AUBURN HILLS, Mich., Oct. 27 /PRNewswire-FirstCall/ -- BorgWarner
Inc. (NYSE:BWA) reported a challenging third quarter as solid
performance around the world was offset by the dramatic market
changes occurring in North America. Third Quarter Highlights: --
Sales of $1,060 million, up 1% versus third quarter 2005 -- Sales
in the U.S. were down 14% compared with third quarter 2005, while
sales outside of the U.S. grew 13% -- Earnings of $0.68 per diluted
share on a U.S. GAAP basis. For comparison with other quarters, the
quarter included net charges of $(0.13) per diluted share related
to special items and FAS 123(R) -- Operating income margin of 5.7%,
or 6.6% excluding special items and FAS 123(R) -- Raw material
prices, primarily nickel, up approximately $13 million versus third
quarter 2005 -- Company reiterates its 2006 full year guidance
range of $3.95 to $4.10 per diluted share, excluding a one-time
third quarter cost of $0.15 per diluted share related to
restructuring activities Comment and Outlook: "This was a very
challenging quarter for BorgWarner as significantly lower
production in North America, specifically in the light truck and
sport-utility segment, depressed our operating results," said Tim
Manganello, Chairman and CEO. "Our sales were up a modest 1% in the
quarter, compared with the same period in the prior year, as North
American vehicle production was down 8% and global vehicle
production was up 3%. However, our 1% sales growth was made up of
two separate parts: continued growth outside of the U.S. of about
13%; and a challenging U.S. market environment resulting in a sales
decline of 14%. As previously announced, on September 22, 2006, we
are proactively managing our business in the face of these
challenges. We have taken structural costs out of our North
American operations and will continue to manage this region's
business while we build infrastructure in those regions of the
world where we are growing. Our presence in growing markets, such
as Korea, India and China, as well as our relationships with
emerging auto industry market leaders, underpins our expectations
of continued growth that will outpace the industry." The company
reiterated its 2006 full year guidance range of $3.95 to $4.10 per
diluted share, excluding a one-time third quarter cost of $0.15 per
diluted share related to restructuring activities. That guidance
included net cash provided by operating activities of approximately
$425 million in 2006 as well as a decline in operating margins for
2006, as the incremental margin on lost sales combined with
higher-than-expected raw material costs will more than offset cost
cutting efforts. Margins are expected to return to historical
levels in 2007. Financial Results: For third quarter 2006, sales
were $1,059.8 million, up 1% from $1,050.9 million in third quarter
2005. Net income in the quarter was $39.2 million, or $0.68 per
diluted share, compared with $61.4 million, or $1.07 per diluted
share in third quarter 2005. Third quarter 2006 included $(3.2)
million of pre-tax expense related to the implementation of FAS
123(R), or $(0.04) per diluted share; a $3.6 million after-tax gain
related to a previous divestiture, or $0.06 per diluted share; and
$(8.4) million of after-tax costs related to the previously
announced restructuring activities in North America, or $(0.15) per
diluted share. Third quarter 2005 net income included $3.1 million,
or $0.05 per diluted share, related to adjustments to tax accounts.
