Sauer-Danfoss Inc. Reports First Quarter 2005 Results * Increased
Sales in all Regions and Segments CHICAGO, May 10
/PRNewswire-FirstCall/ -- Sauer-Danfoss Inc. (NYSE: SHS; FSE: SAR)
today announced its financial results for the first quarter ended
March 31, 2005. FIRST QUARTER REVIEW Strong Sales Growth in all
Regions and Segments Net sales for the first quarter 2005 increased
17 percent to $422.6 million, compared to net sales of $361.1
million for first quarter 2004. Excluding the impact of currency
translation rate changes, sales increased 14 percent over the prior
year period with gains of 25 percent in the Americas, 5 percent in
Europe, and 14 percent in the Asia-Pacific region. Sales of the
Propel segment were particularly strong, growing 20 percent,
excluding the impact of currency fluctuations, followed by a 12
percent increase in the Controls segment, while sales of the Work
Function segment were up 5 percent compared with the prior year.
David Anderson, President and Chief Executive Officer, commented,
"Our sales grew in all regions and segments with the strong U.S.
market continuing to lead the way. The growth is all the more
impressive considering that we are comparing to a strong first
quarter in 2004. Most encouraging was the return of solid growth in
the Asia-Pacific region sales after the past few quarters of little
growth. Sales into the Japanese market were the major contributor,
as the Chinese mobile equipment market remains under the influence
of government constraints." Earnings Level with Prior Year Net
income for the first quarter 2005 was $10.8 million, or $0.23 per
share, close to the first quarter 2004 net income of $11.0 million,
or $0.23 per share. First quarter 2005 results were impacted by
Sarbanes-Oxley compliance costs incurred in 2005 related to the
assessment of 2004 controls over financial reporting ($0.03 per
share), long-term incentive plan costs ($0.03 per share), and costs
relating to the implementation of a new common business system
platform ($0.06 per share), together totaling $0.12 per share. In
comparison, first quarter 2004 results were impacted by higher tax
expense and costs related to the completion of a plant closure,
totaling $0.05 per share. Excluding these negative impacts from
both years, first quarter 2005 earnings increased 25 percent
compared to first quarter 2004. Anderson stated, "Our first quarter
results, while not up to our higher expectations, and effectively
increasing our challenge for the remainder of the year, do not
change our outlook for 2005. Our earnings and year-over-year
comparisons are affected by special costs of very different
natures. The high compliance costs are a result of completing work
related to the 2004 internal control certification. We plan to
significantly reduce these costs as we move into the second year of
compliance. The incentive plan costs, while remaining at the level
of the first quarter, will become much more comparable with prior
year quarters as we move through this year. And finally, the
expenditures associated with the new business system
implementation, while similar in amount to 2004, are no longer
capitalized but are reported as period costs." Anderson continued,
"We have also incurred significant costs as a result of heavy
expediting and overtime activities this quarter as we responded to
the continuing surge in U.S. customer demand. The demand exceeded
our most optimistic forecasts in a number of areas and is a
reflection of our ability to substantially outgrow our markets. We
strongly believe that in situations like this we have to do
everything possible to not shortchange our customers. While these
extra efforts to keep our customer's production rates unconstrained
hurt our short-term earnings, they have been very influential to
our ability to grow market share over the business cycle. At the
same time, we have taken aggressive actions to relieve production
areas that are overloaded through increased outsourcing and
expenditures for capital. In addition we are continuing to move
ahead with our previously announced plans of setting up North
American production for products that in the past were only
manufactured in Europe. This action will have the effect of
reducing our freight costs and the currency impact of a weak dollar
while increasing our responsiveness and flexibility to the market."
Orders and Backlog Continue Strong Growth Over Prior Year Orders
received for the first quarter 2005 were $431.1 million, up 18
percent from the same period last year. Excluding currency
translation rate changes, orders were up 15 percent. Total backlog
at the end of first quarter 2005 was $506.6 million, a 24 percent
increase from the end of first quarter 2004. Excluding currency
impact, backlog rose 20 percent. Anderson stated, "Our strong
orders and backlog reflects the robust markets and increased
business from new applications, product introductions, and gains in
market share." Good Cash Flow Helps to Support Capacity Investments
Cash flow from operations for the first quarter 2005 was $5.6
million compared to last year's level of $11.2 million. Capital
expenditures for the first quarter 2005 were $18.4 million, a
considerable increase compared to last year's $10.8 million,
primarily reflecting capacity investments to support sales growth.
