BorgWarner Reports Fourth Quarter and Full Year 2008 Results
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AUBURN HILLS, Mich., February 12, 2009: BorgWarner Inc. today reported fourth quarter and full year results for 2008. The Company generated record first half performance, but full year results were affected by deteriorating global economic conditions and the sharp decline in worldwide auto production in the second half of the year. The company has undertaken aggressive cost structure adjustments in anticipation of continued difficult industry conditions in 2009 and its capital structure remains strong.
Fourth Quarter Highlights:
-- Sales were $931.5 million, down 32% from fourth quarter 2007.
-- U.S. GAAP earnings were a loss of $(0.70) per diluted share. For
comparison with other quarters, fourth quarter 2008 earnings per share
were breakeven excluding non-recurring items. These included the
following per share items:
- Goodwill impairment charge related to the BERU acquisition, $(0.09);
- Restructuring expense, $(0.56);
- Transmission product related warranty charge associated with a
product sold in Europe, limited to production from mid-2007 through
May 2008, $(0.14);
- Effective full year tax rate change from 25% to 23% for the first
nine months of 2008, $0.07; and
- Adjustments to tax accounts, $0.02.
-- Approximately $76 million of the total $112.5 million pre-tax charges
($0.65 per share after-tax) for restructuring and goodwill were non-
cash.
-- Cost structure adjustments included workforce and workweek reductions,
extended holiday shutdowns and plant closings.
-- Net cash provided by operating activities was $135.7 million.
-- Net debt to capital ratio was 25.2%; gross debt to twelve month
trailing EBITDA was 1.2 times.
-- Cash on hand was $103.4 million; no outstanding borrowings under $600
million revolving credit facility.
Full Year Highlights:
-- Sales were $5,263.9 million, down 1% from 2007; worldwide auto
production declined 4% during the same period.
-- U.S. GAAP earnings were a loss of $(35.6) million or $(0.31) per
diluted share. For comparison with other years, full-year 2008 earnings
were $2.07 per share excluding non-recurring items. These included the
following per share items:
- Goodwill impairment charge related to the BERU acquisition, $(1.35);
- BERU purchase accounting adjustment, $(0.04);
- Restructuring expense, $(0.72);
- Transmission product related warranty charge, $(0.14);
- Tax valuation allowance, $(0.12);
- Retiree healthcare litigation outcome, $(0.03) and
- Adjustments to tax accounts, $0.02.
-- Operating income margin was 6.3% excluding non-recurring items.
-- Approximately $230 million of the total $284.3 million pre-tax charges
($2.07 per share after-tax) for restructuring and goodwill were
non-cash.
-- Net cash provided by operating activities was $400.8 million.
-- After-tax return on average invested capital was 10%.
2008 Performance: "Our full-year results were hurt by the worldwide economic deterioration that led to significantly reduced global auto production in the second half of the year," said Timothy Manganello, Chairman and CEO of BorgWarner. "In the first half of 2008, we generated record performance driven by strong demand for our turbocharger and dual-clutch transmission technologies. Program launches and new business awards during the year reinforced the benefit of our technology focus to improve fuel economy and air quality for customers in all regions of the world. During the second half of the year, we took aggressive cost-control measures to offset the dramatic global slowdown in the auto industry."
2008 Restructuring: "Entering 2009, we have already undertaken significant restructuring actions in North America and Europe," Manganello said. "These initiatives included reducing our workforce by approximately 4,400 employees or 24% from mid-2008 levels, instituting four-day work weeks in many of our European operations, and shutting down our worldwide operations for at least one month over the year-end holidays.
"Additionally, we are proactively modifying our operations to respond to ever-changing customer and business needs. We are managing inventory closely and reducing capital spending. At the same time, we continue to leverage our healthy financial position to invest in future growth as we spend wisely on research and development." The company had also previously announced plans to close two Drivetrain facilities that produce four-wheel-drive systems, one in 2009 in Muncie, Indiana, and another in Margam, Wales in 2010.
2009 Outlook: The company indicated that its visibility into 2009 is limited until customer schedules stabilize. However, based on an assumption of North American vehicle builds of 9.3 million units for 2009 and total European vehicle builds of 16.6 million units, the company expects to generate positive earnings and positive cash flow from operations (net cash provided by operating activities less capital expenditures, including tooling outlays) for the full year 2009. In both North America and Europe, the company expects first quarter industry volumes to be lower than those in the fourth quarter of 2008, the result of global customer schedule reductions and extended customer plant shutdowns. While the market remains highly challenging, BorgWarner continues to benefit from remarkable customer diversity, a strong balance sheet and ample liquidity. Looking beyond the current crisis, the company continues to execute its long-term strategy, including the development of future powertrain technology, a key area of interest both within and outside of the auto industry, as the importance of improving fuel economy and air quality becomes even more prominent.