For the first nine months of 2006, sales were $3,383.7 million, up
4% from $3,245.8 million in the first nine months of 2005. For the
first nine months of 2006, net income was $170.7 million, or $2.95
per diluted share, compared with $174.9 million, or $3.05 per
diluted share in the first nine months of 2005. The first nine
months of 2006 included $(9.1) million of pre-tax expense related
to the implementation of FAS 123(R), or $(0.12) per diluted share;
a $3.6 million after-tax gain related to a previous divestiture, or
$0.06 per diluted share; and $(8.4) million of after-tax costs
related to the previously announced restructuring activities in
North America, or $(0.15) per diluted share. The first nine months
of 2005 net income included a net $(3.8) million of charges related
to special items, or $(0.07) 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 per
share -- Third Quarter First Nine Months diluted 2006 2005 2006
2005 Non-U.S. GAAP: $0.81 $1.02 $3.16 $3.12 Reconciliations:
One-time write-off of the excess purchase price associated with
Beru's in-process R&D (0.13) Net gain from divestitures 0.06
0.06 0.11 Release of tax accruals 0.40 Crystal Springs-related
settlement (0.50) Adjustments to tax accounts 0.05 0.05
Implementation of FAS 123(R) (0.04) (0.12) North American
restructuring charge (0.15) (0.15) U.S. GAAP $0.68 $1.07 $2.95
$3.05 The increase in the Euro and other currencies increased sales
by $30 million and net income by $1 million, or $0.02 per diluted
share, versus third quarter 2005. For the first nine months of
2006, the decline in the Euro and the Japanese Yen more than offset
gains from other currencies and reduced sales by $(15) million and
net income by approximately $(3) million, or $(0.04) per diluted
share, versus the first nine months of 2005. Operating income was
$60.6 million or 5.7% of sales in third quarter 2006. Excluding the
impact of the net gain from divestitures, FAS 123(R) and the North
American restructuring charge from third quarter 2006, operating
income was 6.6% of sales, versus 8.6% of sales in third quarter
2005. Research and development spending was $46.2 million in the
quarter versus $39.9 million in 2005. Net cash provided by
operating activities was $270.7 million in the first nine months of
2006 versus $260.8 million in the first nine months of 2005.
Investments in capital expenditures, including tooling outlays,
totaled $191.9 million for the first nine months of 2006, compared
with $179.7 million for the same period in 2005. Balance sheet debt
increased by $22.5 million and cash and cash equivalents decreased
by $22.7 million, at the end of third quarter 2006 compared with
the end of 2005, primarily due to the $64.4 million third quarter
2006 acquisition of the European Transmission and Engine Controls
product lines from Eaton Corporation. Marketable securities
increased by $30.7 million during the same period. Engine Group
Results: Strong global demand for its products boosted Engine Group
third quarter 2006 sales 5% versus third quarter 2005 to $736.4
million, however segment earnings before interest and taxes were
down 19% to $76.1 million. Sales in the U.S. declined 7% while
sales outside of the U.S. increased 11%. The group continued to
benefit from Asian automaker demand for turbochargers and timing
systems, European automaker demand for turbochargers, timing
systems, exhaust gas recirculation ("EGR") valves and diesel engine
ignition systems, the continued roll-out of its variable cam timing
systems with General Motors high-value V6 engines, stronger EGR
valve sales in North America, and higher turbocharger and thermal
products sales due to stronger global commercial vehicle
production. Segment earnings in the quarter were negatively
impacted by sharply higher commodity costs, primarily related to
higher nickel prices, and the incremental margin on lost sales in
the U.S. Drivetrain Group Results: Third quarter 2006 sales were
down 8% versus third quarter 2005 to $330.1 million with a 45%
decline in segment earnings before interest and income taxes to
$13.2 million. Sales in the U.S. declined 21% while sales outside
of the U.S. increased 21%. The group continued to benefit from
growth outside of North America including the continued ramp up of
dual-clutch transmission and torque transfer product sales in
Europe. In the U.S., sales were negatively impacted by sharply
lower production of light trucks and sport-utility vehicles
equipped with its torque transfer products. Segment earnings in the
quarter were negatively impacted by the incremental margin on lost
sales in the U.S. Recent Highlights: BorgWarner purchased the
European Transmission and Engine Controls product lines from Eaton
Corporation, for $64 million, at the end of the third quarter. The
transmission and engine controls operation specializes in high
pressure control solenoids for automated transmissions, common rail
diesel and gas engines and other applications that complement
BorgWarner's expertise in engine and drivetrain electronics.
