29th July 2009 - BorgWarner Second Quarter Sales Down 39.6%

BorgWarner Inc. has reported second quarter results which reflect the benefits of 2008 restructuring initiatives. Additional restructuring actions, primarily the impairment of certain assets, were required in response to a weakened business climate. Positive free cash flow of $56.1 million in the quarter (net cash provided by operating activities less capital expenditures, including tooling outlays), further strengthened the balance sheet.

Second Quarter Highlights:

Comment and Outlook: "The restructuring actions taken by our company in 2008 buoyed our second quarter results. We generated positive cash flow and were diligent in managing our cost structure as evidenced by a solid year-over-year 20% decremental margin at the operating income line," said Timothy Manganello, Chairman and CEO. "Further restructuring actions were taken in the second quarter to proactively address near-term challenges and to position the company for healthy returns as the market recovers."

Commenting on the remainder of the year, Manganello noted, "With the uncertainty surrounding the fate of General Motors and Chrysler behind us, we now have more clarity on the state of the industry. However, the breadth and duration of the global recession is still an open question that concerns us and, as a result, we approach the near-term with caution. That said, we now believe that production levels for the second half of 2009 will be incrementally stronger than the first half. As a result, we expect to be profitable in the second half, which is consistent with our previously stated targets of positive cash flow and earnings for full year 2009."

Financial Results: For the second quarter 2009, sales were $916.2 million, down 39.6% compared with $1,516.6 million in the second quarter 2008. The negative impact of currency accounted for 6.5% of the decline. Net income in the quarter was a loss of $(35.9) million, or $(0.31) per diluted share, compared with income of $87.5 million, or $0.74 per diluted share, in second quarter 2008. The second quarter 2009 loss included a $(0.29) per diluted share loss related to restructuring activities, and a $0.04 per diluted share gain from interest rate derivative agreements. Second quarter 2008 net income included purchase accounting adjustments related to the acquisition of BERU of $(4.5) million net of tax, or $(0.04) per diluted share. The impact of foreign currencies, primarily the lower Euro, reduced sales by $99.3 million in second quarter 2009 compared with second quarter 2008, and reduced earnings by $3.2 million, or $0.03 per diluted share.

For the first six months of 2009, sales were $1,735.7 million, down 42.4% compared with $3,015.5 million in the first six months of 2008. The negative impact of currency accounted for 6.0% of the decline. Net income in the first six months of 2009 was a loss of $(42.9) million, or $(0.37) per diluted share, compared with income of $176.2 million, or $1.49 per diluted share, in the first six months of 2008. The loss in the first six 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 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 six months of 2008 net income included 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 $181.6 million in the first six months of 2009 compared with first six months of 2008, and reduced the loss in earnings by $0.2 million, or $0.00 per diluted share.

The Company's operating loss was $(49.5) million in second quarter 2009 versus operating income of $118.7 million in second quarter 2008. Excluding non-recurring items, operating income was $0.8 million in second quarter 2009, or 0.1% of sales, and $123.8 million, or 8.2% of sales, in second quarter 2008. Research and development spending was $35.8, or 3.9% of sales, versus $57.8 million, or 3.8% of sales, in second quarter 2008.

Net cash provided by operating activities was $173.8 million in the first six months of 2009 versus $267.1 million in the first six months of 2008. Investments in capital expenditures, including tooling outlays, totaled $88.3 million during the first six months of 2009, compared with $162.2 million for the same period in 2008. Balance sheet debt increased by $81.7 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 $153.5 million during the same period.

Engine Group Results: Depressed global production weakened demand for the company's engine products in the second quarter. Engine segment net sales decreased to $670.4 million, or 39.5%, compared with $1,109.0 million in the prior year's quarter. The negative impact of currency accounted for 7% of the decline. Earnings before interest and taxes were $44.0 million.

Drivetrain Group Results: Drivetrain segment second quarter sales were impacted by dramatically lower production volumes around the world. Sales were $248.8 million, down 40.0% compared with $414.4 million in second quarter 2008. The negative impact of currency accounted for 6% of the decline. Earnings before interest and income taxes were a loss of $(8.8) million.

Recent Highlights: During the quarter, the company announced the purchase of an advanced gasoline ignition technology from Florida-based Etatech, Inc. The high-frequency ignition technology enables high-performing, lean burning engines to significantly improve fuel economy and reduce emissions compared with conventional combustion technologies. Independent lab tests showed peak energy efficiency improved up to 40%, NOx emissions decreased 80% and CO2 emissions fell 50%. Current spark plug technology is unable to optimize high-performing, lean burning engines. BorgWarner expects to commercialize the technology, which it believes will replace conventional spark plugs, for powertrain applications across various markets and regions in the next few years.

Also, BorgWarner officially opened its new state-of-the-art production facility in Rzeszow, Poland, southeast of Krakow. The nearly 60,000-square-foot (5,500-square-meter) operation has the capacity to produce up to 500,000 diesel and gasoline turbochargers a year for carmakers in Europe. The new location allows BorgWarner to optimally supply the Fiat Powertrain Polska factory in southwest Poland with turbochargers for its 1.3-liter diesel engines, used in various models.

Additionally, BorgWarner was presented with two awards for quality and delivery performance by Honda of America Mfg., Inc. during Honda's annual supplier conference in Birmingham, Alabama. The awards recognize best-in-class performance in 2008.

And, in April, the company completed the issuance of $373.8 million in 3.5% convertible senior notes due in 2012.

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 60 locations in 18 countries. Customers include VW/Audi, Ford, Toyota, Renault/Nissan, General Motors, Hyundai/Kia, Daimler, Chrysler, Fiat, BMW, Honda, John Deere, PSA, and MAN.

Source: BorgWarner Press Release