Sauer-Danfoss Inc. Reports Fourth Quarter 2012 Results - Revenues Down, Reflecting Continued Weak Markets - Operating Income Increases, Reflecting Strong Control of Costs - Strong Cash Flow - Initial Outlook for 2013 PR Newswire AMES, Iowa, Feb. 20, 2013 AMES, Iowa, Feb. 20, 2013 /PRNewswire/ -- Sauer-Danfoss Inc. (NYSE: SHS) today announced its financial results for the fourth quarter ended December 31, 2012. Fourth Quarter Review Net sales for the quarter declined 7 percent to $413.0 million, compared to net sales of $446.1 million for the fourth quarter of 2011. Excluding the impact of changes in currency translation rates, sales in the fourth quarter declined 6 percent over the same quarter last year. Sales for the fourth quarter increased 1 percent in the Americas and 2 percent in the Asia-Pacific region, but declined 18 percent in Europe, excluding the impact of changes in currency translation rates. Sales declined 15 percent in the Work Function segment and 10 percent in both the Controls and Hydrostatics (formerly Propel) segments, but increased 16 percent in the Stand-Alone Businesses segment, excluding the impact of changes in currency translation rates. The Company reported net income of $19.9 million, or $0.41 per share, for the fourth quarter of 2012, compared to net income of $27.4 million, or $0.57 per share, for the fourth quarter of 2011. Fourth quarter 2012 results were negatively impacted by $1.8 million, or $0.04 per share, related to deferred tax asset valuation allowances. Fourth quarter 2011 results were favorably impacted by $9.2 million, or $0.19 per share, related to the reversal of deferred tax asset valuation allowances but were negatively impacted by certain product field recall costs of $6.9 million, or $0.10 per share. Eric Alstrom, President and Chief Executive Officer, commented, "Our fourth quarter sales continue to reflect the weak global markets we serve, as well as the inventory reduction actions being taken by several of our customers. While our sales declined due to our weak markets, I am very pleased with our increase in operating income. We have been able to increase our operating margin by two full percentage points in the face of declining markets and sales. This reflects strong cost control throughout our organization, as well as our ability to flex our production to changing demands." Orders and Backlog Decline The Company received new orders of $378.1 million for the fourth quarter of 2012, a 17 percent decline compared to fourth quarter 2011 new orders of $456.5 million. Excluding the impact of changes in currency translation rates, new orders declined 16 percent. Total backlog at December 31, 2012, was $837.0 million, an 11 percent decline compared to the same period last year of $939.8 million. Twelve Month Review The Company reported net sales for the twelve months ended December 31, 2012, of $1,916.1 million, a decline of 7 percent compared to net sales of $2,057.5 million for the twelve months of 2011. Net sales for the twelve months of 2012 were down 4 percent compared to the prior year period, excluding the impact of currency translation rate changes. Net income for full year 2012 was $181.8 million, or $3.75 per share, compared to net income of $229.9 million, or $4.74 per share, for the same period last year. 2011 results were favorably impacted by $22.9 million, or $0.47 per share, relating to the reversal of deferred tax asset valuation allowances. Strong Cash Flow Cash flow from operations for full year 2012 was $335.3 million, compared to $374.2 million for 2011. Capital expenditures for full year 2012 were $48.6 million compared to $51.8 million for the same period last year. "We generated $262 million of free cash flow for full year 2012, compared to the $299 million of record free cash flow of last year. Our strong cash flow and earnings over the past couple of years has provided us a very solid balance sheet, or base, from which to drive our future growth plans," stated Alstrom. Initial Outlook for 2013 Alstrom concluded, "Many of our customers are forecasting modest sales growth for the coming year. However, there is considerable uncertainly in the global economy. In addition, many of our customers are continuing to work down excessive inventory levels, especially in North America and China. This could be a drag on our sales for at least the first half of the coming year. We therefore expect 2013 sales and earnings to be level with 2012." The outlook for 2013 is as follows: oAnnual sales down 3 percent to up 7 percent from 2012 levels oExpected earnings in the range of $3.25 to $4.25 per share oCapital expenditures of approximately $65.0 to $75.0 million Status of Proposed Tender Offer As previously disclosed, on November 28, 2012, Danfoss A/S, the Company's parent company, informed the Company's Board of Directors and publicly announced