BorgWarner Inc. is a product leader in highly engineered components and systems for vehicle powertrain applications worldwide. The company operates manufacturing and technical facilities in several countries. Customers include Ford DaimlerChrysler General Motors Toyota Caterpillar Navistar PSA and VW Group. (Company Press Release) BorgWarner Inc. has a market cap of $3.78 billion; its shares were traded at around $32.48 with a P/E ratio of 29.6 and P/S ratio of 0.7. BorgWarner Inc. had an annual average earning growth of 0.5% over the past 10 years.
Highlight of Business Operations:The Companys net loss was $35.9 million for the second quarter, or $0.31 loss per diluted share, a decrease of $1.05 per diluted share over the previous years second quarter. 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 $0.04 loss per diluted share. Excluding these items, the net loss was $0.05 per diluted share in the second quarter of 2009, a decrease of $0.83 per diluted share over the previous years second quarter.
Selling, general and administrative (SG&A) costs for the first six months of 2009 decreased $126.1 million to $189.5 million from $315.6 million, and increased as a percentage of net sales to 10.9% from 10.5%. The decrease in SG&A was impacted by a $27.9 million aforementioned 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 FAS 141(R). Without these non-comparable items, SG&A as a percentage of net sales was 12.2%. R&D costs, which are included in SG&A expenses, decreased $47.0 million to $68.3 million from $115.3 million as compared to the first six months of 2008. As a percentage of sales, R&D costs increased to 3.9% from 3.8% in the first six months of 2008. 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.
In the second quarter of 2009, the Company took additional 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.
The Companys net loss was $42.9 million for the first six months of 2009, or $0.37 loss per diluted share, a decrease of $1.86 per diluted share over the previous years first six months. The first six months of 2009 included a $0.29 per diluted share loss related to restructuring activities, a $0.03 per diluted share loss from interest rate derivative agreements, a $0.03 per diluted share loss upon adoption of FAS 141(R) for 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. Second quarter 2008 net income included purchase accounting adjustments related to the acquisition of BERU of $0.04 loss per diluted share. Excluding these items, the net loss was $0.17 per diluted share for the first six months of 2009, a decrease of $1.70 per diluted share over the previous years first six months.
As of June 30, 2009, debt increased from year-end 2008 by $81.7 million and cash increased by $153.5. Our debt to capital ratio was 29.3% at the end of the second quarter versus 27.7% at the end of 2008. The debt and debt to capital ratio increase between June 30, 2009 and December 31, 2008 was primarily due to the April 9, 2009 issuance of $373.8 million in convertible senior notes due April 15, 2012, offset by the maturity of our $136.7 million, 6.50% senior notes. The net proceeds from the convertible senior notes issuance were used to repay both short and long-term bank debt and provide cash for operating needs. The Company paid dividends to its stockholders of $13.8 million and $25.8 million in the first six months of 2009 and 2008, respectively. The Company repurchased 618,905 shares of its common stock for $27.7 million in the first six months of 2008, while no common shares were repurchased in the first six months of 2009.
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 27.5% 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. As of June 30, 2009, the if-converted value of the 3.50% Convertible Senior Notes was approximately $15.2 million. In conjunction with the note offering, the Company entered into a bond hedge overlay at a net pre-tax cost of $25.2 million, effectively raising the conversion premium to 50.0%, or approximately $38.61 per share. Upon conversion, the Company will pay or deliver cash, shares of our common stock or a combination thereof at our election. The convertible senior notes were issued under the Companys $750 million universal shelf registration filed with the Securities and Exchange Commission, leaving approximately $376 million available as of June 30, 2009.
Read the The complete ReportBWA is in the portfolios of Charles Brandes of Brandes Investment.