Exhibit 99.1 FOR RELEASE: Immediately CONTACT: RICHARD ARTER INVESTOR RELATIONS 941-362-1200 RICHARD DOBBYN CHIEF FINANCIAL OFFICER 941-362-1200 SUN HYDRAULICS CORPORATION THIRD QUARTER NET INCOME EXCEEDS EXPECTATIONS SARASOTA, FLA, NOVEMBER 2, 2004 - Sun Hydraulics Corporation (NASDAQ: SNHY) reported financial results for the third quarter 2004 as follows: (Dollars in millions except net income per share) September 25, September 27, 2004 2003 Increase Three Months Ended Net Sales $ 23.2 $ 17.9 30% Net Income $ 1.9 $ 0.5 280% Net Income per share: Basic $ 0.27 $ 0.08 238% Fully Diluted $ 0.27 $ 0.08 238% Nine Months Ended Net Sales $ 71.1 $ 53.2 34% Net Income $ 5.8 $ 1.6 263% Net Income per share: Basic $ 0.86 $ 0.24 258% Fully Diluted $ 0.85 $ 0.24 254% Sales increases by business segment were as follows: 3rd Quarter Year-to-date ----------- ------------ United States 31% 37% United Kingdom 19% 15% Germany 46% 42% Korea 17% 30% Sun Hydraulics President, Allen Carlson, commented, "Sales increased 30% during the quarter compared to last year. Our flexible production capability and our responsive supplier base continue to provide excellent delivery performance to our customers. Sales volume and productivity increases this quarter helped to offset increased material costs." Gross profit for the third quarter increased 56% compared to the same quarter last year. Gross profit as a percentage of net sales increased to 30% from 25% last year. "While we are now sharing in the raw material cost increases experienced by our suppliers, our production unit costs are unchanged," Carlson said. "We recently announced a modest price increase on selected products effective the beginning of next year. This will combat the rise in material costs as we continue to invest time and money to further improve our production processes". OUTLOOK Third quarter orders increased 33% compared to last year, and October orders came in at an even higher rate. Fourth quarter shipments are estimated to be $22.0 million, which would be a 25% increase over the same quarter last year. The majority of this increase is projected to be in the U.S. operation as the rate of growth internationally is projected to slow. Net income per share on sales of $22.0 million should yield approximately $0.15, which would bring net income per share for the year to $1.00. WEBCAST Sun Hydraulics Corporation will broadcast its third quarter financial results conference call live over the Internet at 2:30 P.M. E.T. tomorrow, November 3, 2004. The conference call will be in conjunction with an Investor Open House to be held at the Company's facility at 701 Tallevast Road, Sarasota, Florida, from 2-5 P.M. 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. If an individual wishes to ask questions directly during the webcast, the conference call may be accessed by dialing 1-800-361-0912. 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 third quarter earnings release as possible during the webcast time. -2- 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 26, 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 -3- 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) SEPTEMBER 25, 2004 DECEMBER 27, 2003 (UNAUDITED) ASSETS Current assets: Cash and cash equivalents $ 7,199 $ 4,794 Restricted cash 433 425 Accounts receivable, net of allowance for doubtful accounts of $193 and $187 8,420 6,215 Inventories 6,794 6,621 Other current assets 580 524 -------- -------- Total current assets 23,426 18,579 Property, plant and equipment, net 42,539 42,829 Other assets 1,593 1,624 -------- -------- TOTAL ASSETS $ 67,558 $ 63,032 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 2,214 $ 2,440 Accrued expenses and other liabilities 3,750 2,217 Long-term debt due within one year 991 937 Dividends payable 345 270 Taxes payable 2,101 51 -------- -------- Total current liabilities 9,401 5,915 Long-term debt due after one year 11,379 17,270 Deferred income taxes 4,363 4,456 Other noncurrent liabilities 305 328 -------- -------- Total liabilities 25,448 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 6,906,214 shares outstanding, September 25, 2004 6,757,941 shares outstanding, December 27, 2003 7 7 Capital in excess of par value 27,796 26,478 Unearned compensation related to outstanding restricted stock (415) (601) Retained earnings 12,391 7,522 Accumulated other comprehensive income 2,331 1,657 -------- -------- Total shareholders' equity 42,110 35,063 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 67,558 $ 63,032 ======== ======== -4- SUN HYDRAULICS CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA) THREE MONTHS