BorgWarner Reports Solid First Quarter Driven by Strong Worldwide Demand
AUBURN HILLS, Mich., April 28 -- BorgWarner Inc. today reported results for the first quarter of 2005. The powertrain systems supplier delivered solid results in spite of lower car and truck production in North America and modest growth elsewhere in the world. Strong demand for BorgWarner technology in Europe and Asia, along with continued cost efficiencies, helped boost results.
First Quarter Highlights:
-- Earnings of $1.36 per diluted share. For comparisons with other
quarters, earnings were $0.97 per diluted share, which included $0.93
per diluted share from the company's base business and $0.04 per
diluted share contributed by Beru, and excluded the following:
- The immediate write-off of the excess purchase price associated with
Beru's in-process R&D of $(0.13) per share
- Gains from divestitures of $0.11 per share
- The release of tax accruals of $0.40 per share
-- Sales of $1,084 million, up 20% from Q1 2004
- Sales up 5% excluding Beru
-- Operating income margin of 7.7%
-- Company reiterates its 2005 full year expectations of $4.15 to $4.25
per share on the company's base business
Comment and Outlook: "We had a strong first quarter in spite of a challenging environment," said Tim Manganello, Chairman and CEO. "Our results were driven by our technology that is targeted at the fastest growing parts of the market. Our sales were up 5% in the quarter, excluding our acquisition of a majority stake in Beru, while worldwide industry production was flat. Sales including Beru were up 20% versus first quarter 2004. Our Engine business had solid growth driven by demand for our technology, which improves fuel economy, performance and air quality, while the Drivetrain business experienced a decline in sales, primarily due to a decline in North American light truck and sport-utility vehicle production. Net income generated by the base business was up slightly despite significant year-over-year increases in steel and other commodity prices. We clearly demonstrated the viability of our technology-driven growth strategy and the benefits of building one of the most diverse customer bases in the industry."
The company said that it now expects 2005 earnings per share in a range of $4.65 to $4.81, which includes $0.51 per share associated with divestitures and the release of tax accruals, a $(0.13) per share loss due to the immediate write-off of the excess purchase price associated with Beru's in-process R&D, and full year earnings contributed by Beru of $0.12 to $0.18 per share. Although it remains cautious on the industry, the company reiterated its expectations of $4.15 to $4.25 per share on the company's base business as a comparison to 2004 results.
Financial Results: For first quarter 2005, sales were $1,083.5 million, up 20% from $903.1 million in first quarter 2004. Excluding Beru, sales were up 5% in first quarter 2005. First quarter 2005 sales excluding Beru sales are provided for comparisons with other quarterly results. Net income in the quarter was $77.6 million, or $1.36 per share, compared with $51.1 million, or $0.91 per share in last year's first quarter. First quarter 2005 net income includes normalized earnings related to Beru of $2.5 million, or $0.04 per share, $(7.4) million related to the immediate write-off of the excess purchase price associated with Beru's in-process R&D, or $(0.13) per share, $6.3 million related to divestitures, or $0.11 per share, and $23.0 million related to the release of tax accruals resulting from the completion of tax audits, or $0.40 per share. The normalized earnings related to Beru reflect BorgWarner's 69.42% ownership share of Beru, adjusted by BorgWarner from International Financial Reporting Standards to U.S. GAAP, include expenses related to the amortization of 54% of the excess purchase price and BorgWarner's acquisition financing costs, and exclude the immediate write-off of the excess purchase price associated with Beru's in-process R&D. The expenses related to the amortization of the excess purchase price are based on preliminary allocations. First quarter 2005 net income excluding earnings related to divestitures, the release of tax accruals and the immediate write- off of the excess purchase price associated with Beru's in-process R&D is provided for comparisons with other quarterly results. The increase in the Euro and other currencies added $21.2 million to sales in first quarter 2005 compared with 2004, and $1.8 million to net income.
Operating income was $83.6 million or 7.7% of sales in first quarter 2005 versus $77.6 million or 8.6% of sales in the first quarter 2004. Research and development spending was $41.1 million in the quarter versus $29.4 million in 2004.
Net cash provided by operating activities was $42.4 million in first quarter 2005 versus $66.7 million in first quarter 2004. Investments in capital expenditures and net tooling totaled $52.8 million for the quarter, compared with $54.2 million for the same period in 2004. Balance sheet debt increased by $330.9 million, and cash and cash equivalents decreased $66.5 million in first quarter 2005 compared with end of fourth quarter 2004, primarily due to funding of the Beru acquisition.
Engine Group Results: Strong demand, and the acquisition of a majority stake in Beru, boosted Engine Group sales 37% to $762.5 million with a 13% increase in earnings before interest and taxes to $77.0 million. The group continues to benefit from European and Asian automaker demand for 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 down 8% and the earnings before interest and taxes margin deteriorated to 6.9% from 8.5% last year. Productivity gains in the quarter were more than offset by declining volumes in the North American light truck and sport-utility vehicle markets, higher commodity prices and healthcare cost increases.
Recent Highlights: During the quarter, the company opened its new world headquarters in Auburn Hills, Michigan. In the BorgWarner Engine group, a facility in Aoyama, Japan, opened to serve the company's growing engine timing systems business in that country.
