SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
QUARTERLY REPORT
Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarter ended June 30, 2003
Commission file number: 1-12162
BORGWARNER INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3404508
State or other jurisdiction of (I.R.S. Employer
Incorporation or organization Identification No.)
200 South Michigan Avenue, Chicago, Illinois 60604
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (312) 322-8500
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12-b2 of the Exchange Act).
YES X NO
On June 30, 2003 the registrant had 27,017,149 shares of Common Stock
outstanding.
BORGWARNER INC.
FORM 10-Q
SIX MONTHS ENDED JUNE 30, 2003
INDEX Page No.
PART I. Financial Information
Item 1. Financial Statements
Introduction 2
Condensed Consolidated Balance Sheets at
June 30, 2003 and December 31, 2002 3
Consolidated Statements of Operations for the three
months ended June 30, 2003 and 2002 4
Consolidated Statements of Operations for the six
months ended June 30, 2003 and 2002 5
Consolidated Statements of Cash Flows for the six
months ended June 30, 2003 and 2002 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 17
Item 3. Quantitative and Qualitative Disclosures
About Market Risks 22
Item 4. Controls and Procedures 22
PART II. Other Information
Item 1. Legal Proceedings 22
Item 4. Submission of Matters to a Vote of
Security Holders 23
Item 6. Exhibits and Reports on Form 8-K 23
SIGNATURES 25
BORGWARNER INC.
FORM 10-Q
SIX MONTHS ENDED JUNE 30, 2003
PART I.
ITEM 1.
BorgWarner Inc. and Consolidated Subsidiaries'
Financial Statements
The financial statements of BorgWarner Inc. and Consolidated Subsidiaries (the
"Company") have been prepared in accordance with the instructions to Form 10-Q
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The
statements are unaudited but include all adjustments, consisting only of
recurring items, except as noted, which the Company considers necessary for a
fair presentation of the information set forth herein. The results of
operations for the three and six months ended June 30, 2003 are not necessarily
indicative of the results to be expected for the entire year. The following
financial statements and Management's Discussion and Analysis of Financial
Condition and Results of Operations should be read in conjunction with the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
2002.
BORGWARNER INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(millions of dollars except share data)
June 30, December 31,
2003 2002
ASSETS
Cash and cash equivalents $ 73.4 $ 36.6
Receivables, net 367.0 292.1
Inventories 192.6 180.3
Deferred income taxes 11.4 11.4
Investments in businesses held for sale 15.6 14.2
Prepayments and other current assets 36.8 31.9
------ ------
Total current assets 696.8 566.5
Property, plant, and equipment at cost 1,549.3 1,467.8
Less accumulated depreciation (629.4) (572.9)
------- ------
Net property, plant and equipment 919.9 894.9
Tooling, net of amortization 85.1 82.0
Investments and advances 159.3 153.1
Goodwill 842.9 827.0
Deferred income taxes 42.9 51.2
Other noncurrent assets 109.4 108.2
------- --------
Total other assets 1,239.6 1,221.5
------- --------
Total assets $2,856.3 $2,682.9
======= ========
LIABILITIES & STOCKHOLDERS' EQUITY
Notes payable and current portion of long-term
debt $ 11.4 $ 14.4
Accounts payable and accrued expenses 452.8 435.6
Income taxes payable 16.7 1.2
----- ------
Total current liabilities 480.9 451.2
Long-term debt 627.6 632.3
Long-term liabilities:
Retirement-related liabilities 485.6 478.3
Other 130.6 125.2
----- ------
Total long-term liabilities 616.2 603.5
Minority interest in consolidated
subsidiaries 12.9 14.5
Commitments and contingencies - -
Capital stock:
Preferred stock, $.01 par value; authorized
shares: 5,000,000; none issued - -
Common stock, $.01 par value; authorized
shares: 50,000,000; issued shares: 2003,
27,527,398; 2002, 27,398,891; outstanding
shares: 2003, 27,017,149; 2002, 26,580,004 0.3 0.3
Non-voting common stock, $.01 par value;
authorized shares: 25,000,000; none issued
and outstanding - -
Capital in excess of par value 742.8 737.7
Retained earnings 415.2 335.8
Management shareholder note - (2.0)
Accumulated other comprehensive loss (6.9) (54.5)
Common stock held in treasury, at cost:
2003, 510,249 shares; 2002, 818,887 (32.7) (35.9)
------ ------
Total stockholders' equity 1,118.7 981.4
-------- ------
Total liabilities and
stockholders' equity $2,856.3 $2,682.9
========== ========
See accompanying Notes to Consolidated Financial Statements
BORGWARNER INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(millions of dollars except per share amounts)
Three Months Ended
June 30,
2003 2002
Net sales $ 769.5 $ 712.4
Cost of sales 622.8 561.4
----- -----
Gross profit 146.7 151.0
Selling, general and administrative
expenses 77.0 76.5
Other, net 0.1 0.1
------ -----
Operating income 69.6 74.4
Equity in affiliate earnings, net of tax (5.2) (6.0)
Interest expense and finance charges 8.7 9.5
------ ------
Earnings before income taxes 66.1 70.9
Provision for income taxes 19.2 23.6
Minority interest, net of tax 2.1 1.6
------- ------
Net earnings $ 44.8 $ 45.7
======== =======
Net earnings per share - Basic $ 1.66 $ 1.72
======== =======
Net earnings per share - Diluted $ 1.65 $ 1.70
======== ========
Average shares outstanding (in thousands)
Basic 26,835 26,618
Diluted 27,108 26,918
Dividends declared per share $ 0.18 $ 0.15
======= =======
See accompanying Notes to Consolidated Financial Statements
BORGWARNER INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(millions of dollars except per share amounts)
Six Months Ended
June 30,
2003 2002
Net sales $ 1,545.2 $ 1,346.3
Cost of sales 1,246.9 1,065.6
-------- -------
Gross profit 298.3 280.7
Selling, general and administrative
expenses 160.7 151.0
Other, net 0.1 (0.4)
-------- --------
Operating income 137.5 130.1
Equity in affiliate earnings, net of tax (11.6) (9.4)
Interest expense and finance charges 17.7 19.3
-------- --------
Earnings before income taxes 131.4 120.2
Provision for income taxes 38.1 39.8
