BorgWarner Reports Record Sales in the First Quarter
Sales and Earnings Growth Continue to Outpace the Industry
AUBURN HILLS, Mich., April 27 -- BorgWarner Inc. today reported solid results for the first quarter of 2006. The powertrain systems supplier delivered sales and earnings growth that outpaced the industry's growth around the world. BorgWarner's technology leadership, customer and geographic diversity and cost reduction focus continued to drive outstanding results.
First Quarter Highlights:
* Earnings of $1.06 per diluted share, which included $(0.04) per diluted share related to the implementation of FAS 123( R ) and $(0.07) per diluted share related to unfavorable currency impact versus first quarter 2005
* Record sales of $1,155 million
* Sales outside of the U.S. grew 21% over first quarter 2005, excluding the impact of currency
* Operating income margin of 8.2%
* Company reiterates its 2006 full year expectations of $4.22 to $4.57 per diluted share
Comment and Outlook: "Despite the uncertainty facing the industry, BorgWarner continues to deliver," said Tim Manganello, Chairman and CEO. "Our results were driven by our technology that is targeted at improvements in fuel economy, emissions reduction and vehicle performance, the fastest growing parts of the market. Our sales were up 7% in first quarter 2006, 11% excluding the impact of currency, while North American and worldwide vehicle production were up only 3% and 4%, respectively. Furthermore, our customer and geographic diversity along with a cost reduction focus enabled us to weather tough industry conditions and maintain our margins. On a comparable non-U.S. GAAP basis, earnings increased 13% in the quarter versus first quarter 2005."
The company reiterated that it expects 2006 earnings per diluted share, on a U.S. GAAP basis, in a range of $4.22 to $4.57. Also, the company expects to maintain operating margins in 2006 despite continued raw material and energy cost increases, rising health care costs and the costs related to global expansion.
Financial Results: For first quarter 2006, sales were $1,155.2 million, up 7% from $1,083.5 million in first quarter 2005. Net income in the quarter was $61.3 million, or $1.06 per diluted share, compared with $77.6 million, or $1.36 per diluted share in first quarter 2005. First quarter 2006 included $(2.9) million of pre-tax expense related to the implementation of FAS 123 ( R ), or $(0.04) per diluted share. First quarter 2005 net income benefited from $21.9 million, or $0.38 per diluted share, related to special items. First quarter 2006 net income excluding the impact of the implementation of FAS 123( R ) and first quarter 2005 net income excluding special items are provided for comparisons with other quarterly results. The following table reconciles the Company's non-U.S. GAAP amounts included in the press release to the most directly comparable U.S. GAAP amounts and is provided for comparisons with other quarterly results:
Net earnings per share - diluted
Q1 2006 Q1 2005(1)
Non-U.S. GAAP: $1.10 $0.97
Reconciliations:
One-time write-off of the excess
purchase price associated with
Beru's in-process R&D (0.13)
Net gain from divestitures 0.11
Release of tax accruals 0.40
Implementation of FAS 123( R ) (0.04)
U.S. GAAP $1.06 $1.36
(1) Does not add due to rounding
The decrease in the Euro and other currencies lowered sales by $(48.1) million in first quarter 2006 compared with first quarter 2005, and net income by $(3.9) million, or $(0.07) per diluted share.
Operating income was $94.3 million or 8.2% of sales in first quarter 2006 versus $83.6 million or 7.7% of sales in the first quarter 2005. Excluding the impact of FAS 123( R ) from first quarter 2006 and special items from first quarter 2005, first quarter 2006 operating income margin was 8.4%, up from 8.2% a year ago. Research and development spending was $46.0 million in the quarter versus $41.1 million in 2005.
Net cash provided by operating activities was $48.1 million in first quarter 2006 versus $45.0 million in first quarter 2005. Investments in capital expenditures of $53.1 million, together with net tooling outlays of $17.2 million, totaled $70.3 million for the quarter, compared with $52.8 million for the same period in 2005.
