博格華納 (BWA) 2013 Q4 法說會逐字稿

Good morning. My name is Carmen, and I will be your conference facilitator. At this time I would like to welcome everyone to the BorgWarner 2013 fourth quarter and full year results earnings conference call.

(Operator Instructions)

I would now like to turn the call over to Ken Lamb, Director, Investor Relations. Mr Lamb, you make it begin your conference.

Thanks, Carmen. Good morning and thank you all for joining us. We issued our earnings release this morning at approximately 8.00 AM Eastern time. It's posted on our website www.BorgWarner.com on our homepage.

A replay of today's conference call will be available through February 20. The dial-in number for that replay is 800-585-8367. You will need the conference ID, which is 44799493. The replay will also be available on our website. With regard to our investor relations calendar, we will be attending two conferences between now and our next earnings release.

February 19 we will be at the Barclays Industrial Select Conference in Miami, and April 16 we will be at the Bank of America Merrill Lynch Auto Summit in New York. Before we begin, I need to inform you that during this call we may make forward-looking statements which involve risks and uncertainties as detailed in our 10-K. Our actual results may differ significantly from the matters discussed today.

Now moving on to our results. James Verrier, President and CEO, will comment on fourth-quarter and full-year results as well as some of our accomplishments during the quarter, and then Ron Hundzinski, our CFO, will discuss the details of our operating results and also our outlook for 2014. With that, I will turn it over to James.

Thank you, Ken, and good day, everybody. Ron and I are very pleased today to review our fourth-quarter and our full-year results. As Ken said, I will also share some of our fourth-quarter accomplishments. Let me kick off the quarter by congratulating and thanking all of the BorgWarner employees for delivering an excellent fourth quarter and a remarkable 2013. Your efforts drove outstanding results in a challenging environment.

So now on to our results. Let me start with the fourth-quarter. You see reported sales were $1.9 billion, which is up 9% from a year ago when we exclude the impact of foreign currencies and 2012 disposals.

US GAAP earnings were $0.62 per share or $0.79 per share when we exclude non-comparable items. Our operating income margin, again, excluding non-comparable items, was an impressive 12.7% in the quarter, and two key factors drove our strong results. Solid sales growth in both the engine and the drivetrain segments, and operational efficiency and cost controls that enabled strong incremental margins.

Again, truly outstanding performance by our operations. Let me just cover the two segments, first of all, the engine segment. Fourth-quarter sales were just under $1.3 billion, which is up 8% from a year ago after excluding the impact of foreign currencies and 2012 disposals. These results were led by new turbocharger launches in China, new engine timing and BCT launches in Japan and China.

We saw improved commercial vehicle markets and also higher EGR cooler sales around the world. In the drivetrain segment, we saw sales of approximately $630 million. That represents a 10% increase from the fourth quarter of 2012 when we exclude foreign currencies. Drivetrain's results were driven by new all wheel drive launches in both North America and Korea. We also saw higher dual clutch transmission module volumes with Volkswagen and higher transmission component sales to Hyundai-Kia. When you look at this, this segment review highlights a couple of the core strengths of the Company. Our entire product portfolio is in high demand and contributing to our growth, and we are growing globally around the world.

In our press release this morning, we disclosed a restructuring charge taken in the fourth quarter. And this restructuring activity is primarily related to the drivetrain segment. While we have seen improved performance from drivetrain over the last few quarters, we still believe there's room for further improvement. Specifically, we believe margins can go higher and that its cost structure can be more competitive.

Therefore, we are taking actions to optimize the footprint to help that business reach its potential. Ron will provide more detail around this restructuring in his comments later. So let me talk to you about the full year now. Reported sales were over $7.4 billion, and after excluding the impact of foreign currencies and 2012 disposals, sales were up 4%.

