BorgWarner Reports Third Quarter 2018 U.S. GAAP Net Earnings Of $0.98 Per Diluted Share, Or $1.00 Per Diluted Share Excluding Non-Comparable Items

AUBURN HILLS, Mich., Oct. 25, 2018 /PRNewswire/ -- BorgWarner Inc. (NYSE: BWA) today reported third quarter results.

Third Quarter Highlights:

    --  U.S. GAAP net sales of $2,479 million, up 2.6% compared with third
        quarter 2017.
        --  On a comparable basis, excluding the impact of foreign currencies
            and the acquisition of Sevcon, net sales were up 3.6% compared with
            third quarter 2017.
    --  U.S. GAAP net earnings of $0.98 per diluted share.
        --  Excluding non-comparable items (detailed in the table below), net
            earnings were $1.00 per diluted share.
    --  U.S. GAAP operating income of $278.0 million.
        --  Adjusted operating income was 11.8% of net sales.

Full Year 2018 Guidance: The company has reaffirmed its 2018 full year organic growth guidance. Full year net sales are expected to be in the range of $10.49 billion to $10.58 billion. This implies organic sales growth of approximately 4.5% to 5.5% or 500 to 600 basis points over the company's light vehicle market exposure. Foreign currencies are expected to increase sales by $192 million, due to the appreciation of the Euro and Chinese Yuan. The acquisition of Sevcon will increase sales by approximately $57 million. Excluding the impact of noncomparable items, operating margin is expected to be in the range of 12.3% to 12.4%. Net earnings are expected to be within a range of $4.35 to $4.40 per diluted share, which is unchanged from prior guidance.

Fourth Quarter 2018 Guidance: The company expects fourth quarter 2018 organic net sales growth of 1.0% to 4.5%, compared with fourth quarter 2017 net sales of $2,586 million. Foreign currencies are expected to decrease sales by approximately $75 million. Net earnings are expected to be within a range of $1.07 to $1.12 per diluted share

Financial Results: Net sales were $2,479 million in third quarter 2018, up 2.6% from $2,416 million in third quarter 2017. Excluding the impact of foreign currencies and the acquisition of Sevcon, net sales were up 3.6% compared with third quarter 2017. Net earnings in third quarter 2018 were $204 million, or $0.98 per diluted share, compared with $185 million, or $0.88 per diluted share in third quarter 2017. Net earnings in third quarter 2018 included non-comparable items of ($0.02) per diluted share. Net earnings in the third quarter 2017 included net non-comparable items of ($0.08) per diluted share. These items are listed in a table below, which is provided by the company for comparison with other results and the most directly comparable U.S. GAAP measures. The impact of foreign currencies decreased net sales by approximately $44 million and decreased net earnings by approximately $0.02 per diluted share in third quarter 2018 compared with third quarter 2017. The impact of the acquisition of Sevcon increased net sales by $19 million in the third quarter 2018 compared with third quarter 2017.

For the first nine months of 2018, net sales were $7,957 million, up 10.3% from $7,213 million in the first nine months of 2017. Net earnings in the first nine months of 2018 were $701 million, or $3.34 per diluted share, compared with $586 million, or $2.77 per diluted share, in the first nine months of 2017. Net earnings in the first nine months of 2018 included net non-comparable items of $0.06 per diluted share. Net earnings in the first nine months of 2017 included net non-comparable items of ($0.04) per diluted share. These items are listed in a table below, which is provided by the company for comparison with other results and the most directly comparable U.S. GAAP measures. The impact of foreign currencies increased net sales by approximately $268 million and increased net earnings by approximately $0.11 per diluted share in the first nine months of 2018 compared with the first nine months of 2017. The impact of the acquisition of Sevcon increased net sales by $57 million in the first nine months of 2018 compared with the first nine months of 2017.

The company believes the following table is useful in highlighting non-comparable items that impacted its U.S. GAAP net earnings per diluted share:



     
              Net earnings per diluted share                                      
          Third Quarter              
           First Nine
                                                                                                                            Months


                                                                                    2018                  2017           2018                      2017

                                                                                                                                                 ---




     
              U.S. GAAP                                                               $
            0.98                        $
            0.88             $
         3.34  $
     2.77





     Non-comparable items:



     Restructuring and other expense                                               0.03                          0.07                            0.17            0.07



     CEO stock awards modification                                                 0.03                                                         0.01



     Merger and acquisition expense                                                   -                         0.03                            0.02            0.03



     Gain on commercial settlement                                                    -                                                      (0.01)



     Tax adjustments                                                             (0.04)                       (0.02)                         (0.25)         (0.06)





