Oct. 28, 2009 (PR Newswire) -- AUBURN HILLS, Mich., Oct. 28 /PRNewswire-FirstCall/ -- BorgWarner Inc. (NYSE: BWA) reported third quarter U.S. GAAP earnings of $0.15 per diluted share today compared with $(1.12) per diluted share in the third quarter of 2008. The sequential gain in income from second quarter 2009 is attributable to continuous improvement in operational efficiency in combination with higher sales. Positive free cash flow of $13.6 million in the quarter (net cash provided by operating activities less capital expenditures, including tooling outlays), further strengthened the balance sheet.
Third Quarter Highlights:
-- Sales were $1,027.8 million.
-- U.S. GAAP earnings were $0.15 per diluted share.
-- Operating income was $27.5 million, or 2.7% of sales.
-- Net cash provided by operating activities was $226.3 million for the
first nine months of 2009.
-- Net debt decreased $88.0 million since the end of 2008.
-- Net debt to capital ratio was 21.3%.
Comment and Outlook: "BorgWarner's continued focus on execution generated positive results during the quarter," said Timothy Manganello, Chairman and CEO. "Our earnings performance in the third quarter, which has lifted us to near breakeven levels year to date on a recurring basis, is a direct result of resizing our business for profitability at these sales levels. Our decremental margin in the quarter was approximately 15%, significantly better than our target range of 20% to 25%. As a result of actions taken over the last twelve months, BorgWarner is a much leaner company now with a renewed commitment to operational excellence and efficiency."
Commenting on the remainder of the year, Manganello noted, "We continue to be cautiously optimistic about the fourth quarter. We expect production volumes to be incrementally higher than third quarter levels in North America, while visibility in Europe remains limited due to uncertainty surrounding consumer demand, the impact of expiring government-sponsored incentive programs and other market dynamics. Ultimately, we expect it to be another profitable quarter for our company. Furthermore, our leadership in fuel-efficient technologies, combined with the company's diversified customer base and broad geographic presence should enable BorgWarner to achieve sustained profitable growth over the long term."
Financial Results: For the third quarter 2009, sales were $1,027.8 million, down 22.0% compared with $1,316.9 million in the third quarter 2008. Excluding the negative impact of currency, the decline would have been approximately 18%. Net income in the quarter was $17.2 million, or $0.15 per diluted share, compared with a loss of $(130.4) million, or $(1.12) per diluted share, in third quarter 2008. The third quarter 2008 loss included a restructuring charge of $(0.16) per diluted share, a charge of $(1.27) per diluted share for a goodwill adjustment related to the BERU acquisition, a valuation adjustment for foreign tax credits of $(0.12) per diluted share, and a charge related to the outcome of retiree healthcare benefits litigation of $(0.03) per diluted share. The impact of foreign currencies, primarily the lower Euro, lowered sales by approximately $50 million in third quarter 2009 compared with third quarter 2008, and reduced earnings by approximately $(3) million, or $(0.03) per diluted share.
For the first nine months of 2009, sales were $2,763.5 million, down 36.2% compared with $4,332.4 million in the first nine months of 2008. Excluding the negative impact of currency, the decline would have been approximately 31%. Net income in the first nine months of 2009 was a loss of $(25.7) million, or $(0.22) per diluted share, compared with income of $45.8 million, or $0.39 per diluted share, in the first nine months of 2008. The loss in the first nine months of 2009 included a $(0.29) per diluted share loss related to restructuring activities, a $(0.03) per diluted share net loss from interest rate derivative agreements, a $(0.03) per diluted share loss upon adoption of Topic 805, Business Combinations (formerly referred to as FAS 141R), for the treatment of on-going acquisition-related activity, and a $0.15 per diluted share net gain related to retiree obligations resulting from the closure of the Muncie, Indiana, Drivetrain facility. The first nine months of 2008 net income included a third quarter restructuring charge of $(0.16) per diluted share, a charge of $(1.24) per diluted share for a goodwill adjustment related to the BERU acquisition, a valuation adjustment for foreign tax credits of $(0.11) per diluted share, a charge related to the outcome of retiree healthcare benefits litigation of $(0.03) per diluted share, and purchase accounting adjustments related to the acquisition of BERU of $(0.04) per diluted share. The impact of foreign currencies, primarily the lower Euro, reduced sales by approximately $232 million in the first nine months of 2009 compared with first nine months of 2008, and reduced the loss in earnings by approximately $(3) million, or $(0.03) per diluted share.
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 results:
Net earnings or (loss) per diluted share
Third Quarter First Nine Months
2009 2008 2009 2008
Non - U.S. GAAP $0.15 $0.44 $(0.03) $1.97
Reconciliations:
Restructuring activities (0.16) (0.29) (0.16)
Goodwill impairment charge (1.27) (1.24)
Tax valuation allowance (0.12) (0.11)
DTP retiree outcome (0.03) (0.03)
BERU purchase accounting (0.04)
Interest rate derivative agreements (0.03)
Topic 805, Business Combinations, adoption (0.03)
Change in retiree obligations related
to Muncie closure 0.15
U.S. GAAP $0.15 $(1.12)* $(0.22)* $0.39
*Column does not add due to rounding
The Company's operating income was $27.5 million in third quarter 2009 versus an operating loss of $(103.9) million in third quarter 2008. Excluding non-recurring items, operating income in third quarter 2008 was $71.9 million, or 5.5% of sales. Research and development spending was $41.4 million, or 4.0% of sales, versus $50.7 million, or 3.8% of sales, in third quarter 2008.
Net cash provided by operating activities was $226.3 million in the first nine months of 2009 versus $265.1 million in the first nine months of 2008. Investments in capital expenditures, including tooling outlays, totaled $127.2 million during the first nine months of 2009, compared with $265.6 million for the same period in 2008. Balance sheet debt increased by $67.4 million at the end of the quarter compared with the end of 2008 primarily due to the net impact of the issuance of $373.8 million in convertible senior notes, the retirement of $136.7 million in senior notes and payments related to other short term debt obligations. Cash on hand increased by $155.4 million during the same period.
Engine Group Results: Demand for the company's engine products in the third quarter was an improvement over the second quarter, but was still weak compared with the same period a year ago. Engine segment net sales decreased to $735.3 million, or 24.5%, compared with $974.1 million in the prior year's quarter. Excluding the negative impact of currency, sales were down approximately 21%.
