- Further Sharp Drop in Sales and Earnings Reflect Severity of
Global Recession and Drives Tax Asset Valuation Allowances and
Revised Outlook - Aggressive Cost Reduction Actions Continue -
Focus on Cash Generates $34.0 Million of Second Quarter Free Cash
Flow AMES, Iowa, July 29 /PRNewswire-FirstCall/ -- Sauer-Danfoss
Inc. (NYSE: SHS) today announced its financial results for the
second quarter ended June 30, 2009. Second Quarter Review Net sales
for the quarter declined 55 percent to $277.4 million, compared to
net sales of $611.5 million for the second quarter of 2008.
Excluding the impact of changes in currency translation rates,
sales in the second quarter declined 51 percent over the same
quarter last year. Sales for the second quarter dropped 56 percent
in Europe, 48 percent in the Americas, and 39 percent in the
Asia-Pacific region, excluding the impact of currency. Sales
decreased 57 percent in both the Work Function and Controls
segments, and 45 percent in the Propel segment, excluding currency.
The Company reported a net loss of $121.8 million, or $2.52 per
share, for the second quarter of 2009, compared to net income of
$22.7 million, or $0.47 per share, for the second quarter of 2008.
Second quarter 2009 results include restructuring and severance
costs of $13.2 million, or $0.26 per share. In addition, second
quarter 2009 results were negatively impacted by a charge of $78.5
million, or $1.62 per share, to establish non-cash deferred tax
asset valuation allowances relating to operating losses which
cannot be tax benefited. Sven Ruder, President and Chief Executive
Officer, commented, "The second quarter results show a further drop
in sales compared to what we reported for the first quarter of
2009. This drop in sales was more pronounced than what we
anticipated. Every market and region we serve was impacted by the
full force of the global recession. Our sales were also affected
negatively by our customers reducing their inventories. The further
drop in sales, the tax asset valuation allowances, and the one-off
costs associated with our aggressive cost reduction actions all had
a negative influence on the Company's earnings. The cost reduction
actions have enabled the Company to lower its operating expenses by
approximately $25.0 million, or 27 percent, compared to the same
quarter last year. The significantly lower run rate of expenses we
expect to hit by the end of the year will put us in a good position
as we go into 2010 and the global economy stabilizes and recovers."
New Orders and Backlog Decline The Company received new orders of
$173.4 million for the second quarter of 2009, a decrease of 73
percent from the second quarter of 2008. Excluding currency
translation rate changes, orders were down 70 percent. Total
backlog at June 30, 2009, was $407.8 million, a 61 percent decline
from the same period last year. Excluding currency translation rate
changes, backlog decreased 59 percent. Ruder added, "The dramatic
decrease in new orders and backlog reflect the significant declines
our customers are reporting in virtually every market and region we
serve." Six Month Review The Company reported net sales for the six
months ended June 30, 2009, of $627.1 million, compared to net
sales of $1,228.9 million for the first six months of 2008. Net
sales for the first six months of 2009 decreased 45 percent over
the prior year period, excluding the impact of currency translation
rate changes. Net loss for the first six months of 2009 was $200.2
million, or $4.14 per share, compared to net income of $50.6
million, or $1.04 per share, for the same period last year. Results
for the first six months of 2009 include restructuring costs of
$28.0 million, or $0.55 per share, valuation allowances on deferred
tax assets of $78.5 million, or $1.62 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 six
months of 2009 was $52.5 million, compared to $114.5 million for
2008. Capital expenditures for the first six months of 2009 were
$29.8 million compared to $84.0 million for the same period last
year. The Company's debt to total capital ratio, or leverage ratio,
was 64 percent at June 30, 2009, compared to 51 percent at
year-end. "I am pleased with the results of our focus on cash by
reducing capital expenditures and net working capital which has
allowed us to generate $34.0 million of free cash flow in the
second quarter," stated Ruder. 2009 Outlook Ruder concluded, "The
severity of the global recession reflected in the 55 percent drop
in second quarter sales means we are beyond what we believed was a
realistic outlook just three months ago. As a result, we are taking
further actions to reduce costs in response to the declining sales,
resulting in increased workforce reduction and restructuring costs.
