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Sun Hydraulics Reports Record Sales in Second Quarter, Focus Continues on Investments for Growth

SARASOTA, FL -- (Marketwired) -- 08/04/14 -- Sun Hydraulics Corporation (NASDAQ: SNHY) today reported financial results for the second quarter of 2014 as follows:

                                             June 28,   June 29,
                                               2014       2013     Increase
             Three Months Ended
Net sales                                   $     61.1 $     55.8         9%
Net income                                  $     12.2 $     11.8         3%
Net income per share:
  Basic                                     $     0.46 $     0.45         2%
  Diluted                                   $     0.46 $     0.45         2%
              Six Months Ended
Net sales                                   $    117.9 $    106.8        10%
Net income                                  $     23.6 $     21.4        10%
Net income per share:
  Basic                                     $     0.89 $     0.82         9%
  Diluted                                   $     0.89 $     0.82         9%

"Sun's second quarter sales reached record levels," said Allen Carlson, Sun's President and CEO. "Demand was bolstered by European and North American end markets, with Europe up 15%, and North America 10%. Asia/Pacific sales were comparable with the same period last year."

"As anticipated, second quarter earnings were affected by investments, including sales and marketing efforts in Asia and costs associated with our new facility," added Carlson. "These strategic investments support Sun's long-term profitable growth. Earnings were also impacted by non-recurring expenses in the quarter, totaling approximately $0.02 per share."

"We continue to make investments to bring new products to market," continued Carlson. "Earlier this year we expanded our offering of electrically-actuated cartridge valves. This quarter we also enhanced our automated integrated package design tool -- Quick Design. This tool is available on our website and allows customers to create custom integrated package solutions and receive designs in a matter of minutes. Product development efforts are on-going and we expect to release innovative products in the second half of the year."

Concluding, Carlson commented, "Demand in the first half of the year was strong. Estimated third quarter sales follow our normal seasonal pattern and show growth over the same period last year. The U.S. PMI released last week registered 57.1, which is the highest indication of growth in the manufacturing sector since April 2011. This represents positive near-term business conditions for Sun. We stand ready to capitalize on this growth and deliver value to our stakeholders."

Third quarter 2014 revenues are expected to be approximately $55 million, up 11% from the third quarter of 2013. Earnings per share are estimated to be $0.36 to $0.38 compared to $0.32 in the same period a year ago.

Sun Hydraulics Corporation will broadcast its 2014 second quarter financial results conference call live over the Internet at 9:00 A.M. E.T. tomorrow, August 5, 2014. To listen to the webcast, go to the Investor Relations section of www.sunhydraulics.com.

Webcast Q&A
If an individual wishes to ask questions directly during the webcast, the conference call may be accessed by dialing 1-888-455-2296 and using 2093210 as the access code. 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: [email protected], 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.

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, 2014, 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, 2013. 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.

(in thousands except per share data)

                                                      Three months ended
                                                     June 28,     June 29,
                                                       2014         2013
                                                   (unaudited)  (unaudited)
Net sales                                          $    61,050  $    55,788
Cost of sales                                           35,294       32,387
                                                   -----------  -----------
Gross profit                                            25,756       23,401
Selling, engineering and administrative expenses         7,379        6,640
                                                   -----------  -----------
Operating income                                        18,377       16,761
Interest (income) expense, net                            (284)        (242)
Foreign currency transaction (gain) loss, net              (37)         (29)
Miscellaneous (income) expense, net                        274         (484)
                                                   -----------  -----------
Income before income taxes                              18,424       17,516
Income tax provision                                     6,238        5,726
                                                   -----------  -----------
Net income                                         $    12,186  $    11,790
                                                   ===========  ===========
Basic net income per common share                  $      0.46  $      0.45
Weighted average basic shares outstanding               26,444       26,236
Diluted net income per common share                $      0.46  $      0.45
Weighted average diluted shares outstanding             26,444       26,236
Dividends declared per share                       $     0.090  $     0.090

(in thousands except per share data)

                                                       Six months ended
                                                     June 28,     June 29,
                                                       2014         2013
                                                   (unaudited)  (unaudited)
Net sales                                          $   117,859  $   106,848
Cost of sales                                           68,036       62,943
                                                   -----------  -----------
Gross profit                                            49,823       43,905
Selling, engineering and administrative expenses        14,720       13,212
                                                   -----------  -----------
Operating income                                        35,103       30,693
Interest income, net                                      (596)        (438)
Foreign currency transaction gain, net                     (30)        (149)
Miscellaneous (income) expense, net                        358         (390)
                                                   -----------  -----------
Income before income taxes                              35,371       31,670
Income tax provision                                    11,800       10,305
                                                   -----------  -----------
Net income                                         $    23,571  $    21,365
                                                   ===========  ===========
Basic net income per common share                  $      0.89  $      0.82
Weighted average basic shares outstanding               26,409       26,185
Diluted net income per common share                $      0.89  $      0.82
Weighted average diluted shares outstanding             26,409       26,185
Dividends declared per share                       $      0.27  $      0.27