US GAAP earnings were $2.70 per share, and after excluding non-comparable items, net earnings were $2.89 per share, which is up 17% from 2012. Our full-year operating income margin when we exclude non-comparable items was 12.4%. So in all three key metrics, sales, earnings and operating income margin, we achieved new records in 2013, which is a tremendous accomplishment when you consider the challenging environment in which it was delivered. As we look to the future, BorgWarner continues to invest for the long-term. Capital spending continues to grow, and we spent about 6.4% of sales on capital in the fourth quarter and about 5.6% of sales for the full year. And we remain committed to supporting our future growth and productivity improvements. Our spending for R&D was about 4.6% of sales in the quarter and about 4.1% of sales for the full year.

That's a little above our targeted spend of 4% of sales and another indication of our strong commitment to investment in R&D. I'm also proud to review some exciting announcements we made during the quarter. Back in November we reported an expected backlog of $2.9 billion of net new business for the period 2014 through 2016 which implies a return to our historical growth rates. BorgWarner introduced the world's first electronic limited slip differential on the 2013 Volkswagen Golf GTI with performance pack. The system greatly enhances vehicle traction, handling and stability without sacrificing engine power. And, under certain driving conditions, the technologies enhanced vehicle performance, approaches that of an all-wheel drive system, but with less cost and better fuel economy. BorgWarner also signed an agreement to acquire all shares in Wahler, a producer of EGR valves, EGR tubes and thermostats, subject to regulatory approvals. With locations in Germany, Brazil, US, China, and Slovakia, Wahler employs approximately 1,250 people and supplies customers such as Daimler, Volkswagen, BMW, General Motors and John Deere.

And Wahler's annual sales for 2013 are expected to be approximately $350 million, and we expect the deal to close in the first quarter of 2014. Our Board of Directors approved a two for one stock split. To implement the split, shares of common stock were distributed on December 16, 2013 to all shareholders of record on December 2, 2013. The Company's Board of Directors also declared a quarterly cash dividend of $0.125 per share of common stock. The dividend is payable on February 17 to shareholders of record on February 3. Now let me take a moment to review our guidance for 2014 which is unchanged from our announcement of last month. That means organic sales growth in 2014 is expected to be 7% to 11%, and again, this excludes the pending Wahler acquisition. We expect earnings to be $3.10 to $3.25 per share, which is up 9% to 14% from 2013. Again, our operating margin is expected to be 12.5% or better.

And Ron will provide a little more color on our guidance shortly. So I am confident that 2014 will be another strong year for BorgWarner. We are expecting a return to BorgWarner like growth and continued excellence from our operation. And this powerful combination should result in tremendous earnings potential for our Company. We see the industry continuing to adopt our leading edge powertrain technology, and we see this continuing for many years to come. And, because of this, I really feel very good about the Company's future, and I believe that no company in the auto sector is better positioned for the long-term profitable growth than BorgWarner.

With that, let me turn the call over to Ron. Thank you.

Thank you, James, and good day, everyone. Before I begin reviewing the financials, I'd like to commend all of our employees for their hard work and dedication in 2013. We challenged the team to maintain margins in a slow growth environment, and it was a tough objective. But the team is up to the challenge and exceeded expectations. Congratulations. And now onto our financials. I am going to review the fourth quarter in detail, and then provide a few key data points about the full year. James has already provided a detailed review of our sales performance in the quarter.

In summary, sales are up 9% from a year ago excluding the impact of foreign currencies and 2012 disposals. The growth in the quarter came from both segments from nearly every product group and from around the world, overall, a strong quarter for sales. Working down the income statement, gross profit as a percentage of sales was 21.6% in the quarter. That is a 160 basis points improvement from 20% a year ago, tremendous performance. SG&A as a percentage of sales was 8.9% in the quarter, down 20 basis points from 9.1% a year ago. However, R&D spending, which is included in SG&A, was 4.6% of sales in the fourth quarter, up 70 basis points from a year ago.