that Danfoss proposed to acquire all the shares of the Company's common stock that it does not already own for a price of $49 per share in cash, and on the following day the Company announced that its Board of Directors had established a special committee of independent directors to consider Danfoss' proposal. From late December 2012 through late January 2013, the Special Committee and its advisors undertook efforts to enable the Special Committee to respond to Danfoss' proposal, and since late January 2013 the Special Committee, through its advisors, has been in discussions with Danfoss' advisors regarding the proposal. These discussions are continuing. There is no assurance that the Special Committee and Danfoss will reach any agreement or, if an agreement is reached, as to the terms and conditions of that agreement or whether it will be successfully completed. Webcast Information Members of Sauer-Danfoss' management team will host a webcast on February 21 at 10 AM Eastern Time to discuss 2012 fourth 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 March 7, 2013. About Sauer-Danfoss 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 2012 revenues of approximately $1.9 billion, has sales, manufacturing, and engineering capabilities in Europe, the Americas, and the Asia-Pacific region. More details online at 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 is never a perfect guide to anticipating actual future results. Risk factors affecting the Company's forward-looking statements include, but are not limited to, the following: general, worldwide economic conditions, the level of interest rates, crude oil prices, commercial and consumer confidence, and currency exchange rates; 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-management and productivity improvement efforts; the Company's ability to manage its business effectively in a period of slowing growth in sales and its capacity to make necessary adjustments to changes in demand for its products; competing technologies and difficulties entering and growing in new and expanding markets, both domestic and foreign; changes in the Company's product mix; future levels of indebtedness and capital spending; the availability of sufficient levels of cash flow from operations and credit on favorable terms, whether from Danfoss A/S, the Company's majority stockholder, or from the capital markets or traditional credit sources to enable the Company to meet its capital needs; claims, including, without limitation, warranty claims, field recall claims, product liability claims, charges or dispute resolutions; the 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 persistence of tight credit markets; any inadequacy of the Company's intellectual property protection or the potential for third-party claims of infringement; credit market disruptions and significant changes in capital market liquidity and funding costs affecting the Company and its customers and suppliers; sovereign debt crises, in Europe and elsewhere, and the reaction of other nations to such crises; energy prices; the impact of new or changed tax and other legislation and regulations in jurisdictions in which the Company and its affiliates operate, including regulations affecting retirement and health care benefits provided to Company employees; actions by the U.S. Federal Reserve Board and the central banks of other nations, including heightened capital requirements imposed on Chinese banks; actions by other regulatory agencies, including those taken in response to the global credit crisis; actions by credit rating agencies; changes in accounting standards; worldwide political stability, including developments in the Middle East; the effects of terrorist activities and resulting political or economic instability; natural catastrophes; U.S. and NATO 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's outlook is based upon assumptions and projections arising in connection with the foregoing factors, the evaluation of which is often based on estimates and data prepared by government and other third-party sources. Those estimates and data are frequently revised. 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. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS Three Months Ended Year Ended (Dollars and shares in thousands December December December December 31, 31, 31, 30, except per share data) 2012 2011 2012 2011 Net sales 413,007 446,131 1,916,094 2,057,487 Cost of sales 291,084 323,631 1,299,207 1,400,330 Gross profit 121,923 122,500 616,887 657,157 Selling, general and administrative 59,292 61,259 235,069 227,968 Research and development 16,229 18,170 64,072 63,996 Other (191) 939 (70) 590 Total operating expenses 75,330 80,368 299,071 292,554 Income from operations 46,593 42,132 317,816 364,603 Nonoperating income (expense): Interest expense, net (3,025) (3,796) (15,035) (21,150) Loss on early retirement of debt -- -- (1,254) (1,176) Other, net (72) (227) 2,825 (3,094) Income before income taxes 43,496 38,109 304,352 339,183 Income tax expense (19,011) (8,301) (92,274) (79,380) Net income 24,485 29,808 212,078 259,803 Net income attributable to noncontrollinginterest, net of tax (4,561) (2,364) (30,319) (29,933) Net income attributable to 19,924 27,444 181,759 229,870 Sauer-Danfoss Inc. Net income per share: Basic net income per common share 0.41 0.57 3.75 4.75 Diluted net income per common 0.41 0.57 3.75 4.74 share Weighted average shares outstanding: Basic 48,417 48,406 48,413 48,402 Diluted 48,486 48,478 48,482 48,479 BUSINESS SEGMENT INFORMATION Three Months Ended Year Ended December 31, December 31, December 31, December 31, (Dollars in thousands) 2012 2011 2012 2011 Net sales Hydrostatics 189,225 212,839 883,683 948,153 Work Function 68,919 82,709 311,588 377,519 Controls 64,477 71,784 303,612 322,489 Stand-Alone 90,386 78,799 417,211 409,326 Businesses Total 413,007 446,131 1,916,094 2,057,487 Segment Income (Loss) Hydrostatics 25,926 32,368 173,549 210,532 Work Function 8,270 9,117 48,288 59,235 Controls 11,093 6,830 74,224 78,459 Stand-Alone 11,981 6,889 68,361 58,624 Businesses Global Services and (10,749) (13,299) (43,781) (45,341) Other Expenses, net Total 46,521 41,905 320,641 361,509 Interest expense, (3,025) (3,796) (15,035) (21,150) net Loss on early -- -- (1,254) (1,176) retirement of debt Income before 43,496 38,109 304,352 339,183 income taxes CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, December 31, (Dollars in thousands) 2012 2011 Cash Flows from Operating Activities: Net income 212,078 259,803 Depreciation and amortization 80,503 88,094 Net change in receivables, inventories, 27,533 (19,432) and payables Other, net 15,181 45,697 Net cash provided by operating 335,295 374,162 activities Cash Flows from Investing Activities: Purchases of property, plant and (48,632) (51,765) equipment Proceeds from sale of property, 507 6,317 plant and equipment Advances to related persons (180,579) (182,538) Net cash used in investing (228,704) (227,986) activities Cash Flows from Financing Activities: Net repayments on notes payable (21,921) (82,580) and debt facilities Payment of prepayment penalty (803) -- Cash dividends (50,871) -- Dividend resulting from tax -- (12,928) sharing agreement Distributions to noncontrolling (24,409) (17,076) interest partners Net cash used in financing (98,004) (112,584) activities Effect of exchange rate changes 1,105 (5,071) Cash and Cash Equivalents: Net increase in cash and cash 9,692 28,521 equivalents Cash and cash equivalents at 72,560 44,039 beginning of year Cash and cash equivalents at end 82,252 72,560 of year Non-cash Investing and Financing Activities: Purchases of property, plant and equipment financed by capital (382) -- leases Free cash flow (1) 261,958 298,710 (1) Free cash flow is calculated by summing net cash provided by operating activities, net cash used in investing activities, excluding advances to related persons, and net cash used in financing activities, excluding net repayments on notes payable and debt facilities and cash dividends. CONDENSED CONSOLIDATED BALANCE SHEETS December December 31, 31, (Dollars in 2012 2011 thousands) ASSETS Current Assets: Cash and cash equivalents (1) 441,242 251,287 Accounts receivable, net 217,611 215,978 Inventories 178,226 217,710 Other current assets 73,224 75,868 Total current assets 910,303 760,843 Property, plant and equipment, net 342,246 367,844 Other assets 146,410 149,569 Total Assets 1,398,959 1,278,256 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Long-term debt due within one year 479 955 Accounts payable 168,486 177,996 Other accrued liabilities 171,360 149,240 Total current liabilities 340,325 328,191 Long-term debt 178,378 199,502 Long-term pension liability 88,779 79,717 Deferred income taxes 33,536 35,184 Other liabilities 61,023 57,836 Noncontrolling interest 94,275 90,408 Stockholders' equity of Sauer-Danfoss Inc. 602,643 487,418 Total Liabilities and Stockholders' Equity 1,398,959 1,278,256 Debt to Total Capital Ratio (2) 20% 26% (1) Includes cash deposited with related persons of $358,990 at December 31, 2012 and $178,727 at December 31, 2011. (2) 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 long-term debt due within one year and long-term debt. Total capital is the sum of total interest bearing debt, noncontrolling interest, and stockholders' equity. SOURCE Sauer-Danfoss Inc. Website: http://www.sauer-danfoss.com Contact: Sauer-Danfoss Inc. - Investor Relations, Kenneth D. McCuskey, Vice President and Chief Accounting Officer, +1-515-239-6364, Fax, +1-515-505-1154, firstname.lastname@example.org
Sauer-Danfoss Inc. Reports Fourth Quarter 2012 Results
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