(in thousands)

                                                     June 28,   December 28,
                                                       2014         2013
Current assets:
  Cash and cash equivalents                        $     72,139 $     54,912
  Restricted cash                                           354          334
  Accounts receivable, net of allowance for
   doubtful accounts of $117 and $117                    22,666       16,984
  Inventories                                            14,709       13,853
  Income taxes receivable                                    --          954
  Deferred income taxes                                     486          474
  Short-term investments                                 38,501       38,729
  Other current assets                                    4,417        2,816
                                                   ------------ ------------
  Total current assets                                  153,272      129,056
Property, plant and equipment, net                       77,424       75,731
Goodwill                                                  5,329        5,221
Other assets                                              3,218        3,470
                                                   ------------ ------------
  Total assets                                     $    239,243 $    213,478
                                                   ============ ============
Liabilities and shareholders' equity
Current liabilities:
  Accounts payable                                 $      5,976 $      4,630
  Accrued expenses and other liabilities                  6,542        7,016
  Income taxes payable                                       21           --
  Dividends payable                                       2,380        2,372
                                                   ------------ ------------
  Total current liabilities                              14,919       14,018
Deferred income taxes                                     7,809        7,747
Other noncurrent liabilities                                302          285
                                                   ------------ ------------
  Total liabilities                                      23,030       22,050
Commitments and contingencies                                --           --
Shareholders' equity:
  Preferred stock, 2,000,000 shares authorized,
   par value $0.001, no shares outstanding                   --           --
  Common stock, 50,000,000 shares authorized, par
   value $0.001, 26,448,374 and 26,352,692 shares
   outstanding                                               26           26
  Capital in excess of par value                         70,879       65,391
  Retained earnings                                     139,854      123,420
  Accumulated other comprehensive income (loss)           5,454        2,591
                                                   ------------ ------------
  Total shareholders' equity                            216,213      191,428
                                                   ------------ ------------
  Total liabilities and shareholders' equity       $    239,243 $    213,478
                                                   ============ ============

(in thousands)

                                                       Six months ended
                                                     June 28,     June 29,
                                                       2014         2013
                                                   (unaudited)  (unaudited)
Cash flows from operating activities:
Net income                                         $    23,571  $    21,365
Adjustments to reconcile net income to net cash
 provided by operating activities:
Depreciation and amortization                            4,212        3,565
(Gain)Loss on disposal of assets                           134           15
Gain on investment in business                              --         (528)
Provision for deferred income taxes                         50          (14)
Allowance for doubtful accounts                             --          (29)
Stock-based compensation expense                         1,853        1,416
(Increase) decrease in, net of assets acquired:
  Accounts receivable                                   (5,682)      (6,740)
  Inventories                                             (856)         186
  Income taxes receivable                                  954          728
  Other current assets                                  (1,601)        (677)
  Other assets                                             (99)         258
Increase (decrease) in, net of liabilities
  Accounts payable                                       1,346          864
  Accrued expenses and other liabilities                 2,752        1,617
  Income taxes payable                                      21        1,430
  Other noncurrent liabilities                              17           (1)
                                                   -----------  -----------
Net cash provided by operating activities               26,672       23,455
Cash flows from investing activities:
Investment in business, net of cash acquired                --         (923)
Capital expenditures                                    (5,057)      (9,518)
Purchases of short-term investments                    (18,990)     (11,888)
Proceeds from sale of short-term investments            19,149       11,744
                                                   -----------  -----------
Net cash used in investing activities                   (4,898)     (10,585)
Cash flows from financing activities:
Proceeds from stock issued                                 409          466
Dividends to shareholders                               (7,129)      (4,710)
Change in restricted cash                                  (20)          21
                                                   -----------  -----------
Net cash used in financing activities                   (6,740)      (4,223)
Effect of exchange rate changes on cash and cash
 equivalents                                             2,193       (1,439)
                                                   -----------  -----------
Net increase (decrease) in cash and cash
 equivalents                                            17,227        7,208
Cash and cash equivalents, beginning of period          54,912       34,478
                                                   -----------  -----------
Cash and cash equivalents, end of period           $    72,139  $    41,686
                                                   ===========  ===========
Supplemental disclosure of cash flow information:
Cash paid:
  Income taxes                                     $    10,775  $     8,161
Supplemental disclosure of noncash transactions:
Common stock issued for shared distribution
 through accrued expenses and other liabilities    $     3,226  $     3,486
Common stock issued for deferred director's
 compensation through other noncurrent liabilities $        --  $       294

Dennis Tichio
Investor Relations

Tricia Fulton
Chief Financial Officer

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