     
              Non - U.S. GAAP                                                         $
            1.00                        $
            0.95           * $
         3.28  $
     2.81






     *Column does not add due to rounding and/or use of basic vs. diluted shares

Net cash provided by operating activities was $556 million in the first nine months of 2018 compared with $624 million in the first nine months of 2017. Investments in capital expenditures, including tooling outlays, totaled $394 million in the first nine months of 2018, compared with $390 million in the first nine months of 2017. Balance sheet debt decreased $(52) million and cash decreased by $(184) million at the end of third quarter 2018 compared with the end of 2017. The company's net debt to net capital ratio was 29.9% at the end of third quarter 2018 compared with 30.0% at the end of 2017.

Engine Segment Results: Engine segment net sales were $1,516 million in third quarter 2018 compared with $1,506 million in third quarter 2017. Excluding the impact of foreign currencies and the acquisition of Sevcon, net sales were up 2.1% from the prior year's quarter. Adjusted earnings before interest, income taxes and non-controlling interest ("Adjusted EBIT") were $238 million in third quarter of 2018. Excluding the impact of foreign currencies and the acquisition of Sevcon, Adjusted EBIT was $243 million, up 2.3% from third quarter of 2017.

Drivetrain Segment Results: Drivetrain segment net sales were $977 million in third quarter 2018 compared with $922 million in third quarter 2017. Excluding the impact of foreign currencies and the acquisition of Sevcon, net sales were up 6.3% from the prior year's quarter. Adjusted EBIT was $108 million in third quarter 2018. Excluding the impact of foreign currencies and the acquisition of Sevcon, Adjusted EBIT was $114 million, up 2.1% from third quarter 2017.

Recent Highlights:

    --  BorgWarner announced the appointment of Thomas J. McGill to the role of
        interim Chief Financial Officer, effective January 1, 2019. Mr. McGill
        will succeed Ron Hundzinski, 59, who will remain with the company
        through the end of 2018 to ensure a smooth transition of
        responsibilities before retiring from the company effective December 31,
        2018. Management has initiated a comprehensive search process, which
        includes hiring an external search firm, to consider internal and
        external candidates to permanently fill the Chief Financial Officer
        position.
    --  BorgWarner entered into a three-year strategic cooperation agreement
        with Chinese auto manufacturer, WM Motor. The two parties will cooperate
        in the establishment of transportation models for tomorrow's smart city.
        BorgWarner will provide a full range of advanced electric propulsion
        technologies and efficient electrical application systems, including its
        high-performance electric drive modules (eDM).
    --  BorgWarner has entered into two high volume contracts to supply its
        advanced High-voltage Coolant Heater to one of the leading European
        automakers and to one of Asia's major vehicle manufacturers, with start
        of production expected to be in 2020. These awards recognize
        BorgWarner's vast experience in the field of thermal management
        solutions for electric vehicles and are another step forward on the
        journey to a cleaner and more energy efficient world.
    --  BorgWarner has been selected to supply its state-of-the-art on-axis P2
        drive module and electro-hydraulic control unit for hybrid-electric
        vehicles to two leading Chinese original equipment manufacturers (OEMs).
        BorgWarner was chosen as the supplier for these high-volume programs
        based on the technological advantages their P2 modules deliver
        including: the cost-effective power dense electric motor;
        state-of-the-art clutching and controls technology; and the efficiency,
        functional and packaging optimization of integrating the modules in the
        vehicle powertrains. This new business award is the result of close
        collaboration between the company's global research and development
        centers and strong local Chinese engineering capability. With these two
        recent awards, BorgWarner will now have content on 18 P2 hybrid
        transmissions by 2023 serving various global OEMs and spanning multiple
        vehicle platforms.
    --  BorgWarner provides its high-performance electric drive module (eDM) for
        the 2018 C30 electric vehicle (EV) and the brand ORA from China's
        leading automaker, Great Wall Motors (GWM). The 2018 C30 is the first EV
        model in China equipped with BorgWarner's eDM technology. Unveiled at
        Auto China 2018 in Beijing, GWM's new brand ORA is the automaker's
        strategic EV brand for new energy vehicle market. With the integrated
        design of the electric motor and eGearDrive(®) transmission,
        BorgWarner's eDM enables weight, cost and space savings in addition to
        easy installation, significantly improving efficiency to meet growing
        demand for power and comfort from electric vehicles.
    --  BorgWarner is announcing its innovative High Voltage Coolant Heater as
        part of the company's Battery and Cabin Heater families. The technology
        improves battery performance by keeping the battery's operating
        temperature within an optimal operating range and providing a consistent
        temperature distribution inside the battery pack and its cells. With its
        high thermal power density and fast response times due to its low
        thermal mass, the efficient technology also extends pure electric
        driving range by using less power from the battery. In addition it
        allows comfortable cabin temperatures to be generated in a short time.
    --  BorgWarner has developed a dual volute turbocharger specifically
        engineered for gasoline engines in light-duty vehicles with aggressive
        transient response targets. The company's new turbocharger delivers a
        noticeably quicker engine response time when accelerating from low
        speeds. The dual volute geometry allows for the complete segregation of
        engine exhaust pulsations so more exhaust energy is available to the
        turbine wheel, compared with traditional twin-scroll turbochargers.
        Adding to BorgWarner's extensive portfolio of engine boosting products,
        the dual volute turbocharger is a new performance solution for
        gasoline-powered light-duty vehicles to help Original Equipment
        Manufacturers (OEMs) accomplish their individual goals.
    --  BorgWarner supplies its advanced high-voltage positive temperature
        coefficient (PTC) cabin heating technology for the latest pure-electric
        ES8 SUV from Chinese electric car maker NIO. The advanced heating
        solution quickly warms the cabin and defrosts windows for maximum
        comfort and driving visibility.
    --  Developed for hybrid electric vehicles (HEVs) and plug-in hybrid
        electric vehicles (PHEVs), BorgWarner's innovative Exhaust Heat Recovery
        System (EHRS) will enter production later this year for vehicles from a
        major North American automaker. By using the heat from exhaust gas which
        would normally be diverted through the exhaust pipes and wasted, the
        company's technology reduces engine warm-up time, enhances efficiency
        and significantly improves fuel economy and reduces emissions. This
        cost-effective solution offers compact packaging, low weight and can
        easily be integrated into existing vehicles.
    --  BorgWarner announced that Deborah McWhinney and Paul Mascarenas have
        been named to its board of directors. McWhinney is the former Division
        CEO, Global Enterprise Payments, Citigroup Inc., one of the largest
        financial services firms. In this role, McWhinney was responsible for
        developing and implementing new mobile and online services around the
        globe for some of the world's largest corporations and governments.
        McWhinney is a board member of IHS Markit Ltd., Fresenius Medical Care
        AG & Co., KGaA, Lloyds Banking Group plc and Fluor Corporation. She is
        also on the Board of Trustees for the California Institute for
        Technology and the Institute for Defense Analyses. Paul Mascarenas is
        the former chief technical officer of Ford Motor Company. In that role,
        he led Ford's worldwide research organization, overseeing the
        development and implementation of the company's technology strategy and
        plans. He is currently a Venture Partner with Fontinalis Partners LLP
        and serves on the boards of the United States Steel Corporation, ON
        Semiconductor Corporation and Spartan Motors Inc.

