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BorgWarner Inc. Reports Operating Results (10-Q)

July 30, 2010 | About:
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BorgWarner Inc. (BWA) filed Quarterly Report for the period ended 2010-06-30.

Borgwarner Inc. has a market cap of $5 billion; its shares were traded at around $42.48 with a P/E ratio of 36.3 and P/S ratio of 1.3. BWA is in the portfolios of RS Investment Management, Pioneer Investments, Stanley Druckenmiller of Duquesne Capital Management, LLC, Bruce Kovner of Caxton Associates, Charles Brandes of Brandes Investment, Steven Cohen of SAC Capital Advisors.
This is the annual revenues and earnings per share of BWA over the last 10 years. For detailed 10-year financial data and charts, go to 10-Year Financials of BWA.


Highlight of Business Operations:

Second quarter selling, general and administrative (“SG&A”) costs increased $22.4 million to $137.8 million from $115.4 million, and decreased as a percentage of net sales to 9.7% from 12.6%. R&D costs, which are included in SG&A expenses, increased $10.3 million to $46.1 million from $35.8 million as compared to the second quarter of 2009. As a percentage of sales, R&D costs decreased to 3.2% from 3.9% in the second quarter of 2009. Our continued investment in a number of cross-business R&D programs, as well as other key programs, is necessary for the Company’s short and long-term growth. The SG&A cost increase is also reflective of higher performance related compensation in the second quarter of 2010.

In the second quarter of 2009, the Company took restructuring actions. The Company reduced its North American workforce by approximately 550 people, or 12%; its European workforce by approximately 150 people, or 2%; and its Asian workforce by approximately 60 people, or 3% in the second quarter. The net restructuring expense recognized in the second quarter was $9.0 million for employee termination benefits. In addition to employee termination costs, the Company recorded $36.3 million of asset impairment and $5.0 million of other charges in the second quarter of 2009 related to the North American and European restructuring. The combined 2009 restructuring expenses of $50.3 million are broken out by segment as follows: Engine $27.2 million, Drivetrain $19.7 million and Corporate $3.4 million.

Second quarter selling, general and administrative (“SG&A”) costs increased $78.6 million to $268.1 million from $189.5 million, and decreased as a percentage of net sales to 9.9% from 10.9%. The increase in SG&A expenses was impacted by a $27.9 million afore mentioned net gain related to the Company’s Plant Shutdown Agreement with the UAW and subsequent closure of the Muncie Plant. This gain was partially offset by a $4.8 million expense associated with the adoption of ASC Topic 805, Business Combinations. Without these non-comparable items, SG&A as a percentage of net sales was 12.2% for the first six months of 2009. R&D costs, which are included in SG&A expenses, increased $20.1 million to $88.4 million from $68.3 million as compared to the first six months of 2009. As a percentage of sales, R&D costs decreased to 3.3% from 3.9% in the first six months of 2009. Our continued investment in a number of cross-business R&D programs, as well as other key programs, is necessary for the Company’s short and long-term growth. The SG&A cost increase is also reflective of higher performance related compensation in the first six months of 2010.

In the second quarter of 2009, the Company took restructuring actions. The Company reduced its North American workforce by approximately 550 people, or 12%; its European workforce by approximately 150 people, or 2%; and its Asian workforce by approximately 60 people, or 3% in the second quarter. The net restructuring expense recognized in the second quarter was $9.0 million for employee termination benefits. In addition to employee termination costs, the Company recorded $36.3 million of asset impairment and $5.0 million of other charges in the second quarter of 2009 related to the North American and European restructuring. The combined 2009 restructuring expenses of $50.3 million are broken out by segment as follows: Engine $27.2 million, Drivetrain $19.7 million and Corporate $3.4 million.

Net cash used in investing activities increased $181.1 million to $263.2 million for the first six months of 2010 from $82.1 million in the first six months of 2009. This increase is primarily due to the $147.6 million acquisition of Dytech, headquartered in Vigo, Spain, the $9.6 million acquisition of the Company’s 50/50 BERU-Eichenauer joint venture, and the final $7.5 million payment for the June 2009 purchase of Etatech, Inc. Capital spending, including tooling outlays, was $107.4 million in the first six months of 2010, compared with $88.3 million in 2009. Selective capital spending remains an area of focus for the Company, both in order to support our book of new business and for cost reductions and productivity improvements. The Company expects to continue to spend capital to support the launch of our new applications and for cost reductions and productivity improvement projects.

As of June 30, 2010, debt increased from year-end 2009 by $124.0 million and cash decreased by $169.9 million. Our debt to capital ratio was 32.0% at the end of the second quarter versus 27.5% at the end of 2009. Our debt and debt to capital ratio increase relates to the January 1, 2010 adoption of ASC Topic 860. The second quarter 2010 impact of this adoption is an increase in receivables, net of $50 million and an increase in notes payable and other short-term debt of $50 million in the Company’s 2010 Condensed Consolidated Balance Sheet. Additionally, the Company’s debt to capital increase also relates to second quarter 2010 $147.6 million acquisition of Dytech as well as the repurchasing of 4,062,700 shares of common stock for $154.8 million.

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