BorgWarner Posts First Quarter Results; Reports Benefits From Restructuring Actions, Positive Cash Flow From Operations And Improving Liquidity
AUBURN HILLS, Mich., April 30 -- BorgWarner Inc. today reported first quarter results that benefitted from 2008 restructuring initiatives. Additional cost structure actions were implemented in the first quarter to address continued instability in customer production schedules and general economic uncertainty. The company also generated positive cash flow from operations in the quarter (net cash provided by operating activities less capital expenditures, including tooling outlays), and strengthened its capital structure and financial flexibility.
First Quarter Highlights: -- Sales were $819.5 million. -- Aggressive restructuring actions in 2008 helped reduce Q1 decremental margins. -- U.S. GAAP earnings were a loss of $(0.06) per diluted share, including a number of non-recurring items: -- $(0.03) per diluted share loss upon adoption of FAS 141R for treatment of on-going acquisition-related activity -- $(0.06) per diluted share loss from interest rate derivative agreements -- $0.15 per diluted share net gain related to retiree obligations resulting from the closure of the Muncie, Indiana, Drivetrain facility. -- Excluding non-recurring items for comparative purposes with past quarters, the earnings loss from operations in the quarter was $(0.12) per diluted share. -- Q1 cost structure actions included global pay cuts, selected plant shutdowns and reduced work weeks outside of the U.S.. -- Net cash provided by operating activities was $68.0 million. -- Public debt maturity of $136.7 million was repaid in February. -- Cash on hand at the end of the quarter was $90.8 million. -- Net debt to capital ratio was 24.2%. -- Subsequent to quarter end, the company completed a convertible senior note offering of $373.8 million and is completing a $250 million extension of its revolving credit facility for 18 months.
Comment and Outlook: "BorgWarner distinguished itself from many industry peers by continuing to generate positive cash flow from operations in the first quarter," said Timothy Manganello, Chairman and CEO. "Our cash on hand and cash generated in the quarter allowed us to repay $136.7 million of public debt that matured in February. In addition we have strengthened our financial structure by executing a very successful convertible bond offering and addressing our revolving credit facility."
"Further, the restructuring actions we took in 2008, while difficult, have already begun to yield positive financial results," he continued. "We also continued to make structural cost adjustments during the first quarter to improve operating efficiency, and to address profitability and cash flow. Special attention has been given to Drivetrain Group profitability where disappointing first quarter results were caused by declining volumes, European employee costs tied to operational issues and dual clutch growth-related costs. Going forward, the Drivetrain Group will benefit from the previously announced closing of the Muncie, Indiana, plant and operational improvements in Europe."
Commenting on the outlook for the year, Manganello noted, "Customer schedules remain uncertain, providing little clarity to the rest of the year. As a result, we are sizing our operations as if first quarter production levels will continue throughout the remainder of the year. However, our target in this more challenging scenario, is to still generate positive earnings and cash flow from operations. The actions we have taken favorably position BorgWarner to withstand current industry pressures and resume growth as the auto sector recovers. The global focus on fuel efficiency and emissions reduction remains strong, and our technology and expertise meet that demand. We continue to execute against our long-term strategy and continue to invest in research and development that will foster future growth."
Financial Results: For first quarter 2009, sales were $819.5 million, down 45% compared with $1,498.9 million in first quarter 2008. The negative impact of currency accounted for 6% of the decline. Net income in the quarter was a loss of $(7.0) million or $(0.06) per diluted share compared with a gain of $88.7 million, or $0.75 per diluted share, in first quarter 2008. The first quarter 2009 loss included a $(0.03) per diluted share loss upon adoption of FAS 141R for the treatment of on-going acquisition-related activity, a $(0.06) per diluted share loss from interest rate derivative agreements, and a $0.15 per diluted share net gain related to retiree obligations resulting from the closure of the Muncie, Indiana, Drivetrain facility. The impact of foreign currencies, primarily the lower Euro, reduced sales by $82.3 million in first quarter 2009 compared with first quarter 2008, and reduced the loss on earnings by $3.4 million, or $0.03 per diluted share.
Operating income was $5.5 million or 0.7% of sales in the first quarter of 2009 versus $124.8 million, or 8.3% of sales, in first quarter 2008. Excluding non-recurring items, operating income was a loss of $(17.6) million. Net cash provided by operating activities was $68.0 million in first quarter 2009 versus $74.5 million in first quarter 2008. Investments in capital expenditures, including tooling outlays, totaled $38.6 million for the quarter, compared with $75.4 million for the same period in 2008. Balance sheet debt decreased by $63.4 million at the end of the quarter compared with the end of 2008.
The company's capital structure remains strong. The ratio of balance sheet debt net of cash to capital was 24.2% at the end of the quarter. The company has ample liquidity. It repaid $136.7 million of public debt that matured in February, and ended the quarter with no outstanding borrowing under its revolving credit facility and with $90.8 million of cash on hand. Since the end of the quarter, the company completed a convertible senior note offering of $373.8 million and is completing a $250 million extension of its revolving credit facility for 18 months.