- Tough Quarter, but Signs that Bottom has been Reached - Company
Continues to Aggressively Pursue Cost Reduction Goals - Focus on
Managing Cash - New Financing Secured, Increasing Capacity and
Extending the Maturity Date - All Team Members Impacted, but
Meeting the Challenge of Reducing Costs and Saving Cash in these
Difficult Times AMES, Iowa, Nov. 9 /PRNewswire-FirstCall/ --
Sauer-Danfoss Inc. (NYSE: SHS) today announced its financial
results for the third quarter ended September 30, 2009. Third
Quarter Review Net sales for the quarter declined 48 percent to
$253.1 million, compared to net sales of $490.2 million for the
third quarter of 2008. Excluding the impact of changes in currency
translation rates, sales in the third quarter declined 47 percent
over the same quarter last year. Sales for the third quarter
dropped 52 percent in Europe, 48 percent in the Americas, and 23
percent in the Asia-Pacific region, excluding the impact of
currency. Sales decreased 53 percent in the Work Function segment,
47 percent in the Controls segment, and 43 percent in the Propel
segment, excluding currency. The Company reported a net loss of
$70.8 million, or $1.46 per share, for the third quarter of 2009,
compared to net income of $10.9 million, or $0.22 per share, for
the third quarter of 2008. Third quarter 2009 results include
restructuring and severance costs of $13.2 million, or $0.25 per
share. In addition, third quarter 2009 results were negatively
impacted by a charge of $28.5 million, or $0.59 per share, to
establish non-cash deferred tax asset valuation allowances relating
to operating losses which receive no tax benefit. Sven Ruder,
President and Chief Executive Officer, commented, "The decline in
third quarter sales, which seasonally is our lowest quarter, was in
line with our expectations. Every market and region we serve was
impacted, but we believe that we have hit the bottom and we see a
small step up in demand from our customers. The drop in sales, the
tax asset valuation allowances, and the restructuring costs
associated with our aggressive cost reduction actions all continue
to negatively influence our earnings. The cost reduction actions
have enabled the Company to lower its fixed production and
operating expenses this quarter by $46.8 million, or 29 percent,
compared to the same quarter last year. These expenses will
continue to drop as the full effects of our recent actions are
reflected in our results. These actions include the closure of our
Lawrence, Kansas plant, the closure of our office in Chicago,
Illinois and the sale of our loss-making steering column business
based in Kolding, Denmark." New Orders and Backlog Decline The
Company received new orders of $305.4 million for the third quarter
of 2009, a decrease of 23 percent from the third quarter of 2008.
Excluding currency translation rate changes, orders were down 21
percent. Total backlog at September 30, 2009, was $470.4 million, a
49 percent decline from the same period last year. Ruder added,
"The decline in new orders and backlog are less pronounced than
what we reported last quarter, but still reflect the impact of the
downturn." Nine Month Review The Company reported net sales for the
nine months ended September 30, 2009, of $880.2 million, compared
to net sales of $1,719.1 million for the first nine months of 2008.
