Exhibit 99.1
Timothy M. Manganello
Chairman and
Chief Executive Officer
Chairman and
Chief Executive Officer
“We have the
financial strength
to support our
strategic initiatives
and we are driven
to succeed.”
February 2011
T O O U R S T O C K H O L D E R S
“Our goal is to ensure that our company’s future is secure, and to seize the opportunities
that wil maximize value creation for our stakeholders.”
The year 2010 was a remarkable one for BorgWarner. The global automotive market made a solid
recovery, growing over 20% in 2010 compared with 2009. During that same period, BorgWarner sales
grew 43%, a clear indication that our strategy to focus on improving fuel economy and reducing
emissions is a winning approach.
Last year began with tempered expectations with regard to vehicle production in Europe, our largest
market. Government-sponsored incentive programs were expiring across the continent and there was
little visibility with regard to true market demand. Many believed that Europe’s production volume
would be lower in 2010 compared with 2009, or, at best, unchanged. In the end, European production
actually grew approximately 15% in 2010 compared with 2009. In addition to the volume growth, there
was a mix shift in Europe back toward vehicles with higher BorgWarner content, boosting
BorgWarner’s performance. Mid-sized and large-sized vehicles, the segments in which BorgWarner has
significant content, represented approximately 66% of the total number of vehicles produced in
Europe in 2010, up from 62% in 2009.
The other markets in which we compete also had a strong year. Production volume in North America
grew by approximately 40%, in China and India by approximately 30%, and in Japan and Korea by
approximately 20%. It was a
better year for the automotive industry than most people anticipated, which is a testament to the
resilience of automakers, suppliers and consumers alike.
And while global production volumes made a strong recovery in 2010, there was an even stronger
undercurrent of
increased demand for BorgWarner technologies. Turbocharger and automatic
transmission growth continued to outpace the market. Turbocharged engines, as a percentage of total
engines produced, increased from 23% in 2009 to 25% in 2010. And automatic transmissions, as a
percentage of total transmissions produced, increased from 43% in 2009 to 46% in 2010.
Turbocharging and the conversion of manual transmissions to automatics have been strong trends in
the automotive industry in recent years and we expect this to continue for years to come.
China continues to grow in importance on the world stage. Frankly, it is the most dynamic market
that I’ve encountered during my 39 year automotive career. Over the past five years, China vehicle
production has grown 25% per year, significantly faster than any other major automotive market.
Furthermore, China is expected to continue to lead the industry in vehicle production growth for a
number of years. While the Chinese market grows, its adoption of leading powertrain technologies
grows as well. This phenomenon is driving accelerated growth for our business. We expect our
business to grow between 20% and 25% per year in China over the next five years, faster than in any
other major market. Each of our businesses has established a presence in China and we have
developed relationships with domestic Chinese OEMs, such as Great Wall, First Auto Works, Shanghai
Automotive Industry Corporation, Chery and many others; as well as with Chinese-Western OEM joint
ventures, such as Shanghai General Motors and Shanghai Volkswagen. BorgWarner is well-positioned to
enjoy significant growth in China in the coming years.
Outstanding Performance
From a performance standpoint, 2010 was a fantastic year in which BorgWarner posted record sales and
From a performance standpoint, 2010 was a fantastic year in which BorgWarner posted record sales and
record earnings. It is also noteworthy that our operating income margin, a key measure of
profitability, rose to levels that we had not seen recently. These are remarkable accomplishments
considering they were achieved at depressed global industry volumes.
We continue to deliver industry-leading stockholder returns. In 2010, our share price appreciated
118%, ending the year at an all-time high of $72.36. Furthermore, total shareholder return for
BorgWarner stockholders over the last five years was 148%, compared with 55% for our peer group and
12% for the S&P 500, providing outstanding results for you, our stockholders.
Our growth has enabled us to create jobs. During the course of the recession we eliminated
approximately 5,000 jobs, or 28% of our workforce worldwide, in an effort to manage costs downward
commensurate with our drastic decline in revenue. However, I am pleased to report that
approximately 3,000 jobs have
been restored. Additionally, 1,200 employees joined us with our Dytech ENSA (“ENSA”) acquisition
and 350 employees with our Haldex Traction Systems acquisition. As we move forward, we expect to
continue to add employees judiciously to meet the growing global demand for our products.
The Benefits of a Strong Balance Sheet
During the year, our strong balance sheet and cash flow enabled us to execute a number of important initiatives:
During the year, our strong balance sheet and cash flow enabled us to execute a number of important initiatives:
| • | We enhanced our emissions business by acquiring ENSA, a world leader in |
B O R G W A R N E R S T O C K H O L D E R S L E T T E R 2 0 1 0 feel good
about driving
about driving
| the design and manufacture of exhaust gas recirculation (“EGR”) coolers and tubes. Those products combined with BorgWarner’s EGR valves, result in EGR systems that are complementary to BorgWarner’s turbochargers, engine timing systems and the rest of our portfolio of air management systems and components. |
| • | We acquired Haldex
Traction Systems, a leader in advanced
front-wheel drive (“FWD”), all-wheel
drive (“AWD”) technology. The deal is
expected to accelerate our growth in
the global AWD segment as that market
continues |
All of this was done while maintaining
our investment grade credit rating,
which is a clear signal that our
balance sheet remains strong and
provides opportunities for the future.