ENDED SEPTEMBER 25, 2004 SEPTEMBER 27, 2003 (UNAUDITED) (UNAUDITED) NET SALES $ 23,164 $ 17,851 Cost of sales 16,117 13,328 -------- -------- GROSS PROFIT 7,047 4,523 Selling, engineering and administrative expenses 4,002 3,604 -------- -------- OPERATING INCOME 3,045 919 Interest expense 123 137 Foreign currency transaction (gain)/loss (43) (1) Miscellaneous (income)/expense, net (7) (1) -------- -------- INCOME BEFORE INCOME TAXES 2,972 784 Income tax provision 1,092 275 -------- -------- NET INCOME $ 1,880 $ 509 ======== ======== BASIC NET INCOME PER COMMON SHARE $ 0.27 $ 0.08 WEIGHTED AVERAGE BASIC SHARES OUTSTANDING 6,895 6,591 DILUTED NET INCOME PER COMMON SHARE $ 0.27 $ 0.08 WEIGHTED AVERAGE DILUTED SHARES OUTSTANDING 6,972 6,635 DIVIDENDS DECLARED PER SHARE $ 0.05 $ 0.04 -5- SUN HYDRAULICS CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA) NINE MONTHS ENDED SEPTEMBER 25, 2004 SEPTEMBER 27, 2003 (UNAUDITED) (UNAUDITED) NET SALES $ 71,077 $ 53,188 Cost of sales 49,338 39,059 -------- -------- GROSS PROFIT 21,739 14,129 Selling, engineering and administrative expenses 12,262 11,491 -------- -------- OPERATING INCOME 9,477 2,638 Interest expense 405 415 Foreign currency transaction (gain)/loss (75) (190) Miscellaneous (income)/expense, net (25) (24) -------- -------- INCOME BEFORE INCOME TAXES 9,172 2,437 Income tax provision 3,343 857 -------- -------- NET INCOME $ 5,829 $ 1,580 ======== ======== BASIC NET INCOME PER COMMON SHARE $ 0.86 $ 0.24 WEIGHTED AVERAGE BASIC SHARES OUTSTANDING 6,811 6,491 DILUTED NET INCOME PER COMMON SHARE $ 0.85 $ 0.24 WEIGHTED AVERAGE DILUTED SHARES OUTSTANDING 6,869 6,535 DIVIDENDS DECLARED PER SHARE $ 0.14 $ 0.12 -6- SUN HYDRAULICS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) NINE MONTHS ENDED SEPTEMBER 25, 2004 SEPTEMBER 27, 2003 (UNAUDITED) (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 5,829 $ 1,580 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 4,073 3,907 Loss on disposal of assets 43 367 Deferred income taxes (93) (1) Allowance for doubtful accounts 6 35 Amortization of compensation expense 186 116 (Increase) decrease in: Accounts receivable (2,211) (2,219) Inventories (173) 34 Taxes receivable -- -- Other current assets (56) 612 Other assets 31 (516) Increase (decrease) in: Accounts payable (226) 474 Accrued expenses and other liabilities 1,533 1,941 Dividends payable 75 11 Taxes payable 2,050 684 Other liabilities (23) (38) -------- -------- Net cash provided by operating activities 11,044 6,987 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (3,531) (3,090) Proceeds from dispositions of equipment 19 11 -------- -------- Net cash used in investing activities (3,512) (3,079) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from debt -- 18,850 Repayment of debt (5,837) (8,411) Proceeds from stock issuance 1,319 956 Dividends to shareholders (960) (14,133) -------- -------- Net cash used in financing activities (5,478) (2,738) Effect of exchange rate changes on cash and cash equivalents 359 (58) Net increase in cash and cash equivalents 2,413 1,112 -------- -------- Cash and cash equivalents, beginning of period 5,219 3,958 -------- -------- Cash and cash equivalents, end of period $ 7,632 $ 5,070 ======== ======== Supplemental disclosure of cash flow information: Cash paid/(received): Interest $ 405 $ 415 Income taxes $ 1,386 $ 174 -7- UNITED UNITED STATES KOREA GERMANY KINGDOM ELIMINATION CONSOLIDATED THREE MONTHS ENDED SEPTEMBER 25, 2004 Sales to unaffiliated customers $ 14,676 $ 1,900 $ 3,390 $ 3,198 $ -- $ 23,164 Intercompany sales 4,112 -- 19 465 (4,596) -- Operating income/(loss) 1,921 201 791 135 (3) 3,045 Depreciation 960 34 132 259 -- 1,385 Capital expenditures 883 32 38 99 -- 1,052 THREE MONTHS ENDED SEPTEMBER 27, 2003 Sales to unaffiliated customers $ 11,208 $ 1,630 $ 2,316 $ 2,697 $ -- $ 17,851 Intercompany sales 2,918 -- 9 323 (3,250) -- Operating income/(loss) 508 187 432 (190) (18) 919 Depreciation 900 32 94 235 -- 1,261 Capital expenditures 757 386 111 466 -- 1,720 NINE MONTHS ENDED SEPTEMBER 25, 2004 Sales to unaffiliated customers $ 44,566 $ 6,744 $ 9,860 $ 9,907 $ -- $ 71,077 Intercompany sales 12,029 -- 52 1,301 (13,382) -- Operating income/(loss) 6,361 776 2,013 338 (11) 9,477 Depreciation 2,834 102 341 795 -- 4,072 Capital expenditures 2,922 40 105 465 -- 3,532 NINE MONTHS ENDED SEPTEMBER 27, 2003 Sales to unaffiliated customers $ 32,473 $ 5,175 $ 6,951 $ 8,589 $ -- $ 53,188 Intercompany sales 9,794 -- 33 1,032 (10,859) -- Operating income/(loss) 1,806 541 925 (655) 21 2,638 Depreciation 2,752 89 285 781 -- 3,907 Capital expenditures 1,688 418 203 781 -- 3,090 -8-