At 9:30 a.m. ET today, a brief conference call concerning third quarter 2018 results will be webcast at: http://www.borgwarner.com/en/Investors/default.aspx.

BorgWarner Inc. (NYSE: BWA) is a global product leader in clean and efficient technology solutions for combustion, hybrid and electric vehicles. With manufacturing and technical facilities in 66 locations in 18 countries, the company employs approximately 29,000 worldwide. For more information, please visit borgwarner.com.

Statements in this press release may contain forward-looking statements as contemplated by the 1995 Private Securities Litigation Reform Act that are based on management's current outlook, expectations, estimates and projections. Words such as "anticipates," "believes," "continues," "could," "designed," "effect," "estimates," "evaluates," "expects," "forecasts," "goal," "initiative," "intends," "outlook," "plans," "potential," "project," "pursue," "seek," "should," "target," "when," "would," variations of such words and similar expressions are intended to identify such forward-looking statements. Forward-looking statements are subject to risks and uncertainties, many of which are difficult to predict and generally beyond our control, that could cause actual results to differ materially from those expressed, projected or implied in or by the forward-looking statements. These risks and uncertainties, among others, include: our dependence on automotive and truck production, both of which are highly cyclical; our reliance on major OEM customers; commodities availability and pricing; supply disruptions; fluctuations in interest rates and foreign currency exchange rates; availability of credit; our dependence on key management; our dependence on information systems; the uncertainty of the global economic environment; the outcome of existing or any future legal proceedings, including litigation with respect to various claims; and future changes in laws and regulations, including by way of example, tariffs, in the countries in which we operate, as well as other risks noted in reports that we file with the Securities and Exchange Commission, including the Risk Factors identified in our most recently filed Annual Report on Form 10-K/A. We do not undertake any obligation to update or announce publicly any updates to or revision to any of the forward-looking statements.



