Sun Hydraulics Corporation Reports 30% Increase in First Quarter Sales


SARASOTA, FL, May. 04, 2004 (MARKET WIRE via COMTEX) -- Sun Hydraulics Corporation (NASDAQ: SNHY) reported financial results for the first quarter 2004 as follows:

(Dollars in millions except net income per share)
                          March 27,     March 29,
                           2004           2003      Increase
Three Months Ended
Net Sales                 $ 21.4         $ 16.4         30%
Net Income                $ 1.4          $  0.3        367%
Net Income per share:
   Basic                  $ 0.20         $ 0.04        403%
   Fully Diluted          $ 0.20         $ 0.04        415%
Sales increases by business segment were as follows:
                              1st Quarter
                              -----------
United States                    28%
United Kingdom                   27%
Germany                          32%
Korea                            50%

Orders increased 37% in the first quarter compared to the first quarter last year. Order rates increased throughout the quarter and continued through April. The increase in orders was across all business segments and product lines.

"We were able to respond quickly to the rapid upturn in business because we have kept our work force intact throughout the protracted downturn. Customer deliveries remained on track and we continue to show increases in productivity," said Allen Carlson, Sun Hydraulics' President.

The Company anticipates that product costs will continue to decrease and margins will increase. This will be accomplished through additional productivity gains and the effect of manufacturing overhead costs spread over a larger sales base.

Outlook

Sales for the second quarter ending June 26, 2004, are projected to be $24.0 million, a 29% increase over the second quarter of 2003. Net income per share on that sales level is estimated to be between $0.33 and $0.37 per share. This compares with net income per share in the second quarter last year of $0.12.