We still cannot predict whether we are at the bottom of the
downturn with any certainty. Both the severity of the downturn and
future uncertainty require us to revise our outlook. Therefore, we
are revising our outlook accordingly." Revised 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 (unchanged) Webcast Information Members of Sauer-Danfoss'
management team will host a webcast on July 30 at 10 AM Eastern
Time to discuss 2009 second 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 August 13, 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 had revenues of $2.1 billion in
2008 and 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 are suffering 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. At
this point, it appears that the worldwide economic recession will
continue throughout 2009. 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; 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 OPERATIONS (Dollars in thousands Three Months Ended
Six Months Ended except share and per June 30, June 30, June 30,
June 30, share data) 2009 2008 2009 2008 --------------------
------- ------- ------- ------- Net sales 277,411 611,538 627,106
1,228,937 Cost of sales 246,608 473,532 538,285 943,206
------------- ------- ------- ------- ------- Gross profit 30,803
138,006 88,821 285,731 Research and development 15,074 21,056
31,770 40,342 Selling, general and administrative 51,288 70,273
107,730 138,255 Loss (gain) on sale of business and asset disposals
4,956 404 8,585 (808) Impairment charges -- -- 50,841 --
------------------ ------ ------ ------ ------- Total operating
expenses 71,318 91,733 198,926 177,789 ------------------------
------ ------ ------- ------- Income (loss) from operations
(40,515) 46,273 (110,105) 107,942 Nonoperating income (expenses):
Interest expense, net (13,406) (6,522) (19,123) (13,009) Loss on
early retirement of debt (3,348) -- (10,705) -- Other, net 430 (32)
2,109 (3,868) ---------- --- --- ----- ------ Income (loss) before
income taxes (56,839) 39,719 (137,824) 91,065 Income tax expense
(61,558) (11,545) (53,145) (26,089) ------------------ --------
------- -------- -------- Net income (loss) (118,397) 28,174
(190,969) 64,976 Net income attributable to noncontrolling
interest, net of tax (3,429) (5,468) (9,263) (14,407) ----------
------ ------- ------ -------- Net income (loss) attributable to
Sauer-Danfoss Inc. (121,826) 22,706 (200,232) 50,569
------------------------------ -------- ------ -------- ------ Net
income (loss) per share: Basic net income (loss) per common share
(2.52) 0.47 (4.14) 1.05 Diluted net income (loss) per common share
(2.52) 0.47 (4.14) 1.04 ----------------------------- ----- ----
----- ---- Weighted average shares outstanding Basic 48,338 48,222
48,325 48,216 Diluted 48,338 48,555 48,325 48,535 Cash dividends
per common share 0.00 0.18 0.00 0.36
------------------------------- ---- ---- ---- ---- BUSINESS
SEGMENT INFORMATION Three Months Ended Six Months Ended June 30,
June 30, June 30, June 30, (Dollars in thousands) 2009 2008 2009
2008 --------------------- ------- ------- ------- ------- Net
sales Propel 154,995 293,179 342,782 604,836 Work Function 63,154
162,882 145,839 323,368 Controls 59,262 155,477 138,485 300,733
-------- ------- ------- ------- ------- Total 277,411 611,538
627,106 1,228,937 ----- ------- ------- ------- --------- Segment
Income (Loss) Propel 1,617 51,416 19,068 116,833 Work Function
(20,856) 344 (35,811) 4,720 Controls (15,233) 6,451 (79,644) 11,518
Global Services and Other Expenses, net (5,613) (11,970) (11,609)
(28,997) ------------------------- ------ -------- --------
-------- Total (40,085) 46,241 (107,996) 104,074 ----- -------
------ -------- ------- CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS Six Months Ended June 30, June 30, 2009 2008 (Dollars in
thousands) ------- ------- --------------------- Cash flows from
operating activities: Net income (loss) (200,232) 50,569
Depreciation and amortization 53,815 56,894 Impairment charges
50,841 -- Noncontrolling interest 9,263 14,407 Net change in
receivables, inventories, and payables 90,944 (20,540) Other, net
47,901 13,180 ---------- ------ ------ Net cash provided by
operating activities 52,532 114,510 ------------------------------
------ ------- Cash flows from investing activities: Purchases of
property, plant and equipment (29,789) (83,965) Proceeds from sale
of property, plant and equipment 6,194 3,660
------------------------------------- ----- ----- Net cash used in
investing activities (23,595) (80,305)
------------------------------------- ------- ------- Cash flows
from financing activities: Net borrowings (repayments) on notes
payable and debt instruments 26,545 (90) Payments for debt
financing costs (8,575) -- Payment of prepayment penalty (8,064) --
Settlement of interest rate swaps (2,000) -- Cash dividends (8,689)
(17,352) Distribution to minority interest partners (1,795) (5,957)
--------------------------------- ------ ------ Net cash used in
financing activities (2,578) (23,399)
------------------------------------- ------ ------- Effect of
exchange rate changes (2,595) 408 -------------------------------
------ --- Net increase in cash and cash equivalents 23,764 11,214
Cash and cash equivalents at beginning of year 23,145 26,789
---------------------------- ------ ------ Cash and cash
equivalents at end of period 46,909 38,003
----------------------------------- ------ ------ CONDENSED
CONSOLIDATED BALANCE SHEETS June 30, Dec. 31, (Dollars in
thousands) 2009 2008 ---------------------- -------- --------
ASSETS Current assets: Cash and cash equivalents 46,909 23,145
Accounts receivable, net 171,767 239,881 Inventories 237,522
325,496 Other current assets 46,054 51,946 --------------------
------ ------ Total current assets 502,252 640,468 Property, plant
and equipment, net 567,087 598,435 Other assets 145,539 228,773
------------ ------- ------- Total assets 1,214,878 1,467,676
------------ --------- --------- LIABILITIES AND STOCKHOLDERS'
EQUITY Current liabilities: Notes payable and bank overdrafts
52,205 65,512 Long-term debt due within one year 100,214 58,005
Accounts payable 84,519 149,512 Other accrued liabilities 126,223
146,888 ------------------------- ------- ------- Total current
liabilities 363,161 419,917 ------------------------- -------
------- Long-term debt 364,610 367,922 Long-term pension liability
90,039 90,966 Deferred income taxes 43,705 44,243 Other liabilities
63,709 66,727 Noncontrolling interest 74,891 67,655 Stockholders'
equity of Sauer-Danfoss Inc. 214,763 410,246
------------------------------------- ------- ------- Total
liabilities and stockholders' equity 1,214,878 1,467,676
----------------------------------- --------- --------- Debt to
total capital ratio (1) 64% 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 of Sauer-Danfoss Inc. DATASOURCE:
Sauer-Danfoss Inc. CONTACT: Sauer-Danfoss Inc., Investor Relations:
Kenneth D. McCuskey, Vice President and Chief Accounting Officer,
Sauer-Danfoss Inc., +1-515-239-6364, or Fax, +1-515-956-5364, , or
John N. Langrick, Director of Finance Europe, Sauer-Danfoss Inc.,
+49-4321-871-190, or Fax, +49-4321-871-121, Web Site:
http://www.sauer-danfoss.com/
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