Borgwarner Inc. has a market cap of $4.7 billion; its shares were traded at around $39.95 with a P/E ratio of 99.9 and P/S ratio of 1.2. BWA is in the portfolios of RS Investment Management, Charles Brandes of Brandes Investment, Jim Simons of Renaissance Technologies LLC.
Highlight of Business Operations:First quarter selling, general and administrative (SG&A) costs increased $56.2 million to $130.3 million from $74.1 million, and increased as a percentage of net sales to 10.1% from 9.0%. The Companys first quarter 2009 SG&A expenses were impacted by a $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 11.9% for the first quarter of 2009. R&D costs, which are included in SG&A expenses, increased $9.8 million to $42.3 million from $32.5 million as compared to the first quarter of 2009. As a percentage of sales, R&D costs decreased to 3.3% from 4.0% in the first 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 Companys short and long-term growth. The SG&A cost increase is also reflective of higher performance related compensation in the first three months of 2010.
First quarter interest expense and finance charges of $14.2 million decreased $4.9 million as compared with first quarter 2009. This decrease is mostly due to the 2009 unfavorable impact of the termination of $225 million in interest rate swap agreements related to our 2016 and 2019 fixed rate debt of $11.4 million. This 2009 unfavorable impact is offset by increased debt levels in 2010 resulting from the Companys April 9, 2009 $373.8 million convertible debt offering. The total interest expense related to the convertible notes in the Companys Consolidated Statement of Operations for the three months ended March 31, 2010 was $7.6 million.
Net cash provided by operating activities decreased $3.9 million to $64.1 million for the first three months of 2010 from $68.0 million in the first three months of 2009. The decrease reflects higher working capital needs, offset by higher earnings in the first three months of 2010 as compared to the first three months of 2009. Capital spending, including tooling outlays, was $55.3 million in the first three months of 2010, compared with $38.6 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 March 31, 2010, debt increased from year-end 2009 by $64.1 million and cash increased by $16.7 million. Our debt to capital ratio was 28.8% at the end of the first quarter versus 27.5% at the end of 2009. The majority of our debt and debt to capital ratio increase relates to the January 1, 2010 adoption of ASC Topic 860. The first 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 Companys March 31, 2010 Condensed Consolidated Balance Sheet. The Company paid dividends to its stockholders of $13.8 million in the first three months of 2009.
On April 9, 2009, the Company issued $373.8 million in convertible senior notes due April 15, 2012. Under ASC Topic 470, Accounting for Convertible Debt Instruments That May be Settled in Cash Upon Conversion (Including Partial Cash Settlement), the Company must account for the convertible senior notes by bifurcating the instruments between their liability and equity components. The value of the debt component is based on the fair value of issuing a similar nonconvertible debt security. The equity component of the convertible debt security is calculated by deducting the value of the liability from the proceeds received at issuance. Therefore, the Companys March 31, 2010 Condensed Consolidated Balance Sheet includes debt of $334.6 million and capital in excess of par of $36.5 million. Additionally, ASC Topic 470 requires us to accrete the discounted carrying value of the convertible notes to their face value over the term of the notes. The Companys interest expense associated with this bond accretion is based on the effective interest rate of the convertible senior notes of 9.365%. The total interest expense related to the convertible notes in the Companys Consolidated Statement of Operations for the three months ended March 31, 2010 was $7.6 million. The non-cash portion of interest expense for the convertible notes for the three months ended March 31, 2010 was $4.4 million. For the full year of 2010, interest expense related to the convertible notes will be approximately $31.3 million, of which approximately $18.2 million will be non-cash. The notes will pay interest semi-annually of $6.5 million, which is at a coupon rate of 3.50% per year.
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 March 31, 2010, the if-converted value was approximately $61.1 million at March 31, 2010. There was no dilutive impact to weighted average shares outstanding for the year-ended December 31, 2009 due to the convertible senior notes. 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 March 31, 2010.
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