Minority interest, net of tax 4.3 3.1
-------- --------
Net earnings before cumulative
effect of accounting change 89.0 77.2
Cumulative effect of change in accounting
principle, net of tax - (269.0)
-------- ---------
Net earnings/(loss) $ 89.0 $(191.8)
========= ==========
Net Earnings/(loss) per share - Basic
Net earnings per share before cumulative effect
of accounting change $ 3.33 $ 2.91
Cumulative effect of accounting change - (10.15)
-------- ---------
Net earnings/(loss) per share $ 3.33 $ (7.24)
========= ===========
Net earnings/(loss) per share - Diluted
Net earnings per share before cumulative effect
Of accounting change $ 3.30 $ 2.88
Cumulative effect of accounting change - (10.04)
-------- -------
Net earnings/(loss) per share $ 3.30 $ (7.16)
========= ========
Average shares outstanding (in thousands)
Basic 26,744 26,525
Diluted 26,972 26,825
Dividends declared per share $ 0.36 $ 0.30
========= ===========
See accompanying Notes to Consolidated Financial Statements
BORGWARNER INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(millions of dollars)
Six Months Ended
June 30,
2003 2002
Operating ----- -----
Net earnings/(loss) $ 89.0 $(191.8)
Non-cash charges (credits) to operations:
Depreciation 60.2 54.2
Amortization of tooling 15.7 13.7
Cumulative effect of change in accounting
principle, net of tax - 269.0
Employee retirement benefits 6.8 7.8
Other, including equity in affiliate earnings,
net of tax (0.3) (8.3)
Net earnings adjusted for non-cash charges 171.4 144.6
Changes in assets and liabilities, net of effects of
acquisitions and divestitures:
Increase in receivables (61.2) (78.1)
Increase in inventories (6.9) (8.3)
------ -------
(Increase) decrease in prepayments and other
current assets (2.1) 0.7
Increase in accounts payable and accrued expenses 6.7 35.5
Increase in income taxes payable 16.1 19.0
Net change in other long-term assets and
liabilities 31.3 7.9
------- ------
Net cash provided by operating activities 155.3 121.3
Investing
Capital expenditures (64.8) (55.3)
Tooling outlays, net of customer reimbursements (20.7) (16.1)
Net proceeds from asset disposals 1.3 8.3
Proceeds from sale of businesses - 0.5
Tax refunds related to businesses sold - 20.5
Contingent valuation payment on acquired business (12.8) -
------- ------
Net cash used in investing activities (97.0) (42.1)
Financing
Net decrease in notes payable (3.6) (20.1)
Additions to long-term debt 0.4 0.4
Reductions in long-term debt (7.1) (62.7)
Payments for purchase of treasury stock (2.5) -
Proceeds from stock options exercised 0.8 7.6
Dividends paid (9.6) (8.0)
------ ------
Net cash used in financing activities (21.6) (82.8)
Effect of exchange rate changes on cash and
cash equivalents 0.1 0.9
------- -------
Net increase (decrease) in cash and cash
equivalents 36.8 (2.7)
Cash and cash equivalents at beginning of period 36.6 32.9
------- -------
Cash and cash equivalents at end of period $ 73.4 $ 30.2
======= ========
Supplemental Cash Flow Information
Net cash paid/(refunded) during the period for:
Interest $ 18.3 $ 21.1
Income taxes 11.3 (12.5)
Non-cash financing transactions:
Issuance of common stock for Executive Stock
Performance Plan 3.3 1.2
See accompanying Notes to Consolidated Financial Statements
BORGWARNER INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) Research and development costs charged to expense for the three and six
months ended June 30, 2003 were $28.9 million and $58.4 million. Research and
development costs charged to expense for the three and six months ended June 30,
2002 were $25.4 million and $52.3 million.
(2) Inventories consisted of the following (millions of dollars):
June 30, December 31,
2003 2002
------ -------
Raw materials $ 79.6 $ 85.3
Work in progress 79.0 57.6
Finished goods 34.0 37.4
-------- --------
Total inventories $ 192.6 $ 180.3
======== ========
(3) The Company accounts for its stock based employee compensation plans under
the recognition and measurement principles of Accounting Principles Board (APB)
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
Interpretations. No stock-based employee compensation cost is reflected in net
income for stock options, as all options granted under those plans had an
exercise price equal to or in excess of the market value of the underlying
common stock on the date of grant. The following table illustrates the effect
on net income and earnings per share if the Company had applied the fair value
recognition provisions of Financial Accounting Standards Board (FASB) Statement
of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation," to stock-based employee compensation.
Three Months Ended June 30, 2003 2002
----- -----
Net earnings, as reported $ 44.8 $ 45.7
Add:
Stock-based employee
compensation expense
included in net income,
net of income tax 1.5 1.5
Deduct:
Total stock based employee
compensation expense determined
under fair value based methods
for all awards, net of tax effects (2.5) (3.1)
------ ------
Pro forma net earnings $ 43.8 $ 44.1
======= =======
Net earnings per share Basic -
as reported $ 1.66 $ 1.72
Basic - pro forma 1.62 1.66
Diluted - as reported 1.65 1.70
Diluted - pro forma 1.61 1.64
Six Months Ended June 30, 2003 2002
Net earnings/(loss), as reported $ 89.0 $(191.8)
Add:
Stock-based employee compensation
expense included in net income,
net of income tax 2.6 2.0
Deduct:
Total stock based employee compensation
expense determined under fair value
based methods for all awards,
net of tax effects (4.7) (5.1)
------ ------
Pro forma net earnings/(loss) $ 86.9 $(194.9)
======= ======
Net earnings/(loss)per share Basic - as
reported $ 3.33 $ (7.24)
Basic - pro forma 3.25 (7.35)
Diluted - as reported 3.30 (7.16)
Diluted - pro forma 3.22 (7.27)
In calculating earnings per share, earnings are the same for the basic and
diluted calculations. Shares increased for diluted earnings per share by
273,000 and 300,000 for the three months ended, and 228,000 and 300,000 for the
six months ended, June 30, 2003 and 2002, respectively, due to the effects of
stock options and shares issuable under the Executive Stock Performance Plan.
