Sauer-Danfoss Inc. Reports Fourth Quarter 2002 Results
Sales, Earnings and Cash Flow Improve Over Prior Year
CHICAGO, Feb. 19 -- Sauer-Danfoss Inc. today announced its financial results
for the fourth quarter ended December 31, 2002.
FOURTH QUARTER REVIEW
Fourth Quarter Results Continue Improvement over Prior Year
Results for the fourth quarter 2002 were a net loss of $1.7 million, or
$0.03 per share, compared to a net loss for the fourth quarter 2001 of
$4.0 million, or $0.08 per share. Fourth quarter 2002 results were impacted
by a pre-tax charge of $1.2 million, or $0.02 per share, relating to product
line rationalization while fourth quarter 2001 results were impacted by
goodwill amortization costs of $0.01 per share. On a comparable basis the
improvement amounted to $0.06 per share, as the fourth quarter 2002 net loss
per share was $0.01 compared to a fourth quarter 2001 net loss per share of
$0.07.
Increased Sales Despite Continued Market Weakness
Net sales for the fourth quarter increased 17 percent to $221.2 million,
compared to sales for the fourth quarter 2001 of $189.1 million. Excluding
sales from acquisitions completed in 2002 and the impact of currency
translation rate changes, sales increased by 5 percent over the prior year
period. Sales increased 5 percent in the Americas but fell 2 percent in
Europe, excluding the impact of acquisitions and currency fluctuations. Asia-
Pacific accounted for $5.0 million of increased sales, or an increase of 43
percent.
All operating segments contributed to the sales increase year over year.
Controls sales' increase of 33 percent was the most substantial, followed by
Propel with 17 percent, and Work Function with 7 percent over the same quarter
in 2001.
Orders Level, Backlog Up over Prior Year
Orders received for the fourth quarter 2002 were $249.7 million, up 8.0
percent from the same period last year, but down 2 percent excluding
acquisitions and currency translation rate changes.
Total backlog at the end of the fourth quarter 2002 was $382.8 million, up
20 percent from the fourth quarter of 2001. Excluding acquisitions and
currency impact, backlog rose 10 percent for the fourth quarter 2002.
David Anderson, President and Chief Executive Officer, commented, "We are
pleased with our results for the fourth quarter. It was the third consecutive
quarter in which we reported year-over-year improvement in sales and operating
results compared to 2001. During the quarter we rationalized overlapping
product lines within our Controls segment relating to the acquisition of the
low voltage motor business of Thrige Electric, which resulted in a pre-tax
write-off of $1.2 million of inventory and production machinery. This action
will result in improved profit margins and asset utilization henceforth."
Anderson continued, "While our markets and the economies in both Europe and
North America remain weak, our backlog, on a comparable basis, is up over last
year, giving us confidence that we can continue to show improvement in sales
in 2003 over the prior year."
TWELVE MONTH REVIEW
Full Year Sales and Earnings Increase over Prior Year
Net sales for the twelve months were $952.3 million, an increase of 11
percent over sales of $855.3 million for 2001. On a comparable basis,
excluding companies acquired in 2002 and the impact of currency fluctuations,
net sales were up 2 percent over last year.
Net income for full year 2002 was $14.0 million, or $0.29 per share,
compared with net income for the same period last year of $4.7 million, or
$0.10 per share.
Fixed Cost Reduction Program Successful
Anderson stated, "Our initiatives to reduce fixed costs continue to be
successful. For the full year, costs were reduced by more than $11.0 million
or 4 percent over the prior year excluding the impact of acquisitions and
currency fluctuations. This allowed us to report an increase in earnings on
essentially level sales."
Record High Operating Cash Flow and Low Capital Expenditures
"Our cash flow from operations was a record $98.3 million, an increase of
45 percent over last year's $68.0 million," stated David Anderson. "At the
same time we kept our capital expenditures to a record low of $42.3 million,
down from last year's $69.7 million. This enabled us to make two important
acquisitions for cash during the year and still maintain our debt to total
capital ratio level with last year at 45 percent."