Accelerating Growth
In the fall, we announced our backlog of $2.3 billion of net new business over the next three years (2011-2013), a record for our company. This backlog encompasses some of the most promising technologies and geographies in the auto sector and is representative of how BorgWarner is leading the way in important powertrain
In the fall, we announced our backlog of $2.3 billion of net new business over the next three years (2011-2013), a record for our company. This backlog encompasses some of the most promising technologies and geographies in the auto sector and is representative of how BorgWarner is leading the way in important powertrain
turbochargers for the BMW 535i Gran
Turismo featuring a 3.0-liter
six-cylinder direct-injected gasoline
engine. And, our dual-clutch
transmission technology will make its
Chinese debut when we launch production
for Shanghai Automotive later this
year.
Additionally, our other product
technologies continue to grow. Engine
timing systems, variable cam timing,
thermal systems, traditional
transmission components and AWD
transfer cases are all meaningful
contributors to our backlog of net new
business. Notably, Chrysler
selected BorgWarner to supply
| to shift toward FWD-based vehicles. The acquisition adds industry leading FWD/AWD technologies, with a strong European customer base, to our existing Drivetrain portfolio. This enables BorgWarner to provide our global customers a broader range of AWD solutions to meet their vehicle needs. | ||
| • | We purchased over 7 million shares of treasury stock in 2010, which are intended to be used to settle our convertible debt obligations in April of 2012. | |
| • | We issued $250 million
of 10-year senior notes, taking
advantage of favorable pricing in the
debt markets. |
developments around the world. From a
product perspective, turbochargers and
dual-clutch technologies remain
BorgWarner’s largest growth drivers and
we continue to generate important new
business in each of these product
families. Turbochargers for gasoline
engines represent a significant share
of the turbocharger backlog, which
reflects the growing global trend
toward downsized gasoline engines to
address fuel efficiency and emissions
reductions. For example, Ford selected
BorgWarner’s Leading gasoline
turbocharger technology for Ford’s new
four-cylinder EcoBoost engine and for
rear-wheel drive trucks featuring its
new six-cylinder EcoBoost engine. We
also supply twin scroll
engine timing systems for its all-new
3.6-liter Pentastar V6 engine. And, our
Cool Logic® variable speed
fan drives are now standard on a number
of Mack® heavy-duty
commercial trucks.
The regional mix of our backlog of net
new business is aligned with the pace
of advanced technology adoption around
the world. Forty-five percent of the
backlog is in Europe which remains the
epicenter of advanced development for
internal combustion engines, fuel
economy and emissions improvements.
Thirty percent is in Asia, which
continues to expand in importance, not
only for its rapid growth, but also for
its demand for leading edge
technologies. Lastly, twenty-five
percent of our backlog is in North
America, where we see intensified
customer focus on programs aimed at
improved fuel economy and lower
emissions.
The Road Ahead
Looking ahead, we expect 2011 to be another great year for BorgWarner. Global vehicle production growth will continue, although we expect it to normalize from the pace realized in 2010. It will be another year in which BorgWarner’s sales growth should outpace the industry, which is typical for our company over the last decade.
Looking ahead, we expect 2011 to be another great year for BorgWarner. Global vehicle production growth will continue, although we expect it to normalize from the pace realized in 2010. It will be another year in which BorgWarner’s sales growth should outpace the industry, which is typical for our company over the last decade.
We expect to sustain higher operating
margins than historical levels. Our
historical operating margin guidance
range was 8.5% to 9.0%; we now expect
margins to be 10.5% or better. The
expectation of improved margins can be
attributed to restructuring actions
taken in 2008 and 2009 combined with
an ongoing focus on operating
efficiency.
Longer term, fuel economy and
emissions improvements should remain
key objectives for automakers around
the world. Therefore, the adoption of
downsized turbocharged engines,
automatic transmissions, EGR systems
and enhanced engine timing systems
should continue to drive growth for
our company.
As we consider our position as one of
the world’s premiere automotive
suppliers, we reflect on what has
gotten us here and, more importantly,
what will keep us here. In light of
this, our senior leadership has
validated eight Enterprise Strategies
that will guide BorgWarner to 2020:
Enterprise Strategies
| • | Accelerate the pace of INNOVATION and product leadership into new technologies, markets and geographic regions | |
| • | Consistently drive profitable sales GROWTH at least 10 percentage points above the global industry growth rate | |
| • | Be the supplier / strategic partner of choice for our CUSTOMERS, while meeting our company objectives | |
| • | Realize a QUALITY operating system that focuses on zero defects | |
| • | Continuously improve the STRUCTURAL EFFICIENCY of BorgWarner | |
| • | Ensure we have the right TALENT in the right locations to carry out our strategies | |
| • | Protect, nurture and sustain the unique and successful CULTURE of BorgWarner | |
| • | Supplement organic growth with MERGERS & ACQUISTIONS to achieve our product, technology, customer and geographic goals |
These strategies have been the
cornerstone of BorgWarner’s success
for many years, and have been
re-energized for the future.
