- Fourth Quarter Sales and Earnings Impacted by Global Recession and Cost Reduction Actions

- Impairment and Restructuring Costs of $1.56 per Share also Impact Fourth Quarter and Full-Year Loss

- Debt Refinancing Secured

- Board Approves Suspension of Cash Dividends

CHICAGO, March 16 /PRNewswire-FirstCall/ -- Sauer-Danfoss Inc. (NYSE: SHS) today announced its preliminary financial results for the fourth quarter ended December 31, 2008. As a result of ongoing impairment analysis relating to long-lived asset values, the financial results are not yet final and the Company is delaying the release of its Annual Report on Form 10-K.

Fourth Quarter Review

Net sales for the fourth quarter declined 25 percent to $371.4 million, compared with net sales of $494.2 million for the fourth quarter of 2007. Excluding the impact of changes in currency translation rates, sales in the fourth quarter declined 16 percent over the same quarter last year. Sales for the fourth quarter dropped 23 percent in Europe, 11 percent in the Americas, and 1 percent in the Asia-Pacific region, excluding the impact of currency. Sales decreased 18 percent in the Controls segment, 16 percent in the Propel segment, and 14 percent in the Work Function segment, excluding currency.

Subject to the results of the ongoing impairment analysis, the Company reported a net loss of $100.6 million, or $2.09 per share, for the fourth quarter 2008, compared to net income of $8.7 million, or $0.18 per share, for the fourth quarter of 2007. Results for 2008 were impacted by one-time restructuring and severance costs of $24.9 million, or $0.37 per share, compared to restructuring costs in 2007 of $1.6 million, or $0.02 per share. Included in the 2008 costs is the previously announced loss on the sale of the AC motor business of $8.4 million, or $0.13 per share. In addition, the unusually high cost of certain product field recall activities, primarily related to the Controls segment, impacted fourth quarter 2008 results by $7.5 million, or $0.11 per share, compared with $2.6 million, or $0.04 per share, in the fourth quarter 2007.

Sven Ruder, President and Chief Executive Officer, commented, 'The fourth quarter results reflect the effects of the global economic downturn in our business resulting in a rapid and steep drop in almost all of our markets. As a result, we incurred significant costs related to reducing our workforce along with the loss on the sale of the AC motor business, as previously announced.'

Non-Cash Goodwill and Long-Lived Asset Impairment Charges

In connection with its annual goodwill and long-lived asset impairment testing for 2008, the Company incurred a fourth quarter and full-year charge related to goodwill impairment of $22.9 million, or $0.44 per share, impacting the Work Function and Controls segments. The goodwill relates to the acquisition of the Danfoss Fluid Power business in 2000 and subsequent acquisitions made over the past seven years. The Company has not completed its long-lived asset impairment analysis and has recorded a preliminary estimate of its long-lived asset impairment charge of $49.3 million, or $0.75 per share impacting the Work Function segment. The Company will release its final audited financial statements upon the completion of the analysis of long-lived asset impairment.

Ruder explained, 'As a result of the challenging market conditions and the resulting decline in the Company's market capitalization, we were required by accounting rules to record a non-cash goodwill and long-lived asset impairment charge in the fourth quarter. With the continued decline in our markets and market capitalization, the goodwill and long-lived assets remaining on our books are at risk of further write-down as we move through 2009.'

Twelve Month Review

Sauer-Danfoss had net sales of $2,090.5 million for the twelve months ended December 31, 2008, an increase of 6 percent compared to net sales of $1,972.5 million for 2007. Net sales for the twelve months of 2008, excluding currency translation rate changes and divestitures, rose 3 percent over the prior year period. The Company's sales for full year 2008 increased 23 percent in the Asia-Pacific region and 3 percent in the Americas, while remaining level in Europe, excluding the impact of currency and divestitures. Sales in the Propel segment increased 4 percent, sales in the Work Function segment increased 2 percent, and sales in the Controls segment increased 1 percent, excluding currency and divestitures.

Pending completion of the ongoing impairment analysis, the Company's net loss for full year 2008 totaled $39.1 million, or $0.81 per share, compared to net income of $47.2 million, or $0.98 per share, for the same period last year. Results for 2008 were impacted by restructuring and severance costs of $23.5 million, or $0.35 per share, compared to restructuring costs in 2007 of $19.4 million, or $0.32 per share. In addition, 2008 results were impacted by $15.6 million, or $0.23 per share, of certain product field recall costs, primarily related to the Controls segment, compared with $5.2 million, or $0.07 per share, in 2007.

New Orders and Backlog Decline

The Company received new orders of $222.5 million for the fourth quarter of 2008, a decrease of 66 percent from the fourth quarter 2007. Excluding currency translation rate changes, orders were down 62 percent.

Total backlog at December 31, 2008 was $743.7 million, a 19 percent decline from the same period last year. Excluding currency translation rate changes, backlog decreased 18 percent.

Ruder added, 'The decrease in new orders for the quarter and the resulting decline in our backlog reflect the sudden and dramatic downturn we have seen in almost all markets and regions. There is a lot of uncertainty in our markets, causing customers to extend their year-end plant shutdowns and move out orders on short notice.'

Cash Flow from Operations

Sauer-Danfoss' cash flow from operations for full year 2008 was $185.2 million, compared to $98.1 million for full year 2007. Capital expenditures were $198.6 million for full year 2008 compared to $135.6 million for the same period last year. The Company's debt to total capital ratio, or leverage ratio, was 51 percent at December 31, 2008, compared to 43 percent at December 31, 2007.

Debt Refinancing

On March 12, 2009, the Company entered into a lending agreement with Danfoss A/S pursuant to which the Company can borrow up to $490 million on a line of credit from Danfoss A/S. The proceeds of this borrowing will be used to retire the Company's existing indebtedness under the $300 million multi-currency credit facility and other credit agreements.