- Company Reports Higher Sales and Strong Cash Flow CHICAGO, Nov. 1
/PRNewswire-FirstCall/ -- Sauer-Danfoss Inc. (NYSE: SHS; FSE: SAR)
announced its financial results today for the third quarter ended
September 30, 2005. THIRD QUARTER REVIEW Third Quarter Sales
Strong, but Slowing Growth Net sales for the third quarter 2005
increased 5 percent to $342.0 million, compared to sales of $324.7
million for the same period last year, with little impact of
currency translation rate changes. On a comparable basis, sales
increased 3 percent in the Americas while sales in Europe and
Asia-Pacific increased 5 percent and 20 percent, respectively. By
operating segment, on a comparable basis, Propel, Controls and Work
Function sales all increased, by 8 percent, 4 percent and 3
percent, respectively. David Anderson, President and Chief
Executive Officer, stated, "While we continue to report record
sales, our sales growth rate in a couple of key segments,
specifically in the Americas, has slowed considerably. This is most
notable in the agricultural and weather-sensitive turf care
markets, which together were down over 20 percent, offset by strong
increases in the construction, road building and material handling
markets. At the same time, our sales in Asia Pacific are up 20
percent compared to last year due to further improvement in the
Japanese export market." Third Quarter Net Earnings Short of
Expectations Net income for the third quarter 2005 was $4.3
million, or $0.09 per share, compared to a third quarter 2004 net
income of $7.7 million, or $0.16 per share. Third quarter 2005
earnings were impacted by expenses related to the continued
implementation of a common company-wide business system of $4.7
million, or $0.06 per share. Third quarter 2004 results were
impacted by restructuring costs, which amounted to $2.1 million, or
$0.03 per share. Anderson stated, "We are not satisfied with our
third quarter earnings which have been negatively impacted in a
couple of specific areas. The first is related to the expenses
incurred in the process of implementing a common company-wide
business system. Overall the project is being executed extremely
well, ahead of schedule and only slightly over budget. We continue
to fund this project more aggressively than originally planned with
outside consulting assistance as well as through the significant
redeployment of internal resources. It is very important that we
complete this project, on or ahead of schedule, so we can minimize
the amount of time we are burdened with duplicate costs in IT
associated with running multiple systems and begin to realize the
benefits from global processes deployed. "Secondly, we are still
being negatively impacted by higher than normal operational costs
associated with specific products manufactured in Euro-based
countries that are in heavy and rapidly increasing demand in the
U.S. Considerable progress has been made in establishing additional
capacity in the U.S. to reduce what have been significant financial
penalties and productivity inefficiencies resulting from expedited
manufacturing schedules and premium freight methods. "Finally, a
shift in market mix driven by the weakening of the turf care and
agricultural markets in the Americas has also had a negative impact
on earnings." Orders and Backlog Show Strong Gains Which Point to
Continued Growth Orders received for the third quarter 2005 were
$364.3 million, up 13 percent from the same period last year, with
little impact from currency translation rate changes. Total backlog
at the end of the third quarter 2005 was $515.6 million, up 24
percent from the third quarter of 2004. Anderson commented,
"Although our rate of sales growth during the quarter slowed, our
orders and backlog continue to be strong. Our backlog, up 24
percent over last year compared to a comparable increase of 18
percent we reported last quarter, gives us confidence that we will
continue to report strong sales growth beyond the fourth quarter."
NINE MONTH REVIEW Record Nine Month Sales, Continued Strong Cash
Flow Net sales for the nine months ended September 30, 2005, were
$1,202.7 million, an increase of 13 percent over sales of $1,064.9
million for the first nine months of 2004. On a comparable basis,
excluding the impact of currency fluctuations, net sales were up 11
percent over last year. Net income for the first nine months of
2005 was $34.7 million, or $0.73 per share, compared to net income
for the same period last year of $40.4 million, or $0.85 per share.
2005 results were impacted by $14.3 million, or $0.19 per share, of
costs relating to the implementation of our company-wide business
system, compared to $1.9 million or $0.02 per share for 2004.