This implies a 90 basis point decline in other SG&A spending, which we attribute this to good execution of our cost control plan. Reported operating income in the quarter was $188 million. However, this includes $52 million charges related to restructuring activities that I will discuss shortly. Excluding the charge, operating income was $240 million or 12.7% of sales compared with 10.9% of sales on a comparable basis a year ago. After excluding the impact of foreign currency and non-comparable items, our year-over-year incremental margin was about 36%, well above our mid-teens incremental margin target. So in summary, operational efficiency led to an improved gross profit margin, cost controls led to lower SG&A spending. This enabled us to an increase R&D spending and expand our operating income margin. That is a formula for success.

Outstanding performance by our operations providing good momentum going into 2014. As you look further down the income statement, equity and affiliate earnings was $12 million in the quarter, up from $10 million last year. This represents the performance of NSK-Warner, our 50/50 joint venture in Japan which sells transmission components to our Japanese customers in Japan and China as well as TEL, our turbocharger joint venture in India. Interest expense and finance charges were $8 million in the quarter, essentially flat with the $7 million a year ago. Provision for income taxes in the quarter on a reported basis was $45 million. However, this included $12 million of net favorable adjustments, which you can read about in our 10-K. Excluding these non-comparable adjustments, provision for income taxes was about $56 million, which is an effective tax rate of about 23% in the quarter.

For the full year, our effective tax rate excluding the impact of non-comparable adjustments was 26%, just under our guidance of 27%. Net earnings attributable to noncontrolling interest were $8 million in the quarter, up from $5 million a year ago. This line item reflects our minority partner share in earnings performance of our Korean and Chinese consolidated joint ventures. That brings us back to net earnings which were $141 million in the quarter or $0.62 per share. On a comparable basis, excluding the impact of restructuring activities and tax adjustments, net earnings were $0.79 per share, up 36% from $0.58 per share a year ago, outstanding performance for the Company.

As James mentioned, on a comparable basis, 2013 was a record year for sales, operating income, margin, and EPS. Additionally, our full year incremental margin was 37%. Also on a comparable basis, the team performed at a very high level in 2013, and we expect great performance again in 2014. Now, let's take a closer look at our operating segments in the quarter. As James said earlier, engine segment sales were just under $1.3 billion in the quarter, up 8% from a year ago. Excluding the impact of foreign currencies and 2012 disposals, adjusted EBIT for the engine segment was $208 million in the quarter or 16.4% of sales. That's an 80 basis points higher than the 15.6% reported a year ago. Excluding currency and 2012 disposals, the engine segment's year-over-year incremental margin was 30% in the fourth quarter and 32% for the full year. Outstanding performance for the Engine Group.

In the drivetrain segment, sales were $628 million in the quarter, up 10% from a year ago, excluding the impact of foreign currencies. Adjusted EBIT was $71 million or 11.2% of sales, sharply higher than the 8.8% a year ago. The segment's year-over-year of incremental margin was 36% in the fourth quarter and 38% for the full year. The drivetrain segment had a great year. However, as James mentioned earlier, consistent performance from drivetrain remains a concern and an area of focus for us. As a result, we have begun restructuring the drivetrain segment. The objective is to optimize its footprint for more consistent performance and to strengthen its competitive position. The initial phase of the restructuring was the $52 million charge taken in the fourth quarter. About two-thirds of the charge was asset impairments, non-cash, while the other third was cash outlays for severance and other activities.

The remaining phases of the restructuring will be almost entirely cash outlays for the severance and other activities. We estimate charges related to the remaining phases of the restructuring to be approximately $90 million. These actions will be taken over the next six quarters, and the full benefit of restructuring is expected to be realized after that. The plan includes closing two drivetrain facilities in Western Europe and one in North America, all of which is now underway. Despite these actions, drivetrain is a growing business. The other side of optimizing the footprint is expanding into lower-cost economies. Investments related to drivetrain's growth are happening in Poland, Hungary, Mexico, and China. From a performance perspective, we expect this restructuring plan to improve segment margins by 100 basis points or more and make the drivetrain segment a solid double-digit margin business. Also, with better cost structure, the business will be more competitive, which should translate into winning more business.

