Sun Hydraulics Reports $0.36 Earnings on $39 Million Sales

SARASOTA, FL -- (MARKET WIRE) -- 08/09/10 -- Sun Hydraulics Corporation (NASDAQ: SNHY) reported financial results for the second quarter 2010 as follows:

(Dollars in millions except net income per share)


                                            July 3,   June 27,
                                             2010       2009     Increase

       Three Months Ended
Net Sales                                    $39.2     $21.6        81%
Net Income (loss)                             $6.1     -$0.5      1320%
Net Income (loss) per share:
   Basic                                     $0.36    -$0.03      1300%
   Diluted                                   $0.36    -$0.03      1300%

        Six Months Ended
Net Sales                                    $70.9     $46.8        51%
Net Income                                    $9.4      $0.0     62720%
Net Income per share:
   Basic                                     $0.56     $0.00     62496%
   Fully Diluted                             $0.55     $0.00     61490%

"We had a strong second quarter, as expected," said Allen Carlson, Sun's CEO and president. "We met our revenue estimates, came in at the top of our earnings estimates, and have quickly regained our operating leverage. We are very pleased that second quarter results included shipments to new customers in China, North America and Europe. Some of this business represents sizeable ongoing orders. In all cases, it was our efforts during last year's downturn that proved to be the foundation of securing the new business. As evidenced in our results, we are operating at a high rate of efficiency. On-time deliveries are being maintained with a small amount of overtime and, to date, we have engaged in limited hiring in key areas."

Continuing, Carlson stated, "We have the infrastructure and capability in place to meet demand. And as we have proven, we are agile and can flex with the business cycle. Above all else, we will continue to service our existing customers, work diligently to gain new ones and invest in our people and processes to ensure Sun's long-term success."

Outlook

In conclusion, Carlson commented, "Our third quarter estimates reflect normal seasonality in demand levels. We typically have a strong second quarter followed by some softening in the third quarter and 2010 is following that same pattern. We continue to demonstrate strong operating leverage on higher revenues."

Third quarter sales are expected to be $37 million, a 59% increase in revenue compared to the same period last year, and earnings are expected to be $0.32 to $0.34 per share compared to $0.03 per share in the same period of the prior year.

Webcast

Sun Hydraulics Corporation will broadcast its Q2 financial results conference call live over the Internet at 9:00 A.M. E.T. tomorrow, August 10, 2010. To listen to the webcast, go to http://investor.sunhydraulics.com.

Webcast Q&A

If an individual wishes to ask questions directly during the webcast, the conference call may be accessed by dialing (877) 212-8518. 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 July 3, 2010, and under the heading "Business" and particularly under the subheading, "Business Risk Factors" in the Company's Form 10-K for the year ended January 2, 2010. 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
                                                    July 3,      June 27,
                                                      2010         2009
                                                  (unaudited)  (unaudited)

Net sales                                         $    39,246  $    21,607

Cost of sales                                          25,262       17,373
                                                  -----------  -----------

Gross profit                                           13,984        4,234

Selling, engineering and
 administrative expenses                                4,845        4,867
                                                  -----------  -----------

Operating income (loss)                                 9,139         (633)

Interest income, net                                     (144)        (171)
Foreign currency transaction loss, net                     69          339
Miscellaneous (income) expense, net                      (109)         101
                                                  -----------  -----------

Income (loss) before income taxes                       9,323         (902)

Income tax provision (benefit)                          3,210         (366)
                                                  -----------  -----------

Net income (loss)                                 $     6,113  $      (536)
                                                  ===========  ===========

Basic net income (loss) per common share          $      0.36  $     (0.03)

Weighted average basic shares outstanding              16,953       16,867

Diluted net income (loss) per common share        $      0.36  $     (0.03)

Weighted average diluted shares outstanding            16,985       16,899

Dividends declared per share                      $     0.090  $     0.090





SUN HYDRAULICS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share data)

                                                      Six months ended
                                                    July 3,      June 27,
                                                      2010         2009
                                                  (unaudited)  (unaudited)

Net sales                                         $    70,850  $    46,815

Cost of sales                                          46,747       37,003
                                                  -----------  -----------

Gross profit                                           24,103        9,812

Selling, engineering and
 administrative expenses                               10,001        9,642
                                                  -----------  -----------

Operating income                                       14,102          170

Interest income, net                                     (281)        (282)
Foreign currency transaction loss, net                     41          331
Miscellaneous (income) loss, net                         (128)         300
                                                  -----------  -----------

Income (loss) before income taxes                      14,470         (179)

Income tax provision (benefit)                          5,047         (194)
                                                  -----------  -----------

Net income                                        $     9,423  $        15
                                                  ===========  ===========

Basic net income per common share                 $      0.56  $      0.00

Weighted average basic shares outstanding              16,948       16,767

Diluted net income per common share               $      0.55  $      0.00

Weighted average diluted shares outstanding            16,981       16,797

Dividends declared per share                      $     0.180  $     0.270





SUN HYDRAULICS CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands)

                                                     July 3,    January 2,
                                                      2010         2010
                                                  (unaudited)
Assets
Current assets:
  Cash and cash equivalents                       $    27,860  $     30,314
  Restricted cash                                         124           132
  Accounts receivable, net of allowance for
   doubtful accounts of $77 and $90                    16,596         9,949
  Inventories                                           9,300         7,799
  Income taxes receivable                                   -         1,485
  Deferred income taxes                                   575           575
  Marketable securities                                13,352         7,844
  Other current assets                                  2,733         1,797
                                                  -----------  ------------
      Total current assets                             70,540        59,895