Webcast

Sun Hydraulics Corporation will broadcast its first quarter financial results conference call live over the Internet at 2:30 P.M. E.T. tomorrow, May 5, 2004. To listen, 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. 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 first quarter 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 March 27, 2004, 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, 2003. 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 Balance Sheets
(in thousands, except share data)
                                                    March 27,  December 27,
                                                      2004        2003
                                                  (unaudited)
Assets
Current assets:
        Cash and cash equivalents                   $ 4,004     $ 4,794
        Restricted cash                                 436         425
        Accounts receivable, net of allowance for
          doubtful accounts of $207 and $187          9,053       6,215
        Inventories                                   6,866       6,621
        Other current assets                            530         524
                                                    -------     -------
        Total current assets                         20,889      18,579
Property, plant and equipment, net                   42,658      42,829
Other assets                                          1,507       1,624
                                                    -------     -------
        Total assets                                $65,054     $63,032
                                                    =======     =======
Liabilities and Shareholders' Equity
Current liabilities:
        Accounts payable                            $ 2,740     $ 2,440
        Accrued expenses and other liabilities        2,961       2,217
        Long-term debt due within one year              998         937
        Dividends payable                               270         270
        Taxes payable                                   542          51
                                                    -------     -------
        Total current liabilities                     7,511       5,915
Long-term debt due after one year                    16,403      17,270
Deferred income taxes                                 4,369       4,456
Other noncurrent liabilities                            315         328
                                                    -------     -------
        Total liabilities                            28,598      27,969
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 6,758,541 shares
         outstanding, March 27, 2004 6,757,941 shares
         outstanding, December 27, 2003                   7           7
        Capital in excess of par value               26,481      26,478
        Unearned compensation related to
         outstanding restricted stock                  (536)       (601)
        Retained earnings                             8,609       7,522
        Accumulated other comprehensive income        1,895       1,657
                                                    -------     -------
        Total shareholders' equity                   36,456      35,063
        Total liabilities and shareholders' equity  $65,054     $63,032
                                                    =======     =======
Sun Hydraulics Corporation
Consolidated Statements of Operations
(in thousands, except per share data)
                                                     Three months ended
                                                    March 27,   March 29,
                                                      2004        2003
                                                  (unaudited) (unaudited)
Net sales                                           $21,390     $16,425
Cost of sales                                        15,085      12,347
                                                    -------     -------
Gross profit                                          6,305       4,078
Selling, engineering and
 administrative expenses                              4,064       3,620
                                                    -------     -------
Operating income                                      2,241         458
Interest expense                                        148         140
Foreign currency transaction (gain)/loss                 (2)        (62)
Miscellaneous (income)/expense, net                      13           6
                                                    -------     -------
Income before income taxes                            2,082         374
Income tax provision                                    724         118
                                                    -------     -------
Net income                                          $ 1,358     $   256
                                                    =======     =======
Basic net income per common share                   $  0.20     $  0.04
Weighted average basic shares outstanding             6,758       6,448
Diluted net income per common share                 $  0.20     $  0.04
Weighted average diluted shares outstanding           6,802       6,604
Sun Hydraulics Corporation
Consolidated Statements of Cash Flows
(in thousands)
                                                     Three Months ended
                                                    March 27,   March 29,
                                                      2004        2003
                                                  (unaudited) (unaudited)
Cash flows from operating activities:
Net income                                          $ 1,358     $   256
Adjustments to reconcile net income to
        net cash provided by operating activities:
Depreciation                                          1,327       1,316
Loss on disposal of assets                               13           -
Provision for deferred income taxes                     (87)        (16)
Allowance for doubtful accounts                          20         (15)
Amortization of compensation expense                     65          33
(Increase) decrease in:
        Accounts receivable                          (2,858)     (1,219)
        Inventories                                    (245)        575
        Taxes receivable                                  -           -
        Other current assets                             (6)         83
        Other assets                                    117         (24)
Increase (decrease) in:
        Accounts payable                                300         330
        Accrued expenses and other liabilities          744         321
        Dividends payable                                 -           -
        Taxes payable                                   491          93
        Other liabilities                               (13)        (13)
                                                    -------     -------
Net cash provided by operating activities             1,226       1,720
Cash flows from investing activities:
Capital expenditures                                   (968)       (538)
Proceeds from dispositions of equipment                  17           1
                                                    -------     -------
Net cash used in investing activities                  (951)       (537)
Cash flows from financing activities:
Proceeds from debt                                        -           -
Repayment of debt                                      (806)       (234)
Proceeds from stock issuance                              3           -
Dividends to shareholders                              (270)       (258)
                                                    -------     -------
Net cash used in financing activities                (1,073)       (492)
Effect of exchange rate changes on cash and
        cash equivalents                                 19        (703)
Net increase in cash and cash equivalents              (779)        (12)
                                                    -------     -------
Cash and cash equivalents, beginning of period        5,219       3,958
                                                    -------     -------
Cash and cash equivalents, end of period              4,440       3,946

  	 	  
    
            
                                                            =======     =======
Supplemental disclosure of cash flow information:
Cash paid/(received):
        Interest                                    $   148     $   140
        Income taxes                                $   320     $    41
                         United                   United
                         States   Korea  Germany  Kingdom  Elimin-  Consoli-
                                                            ation    dated
Three Months
Ended March 27, 2004
Sales to unaffiliated
 customers              $12,918  $2,296  $2,996  $3,180   $     -   $21,390
Intercompany sales        3,723       -      12     355    (4,090)        -
Operating income/(loss)   1,490     264     526     (34)       (5)    2,241
Depreciation                920      35      99     273         -     1,327
Capital expenditures        800       4      30     134         -       968
Three Months
Ended March 29, 2003
Sales to unaffiliated
 customers              $10,114  $1,532  $2,266  $2,513   $     -   $16,425
Intercompany sales        2,955       -       7     342    (3,304)        -
Operating income            133     127     256    (128)       70       458
Depreciation                925      29      91     271         -     1,316
Capital expenditures        325      28      29     156         -       538
Contact:
Richard Arter
Investor Relations
941-362-1200
Richard Dobbyn
Chief Financial Officer
941-362-1200

SOURCE: Sun Hydraulics Corporation

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