OUTLOOK
Market Uncertainty Unchanged from 2002, Upturn in Markets Will Leverage
Earnings Growth
Anderson concluded, "Little has changed from last year concerning the
markets and economies in which we operate. Our current orders and backlog
indicate that we should not expect any substantial help from the external
environment. While we will not be able to attain the same level of year-over-
year reductions in fixed costs, working capital, and capital expenditures as
we did in 2002, we will continue our focus on managing these key areas. At
the same time our drive to grow our sales through increased content per
vehicle and new applications should continue to allow us some growth above our
markets. The actions over the past year have positioned us well to leverage
our earnings growth once our markets pick up."
2003 Outlook
Expectations for full year 2003 are:
-- Sales up 3 - 5 percent
-- Improved Contribution Margins from global purchasing initiatives of
1 - 2 percent.
-- Earnings per share of $0.40 - $0.50
-- Capital Expenditures of $55 - $65 million
-- Continue selective acquisitions, but expect minimal activity in 2003
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 more than
7,000 employees worldwide and revenue of approximately $950 million, 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, including the fact
that the economy generally, and the agriculture, construction, road building,
turf care and specialty vehicle markets specifically, have recently been in a
state of uncertainty making it difficult to determine if past experience is a
good guide to the future. There is a continuing concern that the earlier
economic recovery the Company was experiencing in prior quarters is receding.
A continuing 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 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 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; business
relationships with major customers and suppliers; the continued operation and
viability of the Company's major customers; the Company's execution of
internal performance plans; difficulties or delays in manufacturing; cost-
reduction and productivity efforts; competing technologies and difficulties
entering new markets, both domestic and foreign; changes in our product mix;
future levels of indebtedness and capital spending; claims, including, without
limitation, warranty 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 and 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;
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; general economic conditions, including
interest rates, the rate of inflation, and commercial and consumer confidence;
energy prices; governmental laws and regulations affecting domestic and
foreign operation, including tax obligations; changes in accounting standards;
worldwide political stability; the effects of terrorist activities and
resulting political or economic instability, including U.S. military action
overseas; and the effect of acquisitions, divestitures, restructurings,
product withdrawals, and other unusual events.
The Company cautions the reader that these lists of cautionary statements
and risk factors may not be exhaustive. The Company expressly disclaims any
obligation or undertaking to release publicly any updates or changes to these
forward-looking statements that may be made to reflect any future events or
circumstances.
Condensed Consolidated Statements of Income
13 Weeks Ended Year Ended
(Dollars in
thousands December 31, December 31, December 31, December 31,
except per 2002 2001 2002 2001
share data)
Net sales 221,223 189,062 952,308 855,279
Cost of sales 176,511 148,084 732,879 662,046
Gross profit 44,712 40,978 219,429 193,233
Selling 18,314 21,477 68,054 63,318
Research and
development 9,248 9,138 37,806 38,054
Administrative 12,274 13,388 60,592 59,485
Total operating
expenses 39,836 44,003 166,452 160,857
Income (loss) from
operations 4,876 (3,025) 52,977 32,376
Nonoperating income
(expenses):
Interest expense, net (4,172) (4,221) (17,219) (17,377)
Minority interest (2,501) (1,105) (11,709) (7,882)
Equity in net earnings
of affiliates 8 -- 610 --
Other, net (1,162) 311 (2,605) 482
Income (loss) before
income taxes (2,951) (8,040) 22,054 7,599
Income taxes 1,293 4,012 (7,387) (2,869)
Net income (loss) before
cumulative effect of
change in accounting
principle (1,658) (4,028) 14,667 4,730
Cumulative effect of
change in accounting
principle -- -- (695) --
Net income (loss) (1,658) (4,028) 13,972 4,730
Net income (loss) per
share:
Basic and diluted net
income (loss) per
common share, before
cumulative effect of
change in accounting
principle (0.03) (0.08) 0.30 0.10
Cumulative effect of
change in accounting
principle -- -- (0.01) --
Basic and diluted net