Net sales for the first nine months of 2009 decreased 45 percent
over the prior year period, excluding the impact of currency
translation rate changes. Net loss for the first nine months of
2009 was $271.0 million, or $5.61 per share, compared to net income
of $61.5 million, or $1.27 per share, for the same period last
year. Results for the first nine months of 2009 include
restructuring costs of $42.0 million, or $0.82 per share, valuation
allowances on deferred tax assets of $109.2 million, or $2.26 per
share, and a non-cash charge related to goodwill impairment of
$50.8 million, or $1.05 per share. Cash Flow Cash flow from
operations for the first nine months of 2009 was $75.6 million,
compared to $141.2 million for 2008. Capital expenditures for the
first nine months of 2009 were $37.0 million compared to $129.5
million for the same period last year. The Company's debt to total
capital ratio, or leverage ratio, was 70 percent at September 30,
2009, compared to 51 percent at year-end. "I am pleased by the
$147.3 million of cash generated by reducing net working capital
since the beginning of the year, and we still have opportunities
here. We continue our focus on reducing inventories further. We
have also had fantastic support from our business partners,
suppliers and customers alike," stated Ruder. New Debt Refinancing
Secured On November 9, 2009, the Company entered into a new Credit
Agreement with Danfoss A/S, pursuant to which the Company can
borrow up to $690 million on a revolving line of credit from
Danfoss A/S. The proceeds of this borrowing will be used to pay off
and terminate existing credit agreements of $490 million and $50
million with Danfoss A/S. The new Credit Agreement extends the
maturity date of the agreement to April 29, 2011. Danfoss A/S is
the Company's majority stockholder. During the third quarter the
Company determined that it would require additional debt capacity
of between $100 million and $150 million over the course of 2010 to
meet its projected cash needs. The additional cash requirement was
driven by the continued weakness in the global economy and all
markets the Company serves, the resulting reduced cash flows in
2009, and an anticipated increase in sales with the accompanying
need to fund an increase in working capital. "The new Credit
Agreement, which increases our borrowing capacity and extends the
maturity date, gives us the support to complete our aggressive
restructuring plans," stated Ruder. "In addition, it gives us the
liquidity needed to fund the anticipated upturn in our business and
a return to profitability as we move through 2010 and into 2011."
2009 Outlook Ruder continued, "We are seeing a number of
encouraging signs that give us optimism that our markets have
bottomed, and we are poised to begin seeing modest growth in our
business from the lows of the third quarter. Our full-year sales
forecast has stabilized over the last three to four months. Reports
indicate that our customers and their dealers are nearing
completion of their inventory reduction actions. The general
economic news in our markets and regions seems to reflect a coming
modest upturn. However, we are not easing up on our drive for
continued cost reduction and cash saving, and continue to address
remaining non-profitable product lines. All members of the
Sauer-Danfoss team have been impacted in this downturn but have
stepped up to the task of right-sizing the Company and working hard
to improve the Company's cash position. "In light of the
stabilization we have seen, we are able to reaffirm our outlook for
2009," concluded Ruder. Reaffirm 2009 Outlook -- Annual sales
declining 45 to 50 percent from 2008 levels -- Expected loss in the
range of $6.70 to $7.30 per share, which includes the following: --
Impairment charge of $1.05 per share -- Valuation allowances on
deferred tax assets of $2.35 to $2.55 per share -- Workforce
reduction and restructuring costs of $1.00 to $1.20 per share --
Capital expenditures of approximately $60.0 million Webcast
Information Members of Sauer-Danfoss' management team will host a
webcast on November 10 at 10 AM Eastern Time to discuss 2009 third
quarter results. The call is open to all interested parties on
listen-only mode via an audio webcast and can be accessed through
the Investor Relations page of the Company's website at
http://ir.sauer-danfoss.com/. A replay of the call will be
available at that site through November 24, 2009. About
Sauer-Danfoss Sauer-Danfoss Inc. is a worldwide leader in the
design, manufacture, and sale of engineered hydraulic, electric and
electronic systems and components for use primarily in applications
of mobile equipment. Sauer-Danfoss, with 2009 revenues of