(4) The Company's provision for income taxes is based upon estimated annual tax
rates for the year applied to federal, state and foreign income. The effective
rate for 2003 differed from the U.S. statutory rate primarily due to a) state
income taxes, b) foreign rates which differ from those in the U.S. and c)
realization of certain business tax credits, including foreign tax credits and
research and development credits. In 2002, the Company completed a change in the
ownership structure of its foreign operations for strategic business purposes.
An indirect result of this change was lower tax rates on the income of certain
of the Company's foreign operations. The Company expects its effective tax rate
for 2003 to be approximately 29.0% on the basis of which the three and six month
income statements are presented.
(5) Following is a summary of notes payable and long-term debt:
June 30, 2003 December 31,2002
Current Long-Term Current Long-Term
DEBT (millions of dollars)
Bank borrowings and other $ 4.9 $ 35.9 $8.0 $40.4
Term loans due through 2011
(at an average rate of 3.4% at
June 30, 2003 and 3.2% at
December 31, 2002) 6.5 31.8 6.4 31.5
7% Senior Notes due 2006,
net of unamortized discount
($125 million converted to floating
rate of 2.6% by interest rate swap) - 139.3 - 139.3
6.5% Senior Notes due 2009,
net of unamortized discount
($75 million converted to floating
rate of 2.9% by interest rate swap) - 164.7 - 164.9
8% Senior Notes due 2019,
net of unamortized discount
($25 million converted to floating
rate of 4.1% by interest rate swap) - 133.9 - 134.2
7.125% Senior Notes due 2029,
net of unamortized discount - 122.0 - 122.0
----- ------ ------ ------
Total notes payable and
long-term debt $11.4 $ 627.6 $ 14.4 $ 632.3
===== ===== ===== ======
The Company has a revolving credit facility that provides for borrowings up to
$350 million through July, 2005. At June 30, 2003, there were no borrowings
outstanding under the facility and the Company had $0.6 million of obligations
under standby letters of credit. At December 31, 2002, there were no borrowings
outstanding under the facility and the Company had $7.1 million of obligations
under standby letters of credit.
The credit agreement contains numerous financial and operating covenants
including, among others, covenants requiring the Company to maintain certain
financial ratios and restricting its ability to incur additional indebtedness.
The Company is in compliance with its credit agreement covenants as of June 30,
2003.
The Company has entered into interest rate and currency swaps to manage interest
rate and foreign currency risk. A summary of these instruments outstanding at
June 30, 2003 follows (currency in millions):
Notional Interest rates (b)
Floating interest Hedge Type Amount Receive Pay Rate basis
- ------------------- ---------- ------ ----- ---- ----------
Interest Rate Swaps (a) (Millions)
Fixed to floating Fair value $ 125 7.0% 2.5% 6 month LIBOR+1.43%
Fixed to floating Fair value $ 75 6.5% 2.9% 6 month LIBOR+1.81%
Fixed to floating Fair value $ 25 8.0% 4.1% 6 month LIBOR+2.98%
Cross Currency Swaps (mature in 2006)
Floating $ Cash Flow $70 2.5% - 6 mo. USD LIBOR+1.43%
to floating (Y)Investment (Y)8,871 - 1.3% 6 mo. JPY LIBOR+1.21%
a) The maturity of the swaps corresponds with the maturity of the hedged
item as noted in the debt summary, unless otherwise indicated.
b) Interest rates are as of June 30, 2003.
The ineffective portion of the cross currency swap was not material. The fair
value of the interest rate swaps at June 30, 2003 was $19.9 million. Cross
currency swaps were recorded at their fair value of $(4.1) million.
The Company also entered into certain commodity derivative instruments to
protect against commodity price changes related to forecasted raw material and
supplies purchases. The primary purpose of the commodity price hedging
activities is to manage the volatility associated with these forecasted
purchases. The Company primarily utilizes forward and option contracts with
maturities of less than twelve months, which qualify as cash flow hedges. These
instruments are intended to offset the effect of changes in commodity prices on
forecasted purchases. The fair value of the commodity derivative instruments at
June 30, 2003 was $(0.4) million.
The Company uses foreign exchange forward contracts to hedge future purchases of
materials consumed in the production process, and the receivables related to
sales through December 2005. Foreign currency contracts require the Company, at
a future date, to either buy or sell foreign currency in exchange for primarily
U.S. dollars and Euros. Contracts outstanding as of June 30, 2003 will mature
over the next two and one half years and have notional amount of $20.1 million
and 26.6 million Euro.
(6) The Company and certain of its current and former direct and indirect
corporate predecessors, subsidiaries and divisions have been identified by the
United States Environmental Protection Agency (EPA) and certain state
environmental agencies and private parties as potentially responsible parties
(PRPs) at various hazardous waste disposal sites under the Comprehensive
Environmental Response, Compensation and Liability Act (Superfund) and
equivalent state laws and, as such, may presently be liable for the cost of
clean-up and other remedial activities at 43 such sites. Responsibility for
clean-up and other remedial activities at a Superfund site is typically shared
among PRPs based on an allocation formula.