It is no coincidence that
innovation and product
leadership is the first strategy
listed. This is the key to both our
past and future success. It is at the
core of the entrepreneurial BorgWarner
culture and underpins everything we
do. Our company mission is to
improve fuel economy and reduce
emissions and, as a result, no
other company is better positioned to
benefit from these trends than
BorgWarner.
However, we know that being
well-positioned today is not enough.
We have to keep pushing the envelope.
We have to stay in front of the
powertrain technology curve. We
continually watch the market and
contemplate a range of potential
outcomes, from the very likely to the
very remote, to allow us to
anticipate the next technology wave.
BorgWarner has a history of
predicting and “riding the wave” of
the next leading powertrain
technology.
Moreover, all of our success, past,
present and future, is a result of the
dedication and hard work of our
employees. The energy, ideas and
commitment that they bring to work
everyday is what we call BorgWarner
Pride and it is the foundation of
our company. I would like to
personally thank all of the employees
of BorgWarner for their excellent
efforts in 2010.
Our goal is to ensure that our
company’s future is secure, and to
seize the opportunities that will
maximize value creation for our
stakeholders. We have the financial
strength to support our strategic
initiatives and we are driven to
succeed. We fully expect that the
strategic decisions we make today will
successfully pave the road ahead for
tomorrow!
Timothy M. Manganello
Chairman and Chief Executive Officer
Chairman and Chief Executive Officer
www.borgwarner.com
Engine Group
The Engine Group develops air management strategies and
products to optimize engines for fuel efficiency, reduced emissions and enhanced performance.
BorgWarner’s expertise in engine timing systems, boosting systems, ignition systems, air and noise
management, cooling and controls is the foundation for this collaboration.
E N G I N E G R O U P S A L E S
millions of dollars
millions of dollars
’10 |
$ | 4,060.8M | ||
’09 |
$ | 2,883.2M | ||
’08 |
$ | 3,861.5M | ||
’07 |
$ | 3,761.3M | ||
’06 |
$ | 3,154.9M |
K E Y T E C H N O L O G I E S
Chain Products Global leader in the design and manufacture of chain systems for
engine timing, automatic transmissions and torque transfer, including four- and
all-wheel drive applications. Engine chain systems include chains, sprockets, tensioners,
control arms and guides, and variable cam timing phasers.
Emissions Systems A global leader in the design and supply of exhaust gas recirculation (EGR)
systems, secondary air
systems (SAS), and advanced actuators for enhanced engine performance, fuel
economy, and reduced emissions.
Thermal Systems Systems for thermal management designed to improve engine
cooling, and reduce emissions and fuel consumption.
Turbochargers Leading designer and manufacturer of turbocharg-ers and boosting systems for passenger
cars, light trucks and
commercial vehicles. Systems enhance fuel efficiency, reduce emissions and enhance vehicle
performance.
BERU Systems A worldwide leading supplier of diesel cold-start technology and a leading European
manufacturer of ignition technology for gasoline vehicles. Electronics and sensor technology
provide more comfort and stability for applications in
various engine and vehicle functions.
Drivetrain Group
The Drivetrain Group harnesses a legacy of more than 100 years as
an industry innovator in transmission and all-wheel drive technology. The group is leveraging its
understanding of powertrain clutching technology to develop interactive control systems and
strategies for all types of torque management.
D R I V E T R A I N G R O U P S A L E S
millions of dollars
millions of dollars
’10 |
$ | 1,611.4M | ||
’09 |
$ | 1,093.5M | ||
’08 |
$ | 1,426.4M | ||
’07 |
$ | 1,598.8M | ||
’06 |
$ | 1,461.4M |
K E Y T E C H N O L O G I E S
Torque Management Leading global designer and producer of torque distribution and management
systems, including NexTrac® Torque Management devices for front-wheel drive vehicles and
transfer cases for rear-wheel drive applications. These systems enhance stability,
security and drivability of passenger cars,
crossover vehicles, SUVs and light trucks.
Transmission Products A global designer and manufacturer of automatic
transmission components and modules and supplier to virtually every major automatic
transmission manufacturer in the world. Friction and mechanical products include dual clutch
modules, friction clutch modules, friction plates, transmission bands, torque
converter clutches, one-way clutches and torsional vibration dampers. Controls products
feature electro-hydraulic solenoids for standard and high pressure hydraulic systems,
transmission solenoid modules and dual clutch control modules.
BorgWarner will provide its full financial report electronically as part of its environmental initiative to conserve resources and reduce costs. For more information on the company’s financial performance and sustainability initiatives, please visit our website at www.borgwarner.com.