Balance sheet debt increased by $32.5 million, cash and cash equivalents decreased by $32.9 million, and marketable securities increased by $25.2 million in first quarter 2006 compared with end of fourth quarter 2005.
Engine Group Results: Strong global demand for its products boosted Engine Group first quarter 2006 sales 9% versus first quarter 2005 to $785.9 million with a 30% increase in earnings before interest and taxes to $96.3 million. Excluding special items in first quarter 2005, first quarter 2006 earnings before interest and taxes were up 15% year-over-year. The group continues to benefit from European and Asian automaker demand for turbochargers, timing systems and emissions products, European demand for diesel engine ignition systems, and stronger global commercial vehicle production.
Drivetrain Group Results: First quarter 2006 sales were up 2% versus first quarter 2005 to $377.0 million while segment earnings before interest and income taxes declined 12% to $22.7 million. The group continued to benefit from sales growth outside of North America, including increased sales of dual- clutch transmission products, but segment earnings were negatively impacted by the lower domestic production of light trucks and sport-utility vehicles equipped with its torque transfer products and higher health care costs.
Effective January 1, 2006, the Company assigned an operating facility previously reported in the Engine segment to the Drivetrain segment due to changes in the facility's product mix. Prior period segment amounts have been re-classified to conform to the current year's presentation.
Recent Highlights: The Company and the U.S. Environmental Protection Agency (EPA) recently announced a partnership to develop advanced air management technologies that will enable the automotive and trucking industries to utilize EPA's Clean Diesel Combustion (CDC) and High-Efficiency Gasoline combustion technologies.
Also, the company opened a new operation in Ningbo, China for the assembly of turbochargers and transmission solenoids. The manufacturing facility is the first of several operations planned for a campus that comprises BorgWarner Automotive Components (Ningbo) Co., Ltd., the company's wholly foreign-owned enterprise in the Ningbo Yinzhou industrial zone.
In the Drivetrain Group, NSK-Warner, a 50/50 joint venture between BorgWarner and Nippon Seiko K.K. (NSK) that produces transmission products in Japan, has opened a facility in Shanghai for the manufacture of friction products, one-way clutches and clutch modules to support Chinese and other automakers there in response to increasing demand for transmission technology in Asia.
In the Engine Group, the company announced that BorgWarner's high-flow air pump, which provides a 30-percent increase in air flow over previous- generation air pumps, is supplying the Porsche 997 Turbo 3.6-liter engine.
Auburn Hills, Michigan-based BorgWarner Inc. is a product leader in highly engineered components and systems for vehicle powertrain applications worldwide. The FORTUNE 500 company operates manufacturing and technical facilities in 62 locations in 17 countries. Customers include Ford, VW/Audi, DaimlerChrysler, General Motors, Toyota, Renault/Nissan, Hyundai/Kia, Honda, BMW, Caterpillar, Navistar International, and Peugeot. The Internet address for BorgWarner is: http://www.borgwarner.com/ .
Financial Tables Follow
BorgWarner Inc.
Condensed Consolidated Statements of Operations (Unaudited)
(millions of dollars, except per share data)
Three Months Ended
March 31,
2006 2005
Net sales $1,155.2 $1,083.5
Cost of sales 928.8 869.8
Gross profit 226.4 213.7
Selling, general and administrative
expenses 132.6 134.2
Other income (0.5) (4.1)
Operating income 94.3 83.6
Equity in affiliate earnings, net of tax (10.0) (4.0)
Interest expense and finance charges 9.4 9.3
Earnings before income taxes and
minority interest 94.9 78.3
Provision (benefit) for income taxes 26.6 (0.3)
Minority interest, net of tax 7.0 1.0
Net earnings $61.3 $77.6
Earnings per share - Diluted $1.06 $1.36
Weighted average shares outstanding -
Diluted (in millions) 57.8 57.2
Supplemental Information (Unaudited)
(millions of dollars)
Three Months Ended
March 31,
2006 2005
Capital expenditures $53.1 $49.3
Tooling outlays, net of customer
reimbursements $17.2 $3.5
Depreciation and amortization:
Fixed asset depreciation $47.9 $38.0
Amortization of tooling 10.0 9.7
Other amortization 3.2 15.8
$61.1 $63.5
BorgWarner Inc.