BorgWarner's InterActive Torque Management (ITM3e(TM)) all-wheel
drive system is standard on the 2006 Porsche sports car that
launched this year. The all-wheel drive system is compact and
lightweight, and its best-in-class low drag torque assures
compatibility with brake-based stability control systems and
enables fuel economy benefits. BorgWarner Thermal Systems fans and
fan drives will be standard equipment on all Freightliner LLC Class
8 trucks, beginning January 1, 2007. Freightliner Class 8 trucks
will be equipped with the KYSOR(R) On/Off fan drive, which features
dynamic torque capacity, resulting in improved cooling capability,
and the new X-Series fan from BorgWarner, which enables
Freightliner's heavy-duty vehicles to meet the North American
emissions standards while at the same time optimizing cooling
performance. At 10:00 a.m. ET today, a brief conference call
concerning third quarter results will be webcast at:
http://www.borgwarner.com/invest/webcasts.shtml. Auburn Hills,
Michigan-based BorgWarner Inc. (NYSE:BWA) 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 63 locations in 18
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/. Statements
contained in this news release may contain forward-looking
statements as contemplated by the 1995 Private Securities
Litigation Reform Act that are based on management's current
expectations, estimates and projections. Words such as "expects,"
"anticipates," "intends," "plans," "believes," "estimates,"
variations of such words and similar expressions are intended to
identify such forward-looking statements. Forward-looking
statements are subject to risks and uncertainties, many of which
are difficult to predict and generally beyond the control of the
Company, that could cause actual results to differ materially from
those expressed, projected or implied in or by the forward-looking
statements. Such risks and uncertainties include: fluctuations in
domestic or foreign automotive production, the continued use of
outside suppliers by original equipment manufacturers, fluctuations
in demand for vehicles containing the Company's products, general
economic conditions, as well as other risks detailed in the
Company's filings with the Securities and Exchange Commission,
including the Risk Factors identified in the Form 10-K for the
fiscal year ended December 31, 2005. The Company does not undertake
any obligation to update any forward-looking statement. BorgWarner
Inc. Condensed Consolidated Statements of Operations (Unaudited)
(millions of dollars, except per share data) Three Months Ended
Nine Months Ended September 30, September 30, 2006 2005 2006 2005
Net sales $1,059.8 $1,050.9 $3,383.7 $3,245.8 Cost of sales 876.5
842.7 2,746.0 2,591.5 Gross profit 183.3 208.2 637.7 654.3 Selling,
general and administrative expenses 116.8 120.0 370.6 385.8
Restructuring expense 11.5 - 11.5 - Other (income) loss, including
litigation settlement (5.6) (2.3) (6.8) 35.7 Operating income 60.6
90.5 262.4 232.8 Equity in affiliate earnings, net of tax (7.8)
(5.7) (26.3) (17.7) Interest expense and finance charges 9.5 9.6
28.8 28.8 Earnings before income taxes and minority interest 58.9
86.6 259.9 221.7 Provision for income taxes 13.9 19.6 70.2 32.1
Minority interest, net of tax 5.8 5.6 19.0 14.7 Net earnings $39.2
$61.4 $170.7 $174.9 Earnings per share -- Diluted $0.68 $1.07 $2.95
$3.05 Weighted average shares outstanding -- Diluted (in millions)
58.0 57.5 57.9 57.3 Supplemental Information (Unaudited) (millions
of dollars) Three Months Ended Nine Months Ended September 30,
September 30, 2006 2005 2006 2005 Capital expenditures, including
tooling outlays $46.4 $66.3 $191.9 $179.7 Depreciation and
amortization: Fixed assets & tooling $56.1 $58.2 $173.6 $167.5
Other 3.5 4.0 10.1 25.3 $59.6 $62.2 $183.7 $192.8 BorgWarner Inc.