Property, plant and equipment, net                     53,644        56,633
Other assets                                            2,840         3,405
                                                  -----------  ------------

Total assets                                      $   127,024  $    119,933
                                                  ===========  ============

Liabilities and Shareholders' Equity
Current liabilities:
  Accounts payable                                $     4,743  $      2,442
  Accrued expenses and other liabilities                3,205         2,475
  Income taxes payable                                    174             -
  Dividends payable                                     1,526         1,524
                                                  -----------  ------------
      Total current liabilities                         9,648         6,441

Deferred income taxes                                   5,173         5,191
Other noncurrent liabilities                              650           687
                                                  -----------  ------------

      Total liabilities                                15,471        12,319

Shareholders' equity:
  Common stock                                             17            17
  Capital in excess of par value                       43,015        42,210
  Retained earnings                                    70,750        64,383
  Accumulated other comprehensive income               (2,229)        1,004
                                                  -----------  ------------
      Total shareholders' equity                      111,553       107,614
                                                  -----------  ------------

Total liabilities and shareholders' equity        $   127,024  $    119,933
                                                  ===========  ============





SUN HYDRAULICS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

                                                      Six months ended
                                                    July 3,      June 27,
                                                      2010         2009
                                                  (unaudited)  (unaudited)
Cash flows from operating activities:
Net income                                        $     9,423  $        15
Adjustments to reconcile net income to
 net cash provided by operating activities:
Depreciation and amortization                           3,460        3,559
Loss on disposal of assets                                 21            1
Provision for deferred income taxes                       (18)          35
Allowance for doubtful accounts                           (13)          (6)
Stock-based compensation expense                          540          441
Stock options income tax benefit                          (29)           -
(Increase) decrease in:
   Accounts receivable                                 (6,634)       2,033
   Inventories                                         (1,501)       1,563
   Income taxes receivable                              1,485       (2,057)
   Other current assets                                  (936)        (326)
   Other assets                                           549          277
(Increase) decrease in:
   Accounts payable                                     2,301          107
   Accrued expenses and other liabilities                 752         (200)
   Income taxes payable                                   203            -
   Other noncurrent liabilities                           (37)          24
                                                  -----------  -----------
Net cash provided by operating activities               9,566        5,466

Cash flows from investing activities:
Capital expenditures                                   (1,325)      (3,506)
Purchases of marketable securities                    (11,126)      (8,133)
Proceeds from sale of marketable securities             5,390          420
                                                  -----------  -----------
Net cash used in investing activities                  (7,061)     (11,219)

Cash flows from financing activities:
Repayment of debt                                           -         (261)
Proceeds from exercise of stock options                    39          214
Proceeds from stock issued                                176            -
Dividends to shareholders                              (3,051)      (4,504)
Stock options income tax benefit                           29            -
                                                  -----------  -----------
Net cash used in financing activities                  (2,807)      (4,551)

Effect of exchange rate changes on cash and
 cash equivalents                                      (2,160)       1,066
                                                  -----------  -----------

Net decrease in cash and cash equivalents              (2,462)      (9,238)

Cash and cash equivalents, beginning of period         30,446       35,303
                                                  -----------  -----------

Cash and cash equivalents, end of period          $    27,984  $    26,065
                                                  ===========  ===========

Supplemental disclosure of cash flow information:
Cash paid:
   Interest                                       $         -  $         9
   Income taxes                                   $     3,406  $     1,828





                 United                   United
                 States   Korea   Germany Kingdom Elimination  Consolidated
Three Months
Ended July 3,
 2010
Sales to
 unaffiliated
 customers      $ 25,259  $ 4,644 $ 4,669 $ 4,674 $         -  $    39,246
Intercompany
 sales             6,785        -      28     287      (7,100)           -
Operating
 income            7,005      651     911     759        (187)       9,139
Depreciation       1,320       22     102     234           -        1,678
Capital
 expenditures        515       48       1      92           -          656

Three Months
Ended June 27,
 2009
Sales to
 unaffiliated
 customers      $ 12,569  $ 2,384 $ 3,445 $ 3,209 $         -  $    21,607
Intercompany
 sales             3,544        -      46     233      (3,823)           -
Operating
 income (loss)    (1,541)     124     561     123         100         (633)
Depreciation       1,365       27     130     260           -        1,782
Capital
 expenditures      2,205        4      24      37           -        2,270

Six Months
Ended July 3,
 2010
Sales to
 unaffiliated
 customers      $ 44,228  $ 8,836 $ 9,368 $ 8,418 $         -  $    70,850
Intercompany
 sales            11,882        -      81     625     (12,588)           -
Operating
 income            9,875    1,277   2,028   1,095        (173)      14,102
Depreciation       2,648       44     214     484           -        3,390
Capital
 expenditures      1,081      114       5     125           -        1,325

Six Months
Ended June 27,
 2009
Sales to
 unaffiliated
 customers      $ 28,189  $ 4,345 $ 7,612 $ 6,669 $         -  $    46,815
Intercompany
 sales             7,700        -      75     698      (8,473)           -
Operating
 income (loss)    (2,090)     210   1,274     576         200          170
Depreciation       2,735       53     254     493           -        3,535
Capital
 expenditures      3,336       27      28     115           -        3,506


Contact:
Richard K. Arter
Investor Relations
941-362-1200

Tricia Fulton
Chief Financial Officer
941-362-1200