SOURCE: Sun Hydraulics Corporation

Sun Hydraulics Corporation

March 02, 2009 17:00 ET

Sun Hydraulics Finishes 2008 With Sales up 7% and Net Income up 16%, Announces Shared Distribution Based on 2008 Performance

SARASOTA, FL--(Marketwire - March 2, 2009) - Sun Hydraulics Corporation (NASDAQ: SNHY) reported financial results for the year and fourth quarter 2008 as follows:

(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