Net Sales by Operating Segment (Unaudited)
(millions of dollars)
Three Months Ended
March 31,
2006 2005
Engine $785.9 $722.0
Drivetrain 377.0 370.6
Inter-segment eliminations (7.7) (9.1)
Net sales $1,155.2 $1,083.5
Segment Earnings Before Interest and Income Taxes (Unaudited)
(millions of dollars)
Three Months Ended
March 31,
2006 2005
Engine $96.3 $74.0
Drivetrain 22.7 25.8
Segment earnings before interest and
income taxes (Segment EBIT) 119.0 99.8
Corporate, including equity in
affiliates earnings and FAS 123( R ) (14.7) (12.2)
Consolidated earnings before interest
and taxes (EBIT) 104.3 87.6
Interest expense and finance charges 9.4 9.3
Earnings before income taxes &
minority interest 94.9 78.3
Provision (benefit) for income taxes 26.6 (0.3)
Minority interest, net of tax 7.0 1.0
Net earnings $61.3 $77.6
Note: Effective January 1, 2006, the Company assigned an operating
facility previously reported in the Engine segment to the Drivetrain
segment due to changes in the facility's product mix. Prior period
segment amounts have been re-classified to conform
BorgWarner Inc.
Condensed Consolidated Balance Sheets
(millions of dollars)
March 31, 2006 December 31, 2005
(Unaudited)
Assets
Cash and cash equivalents $56.8 $89.7
Marketable securities 65.8 40.6
Receivables, net 703.6 626.1
Inventories, net 341.3 332.0
Other current assets 85.3 80.3
Total current assets 1,252.8 1,168.7
Property, plant and equipment, net 1,301.5 1,294.9
Other long-term assets 1,651.9 1,625.8
Total assets $4,206.2 $4,089.4
Liabilities and stockholders' equity
Notes payable $123.1 $160.9
Current portion of long-term debt 139.0 139.0
Accounts payable and accrued expenses 777.0 786.4
Income taxes payable 38.0 35.8
Total current liabilities 1,077.1 1,122.1
Long-term debt 510.9 440.6
Other long-term liabilities 751.3 746.4
Minority interest in consolidated
subsidiaries 132.9 136.1
Stockholders' equity 1,734.0 1,644.2
Total liabilities and
stockholders' equity $4,206.2 $4,089.4
BorgWarner Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(millions of dollars)
Three Months Ended
March 31,
2006 2005
(Restated)
Operating Activities:
Net earnings $61.3 $77.6
Non-cash charges to operations:
Depreciation and amortization 61.1 63.5
Deferred income tax benefit (2.6) (23.0)
Other non-cash items 5.4 (0.4)
Net earnings adjusted for non-cash
charges 125.2 117.7
Changes in assets and liabilities (77.1) (72.7)
Net cash provided by operating
activities 48.1 45.0
Investing Activities:
Capital expenditures (53.1) (49.3)
Tooling outlays, net of customer
reimbursements (17.2) (3.5)
Payments for business acquired, net
of cash acquired - (477.2)
Proceeds from sale of businesses - 44.2
(Increase) decrease in marketable securities (24.1) 4.2
Other 1.1 2.9
Net cash used in investing activities (93.3) (478.7)
Financing Activities:
Net additions of debt 34.5 340.7
Dividends paid, including minority
shareholders (18.2) (10.5)
Other 2.4 1.9
Net cash provided by financing
activities 18.7 332.1
Effect of exchange rate changes on
cash and cash equivalents (6.4) (11.3)
Net decrease in cash and cash
equivalents (32.9) (112.9)
Cash and cash equivalents at
beginning of period 89.7 229.7
Cash and cash equivalents at end of period $56.8 $116.8