income (loss) per
common share (0.03) (0.08) 0.29 0.10
Basic weighted average
shares outstanding 47,395 47,395 47,395 46,977
Diluted weighted average
shares outstanding 47,406 47,398 47,404 46,980
Cash dividends per
common share 0.07 0.07 0.28 0.28
PRO FORMA RESULTS EXCLUDING GOODWILL AMORTIZATION
13 Weeks Ended Year Ended
(Dollars in thousands
except per share
data) December 31, December 31, December 31, December 31,
2002 2001 2002 2001
Reported net income
(loss) (1,658) (4,028) 13,972 4,730
Add back goodwill
amortization -- 708 -- 2,832
Adjusted net income
(loss) (1,658) (3,320) 13,972 7,562
Net income (loss)
per share:
Reported basic and
diluted net income
(loss) per common
share (0.03) (0.08) 0.29 0.10
Add back goodwill
amortization -- 0.01 -- 0.06
Adjusted basic and
diluted net income
(loss)per common
share (0.03) (0.07) 0.29 0.16
BUSINESS SEGMENT INFORMATION
13 Weeks Ended Year Ended
December 31, December 31, December 31, December 31,
(Dollars in thousands) 2002 2001 2002 2001
Net sales
Propel 97,548 83,277 440,221 399,509
Work Function 69,204 64,850 294,952 268,410
Controls 54,471 40,935 217,135 187,359
Total 221,223 189,062 952,308 855,278
Segment Income (Loss)
Propel 7,444 9,674 47,269 36,941
Work Function 1,476 (1,175) 20,178 9,589
Controls 217 (3,059) 5,804 6,575
Global Services and
Other Expenses, net (5,423) (8,154) (22,879) (20,247)
Total 3,714 (2,714) 50,372 32,858
Cumulative Effect of Change in Accounting Principle
Effective January 1, 2002, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 142 changes the accounting for goodwill from an
amortization approach to a non-amortization approach, under which goodwill
is evaluated at least annually for impairment. The Statement requires
that the Company identify its reporting units and then measure the amount
of impairment, if any, based on a comparison of the fair value of a
reporting unit to its carrying value.
In connection with the adoption of SFAS No. 142, the Company completed the
impairment analysis of goodwill as of January 1, 2002. This evaluation
resulted in goodwill impairment of $0.7 million related to a reporting
unit within the Work Function segment. This adjustment was made during
the third quarter and is reflected in the year to date results. The
adjustment is a non-cash charge booked as a cumulative effect of change in
accounting principle.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended
December 31, December 31,
(Dollars in thousands) 2002 2001
Cash flows from operating activities:
Net income 13,972 4,730
Cumulative effect of change in accounting
principle 695 --
Depreciation and amortization 72,156 69,474
Minority interest in income of consolidated
companies 11,709 7,882
Equity in net earnings of affiliates (610) --
Net change in receivables, inventories,
and payables 6,374 (1,303)
Other, net (6,013) (12,778)
Net cash provided by operating activities 98,283 68,005
Cash flows from investing activities:
Purchases of property, plant and equipment (42,278) (69,697)
Payments for acquisitions, net of cash acquired (25,084) (41,510)
Proceeds from sales of property, plant and
equipment 1,090 1,064
Net cash used in investing activities (66,272) (110,143)
Cash flows from financing activities:
Net (repayments) borrowings on notes payable and
bank overdrafts (6,025) 81,124
Net repayments of long-term debt (5,490) (20,852)
Cash dividends (13,277) (13,275)
Distribution to minority interest partners (9,625) (13,500)
Net cash provided by (used in) financing
activities (34,417) 33,497
Effect of exchange rate changes 479 (1,789)
Net decrease in cash and cash equivalents (1,927) (10,430)
Cash and cash equivalents at beginning of year 14,324 24,754
Cash and cash equivalents at end of year 12,397 14,324
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, December 31,
(Dollars in thousands, except employee data) 2002 2001
ASSETS
Current assets:
Cash and cash equivalents 12,397 14,324
Accounts receivable, net 153,643 134,586
Inventories 164,686 141,652
Other current assets 23,057 23,066
Total current assets 353,783 313,628
Property, plant and equipment, net 443,147 423,195
Other assets 174,163 148,158
Total assets 971,093 884,981
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and bank overdrafts 56,010 53,046
Long-term debt due within one year 27,085 9,727
Accounts payable 69,441 57,096
Other accrued liabilities 62,301 49,977
Total current liabilities 214,837 169,846
Long-term debt 235,198 236,026
Long-term pension liability 42,585 31,608
Deferred income taxes 44,778 42,991
Other liabilities 37,618 31,745
Minority interest in net assets of consolidated
companies 27,118 25,581
Stockholders' equity 368,959 347,184
Total liabilities and stockholders' equity 971,093 884,981
Number of employees at end of year 7,207 6,790