approximately $1.2 billion, has sales, manufacturing, and
engineering capabilities in Europe, the Americas, and the
Asia-Pacific region. 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. Readers should bear in mind
that past experience may not be a good guide to anticipating actual
future results. The economies in the U.S., Europe, and Asia-Pacific
continue to suffer from the global recession and credit crisis,
continued weakness in the housing and residential construction
markets, weakness in the commercial and public-sector construction
markets, mounting job losses, and uncertainty surrounding the
effects of government fiscal stimulus plans, interest rates, and
crude oil prices. Although the U.S. economy is showing some signs
of improvement, it appears that the worldwide economic recession
will continue throughout 2009 and into 2010. A prolonged 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; the effectiveness of the Company's
cost-reduction and productivity improvement 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; the ability and willingness of
Danfoss A/S, the Company's majority stockholder, to lend money to
the Company at sufficient levels and on terms favorable enough to
enable the Company to meet its capital needs; the Company's ability
to access the capital markets or traditional credit sources to
supplement or replace the Company's borrowings from Danfoss A/S if
the need should arise; the Company's ability over time to reduce
the relative level of debt compared to equity on its balance sheet;
claims, including, without limitation, warranty claims, field
recall 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, especially in light of
the current credit crisis; 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; credit market disruptions and significant changes
in capital market liquidity and funding costs affecting the Company
and its customers; general economic conditions, including interest
rates, the rate of inflation, and commercial and consumer
confidence; energy prices; the impact of new or changed tax and
other legislation and regulations in jurisdictions in which the
Company and its affiliates operate; actions by the U.S. Federal
Reserve Board and the central banks of other nations; actions by
other regulatory agencies, including those taken in response to the
global credit crisis; actions by rating agencies; 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 this list of cautionary statements and risk factors
is not exhaustive. The Company expressly disclaims any obligation
or undertaking to release publicly any updates or changes to these
forward-looking statements to reflect future events or
circumstances. The foregoing risks and uncertainties are further
described in Item 1A (Risk Factors) in the Company's latest annual
report on Form 10-K filed with the SEC, which should be reviewed in
considering the forward-looking statements contained in this press
release Internet: http://www.sauer-danfoss.com/ CONDENSED
CONSOLIDATED STATEMENTS OF INCOME Three Months Ended Nine Months
Ended September September September September (Dollars in thousands
30, 30, 30, 30, except per share data) 2009 2008 2009 2008
--------------------- ---- ---- ---- ---- Net sales 253,074 490,188
880,180 1,719,125 Cost of sales 238,120 378,322 776,405 1,321,528
------------- ------- ------- ------- --------- Gross profit 14,954
111,866 103,775 397,597 Research and development 14,098 21,841
45,868 62,183 Selling, general and administrative 47,287 64,571
155,017 202,827 Loss (gain) on sale of business and asset disposal
3,144 123 11,729 (685) Impairment charges -- -- 50,841 --
------------------ --- --- ------- --- Total operating expenses
64,529 86,535 263,455 264,325 ------------------------ ------
------ ------- ------- Income (loss) from operations (49,575)
25,331 (159,680) 133,272 Nonoperating income (expenses): Interest
expense, net (13,882) (6,301) (33,005) (19,310) Loss on early
retirement of debt -- -- (10,705) -- Other, net (427) 140 1,684
(3,729) ------------- ---- --- ----- ------ Income (loss) before
income taxes (63,884) 19,170 (201,706) 110,233 Income tax expense
(6,023) (6,766) (59,169) (32,855) ------------------ ------ ------
------- ------- Net income (loss) (69,907) 12,404 (260,875) 77,378
Net income attributable to noncontrolling interest, net of tax
(894) (1,503) (10,157) (15,910) -------------------------- ----
------ ------- ------- Net income (loss) attributable to
Sauer-Danfoss Inc. (70,801) 10,901 (271,032) 61,468
------------------- ------- ------ -------- ------ Net income
(loss) per share: Basic net income (loss) per common share (1.46)
0.23 (5.61) 1.27 Diluted net income (loss) per common share (1.46)
