EXHIBIT 99.1 Contact: Richard K. Arter Investor Relations 941-362-1200 Richard J. Dobbyn Chief Financial Officer 941-362-1200 Sun Hydraulics Corporation Reports Second Quarter Net Income of $0.12 Per Share SARASOTA, FLA, August 4, 2003 -Sun Hydraulics Corporation (NASDAQ: SNHY) today announced that sales for the second quarter ended June 28, 2003, were $18.9 million, an increase of 15.2% from the first quarter and a 8.6% increase from the same quarter last year. Net income was $0.8 million, equal to net income for the same quarter last year and a $0.5 million increase from last quarter. Net income included a charge for the write off of development costs for an application software project in the United Kingdom. Excluding this write off, net income for the second quarter would have been $1.1 million, or 5.6% of sales, compared to net income of 4.4% of sales for the same quarter last year. Basic and diluted earnings per share for the quarter ended June 28, 2003, were $0.13 and $0.12, respectively, compared to $0.12 for the same period last year. Allen Carlson, Sun Hydraulics' president commented, "We believe that Sun is gaining market share in some market segments, particularly central Europe, where sales are increasing in the face of difficult economic times. Sales in all our international operations, adjusted for the effect of currency changes, increased 12% this quarter compared to the same quarter last year. We still have not seen signs of recovery in the North American manufacturing sector of the economy. Sales in the United States operation this quarter were comparable with those in the same quarter last year." Carlson continued, "Sun's prime or variable manufacturing costs in the United States decreased as a percent of sales in the current quarter compared to the same quarter last year. This is an indication of Sun's productivity improvements and our ability to significantly improve operating margins as the economy recovers and the top line grows." Software Write Off Approximately $0.4 million of capitalized software costs related to upgrading the integrated manufacturing system in the United Kingdom operation was written off in the second quarter. The installation of this highly customized software was aborted due to major flaws in the system. The Company has decided that it is not feasible to continue this project and intends to seek remedy from the software developer. Outlook Sales for the third quarter are projected to be $17.0 million, with net income of $0.06 per share, compared to third quarter 2002 sales and net income of $16.0 million and $0.08 per share. The anticipated decrease in net income, despite the higher sales volume and increased productivity, is attributed to increased marketing and administrative costs, including $0.3 million related to the Company's re-capitalization and special dividend distribution. Webcast Sun Hydraulics Corporation will broadcast its second quarter financial results conference call with analysts live over the Internet at 2:30 P.M. E.T. tomorrow, August 5, 2003. 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 2nd 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 June 28, 2003, 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. SUN HYDRAULICS CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS EXCEPT PER SHARE DATA)
THREE MONTHS ENDED JUNE 28, JUNE 29, 2003 2002 NET SALES $ 18,912 $ 17,413 Cost of sales 13,383 12,887 ------------- ------------- GROSS PROFIT 5,529 4,526 Selling, engineering and administrative expenses 4,267 3,142 ------------- ------------- OPERATING INCOME 1,262 1,384 Interest expense 138 136 Foreign currency transaction loss (gain) (127) 13 Miscellaneous expense (income) (29) 47 ------------- ------------- INCOME BEFORE INCOME TAXES 1,280 1,188 Income tax provision 464 414 ------------- ------------- NET INCOME $ 816 $ 774 ============= ============= BASIC NET INCOME PER SHARE $ 0.13 $ 0.12 Basic weighted average shares outstanding 6,451 6,429 DILUTED NET INCOME PER SHARE $ 0.12 $ 0.12 Diluted weighted average share outstanding 6,598 6,573
SUN HYDRAULICS CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS EXCEPT PER SHARE DATA)