Based on the information available to the Company, which in most cases,
includes: an estimate of allocation of liability among PRPs; the probability
that other PRPs, many of whom are large solvent public companies, will fully pay
the cost apportioned to them; currently available information from PRPs and/or
federal or state environmental agencies concerning the scope of contamination
and estimated remediation costs; remediation alternatives; estimated legal fees;
and other factors, the Company has established a reserve for indicated
environmental liabilities with a balance at June 30, 2003 of approximately $18.0
million. The Company expects this amount to be expended over the next three to
five years.
The Company believes that none of these matters, individually or in the
aggregate, will have a material adverse effect on its financial condition or
future operating results, generally either because estimates of the maximum
potential liability at a site are not large or because liability will be shared
with other PRPs, although no assurance can be given with respect to the ultimate
outcome of any such matter.
In connection with the sale of Kuhlman Electric Corporation, the Company agreed
to indemnify the buyer and Kuhlman Electric for certain environmental
liabilities relating to the past operations of Kuhlman Electric. During 2000,
Kuhlman Electric notified the Company that it discovered potential environmental
contamination at its Crystal Springs, Mississippi plant while undertaking an
expansion of the plant.
The Company has been working with the Mississippi Department of Environmental
Quality, the EPA and Kuhlman Electric to investigate the extent of the
contamination. The investigation has revealed the presence of Polychlorinated
Biphenyls (PCBs) in portions of the soil at the plant and neighboring areas.
Kuhlman Electric and others, including the Company, have been sued in several
related lawsuits, which claim personal injury and property damage. The Company
has moved to be dismissed from some of these lawsuits.
The Company believes that its reserve for environmental liabilities is
sufficient to cover any potential liability associated with these matters.
However, due to the nature of environmental liability matters, there can be no
assurance that the actual amount of environmental liabilities will not exceed
the amount reserved.
Patent infringement actions were filed against the Company's turbocharger unit
in Europe in late 2001 and in 2002 by Honeywell International. In order to
continue uninterrupted service to its customer, the Company paid Honeywell $25
million in July 2002 so that it could continue to make and ship disputed car
turbochargers through June of 2003. On June 23, 2003, the Company announced an
additional agreement with Honeywell to settle the patent dispute relating to
variable geometry turbochargers by extending their licensing arrangement. The
new agreement covers almost one million OEM and service production units
expected to be produced during the period of the agreement (July 1, 2003 through
2006). Approximately 40% of the total consideration of $29.1 million will be
paid to cover use in 2003 and approximately 49% of the total will be paid to
cover use in 2004.
In 2002, the Company entered into a lease obligation for $28.3 million in
principal for machinery and equipment. The lease payments are expected to be
$3.5 million in 2003. The lease extends until December 2005 and is being
accounted for as an operating lease. The Company has guaranteed the residual
values of the leased machinery and equipment. The guarantees extend through the
maturity of the underlying lease. In the event the Company exercises its option
not to purchase the machinery and equipment, the Company has guaranteed a
residual value of $16.3 million.
The Company provides warranties on some of its products. The warranty terms are
typically from one to three years. Provisions for estimated expenses related to
product warranty are made at the time products are sold. These estimates are
established using historical information about the nature, frequency, and
average cost of warranty claims. Management actively studies trends of warranty
claims and takes action to improve vehicle quality and minimize warranty
claims.
Management believes that the warranty reserve is appropriate; however, actual
claims incurred could differ from the original estimates, requiring adjustments
to the reserve. The reserve is recorded in both long-term and short-term
liabilities on the balance sheet.
Below is a table that shows the activity in the warranty accrual accounts (in
millions):
For the six
months ended June 30, 2003
Beginning balance $ 23.7
Provisions 6.5
Incurred (4.0)
-----
Ending balance $ 26.2
=====
(7) Comprehensive income/(loss) is a measurement of all changes in
stockholders' equity that result from transactions and other economic events
other than transactions with stockholders. For the Company, this includes
foreign currency translation adjustments, changes in the minimum pension
liability adjustment and net earnings(loss). The amounts presented as other
comprehensive income/(loss), net of related taxes, are added to net income
resulting in comprehensive income/(loss).
The following summarizes the components of other comprehensive income/
(loss) on a pretax and after-tax basis for the periods ended June 30.
(in millions) Three Months Ended
2003 2002
Income Income
Tax After- Tax After-
Pretax Effect tax Pretax Effect tax
------ ------- ---- ------ ------- --------
Foreign currency
translation
adjustment $ 50.0 $0 $ 50.0 $50.0 $ (12.7) $37.3
Net earnings as reported 44.8 45.7
------ ------
Total comprehensive income $ 94.8 $83.0
====== ======
(in millions) Six Months Ended
2003 2002
Income Income
Tax After- Tax After-
Pretax Effect tax Pretax Effect tax
------- ------- ---- ------ ------- ------
Foreign currency
translation
adjustment $ 47.5 $0 $ 47.5 $20.4 $ (5.2) $15.2
Net earnings/(loss) as reported 89.0 (191.8)
------ ------
Total comprehensive income/(loss) $ 136.5 $(176.6)
====== ======
The components of accumulated other comprehensive income/(loss), net of tax, in
the Condensed Consolidated Balance Sheets are as follows:
(in millions) June 30, December 31,
2003 2002
------ -------
Foreign currency translation adjustment $ 54.3 $ 6.7
Minimum pension liability adjustment (61.2) (61.2)
------- -------
Accumulated other comprehensive loss $ (6.9) $(54.5)
======= =======
(8) The following tables show sales, earnings before interest and taxes and
total assets for the Company's reportable business segments (in millions of
dollars).