       BorgWarner Inc.



       Condensed Consolidated Statements of Operations (Unaudited)



       (millions, except per share amounts)


                                                                                
            Three Months Ended              
          Nine Months Ended
                                                                                      September 30,                          September 30,


                                                                                2018                        2017           2018                           2017

                                                                                                                                                        ---


       Net sales                                                                    $
              2,478.5                         $
              2,416.2           $
         7,956.8  $
        7,212.9



       Cost of sales                                                        1,962.9                             1,894.6                              6,270.2          5,662.1




       Gross profit                                                           515.6                               521.6                              1,686.6          1,550.8





       Selling, general and administrative expenses                           230.5                               225.0                                719.9            659.1



       Other expense, net                                                       7.1                                22.0                                 42.4             27.5




       Operating income                                                       278.0                               274.6                                924.3            864.2





       Equity in affiliates' earnings, net of tax                            (15.2)                             (14.4)                              (38.4)          (38.5)



       Interest income                                                        (1.5)                              (1.3)                               (4.4)           (4.2)



       Interest expense and finance charges                                    14.4                                17.6                                 45.4             53.6



       Other postretirement income                                            (2.4)                              (1.3)                               (7.4)           (3.9)




       Earnings before income taxes and noncontrolling interest               282.7                               274.0                                929.1            857.2





       Provision for income taxes                                              66.8                                79.4                                192.1            241.9




       Net earnings                                                           215.9                               194.6                                737.0            615.3





       Net earnings attributable to the noncontrolling interest, net of tax    12.1                                 9.7                                 36.3             29.2



       Net earnings attributable to BorgWarner Inc.                                   $
              203.8                           $
              184.9             $
         700.7    $
        586.1








       Earnings per share - diluted                                                    $
              0.98                            $
              0.88              $
         3.34     $
        2.77






       Weighted average shares outstanding - diluted                        208.738                             211.013                              209.787          211.575





       Supplemental Information (Unaudited)

    ---


       (millions of dollars)


                                                                                
            Three Months Ended              
          Nine Months Ended
                                                                                      September 30,                          September 30,


                                                                                2018                        2017           2018                           2017

                                                                                                                                                        ---


       Capital expenditures, including tooling outlays                                $
              125.6                           $
              135.5             $
         394.3    $
        389.7






       Depreciation and amortization                                                  $
              107.5                           $
              104.9             $
         325.8    $
        302.0



     BorgWarner Inc.



     Net Sales by Reporting Segment (Unaudited)



     (millions of dollars)




                                                                                                                  
            Three Months Ended              
          Nine Months Ended
                                                                                                                        September 30,                          September 30,


                                                                                                                  2018                        2017           2018                           2017

                                                                                                                                                                                          ---


     Engine                                                                                                           $
              1,515.8                         $
              1,506.4           $
        4,906.2  $
       4,483.6



     Drivetrain                                                                                                 976.7                               921.8                              3,093.7         2,767.7



     Inter-segment eliminations                                                                                (14.0)                             (12.0)                              (43.1)         (38.4)




     Net sales                                                                                                        $
              2,478.5                         $
              2,416.2           $
        7,956.8  $
       7,212.9








     Adjusted Earnings Before Interest, Income Taxes and Noncontrolling Interest ("Adjusted EBIT") (Unaudited)



     (millions of dollars)




                                                                                                                  
            Three Months Ended              
          Nine Months Ended
                                                                                                                        September 30,                          September 30,


                                                                                                                  2018                        2017           2018                           2017

                                                                                                                                                                                          ---


     Engine                                                                                                             $
              238.2                           $
              237.6             $
        797.2    $
       727.1



     Drivetrain                                                                                                 107.6                               111.1                                344.9           324.7




     Adjusted EBIT                                                                                              345.8                               348.7                              1,142.1         1,051.8



     Restructuring expense                                                                                        5.7                                13.3                                 44.4            13.3



     Merger, acquisition and divestiture expense                                                                  1.6                                 6.4                                  4.8             6.4



     Lease termination settlement                                                                                   -                                                                                   5.3



     Other expense (income), net                                                                                  1.5                                 2.7                                (3.3)            2.7



     Other postretirement income                                                                                (2.4)                              (1.3)                               (7.4)          (3.9)



     Corporate, including equity in affiliates' earnings and stock-based compensation                            43.8                                37.3                                133.5           121.4



     Interest income                                                                                            (1.5)                              (1.3)                               (4.4)          (4.2)



     Interest expense and finance charges                                                                        14.4                                17.6                                 45.4            53.6




     Earnings before income taxes and noncontrolling interest                                                   282.7                               274.0                                929.1           857.2



     Provision for income taxes                                                                                  66.8                                79.4                                192.1           241.9




     Net earnings                                                                                               215.9                               194.6                                737.0           615.3



     Net earnings attributable to the noncontrolling interest, net of tax                                        12.1                                 9.7                                 36.3            29.2




     Net earnings attributable to BorgWarner Inc.                                                                       $
              203.8                           $
              184.9             $
        700.7    $
       586.1



       BorgWarner Inc.