SIX MONTHS ENDED JUNE 28, JUNE 29, 2003 2002 NET SALES $ 35,337 $ 33,026 Cost of sales 25,730 24,807 ------------- ------------- GROSS PROFIT 9,607 8,219 Selling, engineering and administrative expenses 7,887 6,451 ------------- ------------- OPERATING INCOME 1,720 1,768 Interest expense 279 302 Foreign currency transaction loss (gain) (189) (10) Miscellaneous expense (income) (22) 87 ------------- ------------- INCOME BEFORE INCOME TAXES 1,652 1,389 Income tax provision 582 487 ------------- ------------- NET INCOME $ 1,070 $ 902 ============= ============= BASIC NET INCOME PER SHARE $ 0.17 $ 0.14 Basic weighted average shares outstanding 6,450 6,429 DILUTED NET INCOME PER SHARE $ 0.16 $ 0.14 Diluted weighted average share outstanding 6,596 6,570
CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
JUNE 28, DECEMBER 28, 2003 2002 ASSETS Current assets: Cash and cash equivalents $ 4,000 $ 3,958 Accounts receivable, net of allowance for doubtful accounts of $209 and $194 8,182 5,690 Inventories 7,123 6,846 Other current assets 713 810 ------------- ------------- Total current assets 20,018 17,304 Property, plant and equipment, net 42,334 43,987 Other assets 1,266 994 ------------- ------------- TOTAL ASSETS $ 63,618 $ 62,285 ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 2,290 $ 1,706 Accrued expenses and other liabilities 1,764 1,081 Long-term debt due within one year 1,470 1,421 Dividends payable 258 258 Income taxes payable 482 10 ------------- ------------- Total current liabilities 6,264 4,476 Long-term debt due after one year 7,652 8,190 Deferred income taxes 4,088 4,092 Deferred royalties 353 378 ------------- ------------- Total liabilities 18,357 17,136 Redeemable Common Stock 2,250 2,250 Shareholders' equity: Common stock 6 6 Capital in excess of par value 22,623 22,690 Unearned compensation related to outstanding restricted stock (105) (170) Retained earnings and accumulated comprehensive income 20,487 20,373 ------------- ------------- Total shareholders' equity 43,011 42,899 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 63,618 $ 62,285 ============= =============
CONSOLIDATED STATEMENT OF CASH FLOWS (IN THOUSANDS)
SIX MONTHS ENDED JUNE 28, JUNE 29, 2003 2002 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 1,070 $ 902 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,646 2,651 Gain/(Loss) on disposal of assets 367 148 Allowance for doubtful accounts 15 (27) Provision for deferred income taxes (4) 1 (Increase) decrease in: Accounts receivable (2,507) (1,935) Inventories (277) 27 Income tax receivable -- 668 Other current assets 97 188 Other assets, net (272) (49) Increase (decrease) in: Accounts payable 584 623 Accrued expenses and other liabilities 683 260 Income taxes payable 472 477 Other liabilities (25) (24) ------------- ------------- Net cash from operating activities 2,849 3,910 CASH FLOWS USED IN INVESTING ACTIVITIES: Capital expenditures (1,370) (3,388) Proceeds from dispositions of equipment 10 53 ------------- ------------- Net cash used in investing activities (1,360) (3,335) CASH FLOWS USED IN FINANCING ACTIVITIES: Repayment of debt (489) (448) Proceeds from stock issued 103 188 Dividends to shareholders (516) (514) ------------- ------------- Net cash used in financing activities (902) (774) Effect of exchange rate changes on cash and cash equivalents (545) 61 Net increase (decrease) in cash and cash equivalents 42 (138) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 3,958 3,611 CASH AND CASH EQUIVALENTS, END OF PERIOD 4,000 3,473 Supplemental disclosure of cash flow information: Cash paid/(received): Interest $ 279 $ 302 Income taxes $ 114 $ (659)
SEGMENT INFORMATION IS AS FOLLOWS:
United United States Korea Germany Kingdom Elimination Consolidated THREE MONTHS ENDED JUNE 28, 2003 Sales to unaffiliated customers $ 11,151 $ 2,012 $ 2,368 $ 3,381 $ -- $ 18,912 Intercompany sales 3,920 -- 17 367 (4,304) -- Operating income 1,166 226 238 (337) (31) 1,262 Depreciation 927 28 100 275 -- 1,330 Capital expenditures 606 3 63 160 -- 832 THREE MONTHS ENDED JUNE 29, 2002 Sales to unaffiliated customers $ 11,468 $ 1,644 $ 1,577 $ 2,723 $ -- $ 17,413 Intercompany sales 2,937 -- 13 431 (3,381) -- Operating income 958 124 53 285 (35) 1,384 Depreciation 1,048 29 74 179 -- 1,330 Capital expenditures 591 23 31 1,291 -- 1,936 SIX MONTHS ENDED JUNE 28, 2003 Sales to unaffiliated customers $ 21,265 $ 3,545 $ 4,634 $ 5,893 $ -- $ 35,337 Intercompany sales 6,876 -- 24 708 (7,608) -- Operating income 1,299 353 494 (465) 39 1,720 Depreciation 1,852 57 191 546 -- 2,646 Capital expenditures 931 32 92 315 -- 1,370 SIX MONTHS ENDED JUNE 29, 2002 Sales to unaffiliated customers $ 21,203 $ 3,207 $ 3,303 $ 5,312 $ -- $ 33,026 Intercompany sales 5,987 -- 19 920 (6,926) -- Operating income 972 203 157 532 (95) 1,768 Depreciation 2,093 59 145 354 -- 2,651 Capital expenditures 1,069 48 43 2,228 -- 3,388