0.22 (5.61) 1.27 --------------------------- ----- ---- ----- ----
Weighted average shares outstanding Basic 48,351 48,236 48,334
48,223 Diluted 48,351 48,571 48,334 48,547 Cash dividends declared
per common share 0.00 0.18 0.00 0.54 ---------------------------
---- ---- ---- ---- BUSINESS SEGMENT INFORMATION Three Months Ended
Nine Months Ended (Dollars in September 30, September 30, September
30, September 30, thousands) 2009 2008 2009 2008 ----------- ----
---- ---- ---- Net sales Propel 129,468 228,809 472,249 833,645
Work Function 61,275 137,039 207,115 460,407 Controls 62,331
124,340 200,816 425,073 ---------------- ------ ------- -------
------- Total 253,074 490,188 880,180 1,719,125 ----- -------
------- ------- --------- Segment Income (Loss) Propel (8,723)
31,803 10,345 148,610 Work Function (23,586) 1,574 (59,397) 6,282
Controls (11,441) 4,319 (91,085) 15,827 Global Services and Other
Expenses, net (6,252) (12,225) (17,859) (41,176) -----------------
------ ------- ------- ------- Total (50,002) 25,471 (157,996)
129,543 ----- ------- ------ -------- ------- CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS Nine Months Ended September
30, September 30, (Dollars in thousands) 2009 2008
--------------------- ---- ---- Cash flows from operating
activities: Net income (loss) (271,032) 61,468 Depreciation and
amortization 80,974 86,313 Impairment charges 50,841 --
Noncontrolling interest 10,157 15,910 Net change in receivables,
inventories, and payables 147,293 (19,680) Other, net 57,399
(2,845) ---------- ------ ------ Net cash provided by operating
activities 75,632 141,166 ------------------------------ ------
------- Cash flows from investing activities: Purchases of
property, plant and equipment (36,962) (129,549) Proceeds from sale
of property, plant and equipment 1,281 5,640 Advances to
noncontrolling interest (15,500) --
----------------------------------- ------- Net cash used in
investing activities (51,181) (123,909)
------------------------------------- ------- -------- Cash flows
from financing activities: Net borrowings on notes payable and debt
instruments 36,656 16,678 Payments for debt financing costs (8,575)
-- Payment of prepayment penalty (8,064) -- Settlement of interest
rate swaps (2,000) -- Cash dividends (8,689) (26,039) Distribution
to minority interest partners (6,580) (7,161)
--------------------------------- ------ ------ Net cash provided
by (used in) financing activities 2,748 (16,522)
----------------------------- ----- ------- Effect of exchange rate
changes (6,818) 327 ------------------------------- ------ --- Net
increase in cash and cash equivalents 20,381 1,062 Cash and cash
equivalents at beginning of year 23,145 26,789
-------------------------------------- ------ ------ Cash and cash
equivalents at end of period 43,526 27,851
----------------------------------- ------ ------ CONDENSED
CONSOLIDATED BALANCE SHEETS September 30, December 31, (Dollars in
thousands) 2009 2008 --------------------- ---- ---- ASSETS Current
assets: Cash and cash equivalents 43,526 23,145 Accounts
receivable, net 162,657 239,881 Inventories 202,691 325,496 Other
current assets 76,928 51,946 -------------------- ------ ------
Total current assets 485,802 640,468 Property, plant and equipment,
net 551,732 598,435 Other assets 122,303 228,773 ------------
------- ------- Total assets 1,159,837 1,467,676 ------------
--------- --------- LIABILITIES AND STOCKHOLDERS' EQUITY Current
liabilities: Notes payable and bank overdrafts 47,679 65,512
Long-term debt due within one year 155,770 58,005 Accounts payable
88,510 149,512 Other accrued liabilities 111,806 146,888
------------------------- ------- ------- Total current liabilities
403,765 419,917 ------------------------- ------- ------- Long-term
debt 339,620 367,922 Long-term pension liability 86,240 90,966
Deferred income taxes 44,238 44,243 Other liabilities 51,954 66,727
Noncontrolling interest 72,182 67,655 Stockholders' equity of
Sauer-Danfoss Inc. 161,838 410,246
------------------------------------- ------- ------- Total
liabilities and stockholders' equity 1,159,837 1,467,676
----------------------------------- --------- --------- Debt to
total capital ratio (1) 70% 51% ------------------------------ --
-- (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, noncontrolling
interest in net assets of consolidated companies, and stockholders'
equity. DATASOURCE: Sauer-Danfoss Inc. CONTACT: Kenneth D.
McCuskey, Vice President and Chief Accounting Officer,
+1-515-239-6364, Fax: +1-515-956-5364, , or John N. Langrick,
Director of Finance Europe, +49-4321-871-190, Fax:
+49-4321-871-121, , both of Sauer-Danfoss Inc. Web Site:
http://www.sauer-danfoss.com/
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