Net Sales by Operating Segment (Unaudited) (millions of dollars)
Three Months Ended Nine Months Ended September 30, September 30,
2006 2005 2006 2005 Engine $736.4 $700.0 $2,314.3 $2,154.7
Drivetrain 330.1 358.8 1,093.4 1,117.7 Inter-segment eliminations
(6.7) (7.9) (24.0) (26.6) Net sales $1,059.8 $1,050.9 $3,383.7
$3,245.8 Segment Earnings Before Interest and Income Taxes
(Unaudited) (millions of dollars) Three Months Ended Nine Months
Ended September 30, September 30, 2006 2005 2006 2005 Engine $76.1
$94.1 $267.8 $258.1 Drivetrain 13.2 23.8 64.5 80.0 Segment earnings
before interest and income taxes (Segment EBIT) 89.3 117.9 332.3
338.1 Litigation settlement expense - - - 45.5 Restructuring
expense 11.5 - 11.5 - Corporate expenses, including equity in
affiliates earnings and FAS 123(R) 9.4 21.7 32.1 42.1 Consolidated
earnings before interest and taxes (EBIT) 68.4 96.2 288.7 250.5
Interest expense and finance charges 9.5 9.6 28.8 28.8 Earnings
before income taxes & minority interest 58.9 86.6 259.9 221.7
Provision for income taxes 13.9 19.6 70.2 32.1 Minority interest,
net of tax 5.8 5.6 19.0 14.7 Net earnings $39.2 $61.4 $170.7 $174.9
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 to
the current year's segment presentation. Note 2: The restructuring
charges recorded relate to the following segments: Engine $7.3
million, Drivetrain $3.6 million and Corporate $0.6 million.
BorgWarner Inc. Condensed Consolidated Balance Sheets (millions of
dollars) September 30, 2006 December 31, 2005 (Unaudited) Assets
Cash and cash equivalents $67.0 $89.7 Marketable securities 71.3
40.6 Receivables, net 695.6 626.1 Inventories, net 379.9 332.0
Other current assets 131.0 80.3 Total current assets 1,344.8
1,168.7 Property, plant and equipment, net 1,350.8 1,294.9 Other
long-term assets 1,681.5 1,625.8 Total assets $4,377.1 $4,089.4
Liabilities and stockholders' equity Notes payable $111.5 $160.9
Current portion of long-term debt 139.0 139.0 Accounts payable and
accrued expenses 794.4 786.4 Income taxes payable 31.0 35.8 Total
current liabilities 1,075.9 1,122.1 Long-term debt 512.5 440.6
Other long-term liabilities 767.4 746.4 Minority interest in
consolidated subsidiaries 144.0 136.1 Stockholders' equity 1,877.3
1,644.2 Total liabilities and stockholders' equity $4,377.1
$4,089.4 BorgWarner Inc. Condensed Consolidated Statements of Cash
Flows (Unaudited) (millions of dollars) Nine Months Ended September
30, 2006 2005 (Restated) Operating Activities: Net earnings $170.7
$174.9 Non-cash charges to operations: Depreciation and
amortization 183.7 192.8 Deferred income tax benefit (1.6) (25.7)
Other non-cash items 35.2 4.7 Net earnings adjusted for non-cash
charges 388.0 346.7 Changes in assets and liabilities (117.3)
(85.9) Net cash provided by operating activities 270.7 260.8
Investing Activities: Capital expenditures, including tooling
outlays (191.9) (179.7) Payments for business acquired, net of cash
acquired (64.4) (477.2) Proceeds from sale of businesses - 44.2
(Increase) Decrease in marketable securities (27.5) 0.2 Other 5.8
8.0 Net cash used in investing activities (278.0) (604.5) Financing
Activities: Net additions of debt 15.9 239.1 Dividends paid,
including minority shareholders (43.7) (31.9) Other 11.2 15.3 Net
cash (used in) provided by financing activities (16.6) 222.5 Effect
of exchange rate changes on cash and cash equivalents 1.2 (15.3)
Net decrease in cash and cash equivalents (22.7) (136.5) Cash and
cash equivalents at beginning of period 89.7 229.7 Cash and cash
equivalents at end of period $67.0 $93.2 DATASOURCE: BorgWarner
Inc. CONTACT: Mary Brevard, +1-248-754-0881, or Ken Lamb,
+1-248-754-0884, both BorgWarner Inc. Web site:
http://www.borgwarner.com/
http://www.borgwarner.com/invest/webcasts.shtml
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