If you look at the balance sheet and the cash flow, we generated $719 million of net cash from operating activities in 2013, down $116 million from 2012. The primary driver of the decline was a $138 million discretionary contribution to our German pension plans. This allowed us to reduce pension liability risk and deploy offshore cash without incurring repatriation tax penalties. This discretionary contribution was accretive and on par with share purchases of the same amount. I would like to point out where this line item is in our cash flow statement. If you look on the tables, you'll see changes in assets and liabilities of about $273 million. This $138 million makes up the majority of that line item. Capital spending was $418 million in 2013, up $11 million from 2012. Our capital spending is required to support our program launches around the world, particularly in Asia, South America, Eastern Europe, and Mexico.

Free cash flow, which we defined as net cash from operating activities less capital spending, was $301 million in 2013. Our free cash flow was used to repurchase shares and to pay dividends to our shareholders. We purchased more than 5.2 million shares in 2013 split-adjusted leaving approximately 11 million shares on the current authorization. Looking at the balance sheet, balance sheet debt increased by $155 million at the end of 2013 compared with the end of 2012. Cash increased by $224 million during the same period, leaving net debt down $68 million compared with the end of 2012. At the end of 2013, our net debt to capital ratio was 7.2%, down from 10% at the end of 2012. Net debt to EBITDA at the end of the year on a trailing 12 month basis was 0.2 times. Our capital structure remains in excellent shape.

Now I'd like to discuss our guidance for 2014. James reviewed our guidance at a high level. I will discuss some of the finer points. Our sales growth guidance range of 7% to 11% excludes the pending Wahler acquisition. Wahler sales were expected to be $315 million in 2013. Assume that we close by the end of the first quarter, the transaction would add about 300 to 400 basis points of revenue. Our sales growth guidance also assumes very low currency impact. Weaker Asian currencies continue to offset the stronger euro. We expect raw material inflation of $5 million to $10 million range in 2014, still a headwind, but much less than what we have seen in typical years. As James mentioned earlier, our operating income margin is expected to be 12.5% or better in 2014, up from 12.4% in 2013.

Some of the deferred costs from 2013 will come back in 2014, but we expect strong sales growth, productivity, and spending controls to support, maintain, or possibly expanding margins. Incremental margins should be in the mid-teens, in line with our long-term range target. Our expected diluted share count for 2014 is expected to be approximately 230 million shares. This diluted share count guidance excludes any share repurchases may be executed during the year. Finally, our EPS guidance range of $3.10 to $3.25 per diluted share, which includes the impact of the pending Wahler acquisition, remaining phases of the restructuring, and any other non-comparable items -- excludes those. All right. Here is my conclusion. We continue to be confident in our ability to execute in any market. This Company has demonstrated heightened focus on efficiency and cost. The focus resulted in highly efficient growth and record margins each of the last four years.

With return to historical growth rates and our operations performing at a very high-level, 2014 should be another record year in sales and record profits for BorgWarner. As we look beyond 2014, we intend to execute our growth plan yielding high single-digit to low double-digit growth and to efficiently convert all our sales growth into profits. The future is bright for BorgWarner.

And with that, I'd like to turn the call back over to Ken.

Thank you, Ron. Now, let's move to the Q&A portion of the call. Carmen, can you please remind everyone of the Q&A procedure?

(Operator Instructions)

And your first question comes from the line of Rich Kwas with Wells Fargo.

Hi, good morning, gentlemen. This is David in for Rich. Can you hear me?

Yes, good morning, David.

Good morning. The quick first question is on the free cash flow for Q4 -- a little below than what we expected relative to last year. Is that mainly due to that pension contribution?

That's a significant impact in that quarter, is the pension contribution, plus some tax deferral adjustments on the balance sheet.

Got you. Got you. And then, on the guidance, if we assume the midpoint of the margin at 12.5 -- the 12.5% margin in the midpoint of the revenue guidance, it implies like a 13% incremental. I know that you said you are going to do 12.5% or better, but is that something that you are still looking at, or could that go higher versus maybe our calculation that we came up with?