The Engine Group also launched timing systems programs for the 6.1-liter V8 HEMI engine that debuts on the 2005 Chrysler 300 C SRT8 and for the Nissan V6 truck engines that power the new Pathfinder and X-Terra SUVs and the new Frontier pickup. In addition, the group began production of its first high- volume variable cam timing (VCT) systems for a new family of General Motors V6 engines being introduced this year. This system uses a Torsional Assist(TM) technology instead of the conventional oil-pressure actuated approach. The new technology represents a leap to the next generation of cam phasing and constitutes a major step in the expansion of BorgWarner's growing engine management business.
The Drivetrain Group announced that its DualTronic(TM) wet-clutch and control-system technology for automated transmissions, will be available on turbocharged direct-injected gasoline (TFSI) models of the all-new 2005 VW Jetta that went on sale in the U.S. and Canada in March. The technology was named a 2005 Automotive News PACE Award winner for superior innovation, technological advancement and business performance. With the Jetta, seven VW/Audi vehicles are offered with this leading edge transmission technology.
The Drivetrain group will also provide its electronically controlled all- wheel drive InterActive Torque Management II (ITM II)(TM) system to the 2006 Honda Ridgeline, the mid-size front-wheel drive-based pickup with which Honda Motor Co. officially enters the truck market.
All information relating to Beru is unaudited and is in compliance with applicable German statutory requirements, including the German Securities Trading Act.
BorgWarner Inc.
Consolidated Statements of Operations (Unaudited)
(millions of dollars, except per
share data) Three Months Ended
March 31,
2005 2004
Net sales $1,083.5 $903.1
Cost of sales 869.8 730.5
Gross profit 213.7 172.6
Selling, general and administrative expenses 134.2 94.7
Other, net (4.1) 0.3
Operating income 83.6 77.6
Equity in affiliate earnings, net of tax (4.0) (6.5)
Interest expense and finance charges 9.3 7.5
Earnings before income taxes 78.3 76.6
Provision for income taxes (0.3) 22.9
Minority interest, net of tax 1.0 2.6
Net earnings $77.6 $51.1
Earnings per share - Diluted $1.36 $0.91
Average shares outstanding - Diluted
(in millions) 57.2 56.0
Three Months Ended
March 31,
2005 2004
Capital expenditures $49.3 $40.5
Tooling outlays, net of customer reimbursements $3.5 $13.7
Depreciation and amortization:
Fixed asset depreciation $38.0 $33.7
Amortization of tooling 9.7 9.8
Other amortization 17.0 0.0
$64.7 $43.5
BorgWarner Inc.
Net Sales by Operating Group (Unaudited)
(millions of dollars)
Three Months Ended
March 31,
2005 2004
Drivetrain $332.3 $359.6
Engine 762.5 557.1
Net sales by operating group 1,094.8 916.7
Eliminations (11.3) (13.6)
Net sales $1,083.5 $903.1
Earnings Before Interest and Taxes by Operating Group (Unaudited)
(millions of dollars)
Three Months Ended
March 31,
2005 2004
Drivetrain $22.8 $30.7
Engine 77.0 68.0
Total EBIT by operating group 99.8 98.7
Corporate (12.2) (14.6)
Consolidated 87.6 84.1
Interest and finance charges (9.3) (7.5)
Earnings before income taxes $78.3 $76.6
BorgWarner Inc.
Condensed Consolidated Balance Sheets
(millions of dollars)
March 31, 2005 December 31, 2004
(Unaudited)
ASSETS
Cash and cash equivalents $163.2 $229.7
Receivables 654.7 499.1
Inventories 331.0 223.4
Other current assets 79.1 122.1
Total current assets 1,228.0 1,074.3
Property, plant, and equipment, net 1,299.7 1,077.2
Other long-term assets 1,689.1 1,377.6
Total assets $4,216.8 $3,529.1
LIABILITIES
Notes payable and current portion of
long-term debt $230.7 $16.5
Accounts payable and accrued expenses 667.0 608.0
Income taxes payable 60.2 39.3
Total current liabilities 957.9 663.8
Long-term debt 684.7 568.0
Other long-term liabilities 869.1 740.9
Minority Interest 123.0 22.2
STOCKHOLDERS' EQUITY
Stockholders' equity 1,582.0 1,534.2
Total liabilities and
stockholders' equity $4,216.8 $3,529.1
BorgWarner Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(millions of dollars)
Three Months Ended
March 31,
2005 2004
Operating:
Net earnings $77.6 $51.1
Non-cash charges to operations:
Depreciation and amortization 64.7 43.5
Employee retirement benefits 0.0 18.9
Other non-cash items (26.0) (6.5)
Net earnings adjusted for
non-cash charges 116.3 107.0
Changes in assets and liabilities (73.9) (40.3)
Net cash provided by operating activities 42.4 66.7
Investing:
Capital expenditures (49.3) (40.5)
Tooling outlays, net of customer reimbursements (3.5) (13.7)
Acquisitions, net of divestitures (385.2) (7.8)
Other 2.9 0.0
Net cash used in investing activities (435.1) (62.0)
Financing:
Net additions (repayments) of debt 340.7 (34.8)
Dividends paid (7.9) (6.9)
Other 1.9 2.2
Net cash provided by (used in)
financing activities 334.7 (39.5)
Effect of exchange rate changes on
cash and cash equivalents (8.5) 0.4
Net decrease in cash and cash equivalents (66.5) (34.4)
Cash and cash equivalents at
beginning of period 229.7 113.1
Cash and cash equivalents at end of period $163.2 $78.7