Strong Cash Flow Cash flow from operations for the first nine
months of 2005 was $102.2 million, compared with last year's record
level of $115.3 million. Capital expenditures for the nine-month
period were $61.0 million. Capital expenditures were $46.9 million
for the comparable period in 2004. At the end of the third quarter
the Company's debt to total capital ratio, or leverage ratio, was
at 39 percent. "Cash flow from operations continues to be strong
for the quarter, generating over $30.0 million," stated David
Anderson. "This strong cash flow has allowed us to fund needed
investments in increased production capacity and our common
business system project, and higher dividend levels, while still
reducing our debt." Emphasis on Capacity and Margin Management
Anderson continued, "There are a couple of important near-term
capacity and production location issues that we are addressing
which offer opportunities to reduce costs and improve our overall
operational efficiencies. We also continue to place constant
attention to the ongoing responsibilities of managing our margins
and market pricing. As part of these efforts we have undertaken an
aggressive program to phase out production of several legacy
products that are no longer contributing adequately to our
earnings. We have also announced a global price increase effective
January 1, 2006, which differentiates by geographic region, market
segment, and product and will roll previous surcharges into our
base pricing." OUTLOOK "The remainder of the year represents a
significant challenge for us. Forecast sales levels for the fourth
quarter in combination with a continued negative impact from market
mix will limit our ability to achieve margins at our originally
projected levels," stated Anderson. "Additionally, we expect
expenses for targeted restructuring activities in Europe to impact
results by approximately $0.05 per share, and delays in working
through the phase out of our legacy products will keep us from
realizing the resulting benefits in the fourth quarter. "In total,
with all these factors considered, we are revising our outlook for
full year 2005 earnings to be in the range of $0.60 to $0.70 per
share. "While 2005 will turn out lower results than originally
projected, we have numerous actions underway which will be realized
in 2006 and beyond. We remain very optimistic for our future given
our longstanding record of strong market share growth supported by
our broad global coverage and the most technologically advanced
product portfolio in our Company's history," concluded Anderson.
Sauer-Danfoss Inc. is a worldwide leader in the design,
manufacture, and sale of engineered hydraulic and electronic
systems and components, for use primarily in applications of mobile
equipment. Sauer-Danfoss, with approximately 8,500 employees
worldwide and revenue of more than $1.5 billion, has sales,
manufacturing, and engineering capabilities in Europe, the
Americas, and the Asia-Pacific region. The Company's executive
offices are located near Chicago in Lincolnshire, Illinois. More
details online at http://www.sauer-danfoss.com/. This press release
contains certain statements that constitute "forward- looking
statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. Forward-looking statements provide current
expectations of future events based on certain assumptions and
include any statement that does not directly relate to any
historical or current fact. All statements regarding future
performance, growth, sales and earnings projections, conditions or
developments are forward-looking statements. Words such as
"anticipates," "in the opinion," "believes," "intends," "expects,"
"may," "will," "should," "could," "plans," "forecasts,"
"estimates," "predicts," "projects," "potential," "continue," and
similar expressions may be intended to identify forward-looking
statements. Actual future results may differ materially from those
described in the forward-looking statements due to a variety of
factors, including the fact that the U.S. economy generally, and
the construction, road building, material handling and specialty
vehicle markets specifically, has, in recent months, been stronger
than in recent years. It is difficult to determine if past
experience is a good guide to the future. While the economy in the
U.S. has generally been improving, it remains unstable due to the
uncertainty surrounding continued job creation, interest rates,
crude oil prices, and the U.S. government's stance on the weaker
dollar. The economic situation in Europe has not necessarily
followed the improvement that has occurred in the U.S., and the
economy in China has been slowed through government intervention.
Any downturn in the Company's business segments could adversely
affect the Company's revenues and results of operations. Other
factors affecting forward-looking statements include, but are not
limited to, the following: specific economic conditions in the
agriculture, construction, road building, turf care, material
handling and specialty vehicle markets and the impact of such
conditions on the Company's customers in such markets; the cyclical
nature of some of the Company's businesses; the ability of the
Company to win new programs and maintain existing programs with its
original equipment manufacturer (OEM) customers; the highly
competitive nature of the markets for the Company's products as
well as pricing pressures that may result from such competitive
conditions; the continued operation and viability of the Company's
significant customers; the Company's execution of internal
performance plans; difficulties or delays in manufacturing;
cost-reduction and productivity efforts; competing technologies and
difficulties entering new markets, both domestic and foreign;
changes in the Company's product mix; future levels of indebtedness
and capital spending; claims, including, without limitation,
warranty claims, field retrofit claims, product liability claims,
charges or dispute resolutions; ability of suppliers to provide
materials as needed and the Company's ability to recover any price
increases for materials in product pricing; the Company's ability
to attract and retain key technical and other personnel; labor
relations; the failure of customers to make timely payment; any
inadequacy of the Company's intellectual property protection or the
potential for third-party claims of infringement; global economic
factors, including currency exchange rates; general economic
conditions, including interest rates, the rate of inflation, and
commercial and consumer confidence; energy prices; governmental
laws and regulations affecting operations, including tax
obligations; changes in accounting standards; worldwide political
stability; the effects of terrorist activities and resulting
political or economic instability; natural catastrophes; U.S.
