BorgWarner Third Quarter EPS Up 22% to $0.79; Demand in Europe and Asia Drives 16% Sales Growth
CHICAGO, Oct. 25, 2004 -- BorgWarner Inc. today reported financial results for the third quarter of 2004 and reiterated fiscal 2004 guidance. Strong demand for its technology in Europe and Asia along with continued cost efficiencies helped boost results.
Third Quarter Highlights:
-- Earnings per share grew by 22% to a new third quarter record high of
$0.79
-- Sales were up 16% to $839.8 million
-- Operating income margin of 8.1%
-- Engine Group sales up 18%
-- Drivetrain Group sales up 12%
"We had an outstanding third quarter," said Tim Manganello, Chairman and CEO. "Both our Engine and Drivetrain businesses had solid growth driven by demand for our systems which improve fuel economy, performance and air quality. This growth was achieved despite stagnant market conditions, including a year-over-year decline in North American production. BorgWarner sales in Europe and Asia were particularly strong. We translated this sales growth into improved profits, despite significant increases in steel and other commodity prices, by redoubling our focus on manufacturing and administrative cost reduction efforts, as well as on supply chain management. Despite continued commodity pricing pressure and expected declines in auto production in the fourth quarter, we are reiterating our guidance for the year of $3.60 to $3.70 per share. We expect to continue to grow faster than the automotive industry and will release our pipeline of new business for 2005 through 2007 in early November."
Net earnings for the first nine months of 2004 were $150.6 million or $2.67 per share compared with $124.9 million or $2.30 per share in 2003. Sales were $2,636 million, up 16% over 2003 nine-month sales of $2,270.4 million.
Operating income was $68.2 million or 8.1% of sales in the 2004 third quarter, compared with $56.5 million or 7.8% of sales in the 2003 third quarter. Research and development spending was $33.6 million in the quarter, versus $29.0 million in the same period in 2003.
Net cash provided by operating activities increased 46% to $320.7 million for the first nine months of 2004 compared with $220.4 million for the same period in 2003. Investments in capital expenditures and net tooling totaled $167.2 million for the first nine months of 2004, compared with $132.9 million for the same period in 2003. Debt repayments were $61.0 million and cash and cash equivalents increased $75.9 million for the first nine months of 2004.
Engine Group Results: Strong demand from Asian and European automakers boosted the company's Engine Group sales 18% to $532.7 million with a 17% increase in earnings before interest and taxes to $65.2 million. The group continues to benefit from European and Asian automaker demand for the company's turbochargers, timing systems and emissions products, and from stronger commercial vehicle production in both Europe and North America.
Drivetrain Group Results: Sales for the Drivetrain Group were up 12% and earnings before interest and taxes improved 46% compared to last year's third quarter. These gains were driven by demand for transmission and four-wheel drive systems, especially among Asian and European automakers. Productivity efforts more than offset the impact of commodity pricing, as well as health care costs.
Recent Highlights: During the quarter, BorgWarner began production of the engine chain timing system and will also supply the electronic throttle control for a world engine family of four-cylinder gasoline engines produced by a joint venture between Hyundai Motor Company, DaimlerChrysler AG and Mitsubishi Motors Corporation. Total annual world engine production is estimated at more than 1.6 million units. The company also supplies the engine chain timing system and the solenoid exhaust gas recirculation (EGR) valve to the popular DaimlerChrysler 5.7-liter HEMI engine.
In the Drivetrain Group, BorgWarner TorqTransfer Systems has broadened its industry-leading capabilities in torque management with two new technologies that provide automakers and drivers with enhanced traction and stability for maximum performance and security as well as improved fuel economy and reduced emissions. Both the Pre-emptive Torque Management(TM) system and InterActive Differential Control(TM) system deliver the requested amount of torque in response to electronic signals provided by one or more of the vehicle's traction and/or stability control systems. They are both fully interactive with, and work in conjunction with, other vehicle systems. We are in development contracts in anticipation of commercializing this technology.
BorgWarner Inc. is a product leader in highly engineered components and systems for vehicle powertrain applications worldwide. The company operates manufacturing and technical facilities in 43 locations in 14 countries. Customers include Ford, DaimlerChrysler, General Motors, Toyota, Honda, Hyundai/Kia, Caterpillar, Navistar International, Renault/Nissan, Peugeot and VW/Audi. The Internet address for BorgWarner is: http://www.bwauto.com/ . For further information contact BorgWarner Corporate Communications at 312-322-8500. Investor conference calls are webcast at: http://www.bwauto.com/investor_webcasts.html .
Financial Tables Follow
BorgWarner Inc.