Net Sales
Three Months Ended June 30,
2003 2002
----- ------
Inter- Inter-
Customer segment Net Customer segment Net
Drivetrain $ 309.3 $ - $ 309.3 $288.3 $ - $ 288.3
Engine 460.2 11.4 471.6 424.1 10.1 434.2
Inter-segment
eliminations - (11.4) (11.4) - (10.1) (10.1)
------- ------- ------- ------ ------- -------
Consolidated $ 769.5 $ - $ 769.5 $712.4 $ - $ 712.4
======= ======= ======= ======= ======= ========
Net Sales
Six Months Ended June 30,
2003 2002
------ ------
Inter- Inter-
Customer segment Net Customer segment Net
Drivetrain $ 631.0 $ - $ 631.0 $542.0 $ - $ 542.0
Engine 914.2 23.2 937.4 804.3 19.2 823.5
Inter-segment
eliminations - (23.2) (23.2) - (19.2) (19.2)
-------- ------- -------- -------- ------- ---------
Consolidated $1,545.2 $ - $1,545.2 $1,346.3 $ - $1,346.3
======== ======== ======== ======== ======= =========
Earnings Before Earnings Before
Interest & Taxes Interest & Taxes
Three Months Ended Six Months Ended
June 30, June 30,
2003 2002 2003 2002
----- ------- ------ ------
Drivetrain $ 23.7 $ 29.5 $ 49.8 $ 49.1
Engine 60.5 59.6 121.2 108.5
------ ----- ------- ------
84.2 89.1 171.0 157.6
Corporate (9.4) (8.7) (21.9) (18.1)
------ ------ -------- -------
Consolidated 74.8 80.4 149.1 139.5
Interest expense and
finance charges (8.7) (9.5) (17.7) (19.3)
------ ------- -------- -------
Earnings before income
taxes $ 66.1 $ 70.9 $ 131.4 $ 120.2
====== ======= ========= =======
Total Assets
June 30, December 31,
2003 2002
Drivetrain $745.9 $ 678.1
Engine 1,838.2 1,739.9
-------- -------
2,584.1 2,418.0
Corporate 272.2 264.9
-------- -------
Consolidated $2,856.3 $2,682.9
========== ========
(9) Charges of $28.4 million were incurred in the fourth quarter of 2001.
These charges primarily included adjustments to the carrying value of certain
assets and liabilities related to businesses acquired and disposed of over the
prior three years, non-employee related exit costs for certain non-production
facilities the Company had previously sold or no longer needed and non-recurring
product quality related charges. The 2001 charges include $8.4 million of
environmental remediation costs related to sold businesses and $12 million of
product quality costs for issues with products that were sold by acquired
businesses prior to acquisition, all of which have been fixed in the currently
produced products. Of the $28.4 million of pretax charges, $5.0 million
represents non-cash charges. Approximately $3.3 million was spent in 2001, $8.4
million was transferred to environmental reserves in 2001, $8.4 million was
spent in 2002, $1.9 million was spent in the first six months of 2003, and the
remaining $1.4 million is expected to be spent over the next six months. The
Company expects to fund the total cash outlay of these actions with cash flow
from operations.
The roll-forward for the balance of the other exit costs and non-recurring
charges are detailed in the following table.
Other Exit Costs and
Charges
(in millions of dollars)
Balance, December 31, 2002 $ 3.3
Expended 1.9
-----
Balance, June 30, 2003 $ 1.4
======
(10) The Company securitizes and sells certain receivables through third party
financial institutions without recourse. The amount sold can vary each month
based on the amount of underlying receivables, up to a maximum of $90 million.
During the six months ended June 30, 2003, the amount of receivables sold
remained constant at $90 million and total cash proceeds from sales of accounts
receivable were $540.0 million. For the six months ended June 30, 2003, the
Company paid a servicing fee of $0.7 million related to these receivables, which
is included in interest expense and finance charges. At June 30, 2003 and
December 31, 2002, the Company had sold $90 million of receivables under a
Receivables Transfer Agreement for face value without recourse.
(11) In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 142, effective January 1, 2002, specifies that goodwill and
certain intangible assets will no longer be amortized but instead will be
subject to periodic impairment testing. SFAS No. 142 also requires that, upon
adoption, goodwill be allocated to the Company's reporting units and a two-step
impairment analysis be performed.
The Company adopted SFAS No. 142 effective January 1, 2002. Under the
transitional provisions of the SFAS, the Company allocated goodwill to its
reporting units and performed the two-step impairment analysis. The fair value
of the Company's businesses used in determination of the goodwill impairment was
computed using the expected present value of associated future cash flows. As a
result of this analysis, the Company determined that goodwill associated with
its Cooling Systems and Air/Fluid Systems operating businesses was impaired due
to fundamental changes in their served markets, particularly the medium and
heavy truck markets, and weakness at a major customer. As a result a charge of
$269 million, net of taxes of $76 million, was recorded. The impairment loss
was recorded in the first quarter of 2002 as a cumulative effect of change in
accounting principle. The changes in the carrying amount of goodwill (in
millions of dollars) for the six months ended June 30, 2003, are as follows:
Drivetrain Engine Total
Balance at December 31, 2002 $128.0 $699.0 $827.0
Contingent valuation payment
on acquired business - 12.8 12.8
Translation adjustment 0.2 2.9 3.1
------ ----- ------
Balance at June 30, 2003 $128.2 $714.7 $842.9
====== ====== ======
(12) In June 2002, the FASB issued Statement No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." This standard requires companies
to recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit or disposal plan.
Examples of costs covered by the standard include lease termination costs and
certain employee severance costs that are associated with a restructuring,
discontinued operation, plant closing, or other exit or disposal activity. SFAS
No. 146 is to be applied prospectively to exit or disposal activities initiated
after December 31, 2002. The adoption of SFAS No. 146 did not have any impact on
the Company's results of operations, financial position or cash flows.