military action overseas; and the effect of acquisitions,
divestitures, restructurings, product withdrawals, and other
unusual events. The Company cautions the reader that these lists of
cautionary statements and risk factors may not be exhaustive. The
Company expressly disclaims any obligation or undertaking to
release publicly any updates or changes to these forward-looking
statements that may be made to reflect any future events or
circumstances. CONDENSED CONSOLIDATED STATEMENTS OF INCOME Three
Months Ended Nine Months Ended (Dollars in September 30, September
30, September 30, September 30, thousands 2005 2004 2005 2004
except per share data) Net sales 342,032 324,729 1,202,713
1,064,900 Cost of sales 265,827 246,918 918,144 793,225 Gross
profit 76,205 77,811 284,569 271,675 Research and development
14,626 11,814 45,548 37,934 Selling, general and administrative
50,853 45,477 164,926 142,706 Total operating expenses 65,479
57,291 210,474 180,640 Income from operations 10,726 20,520 74,095
91,035 Nonoperating income (expense): Interest expense, net (4,011)
(4,191) (12,358) (13,057) Minority interest in income of
consolidated companies (1,525) (4,103) (15,415) (17,416) Other, net
(221) (551) 3,046 (105) Income before income taxes 4,969 11,675
49,368 60,457 Income taxes (677) (3,931) (14,704) (20,083) Net
income 4,292 7,744 34,664 40,374 Net income per share: Basic net
income per common share 0.09 0.16 0.73 0.85 Diluted net income per
common share 0.09 0.16 0.73 0.85 Weighted average shares
outstanding Basic 47,458 47,412 47,455 47,409 Diluted 47,872 47,479
47,745 47,455 Cash dividends declared per common share 0.12 0.10
0.36 0.24 Business Segment Information Three Months Ended Nine
Months Ended (Dollars in September 30, September 30, September 30,
September 30, thousands) 2005 2004 2005 2004 Net sales Propel
156,634 145,053 585,221 498,432 Work Function 102,581 99,943
337,942 313,835 Controls 82,817 79,733 279,550 252,633 Total
342,032 324,729 1,202,713 1,064,900 Segment Income (Loss) Propel
16,545 19,787 83,572 76,402 Work Function (863) 5,119 4,972 21,488
Controls 4,954 6,727 21,027 23,328 Global Services and Other
Expenses, net (10,131) (11,664) (32,430) (30,288) Total 10,505
19,969 77,141 90,930 Condensed Consolidated Statements of Cash
Flows Nine Months Ended September 30, September 30, (Dollars in
thousands) 2005 2004 Cash flows from operating activities: Net
income 34,664 40,374 Depreciation and amortization 67,439 60,626
Minority interest in income of consolidated companies 15,415 17,416
Net change in receivables, inventories, and payables (51,812)
(44,088) Other, net 36,467 40,930 Net cash provided by operating
activities 102,173 115,258 Cash flows from investing activities:
Purchases of property, plant and equipment (60,982) (46,915)
Proceeds from sales of property, plant and equipment 970 636
Payments for acquisitions, net of cash acquired -- (4,156) Net cash
used in investing activities (60,012) (50,435) Cash flows from
financing activities: Net borrowings (repayments) on notes payable
and bank overdrafts 6,304 (27,285) Net repayments of long-term debt
(21,357) (18,827) Cash dividends (16,143) (9,962) Distribution to
minority interest partners (5,925) (9,960) Net cash used in
financing activities (37,121) (66,034) Effect of exchange rate
changes (3,001) 985 Net increase in cash and cash equivalents 2,039
(226) Cash and cash equivalents at beginning of year 11,273 15,086
Cash and cash equivalents at end of period 13,312 14,860 Condensed
Consolidated Balance Sheets September 30, December 31, (Dollars in
thousands) 2005 2004 Assets Current assets: Cash and cash
equivalents 13,312 11,273 Accounts receivable, net 225,208 233,146
Inventories 242,033 241,562 Other current assets 33,082 40,131
Total current assets 513,635 526,112 Property, plant and equipment,
net 440,429 478,543 Other assets 192,683 206,926 Total assets
1,146,747 1,211,581 Liabilities and stockholders' equity Current
liabilities: Notes payable and bank overdrafts 27,360 23,609
Long-term debt due within one year 210,543 244,987 Accounts payable
96,300 130,071 Other accrued liabilities 111,029 99,320 Total
current liabilities 445,232 497,987 Long-term debt 70,943 76,496
Long-term pension liability 51,849 57,148 Deferred income taxes
45,588 48,454 Other liabilities 42,240 47,494 Minority interest in
net assets of consolidated companies 49,039 39,927 Stockholders'
equity 441,856 444,075 Total liabilities and stockholders' equity
1,146,747 1,211,581 Number of employees at end of period 8,550
8,275 Debt to total capital ratio (1) 39% 42% (1) The debt to total
capital ratio is calculated by dividing total interest bearing debt
by total capital. Total interest bearing debt is the sum of notes
payable and bank overdrafts, long-term debt due within one year,
and long-term debt. Total capital is the sum of total interest
bearing debt, minority interest in net assets of consolidated
companies, and stockholders' equity. DATASOURCE: Sauer-Danfoss Inc.
CONTACT: Investor Relations - Kenneth D. McCuskey, Vice President
and Chief Accounting Officer, +1-515-239-6364, Fax,
+1-515-239-6443, , or John N. Langrick, Director of Finance Europe,
+49-4321-871-190, Fax, +49-4321-871-121, , all of Sauer-Danfoss
Inc. Web site: http://www.sauer-danfoss.com/
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