Nov. 9, 2009 (PR Newswire) -- 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.