In November 2002, the FASB issued Interpretation No. 45 "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness to Others" (FIN 45), which expands previously issued accounting
guidance and disclosure requirements for certain guarantees. FIN 45 requires the
Company to recognize an initial liability for fair value of an obligation
assumed by issuing the guarantee. The provision for initial recognition and
measurement of the liability is applied on a prospective basis to guarantees
issued or modified after December 31, 2002. The adoption of FIN 45 did not have
any impact on the Company's financial position, operating results or liquidity
and resulted in additional disclosures in the Company's Consolidated Financial
Statements.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure - an amendment of FASB Statement No.
123." This Statement amends FASB Statement No. 123 to provide alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation and amends the disclosure
requirements to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. The Company
adopted SFAS No. 148 on January 1, 2003. See Note 3 for the required new
disclosures.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities," (FIN 46). FIN 46 requires that the assets,
liabilities and results of the activity of variable interest entities be
consolidated into the financial statements of the entity that has the
controlling financial interest. FIN 46 also provides the framework for
determining whether a variable interest entity should be consolidated based on
voting interest or significant financial support provided to it. For the
Company, this Interpretation is effective immediately for variable interest
entities created after January 31, 2003 and effective July 1, 2003, for variable
interest entities created before February 1, 2003. The Company does not expect
the adoption of FIN 46 to have any impact on its 2003 Consolidated Financial
Statements.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities," which amends and clarifies
accounting and reporting for certain derivative instruments. This statement is
effective for contracts entered into or modified after June 30, 2003, and for
hedging relationships designated after June 30, 2003, and is to be applied
prospectively. The Company is evaluating the impact of this standard on its
financial condition, results of operations and cash flows.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity," which
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. This
statement is effective for financial instruments entered into or modified after
May 31, 2003, and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003. The Company is evaluating the impact of
this new standard on its financial condition, results of operations and cash
flows.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
BorgWarner Inc. and Consolidated Subsidiaries (the "Company") is a leading
global supplier of highly engineered systems and components for powertrain
applications. Its products help improve vehicle performance, fuel efficiency,
handling and air quality. Its products are manufactured and sold worldwide,
primarily to original equipment manufacturers (OEMs) of passenger cars, sport
utility vehicles, trucks, and commercial transportation products. The Company
operates manufacturing facilities serving customers in the Americas, Europe and
Asia, and is an original equipment supplier to every major OEM in the world.
RESULTS OF OPERATIONS
The Company's products fall into two reportable operating segments: Drivetrain
and Engine. The following tables present net sales and earnings before interest
and taxes (EBIT) by segment for the three and six months ended June 30, 2003 and
2002 in millions of dollars.
Net Sales Three Months Six Months
June 30, June 30,
2003 2002 2003 2002
------ ------- ------- -------
Drivetrain $ 309.3 $ 288.3 $ 631.0 $ 542.0
Engine 471.6 434.2 937.4 823.5
Inter-segment
eliminations (11.4) (10.1) (23.2) (19.2)
------- ------- -------- -------
Net sales $ 769.5 $ 712.4 $1,542.2 $1,346.3
======== ======== ======== ========
EBIT Three Months Six Months
June 30, June 30,
2003 2002 2003 2002
------- ------- ------- -------
Drivetrain $ 23.7 $ 29.5 $ 49.8 $ 49.1
Engine 60.5 59.6 121.2 108.5
------- ------ ------- --------
Segment EBIT $ 84.2 $ 89.1 $171.0 $157.6
======= ====== ====== ========
Consolidated sales for the second quarter ended June 30, 2003 totaled $769.5
million, an 8.0% increase over the second quarter of 2002. This increase was
favorable compared to the total North American automotive market, which
experienced production decreases of 9%. Geographically, the Company's sales
increase was most significant in Europe with lesser increases in North America
and Asia. Sales increased an additional $45 million due to stronger currencies,
primarily in Europe. Turbochargers and automatic transmissions are the products
most affected by currency fluctuations in Europe, Asia, and the Americas.
Second quarter net income decreased from $45.7 million to $44.8 million, a 2.0%
decrease. This small decrease in income compared with a very strong second
quarter the prior year, resulted from an unfavorable change in mix towards lower
margin products. The Company sold relatively more products with purchased
content, which tend to have lower margins. This was offset by a favorable
currency impact due to the strong euro, which added $0.14 per share, as well as
a decrease in the effective tax rate from 33.3% to 29.0%.
The Drivetrain business' revenue increased 7.3% and EBIT decreased $5.8 million,
or 19.7% from 2002. These sales gains were due to four wheel drive transfer
case programs with General Motors, increased sales of the Company's Interactive
Torque Management (TM) all-wheel drive systems to Honda and Hyundai, and steady
demand for transmission components and systems, especially with increased
automatic transmission penetration in Europe. The decrease in EBIT was due to
start up investments and costs for the Company's new DualTronic product, which
had its first shipments in the second quarter of 2003. Profitability also
suffered from a less favorable product mix.
The Engine business' second quarter 2003 sales and EBIT increased 8.6% and 1.5%
from second quarter 2002, respectively. This group benefited from continued
demand for the Company's turbochargers for European passenger cars and
commercial vehicles. This offset the chain and emissions portions of the group,
which experienced softness as a result of weaker auto production.
The EBIT was impacted by start up costs for Variable Cam Timing systems, which
will launch during 2004, and for new Korea operations.
Consolidated gross margin for the second quarter of 2003 was 19.1%, down 2.1
percentage points from the 2002 margin of 21.2%. The gross margin was
negatively impacted due to higher growth in our lower margin products and due to
the ramp up of our new products. Selling, general and administrative (SG&A)
costs increased $0.5 million but decreased as a percentage of sales from 10.7%
to 10.0% of sales. The SG&A category includes substantially all the Company's
spending on R&D. For the second quarter of 2003, R&D spending totaled $28.9
million, or 3.7% of sales, versus $25.4 million, or 3.7% of sales for the second
quarter of 2002.