Financial Results: Sales were $931.5 million in fourth quarter 2008, compared with $1,372.9 million in fourth quarter 2007. Net loss in the quarter was $(81.4) million, or $(0.70) per diluted share, compared with $71.2 million, or $0.60 per diluted share in fourth quarter 2007. Fourth quarter 2008 included a goodwill impairment charge of $(0.09) related to the BERU acquisition; a fourth quarter restructuring expense of $(0.56); a transmission product related warranty charge of $(0.14) per share associated with a product sold in Europe, limited to mid-2007 through May 2008 production; the impact of an effective full year tax rate change from 25% to 23% for the first nine months of 2008 of $0.07; and adjustments to a tax accounts of $0.02. Fourth quarter 2007 net income included unfavorable tax adjustments of $(13.3) million, or $(0.11) per diluted share, and purchase accounting adjustments related to the purchase of additional BERU shares of $(0.02) per diluted share. Excluding non-recurring items, operating income was $4.4 million, or 0.5% of sales, in fourth quarter 2008, versus $126.3 million, or 9.2% of sales, in fourth quarter 2007. The impact of foreign currencies in fourth quarter 2008, primarily the Euro, decreased sales by $114.1 million and increased the net loss by $(9.6) million or $(0.08) per share.
Full-year 2008 sales were $5,263.9 million, slightly down from sales of $5,328.6 million in 2007. 2008 net loss was $(35.6) million, or $(0.31) per diluted share, compared with 2007 net income of $288.5 million, or $2.45 per diluted share. 2008 net income included the following per share items: goodwill impairment charge of $(1.35) related to the BERU acquisition, BERU purchase accounting adjustment of $(0.04), tax valuation allowance of $(0.12), restructuring expense of $(0.72), $(0.03) related to the outcome of retiree healthcare litigation, $(0.14) due to a transmission product related warranty charge, and adjustments to tax accounts of $0.02. 2007 net income included net favorable tax adjustments of $3.4 million or $0.03 per diluted share, and purchase accounting adjustments related to the purchase of additional Beru shares of $(2.4) million or $(0.02) per diluted share. The impact of foreign currencies, primarily the Euro, added $191 million to sales in 2008 compared with 2007, and $13.0 million to net income. Research and development spending was $205.7 million for the year versus $210.8 million in 2007.
Net cash provided by operating activities was $400.8 million in 2008 compared with $603.5 million in 2007. Investments in capital expenditures, including tooling outlays, totaled $369.7 million in 2008, compared with $293.9 million in 2007. Balance sheet debt increased by $144.0 million at the end of 2008 compared with the end of 2007, primarily related to $133.6 million for the purchase of additional BERU shares.
The company's capital structure remains strong. The ratio of balance sheet debt net of cash to capital was 25.2% at the end of the year. The company has ample liquidity with $103.4 million of cash on hand at the end of the year and no outstanding borrowings under its $600 million revolving credit facility.
Engine Group Results: Fourth quarter 2008 sales were $680.3 million with segment earnings before interest and income taxes of $36.5 million. Sales outside of the U.S. were down 22% excluding the impact of foreign currencies, while sales in the U.S. were down 19%.
For the full year, 2008 sales were up slightly to $3,861.5 million with segment earnings before interest and income taxes of $394.9 million. Sales outside of the U.S. were up 2% excluding the impact of foreign currencies, while sales in the U.S. were down 12%.
In the first half of the year, the group continued to benefit from European and Asian automaker demand for turbochargers, but second half production declines reduced demand for all of the company's engine products in most regions.
Drivetrain Group Results: Fourth quarter 2008 sales were $255.0 million with a segment loss before interest and income taxes of $(42.1) million. Segment earnings in the quarter were negatively impacted by the $23.5 million transmission-related warranty charge. Sales outside of the U.S. were down 22% excluding the impact of foreign currencies, while sales in the U.S. were down 37%.
For the full year, 2008 sales were $1,426.4 million with a segment loss before interest and income taxes of $(4.9) million, including the warranty impact. Sales outside of the U.S. were up 3% excluding the impact of foreign currencies while sales in the U.S. were down 25%. In the first half of the year, the group benefited from increased demand for dual-clutch transmission components and transmission solenoids and control modules. Lower domestic production of vehicles equipped with its traditional transmission and torque management products negatively affected the full year. Dramatically reduced global production volumes depressed second half demand for all its Drivetrain products.
Recent Highlights: At the end of 2008, the company entered into an agreement with a consortium of leading Chinese automakers to form a joint venture to produce dual clutch transmission modules. The 12 manufacturers include FAW, SAIC, Dongfeng, Chery, Geely, and Great Wall, and together account for over 90% of the domestic passenger car market in China. This is a significant collaboration because it positions dual clutch technology as the preferred transmission for the expanding Chinese market and its major domestic automakers. Production is scheduled to begin in 2011. BorgWarner holds a 66% majority ownership in the joint venture.
At 9:30 a.m. ET today, a brief conference call concerning fourth quarter and full year results will be webcast at: BORG-WARNER.
