AUBURN HILLS, Mich. — BorgWarner has reported fourth quarter and full year results for 2008. The company generated record first half performance, but said full year results were affected by deteriorating global economic conditions and the sharp decline in worldwide auto production in the second half of the year.
The company has undertaken aggressive cost structure adjustments in anticipation of continued difficult industry conditions in 2009 and its capital structure remains strong.
Sales were $931.5 million in fourth quarter 2008, compared with $1,372.9 million in fourth quarter 2007. Net loss in the quarter was $(81.4) million, or $(70 cents) per diluted share, compared with $71.2 million, or 60 cents per diluted share in fourth quarter 2007. Fourth quarter 2008 included a goodwill impairment charge of $(9 cents) related to the BERU acquisition; a fourth quarter restructuring expense of $(56 cents); a transmission product related warranty charge of $(14 cents) per share associated with a product sold in Europe, limited to mid-2007 through May 2008 production; the impact of an effective full year tax rate change from 25 percent to 23 percent for the first nine months of 2008 of 7 cents; and adjustments to a tax accounts of 2 cents.
Fourth quarter 2007 net income included unfavorable tax adjustments of $(13.3) million, or (11 cents) per diluted share, and purchase accounting adjustments related to the purchase of additional BERU shares of (2 cents) per diluted share. Excluding non-recurring items, operating income was $4.4 million, or 5 percent of sales, in fourth quarter 2008, versus $126.3 million, or 9.2 percent of sales, in fourth quarter 2007. The impact of foreign currencies in fourth quarter 2008, primarily the Euro, decreased sales by $114.1 million and increased the net loss by $(9.6) million or (8 cents) per share.
Full-year 2008 sales were $5,263.9 million, slightly down from sales of $5,328.6 million in 2007. 2008 net loss was $(35.6) million, or $(31 cents) per diluted share, compared with 2007 net income of $288.5 million, or $2.45 per diluted share. 2008 net income included the following per share items: goodwill impairment charge of $(1.35) related to the BERU acquisition, BERU purchase accounting adjustment of (4 cents), tax valuation allowance of (12 cents), restructuring expense of (72 cents), (3 cents) related to the outcome of retiree healthcare litigation, (14 cents) due to a transmission product related warranty charge, and adjustments to tax accounts of $0.02. 2007 net income included net favorable tax adjustments of $3.4 million or $0.03 per diluted share, and purchase accounting adjustments related to the purchase of additional Beru shares of $(2.4) million or $(0.02) per diluted share. The impact of foreign currencies, primarily the Euro, added $191 million to sales in 2008 compared with 2007, and $13.0 million to net income. Research and development spending was $205.7 million for the year versus $210.8 million in 2007.
Net cash provided by operating activities was $400.8 million in 2008 compared with $603.5 million in 2007. Investments in capital expenditures, including tooling outlays, totaled $369.7 million in 2008, compared with $293.9 million in 2007. Balance sheet debt increased by $144.0 million at the end of 2008 compared with the end of 2007, primarily related to $133.6 million for the purchase of additional BERU shares.
The company’s capital structure remains strong. The ratio of balance sheet debt net of cash to capital was 25.2% at the end of the year. The company has ample liquidity with $103.4 million of cash on hand at the end of the year and no outstanding borrowings under its $600 million revolving credit facility.
For the full year, 2008 sales were $1,426.4 million with a segment loss before interest and income taxes of $(4.9) million, including the warranty impact. Sales outside of the U.S. were up 3% excluding the impact of foreign currencies while sales in the U.S. were down 25%. In the first half of the year, the group benefited from increased demand for dual-clutch transmission components and transmission solenoids and control modules. Lower domestic production of vehicles equipped with its traditional transmission and torque management products negatively affected the full year. Dramatically reduced global production volumes depressed second half demand for all its Drivetrain products.
"Our full-year results were hurt by the worldwide economic deterioration that led to significantly reduced global auto production in the second half of the year," said Timothy Manganello, chairman and CEO of BorgWarner. "In the first half of 2008, we generated record performance driven by strong demand for our turbocharger and dual-clutch transmission technologies. Program launches and new business awards during the year reinforced the benefit of our technology focus to improve fuel economy and air quality for customers in all regions of the world. During the second half of the year, we took aggressive cost-control measures to offset the dramatic global slowdown in the auto industry."
The company indicated that its visibility into 2009 is limited until customer schedules stabilize. However, based on an assumption of North American vehicle builds of 9.3 million units for 2009 and total European vehicle builds of 16.6 million units, the company expects to generate positive earnings and positive cash flow from operations (net cash provided by operating activities less capital expenditures, including tooling outlays) for the full year 2009.
