ Net cash from operating activities 38,527 28,241 Cash flows used in investing activities: Investment in High Country Tek, Inc. - (2,375) Capital expenditures (10,874) (12,591) Proceeds from dispositions of equipment 99 192 ------------ ------------ Net cash used in investing activities (10,775) (14,774) Cash flows used in financing activities: Repayment of debt (416) (371) Proceeds from exercise of stock options 87 287 Stock options income tax benefit 55 748 Proceeds from stock issued 359 272 Dividends to shareholders (7,465) (5,167) ------------ ------------ Net cash used in financing activities (7,380) (4,231) Effect of exchange rate changes on cash and cash equivalents (4,406) 604 ------------ ------------ Net (decrease) increase in restricted cash (19) 28 Net increase in cash and cash equivalents 15,985 9,812 ------------ ------------ Cash and cash equivalents, beginning of period 19,337 9,497 ------------ ------------ Cash and cash equivalents, end of period $ 35,303 $ 19,337 ============ ============ Supplemental disclosure of cash flow information: Cash paid: Interest $ 31 $ 51 Income taxes $ 14,216 $ 11,599 Supplemental disclosure of noncash transactions: Common stock issued to ESOP through accrued expenses and other liabilities $ 2,255 $ 1,386 United United Elimina- Consoli- States Korea Germany Kingdom tion dated Three Months Ended December 27, 2008 Sales to unaffiliated customers $ 22,345 $ 1,782 $ 4,789 $ 4,020 $ - $ 32,936 Intercompany sales 4,552 - 53 472 (5,077) - Operating income 1,752 (183) 834 371 (100) 2,674 Depreciation and amortization 1,389 27 129 254 - 1,799 Capital expenditures 1,412 3 9 220 - 1,644 Three Months Ended December 29, 2007 Sales to unaffiliated customers $ 25,142 $ 4,671 $ 5,434 $ 6,042 $ - $ 41,289 Intercompany sales 6,629 - 27 478 (7,134) - Operating income 5,641 345 1,351 676 51 8,064 Depreciation and amortization 1,167 49 153 316 - 1,685 Capital expenditures 1,664 20 73 1,386 - 3,143 Twelve Months Ended December 27, 2008 Sales to unaffiliated customers $ 111,180 $ 17,455 $ 27,356 $ 22,287 $ - $ 178,278 Intercompany sales 28,656 - 245 2,282 (31,183) - Operating income 24,531 1,148 7,693 3,231 (226) 36,377 Depreciation and amortization 5,139 151 572 1,234 - 7,096 Capital expenditures 9,904 39 298 633 - 10,874 Twelve Months Ended December 29, 2007 Sales to unaffiliated customers $ 99,516 $ 20,567 $ 24,164 $ 23,127 $ - $ 167,374 Intercompany sales 30,344 - 142 2,621 (33,107) - Operating income 22,408 2,103 5,955 3,205 (36) 33,635 Depreciation and amortization 4,488 178 556 1,119 - 6,341 Capital expenditures 9,339 284 125 2,843 - 12,591
Contact Information: Contact: Richard K. Arter Investor Relations 941-362-1200 Tricia Fulton Chief Financial Officer 941-362-1200