Sun Hydraulics Corporation Reports Increase in Net Income for 2002


SARASOTA, FLA, March 4, 2003 – Sun Hydraulics Corporation (NASDAQ: SNHY) today announced that net income for 2002 was $1.8 million, or 2.8% of net sales, compared to $1.0 million, or 1.5% of net sales, for 2001. Net sales for 2002 were $64.5 million, compared to $65.0 million the prior year. Basic and diluted earnings per share for the year ended December 28, 2002, were $0.28 and $0.27 respectively, compared to $0.15 and $0.14 for the year ended December 29, 2001.

Economic conditions remain depressed in the hydraulics industry and the capital goods markets. Compared to the prior year, sales in 2002 were made up of increases in the German and Korean operations offset by sales decreases in the United States and United Kingdom.

The increase in net income is primarily due to an improvement in gross profit as a percent of net sales related to an increase in productivity and lower manufacturing overhead spending in the United States, and the strength of local currencies relative to the U.S. dollar in the foreign operations.

Commenting on the results, Allen Carlson, Sun Hydraulics’ president, said, “We are pleased with the productivity improvement in the U. S. operations, however the impact was muted in 2002 by our decision to retain the investment in our production workforce. I think the results prove that the many manufacturing productivity improvements we have made during the past two years will result in substantially increased margins as our sales volumes grow.”

Strong Cash Flow

Cash generated from operations for 2002 was $7.5 million. $5.9 million was used for capital expenditures, debt decreased $1.1 million and $1.0 million was paid in dividends to shareholders. Cash on hand at the end of the year was $4.0 million, an increase of $0.3 million for the year.

Fourth Quarter

For the fourth quarter of 2002, net sales increased 15.7% to $15.5 million, compared to fourth quarter 2001 net sales of $13.4 million. Net income for the fourth quarter of 2002 was $0.4 million, compared to a net loss of $0.7 million for the fourth quarter of 2001. Basic and diluted earnings per share for the fourth quarter 2002 were $0.06 compared to a loss per share of $0.10 for the same period last year.

Expansion in the Midwest

On February 24, 2003, Sun Hydraulics announced its intention to open an operation in the Kansas City area. Sun anticipates that this operation will increase its market share of engineered valve packages, which are composed of Sun cartridges and custom manifolds. It will also give the Company a local source for both larger aluminum and ductile iron manifolds.

Outlook

Management is unable to make a meaningful projection of sales for the year due to the uncertainty in global economic conditions. Results for the first quarter of 2003 are expected to approximate the first quarter of 2002, which were $15.6 million in net sales and earnings per share of $0.02.

Dividend

Sun Hydraulics Corporation declared a $0.04 per share quarterly dividend on its common stock on March 1, 2003. The dividend is payable on April 15, 2003, to shareholders of record as of March 31, 2003.

Webcast

Sun Hydraulics Corporation will broadcast its 4th quarter and 2002 year end financial results conference call with analysts live over the Internet at 2:30 P.M. E.T., tomorrow, March 5, 2003. To listen, go to http://investor.sunhydraulics.com/medialist.cfm.

Webcast Q&A

Questions may be submitted to the Company via email after reviewing this earnings release. Sun management will then answer these and other questions during the Company’s webcast.

Questions can be submitted 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 Hydraulics will answer as many legitimate questions pertaining to the 4th Quarter/Year End earnings release as possible during the webcast time.

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, 28, 2002, 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 28, 2002. 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.

Consolidated Statement of Operations

Consolidated Balance Sheet

Consolidated Statement of Cash Flow