The debt to total capital ratio, or leverage ratio, increased from
42 percent at year-end to 43 percent at the end of the first
quarter 2005. OUTLOOK Anderson concluded, "Based on the strong
sales outlook for the year and the actions we are taking to
significantly reduce compliance costs and to eliminate the costs
related to capacity constraints, we continue to see our 2005 full
year after-tax earnings in the range of $1.10 to $1.25 per share;
however, we currently expect to be in the lower part of the range."
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 8,000 employees
worldwide and revenue of more than $1.4 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 agriculture, construction, road building, turf care, material
handling and specialty vehicle markets specifically, has, in recent
months, been stronger than in prior years. It is difficult to
determine if past experience is a good guide to the future. While
the economy in the U.S. has 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. Internet: http://www.sauer-danfoss.com/ CONDENSED
CONSOLIDATED STATEMENTS OF INCOME Three Months Ended (Dollars in
thousands March 31, March 31, except share and per share data) 2005
2004 Net sales 422,585 361,054 Cost of sales 323,597 273,377 Gross
profit 98,988 87,677 Research and development 15,406 13,213
Selling, general and administrative 57,068 47,223 Total operating
expenses 72,474 60,436 Income from operations 26,514 27,241
Nonoperating income (expenses): Interest expense, net (4,319)
(4,534) Minority interest and earnings of affiliates, net (7,383)
(5,823) Other, net 1,611 498 Income before income taxes 16,423
17,382 Income taxes (5,613) (6,359) Net income 10,810 11,023 Net
income per share: Basic net income per common share 0.23 0.23
Diluted net income per common share 0.23 0.23 Weighted average
shares outstanding Basic 47,451 47,405 Diluted 47,659 47,461 Cash
dividends per common share 0.12 0.07 BUSINESS SEGMENT INFORMATION
Three Months Ended March 31, March 31, (Dollars in thousands) 2005
2004 Net sales Propel 209,862 171,334 Work Function 115,732 105,957
Controls 96,991 83,763 Total 422,585 361,054 Segment Income (Loss)
Propel 30,179 21,094 Work Function 3,449 6,257 Controls 6,861 7,997
Global Services and Other Expenses, net (12,364) (7,609) Total
28,125 27,739 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Three
Months Ended March 31, March 31, (Dollars in thousands) 2005 2004
Cash flows from operating activities: Net income 10,810 11,023
Depreciation and amortization 22,360 20,238 Minority interest and
equity income, net 7,383 5,823 Net change in receivables,
inventories, and payables (60,109) (43,237) Other, net 25,141
17,377 Net cash provided by operating activities 5,585 11,224 Cash
flows from investing activities: Purchases of property, plant and
equipment (18,443) (10,834) Proceeds from sales of property, plant
and equipment 342 23 Net cash used in investing activities (18,101)
(10,811) Cash flows from financing activities: Net borrowings on
notes payable and debt instruments 22,979 12,877 Cash dividends
(4,744) (3,320) Distribution to minority interest partners (1,948)
(3,720) Net cash provided by financing activities 16,287 5,837
Effect of exchange rate changes (2,602) (2,087) Net increase in
cash and cash equivalents 1,169 4,163 Cash and cash equivalents at
beginning of year 11,273 15,086 Cash and cash equivalents at end of
period 12,442 19,249 CONDENSED CONSOLIDATED BALANCE SHEETS March
31, Dec. 31, (Dollars in thousands) 2005 2004 ASSETS Current
assets: Cash and cash equivalents 12,442 11,273 Accounts
receivable, net 288,122 233,146 Inventories 232,172 241,562 Other
current assets 33,063 40,131 Total current assets 565,799 526,112
Property, plant and equipment, net 460,234 478,543 Other assets
196,659 206,926 Total assets 1,222,692 1,211,581 LIABILITIES AND
STOCKHOLDERS' EQUITY Current liabilities: Notes payable and bank
overdrafts 48,220 23,609 Long-term debt due within one year 236,187
244,987 Accounts payable 127,102 130,071 Other accrued liabilities
108,664 99,320 Total current liabilities 520,173 497,987 Long-term
debt 76,124 76,496 Long-term pension liability 55,314 57,148
Deferred income taxes 46,000 48,454 Other liabilities 43,031 47,494
Minority interest in net assets of consolidated companies 45,168
39,927 Stockholders' equity 436,882 444,075 Total liabilities and
stockholders' equity 1,222,692 1,211,581 Number of employees at end
of period 8,542 8,275 Debt to total capital ratio 43 % 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: 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, , both of Sauer-Danfoss Inc. Web site:
http://www.sauer-danfoss.com/
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