Consolidated Statements of Operations (Unaudited)
(millions of dollars, Three Months Nine Months
except per share data) Ended Ended
September 30, September 30,
2004 2003 2004 2003
Net sales $839.8 $725.2 $2,636.1 $2,270.4
Cost of sales 694.7 595.9 2,148.7 1,842.8
Gross profit 145.1 129.3 487.4 427.6
Selling, general and administrative
expenses 77.4 72.7 259.9 233.4
Other, net (0.5) 0.1 0.4 0.2
Operating income 68.2 56.5 227.1 194.0
Equity in affiliate earnings, net of
tax (6.2) (3.6) (21.2) (15.3)
Interest expense and finance charges 7.5 8.1 22.7 25.8
Earnings before income taxes 66.9 52.0 225.6 183.5
Provision for income taxes 20.1 14.2 67.7 52.3
Minority interest, net of tax 2.0 1.9 7.3 6.3
Net earnings $44.8 $35.9 $150.6 $124.9
Net earnings per share - Diluted $0.79 $0.65 $2.67 $2.30
Average shares outstanding - Diluted
(in millions) 56.7 55.0 56.4 54.4
Three Months Nine Months
Ended Ended
September 30, September 30,
2004 2003 2004 2003
Capital expenditures $42.4 $39.3 $126.7 $104.1
Tooling outlays, net of customer
reimbursements $10.4 $8.0 $40.5 $28.8
Depreciation and amortization:
Fixed asset depreciation $32.9 $30.3 $100.2 $90.5
Amortization of tooling 10.2 9.9 30.1 25.6
$43.1 $40.2 $130.3 $116.1
BorgWarner Inc.
Net Sales by Operating Group (Unaudited)
(millions of dollars) Three Months Nine Months
Ended Ended
September 30, September 30,
2004 2003 2004 2003
Drivetrain $318.7 $284.3 $1,025.7 $915.3
Engine 532.7 451.4 1,649.4 1,388.8
Net sales by operating group 851.4 735.7 2,675.1 2,304.1
Eliminations (11.6) (10.5) (39.0) (33.7)
Net sales $839.8 $725.2 $2,636.1 $2,270.4
Earnings Before Interest and Taxes by
Operating Group (Unaudited)
(millions of dollars) Three Months Nine Months
Ended Ended
September 30, September 30,
2004 2003 2004 2003
Drivetrain $24.4 $16.7 $78.9 $66.5
Engine 65.2 55.6 208.8 178.3
Total EBIT by operating group 89.6 72.3 287.7 244.8
Corporate (15.2) (12.2) (39.4) (35.5)
Consolidated 74.4 60.1 248.3 209.3
Interest and finance charges (7.5) (8.1) (22.7) (25.8)
Earnings before income taxes $66.9 $52.0 $225.6 $183.5
BorgWarner Inc.
Condensed Consolidated Balance Sheets (Unaudited)
(millions of dollars)
September 30, December 31,
2004 2003
ASSETS
Cash and cash equivalents $189.0 $113.1
Receivables 497.1 414.9
Inventories 221.4 201.3
Other current assets 111.9 95.3
Total current assets 1,019.4 824.6
Property, plant, and equipment, net 1,007.3 985.3
Other long-term assets 1,260.1 1,240.5
Total assets $3,286.8 $3,050.4
LIABILITIES
Notes payable and current portion of
long-term debt $7.3 $10.0
Accounts payable and accrued expenses 542.4 460.3
Income taxes payable 13.2 -
Total current liabilities 562.9 470.3
Long-term debt 583.0 645.5
Other long-term liabilities 692.1 674.2
STOCKHOLDERS' EQUITY
Stockholders' equity 1,448.8 1,260.4
Total liabilities and
stockholders' equity $3,286.8 $3,050.4
BorgWarner Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(millions of dollars)
Nine Months Ended
September 30,
2004 2003
Operating:
Net earnings $150.6 $124.9
Non-cash charges to operations:
Depreciation and amortization 130.3 116.1
Employee retirement benefits 27.7 9.9
Other non-cash items 4.0 (2.0)
Net earnings adjusted for
non-cash charges 312.6 248.9
Changes in assets and liabilities 8.1 (28.5)
Net cash provided by operating
activities 320.7 220.4
Investing:
Capital expenditures (126.7) (104.1)
Tooling outlays, net of customer
reimbursements (40.5) (28.8)
Other (6.1) (20.0)
Net cash used in investing
activities (173.3) (152.9)
Financing:
Net reduction in debt (61.0) (10.0)
Dividends paid (20.9) (14.5)
Other 9.8 25.6
Net cash (used in) provided by
financing activities (72.1) 1.1
Effect of exchange rate changes on
cash and cash equivalents 0.6 1.6
Net increase in cash and cash
equivalents 75.9 70.2
Cash and cash equivalents at
beginning of year 113.1 36.6
Cash and cash equivalents at end of
period $189.0 $106.8