Sauer-Danfoss Inc. Reports Third Quarter 2009 Results

- Tough Quarter, but Signs that Bottom has been Reached

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. A replay of the call will be available at that
site through November 24, 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, with 2009
revenues of approximately $1.2 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 may not be a good guide to anticipating actual
future results. The economies in the U.S., Europe, and Asia-Pacific continue
to suffer 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. Although the U.S. economy is showing some signs of
improvement, it appears that the worldwide economic recession will continue
throughout 2009 and into 2010. 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; the Company's
ability over time to reduce the relative level of debt compared to equity on
its balance sheet; 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 INCOME

Three Months Ended Nine Months Ended
September September September September
(Dollars in thousands 30, 30, 30, 30,
except per share data) 2009 2008 2009 2008
--------------------- ---- ---- ---- ----
Net sales 253,074 490,188 880,180 1,719,125
Cost of sales 238,120 378,322 776,405 1,321,528
------------- ------- ------- ------- ---------
Gross profit 14,954 111,866 103,775 397,597
Research and development 14,098 21,841 45,868 62,183
Selling, general and
administrative 47,287 64,571 155,017 202,827
Loss (gain) on sale of
business and asset disposal 3,144 123 11,729 (685)
Impairment charges -- -- 50,841 --
------------------ --- --- ------- ---
Total operating expenses 64,529 86,535 263,455 264,325
------------------------ ------ ------ ------- -------
Income (loss) from
operations (49,575) 25,331 (159,680) 133,272
Nonoperating income
(expenses):
Interest expense, net (13,882) (6,301) (33,005) (19,310)
Loss on early retirement
of debt -- -- (10,705) --
Other, net (427) 140 1,684 (3,729)
------------- ---- --- ----- ------
Income (loss) before
income taxes (63,884) 19,170 (201,706) 110,233
Income tax expense (6,023) (6,766) (59,169) (32,855)
------------------ ------ ------ ------- -------
Net income (loss) (69,907) 12,404 (260,875) 77,378
Net income attributable to
noncontrolling interest,
net of tax (894) (1,503) (10,157) (15,910)
-------------------------- ---- ------ ------- -------
Net income (loss)
attributable to
Sauer-Danfoss Inc. (70,801) 10,901 (271,032) 61,468
------------------- ------- ------ -------- ------
Net income (loss) per share:
Basic net income (loss)
per common share (1.46) 0.23 (5.61) 1.27
Diluted net income (loss)
per common share (1.46) 0.22 (5.61) 1.27
--------------------------- ----- ---- ----- ----
Weighted average shares
outstanding
Basic 48,351 48,236 48,334 48,223
Diluted 48,351 48,571 48,334 48,547
Cash dividends declared per
common share 0.00 0.18 0.00 0.54
--------------------------- ---- ---- ---- ----

BUSINESS SEGMENT INFORMATION

Three Months Ended Nine Months Ended
(Dollars in September 30, September 30, September 30, September 30,
thousands) 2009 2008 2009 2008
----------- ---- ---- ---- ----
Net sales
Propel 129,468 228,809 472,249 833,645
Work Function 61,275 137,039 207,115 460,407
Controls 62,331 124,340 200,816 425,073
---------------- ------ ------- ------- -------
Total 253,074 490,188 880,180 1,719,125
----- ------- ------- ------- ---------
Segment Income
(Loss)
Propel (8,723) 31,803 10,345 148,610
Work Function (23,586) 1,574 (59,397) 6,282
Controls (11,441) 4,319 (91,085) 15,827
Global Services
and Other
Expenses, net (6,252) (12,225) (17,859) (41,176)
----------------- ------ ------- ------- -------
Total (50,002) 25,471 (157,996) 129,543
----- ------- ------ -------- -------

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended
September 30, September 30,
(Dollars in thousands) 2009 2008
--------------------- ---- ----
Cash flows from operating
activities:
Net income (loss) (271,032) 61,468
Depreciation and amortization 80,974 86,313
Impairment charges 50,841 --
Noncontrolling interest 10,157 15,910
Net change in receivables,
inventories, and payables 147,293 (19,680)
Other, net 57,399 (2,845)
---------- ------ ------
Net cash provided by operating
activities 75,632 141,166
------------------------------ ------ -------
Cash flows from investing activities:
Purchases of property, plant and
equipment (36,962) (129,549)
Proceeds from sale of property,
plant and equipment 1,281 5,640
Advances to noncontrolling interest (15,500) --
----------------------------------- -------
Net cash used in investing activities (51,181) (123,909)
------------------------------------- ------- --------
Cash flows from financing activities:
Net borrowings on notes payable and
debt instruments 36,656 16,678
Payments for debt financing costs (8,575) --
Payment of prepayment penalty (8,064) --
Settlement of interest rate swaps (2,000) --
Cash dividends (8,689) (26,039)
Distribution to minority interest
partners (6,580) (7,161)
--------------------------------- ------ ------
Net cash provided by (used in)
financing activities 2,748 (16,522)
----------------------------- ----- -------
Effect of exchange rate changes (6,818) 327
------------------------------- ------ ---
Net increase in cash and cash
equivalents 20,381 1,062
Cash and cash equivalents at beginning
of year 23,145 26,789
-------------------------------------- ------ ------
Cash and cash equivalents at end of
period 43,526 27,851
----------------------------------- ------ ------

CONDENSED CONSOLIDATED BALANCE SHEETS

September 30, December 31,
(Dollars in thousands) 2009 2008
--------------------- ---- ----
ASSETS
Current assets:
Cash and cash equivalents 43,526 23,145
Accounts receivable, net 162,657 239,881
Inventories 202,691 325,496
Other current assets 76,928 51,946
-------------------- ------ ------
Total current assets 485,802 640,468
Property, plant and equipment, net 551,732 598,435
Other assets 122,303 228,773
------------ ------- -------
Total assets 1,159,837 1,467,676
------------ --------- ---------

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and bank overdrafts 47,679 65,512
Long-term debt due within one year 155,770 58,005
Accounts payable 88,510 149,512
Other accrued liabilities 111,806 146,888
------------------------- ------- -------
Total current liabilities 403,765 419,917
------------------------- ------- -------
Long-term debt 339,620 367,922
Long-term pension liability 86,240 90,966
Deferred income taxes 44,238 44,243
Other liabilities 51,954 66,727
Noncontrolling interest 72,182 67,655
Stockholders' equity of Sauer-Danfoss
Inc. 161,838 410,246
------------------------------------- ------- -------
Total liabilities and stockholders'
equity 1,159,837 1,467,676
----------------------------------- --------- ---------

Debt to total capital ratio (1) 70% 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.

SOURCE Sauer-Danfoss Inc.

Kenneth D. McCuskey, Vice President and Chief Accounting Officer,
+1-515-239-6364, Fax: +1-515-956-5364, kmccuskey@sauer-danfoss.com, or John N.
Langrick, Director of Finance Europe, +49-4321-871-190, Fax: +49-4321-871-121,
jlangrick@sauer-danfoss.com, both of Sauer-Danfoss Inc.