       Condensed Consolidated Balance Sheets (Unaudited)



       (millions of dollars)




                                                          September 30,               December 31,
                                                                   2018                        2017

                                                                                               ---


       
                Assets

    ---




       Cash                                                              $
        361.8                         $
        545.3



       Receivables, net                                        2,061.1                             2,018.9



       Inventories, net                                          810.3                               766.3



       Prepayments and other current assets                      192.9                               145.4



       Assets held for sale                                       64.5                                67.3




       Total current assets                                    3,490.6                             3,543.2





       Property, plant and equipment, net                      2,827.8                             2,863.8



       Other non-current assets                                3,398.0                             3,380.6




       Total assets                                                    $
        9,716.4                       $
        9,787.6






       
                Liabilities and Equity

    ---




       Notes payable and other short-term debt                            $
        50.7                          $
        84.6



       Accounts payable and accrued expenses                   2,009.2                             2,270.3



       Income taxes payable                                        9.8                                40.8



       Liabilities held for sale                                  29.9                                29.5




       Total current liabilities                               2,099.6                             2,425.2





       Long-term debt                                          2,085.6                             2,103.7



       Other non-current liabilities                           1,361.0                             1,432.8





       Total BorgWarner Inc. stockholders' equity              4,066.4                             3,716.8



       Noncontrolling interest                                   103.8                               109.1




       Total equity                                            4,170.2                             3,825.9




       Total liabilities and equity                                    $
        9,716.4                       $
        9,787.6



       BorgWarner Inc.



       Condensed Consolidated Statements of Cash Flows (Unaudited)



       (millions of dollars)




                                              
              Nine Months Ended
                                                      September 30,


                                               2018                        2017

                                                                           ---


       
                Operating

    ---


       Net earnings                                  $
              737.0                  $
     615.3


        Depreciation and
         amortization                         325.8                                302.0


        Stock-based compensation
         expense                               37.6                                 35.5


        Deferred income tax
         (benefit) provision                 (36.6)                                39.5


        Restructuring expense,
         net of cash paid                      34.7                                  3.5


        Equity in affiliates'
         earnings, net of
         dividends received, and
         other                               (21.6)                              (23.7)



        Net earnings adjusted for
         non-cash charges to
         operations                         1,076.9                                972.1


        Changes in assets and
         liabilities                        (520.6)                             (348.2)


        Net cash provided by
         operating activities                 556.3                                623.9





       
                Investing

    ---

        Capital expenditures,
         including tooling
         outlays                            (394.3)                             (389.7)


        Payments for business
         acquired, net of cash
         acquired                                 -                             (180.6)


        Payments for venture
         capital investment                   (4.2)                               (2.0)


        Proceeds from asset
         disposals and other                    5.5                                  1.6


        Net cash used in
         investing activities               (393.0)                             (570.7)





       
                Financing

    ---

        Net (decrease) increase
         in notes payable                    (29.8)                               124.9


        Additions to long-term
         debt, net of debt
         issuance costs                        20.3


        Repayments of long-term
         debt, including current
         portion                             (15.0)                              (14.5)


        Payments for debt
         issuance cost                            -                               (2.4)


        Payments for purchase of
         treasury stock                     (150.0)                             (100.0)


        Payments for stock-based
         compensation items                  (15.1)                               (2.1)


        Dividends paid to
         BorgWarner stockholders            (106.3)                              (88.5)


        Dividends paid to
         noncontrolling
         stockholders                        (27.5)                              (23.6)



        Net cash used in
         financing activities               (323.4)                             (106.2)




        Effect of exchange rate
         changes on cash                     (23.4)                                23.6




        Net decrease in cash                (183.5)                              (29.4)




        Cash at beginning of year             545.3                                443.7



        Cash at end of period                         $
              361.8                  $
     414.3

View original content:http://www.prnewswire.com/news-releases/borgwarner-reports-third-quarter-2018-us-gaap-net-earnings-of-0-98-per-diluted-share-or-1-00-per-diluted-share-excluding-non-comparable-items-300737500.html

SOURCE BorgWarner Inc.