Second quarter interest expense decreased $0.8 million from second quarter 2002
as a result of debt reductions throughout 2002 and 2003 as well as lower
interest rates. The Company was able to take advantage of lower floating
interest rates through the use of interest rate swaps, described more fully in
Note Six. At June 30, 2003, the amount of debt with fixed interest rates was
51% of total debt. Affiliate earnings, which consist primarily of the Company's
50% share of NSK-Warner in Japan, were slightly down due to slightly weaker auto
production.
The Company's provision for income taxes is based on estimated annual tax rates
for the year applied to federal, state and foreign income. The effective rate
for 2003 differed from the U.S. statutory rate primarily due to a) state income
taxes, b) foreign rates which differ from those in the U.S. and c) realization
of certain business tax credits, including foreign tax credits and research and
development credits. In 2002, the Company completed a change in the ownership
structure of certain of its foreign operations for strategic business purposes.
An indirect result of this change was lower tax rates on the income of certain
of the Company's foreign operations. The Company expects its effective tax rate
for 2003 to be approximately 29% compared to 33% in 2002.
Net income was $44.8 million for the second quarter, or $1.65 per diluted share,
a decrease of 2.0% over the previous year's second quarter. Shares outstanding
increased slightly due to the exercise of options and contributions to benefit
plans.
For the remainder of 2003, the Company remains concerned about production rates,
particularly in North America. This holds true for both the light vehicle
market and the commercial truck market. As a result, the Company is continuing
to be cautious in its capital investment plans and other spending. Despite these
concerns, the Company maintains a positive long-term outlook for its business
and is committed to ongoing strategic investments in capital and new product
development to enhance its product leadership strategy.
FINANCIAL CONDITION AND LIQUIDITY
As of June 30, 2003, debt decreased from year-end 2002 by $7.7 million, while
cash and cash equivalents increased by $36.8 million. Capital spending for the
six months was $64.8 million compared with $55.3 million last year. Careful
capital spending remains an area of focus for the Company. The Company expects
to spend $150 million on capital in 2003, but this expectation is subject to
ongoing review based on market conditions. The remaining spending is expected
to be directed at cost reduction and productivity enhancement programs in order
to maintain or increase the Company's operating margins.
As of June 30, 2003 and December 31, 2002, the Company had sold $90.0 million of
receivables under a Receivables Transfer Agreement for face value without
recourse.
The Company believes that the combination of cash from operations and available
credit facilities will be sufficient to satisfy its cash needs for the current
level of operations and planned operations for the remainder of 2003.
OTHER MATTERS
Litigation
As discussed more fully in Note 6 to the Consolidated Financial Statements,
various claims and suits seeking money damages arising in the ordinary course of
business and involving environmental liabilities have been filed against the
Company. In each of these cases, the Company believes it has a defendable
position and has made adequate provisions to protect the Company from material
losses. The Company believes that it has established adequate provisions for
litigation liabilities in its financial statements in accordance with generally
accepted accounting principles in the United States of America.
In connection with the sale of Kuhlman Electric Corporation, the Company agreed
to indemnify the buyer and Kuhlman Electric for certain environmental
liabilities relating to the past operations of Kuhlman Electric. During 2000,
Kuhlman Electric notified the Company that it discovered potential environmental
contamination at its Crystal Springs, Mississippi plant while undertaking an
expansion of the plant.
The Company has been working with the Mississippi Department of Environmental
Quality, the EPA and Kuhlman Electric to investigate the extent of the
contamination. The investigation has revealed the presence of PCBs in portions
of the soil at the plant and neighboring areas. Kuhlman Electric and others,
including the Company, have been sued in several related lawsuits, which claim
personal and property damage. The Company has moved to be dismissed from some
of these lawsuits.
The Company believes that the reserve for environmental liabilities is
sufficient to cover any potential liability associated with this matter.
However, due to the nature of environmental liability matters, there can be no
assurance that the actual amount of environmental liabilities will not exceed
the amount reserved.
Patent infringement actions were filed against the Company's turbocharger unit
in Europe in late 2001 and in 2002 by Honeywell International. In order to
continue uninterrupted service to its customer, the Company paid Honeywell $25
million in July 2002 so that it could continue to make and ship disputed car
turbochargers through June of 2003. On June 23, 2003, the Company announced an
additional agreement with Honeywell to settle the patent dispute relating to
variable geometry turbochargers by extending their licensing arrangement. The
new agreement covers almost one million OEM and service production units
expected to be produced during the period of the agreement (July 1, 2003 through
2006). Approximately 40% of the total consideration of $29.1 million will be
paid to cover use in 2003 and approximately 49% of the total will be paid to
cover use in 2004.
Dividends
On July 18, 2003, the Company declared a $0.18 per share dividend to be paid on
August 15, 2003 to shareholders of record as of August 1, 2003.
Critical Accounting Policies
The Company has identified critical accounting policies that, as a result of the
judgments, uncertainties, uniqueness and complexities of the underlying
accounting standards and operations involved, could result in material changes
to its financial condition or results of operations under different conditions
or using different assumptions. The Company's most critical accounting policies
are related to sales of receivables, product warranty, goodwill and other
intangible assets, pension and other postretirement benefits, and impairment of
long-lived assets. Details regarding the Company's use of these policies are
described in the 2002 Annual Report on 10-K filed with the Securities and
Exchange Commission. There have been no material changes to these policies
since December 31, 2002.
New Accounting Pronouncements
In June 2002, the FASB issued Statement No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." This standard requires companies
to recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit or disposal plan.
Examples of costs covered by the standard include lease termination costs and
certain employee severance costs that are associated with a restructuring,
discontinued operation, plant closing, or other exit or disposal activity. SFAS
No. 146 is to be applied prospectively to exit or disposal activities initiated
after December 31, 2002. The adoption of SFAS No. 146 did not have any impact
on the Company's results of operations, financial position or cash flows.
