Immediate Release
Contact Mary Brevard: (248) 754-0881
Ken Lamb: (248) 754-0884
BORGWARNER REPORTS SOLID FIRST QUARTER
DRIVEN BY STRONG WORLDWIDE DEMAND
Auburn Hills, Michigan, April 28, 2005 - BorgWarner Inc. (NYSE: BWA)
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 cont ributed 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."
- - more -
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 pur-
chase 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 Beru,
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.
- - more -
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.
At 9:30 a.m. ET today, a brief conference call concerning first quarter
results will be webcast at: http://www.borgwarner.com/investor_webcasts.html.
- - more -
Auburn Hills, Michigan-based BorgWarner Inc. (NYSE: BWA) is a
product leader in highly engineered components and systems for vehicle
powertrain applications worldwide. The company operates manufacturing and
technical facilities in 62 locations in 17 countries. Customers include Ford,
DaimlerChrysler, General Motors, VW/Audi, Toyota, Hyundai/Kia, Honda,
Renault/Nissan, Caterpillar, Navistar International, Peugeot, and BMW. The
Internet address for BorgWarner is: http://www.borgwarner.com.
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:
(millions of dollars, except per share data) (Unaudited)
Net income Net earnings
per share - diluted(1)
-------------- -----------------
Non-U.S. GAAP:
BorgWarner base business $53.2 $0.93
Beru's contribution to net income 2.5 0.04
Immediate write-off of the excess purchase price
associated with Beru's in-process R&D (7.4) (0.13)
Gain from divestitures 6.3 0.11
Release of tax accruals 23.0 0.40
U.S. GAAP $77.6 $1.36
(1) Column does not add due to rounding
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 Cautionary Statements
filed as Exhibit 99.1 to the Form 10-K for the fiscal year
ended December 31, 2004. The Company does not undertake any
obligation to update any forward-looking statement.
All information relating to Beru is unaudited and is in compliance with
applicable German statutory requirements, including the German Securities
Trading Act.
Financial Tables Follow
BorgWarner Inc.
Consolidated Statements of Operations (Unaudited)
- --------------------------------------------------------------------------------
(millions of dollars, except per share data)
<Table>
<Caption>
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
========= =========
</Table>
<Table>
<Caption>
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
========= =========
</Table>
<Page>
BorgWarner Inc.
Net Sales by Operating Group (Unaudited)
- --------------------------------------------------------------------------------
(millions of dollars)
<Table>
<Caption>
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
========== ==========
</Table>
Earnings Before Interest and Taxes by Operating Group (Unaudited)
- --------------------------------------------------------------------------------
(millions of dollars)
<Table>
<Caption>
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
========== ==========
</Table>
<Page>
BorgWarner Inc.
Condensed Consolidated Balance Sheets
- -------------------------------------------------------------------------------
(millions of dollars)
<Table>
<Caption>
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
======== ========
</Table>
BorgWarner Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
- -------------------------------------------------------------------------------
(millions of dollars)
<Table>
<Caption>
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
====== ======
</Table>