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BorgWarner Inc. Reports Operating Results (10-Q)

October 27, 2010 | About:
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10qk

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BorgWarner Inc. (BWA) filed Quarterly Report for the period ended 2010-09-30.

Borgwarner Inc. has a market cap of $6.11 billion; its shares were traded at around $53.81 with a P/E ratio of 26.8 and P/S ratio of 1.5. BWA is in the portfolios of RS Investment Management, Pioneer Investments, Mario Gabelli of GAMCO Investors, Bruce Kovner of Caxton Associates, Charles Brandes of Brandes Investment.

Highlight of Business Operations:

Selling, general and administrative (SG&A) costs for the nine months ended September 30, 2010 increased $102.9 million to $418.3 million from $315.4 million, and decreased as a percentage of net sales to 10.2% from 11.4%. The increase in SG&A expenses was impacted by the $27.9 million afore mentioned net gain related to the Companys 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 nine months of 2009. R&D costs, which are included in SG&A expenses, increased $24.5 million to $134.2 million from $109.7 million as compared to the first nine months of 2009. As a percentage of sales, R&D costs decreased to 3.3% from 4.0% in the first nine 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 Companys short and long-term growth. The SG&A cost increase is also reflective of higher performance related compensation in the first nine months of 2010.

$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 $227.9 million to $342.1 million for the first nine months of 2010 from $114.2 million in the first nine months of 2009. This increase is primarily due to the $147.6 million acquisition of Dytech, the $9.6 million acquisition of the Companys 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 $187.8 million in the first nine months of 2010, compared with $127.2 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.

Net cash provided by financing activities increased $74.3 million to $106.5 million for the first nine months of 2010 from $32.2 million in the first nine months of 2009. This change is mostly due to the Companys September 16, 2010 issuance of $250 million in 4.625% senior notes, offset by the repurchasing of 5,019,400 shares of its common stock for $198.9 million in the second and third quarters of 2010, of which $197.3 million was paid for in the first nine months of 2010.

As of September 30, 2010, debt increased from year-end 2009 by $349.0 million and cash increased by $74.8 million. Our debt to capital ratio was 34.1% at the end of the third 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, which required the Company to reflect its receivable securitization facility in its financial statements, as well as the Companys September 16, 2010 issuance of $250 million in 4.625% senior notes. The impact of the adoption of ASC Topic 860 is an increase in receivables, net of $80 million and an increase in notes payable and other short-term debt of $80 million in the Companys 2010 Condensed Consolidated Balance Sheet. The Companys debt to capital increase also relates to the Companys second quarter 2010 $147.6 million acquisition of Dytech as well as the repurchasing of 5,019,400 shares of common stock for $198.9 million.

Holders of the notes may convert their notes at their option at any time prior to the close of business on the second scheduled trading day immediately preceding the maturity date of the notes, in multiples of $1,000 principal amount. The initial conversion rate for the notes is 30.4706 shares of the Companys common stock per $1,000 principal amount of notes (representing an initial conversion price of approximately $32.82 per share of common stock). The conversion price represents a conversion premium of 27.50% over the last reported sale price of the Companys common stock on the New York Stock Exchange on April 6, 2009, of $25.74 per share. Since the Companys stock price was above the convertible senior notes conversion price of $32.82 as of September 30, 2010, the if-converted value was approximately $

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