In November 2002, the FASB issued Interpretation No. 45 "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness to Others" (FIN 45), which expands previously issued accounting
guidance and disclosure requirements for certain guarantees. FIN 45 requires the
Company to recognize an initial liability for fair value of an obligation
assumed by issuing the guarantee. The provision for initial recognition and
measurement of the liability is applied on a prospective basis to guarantees
issued or modified after December 31, 2002. The adoption of FIN 45 did not have
any impact on the Company's financial position, operating results or liquidity
and resulted in additional disclosures in the Company's Consolidated Financial
Statements.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure - an amendment of FASB Statement No.
123." This Statement amends FASB Statement No. 123 to provide alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation and amends the disclosure
requirements to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. The Company
adopted SFAS No. 148 on January 1, 2003. See Note 3 for the required new
disclosures.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities," (FIN 46). FIN 46 requires that the assets,
liabilities and results of the activity of variable interest entities be
consolidated into the financial statements of the entity that has the
controlling financial interest. FIN 46 also provides the framework for
determining whether a variable interest entity should be consolidated based on
voting interest or significant financial support provided to it. For the
Company, this Interpretation is effective immediately for variable interest
entities created after January 31, 2003 and effective July 1, 2003, for variable
interest entities created before February 1, 2003. The Company does not expect
the adoption of FIN 46 to have any impact on its 2003 Consolidated Financial
Statements.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities," which amends and clarifies
accounting and reporting for certain derivative instruments. This statement is
effective for contracts entered into or modified after June 30, 2003, and for
hedging relationships designated after June 30, 2003, and is to be applied
prospectively. The Company is evaluating the impact of this standard on its
financial condition, results of operations and cash flows.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity," which
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. This
statement is effective for financial instruments entered into or modified after
May 31, 2003, and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003. The Company is evaluating the impact of
this new standard on its financial condition, results of operations and cash
flows.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
Statements contained in this Management's Discussion and Analysis of Financial
Condition and Results of Operations may contain forward-looking statements as
contemplated by the 1995 Private Securities Litigation Reform Act that are based
on management's current expectations, estimates and projections. Words such as
"expects," "anticipates," "intends," "plans," "believes," "estimates,"
variations of such words and similar expressions are intended to identify such
forward-looking statements. Forward-looking statements are subject to risks and
uncertainties, which could cause actual results to differ materially from those
projected or implied in the forward-looking statements. Such risks and
uncertainties include: fluctuations in domestic or foreign vehicle production,
the continued use of outside suppliers, fluctuations in demand for vehicles
containing the Company's products, general economic conditions, as well as other
risks detailed in the Company's filings with the Securities and Exchange
Commission, including the Cautionary Statements filed as Exhibit 99.1 to the
Form 10-K for the fiscal year ended December 31, 2002.
Item 3. Quantitative and Qualitative Disclosure About Market Risks
There have been no material changes to our exposures to market risk since
December 31, 2002.
Item 4. Controls and Procedures
The Company's management, including the Chief Executive Officer and Chief
Financial Officer, have conducted an evaluation of the effectiveness of
disclosure controls and procedures as of the end of the period covered by this
report. Based on that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that the disclosure controls and procedures are
effective in ensuring that all material information required to be filed in this
quarterly report has been made known to them in a timely fashion. There have
been no significant changes in internal controls or in other factors that could
significantly affect internal controls, subsequent to the date the Chief
Executive Officer and the Chief Financial Officer completed their evaluation.
PART II
Item 1. Legal Proceedings
With respect to the patent infringement lawsuit filed by Honeywell International
and disclosed in the Company's previous filings, on June 23, 2003, the Company
announced an additional agreement with Honeywell to settle their patent dispute
relating to variable geometry turbochargers by extending their licensing
arrangement. The agreement covers almost one million OEM and service production
units expected to be produced during the period of the agreement (July 1, 2003
through 2006). Approximately 40% of the total consideration of $29.1 million
will be paid to cover use in 2003 and approximately 49% of the total will be
paid to cover use in 2004.
Item 4. Submission of Matters to a Vote of Security Holders
On April 23, 2003, the Company held its annual meeting of stockholders. At such
meeting Phyllis O. Bonanno, Andrew F. Brimmer, and Alexis P. Michas were elected
as directors to serve for a term expiring in 2006. Each of William E. Butler,
Paul E. Glaske, Jere A. Drummond, Ivan W. Gorr, Timothy M. Manganello, and John
Rau continued to serve as directors following the meeting. At such meeting, the
following votes were cast in the election of directors:
For Withheld
-------- ---------
Phyllis O. Bonanno 24,294,105 241,475
Andrew F. Brimmer 24,270,185 265,395
Alexis P. Michas 24,295,531 240,049
At such meeting, the selection of Deloitte & Touche LLP as independent auditors
was approved by the following votes:
For Against Abstain Not-Voted
-------- -------- ------ ---------
23,376,902 1,142,583 13,595 0
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 99.1 Rule 13a-14(a)/15d-14(a) Certification by
Chief Executive Officer.
Exhibit 99.2 Rule 13a-14(a)/15d-14(a) Certification by
Chief Financial Officer.
Exhibit 99.3 Section 1350 Certifications.
(b)Reports on Form 8-K
On April 15, 2003, the Company filed a report on Form 8-K, furnishing
a copy of a news release relating to earnings expectations for the first quarter
of 2003 and the full year 2003.
On April 22, 2003, the Company filed a report on Form 8-K, furnishing
a copy of a news release relating to its earnings for the first quarter of 2003.
On May 1, 2003, the Company filed a report on Form 8-K, furnishing a
copy of a news release relating to its 2002 quarterly sales and earnings before
interest and taxes for its Engine and Drivetrain Groups.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
BorgWarner Inc.
(Registrant)
By /s/ William C. Cline
(Signature)
William C. Cline
Vice President and Controller
(Principal Accounting Officer)
Date: August 13, 2003