David, we have been saying that our incrementals will be in the mid-teens, and to me that is mid-teens.

Got you, okay, fair enough. And then, I think last quarter in Q3 you mentioned that production was going to decline about 3% from 2012 to 2013 on a European basis. Can you sort of put into color, or provide us with some color related to what transpired in Q4? Did it come in better than expectations?

And then, granted, you mentioned earlier on the call that a lot of your revenues from all of your geographies improved on a year-over-year basis. Can you categorize where you found the most strength?

David, let me take a shot at your first question. I think if we look at how Europe as a region finished up at the end of the year versus what we thought a quarter ago, it was a little better. I think it was a little better. And I think that's probably a good summary for BorgWarner, too. So, a little bit of an improvement in the fourth quarter for Europe.

You know, I think the key message, as we now move into 2014, is we are seeing growth in all regions of the world. It varies a little bit around the world, but we are seeing a significant growth.

Not surprisingly, David, our strongest percentage of growth for the Company still is in Asia and China. That's probably not a surprise to you when you look at our backlog, which was significantly weighted actually towards China, which we think is a great thing when you've got a country building over 20 million vehicles. So, that's really strong for us.

And the growth is pretty well balanced as we look across engine and drivetrain. I think Ron alluded to it earlier, David, the growth is pretty much all products, all segments, all regions of the world. Varies a little bit between them, but all of that translates into that 7% to 11% of organic growth that we've talked about, which we feel really good about, David.

And one last question. When we look at last quarter, you guys did great on Q3, did great on drivetrain margin. Again, stellar performance in Q4.

Is that a figure that we could use as a baseline going forward, in the 10%? Or is there going to be some choppiness where it might be in the high-single digit on the margin basis on drivetrain as 2014 unfolds by quarters?

You know, David, I would say, as a baseline, those are two slightly above the performance, but I think we are in the range that you would like at this point. And then, we are going to, obviously, drive even more north of that point.

Great. All right. Thank you very much.

Thanks, David.

Your next question comes from the line of Brian Johnson with Barclays.

Yes. Good morning, folks. I just wanted to follow-up on that drivetrain question, and maybe try to get underneath the covers in terms of what's driving this very good margin expansion.

You know, how would you roughly divide -- if you think of the couple hundred basis points year over year -- the 100 basis points maybe versus our model between your having a better product mix, higher value add products, you are filling up some factories in China, other cost actions around the world. Or maybe uptick in just volume, driving it above where you might have thought?

Brian, this is James. Let me try and take a little bit of a shot at that for you.

I think the way I would characterize the improvement in 2013, Brian, is the volume piece certainly helps. We have seen very good growth in drivetrain in the year, and that absolutely is helping the cause.

I think the biggest piece, Brian, it would be the excellent operational performance and discipline. What I mean by that is, if you take the clock back a while ago, we had challenges around capital installation, program launches, product launches, and we have done a nice job of resolving a lot of those issues. So, the existing footprint or the existing operations have executed well. And that, coupled with the volume, has, in general, driven the improved performance and improved stability thus far. As you look out a little bit, as Ron alluded to, Brian, the next step, if you like, in the journey is the optimization of the footprint, as well as the continued good execution that we are doing today.

So, what that really comes down to is reducing our western European footprint and a little bit of an adjustment in North America, and adding additional capacity and infrastructure into lower-cost regions of the world. So, think Poland, think Mexico, think China, and that will take us to the next level. So, growth, plus a better footprint, is going to absolutely help take drivetrain up to the next level, Brian

Do you have an estimate of roughly the margin expansion from the restructuring actions, or alternatively, the payback period on your restructuring investments?

Brian, it was in my script. I don't know if you heard it completely. We said that would be 100 basis points of solid improvement there, and incremental incomes going forward.

Okay. Thanks. I was in an airport.

Sorry.

Thank you, and see you next week.

Thanks, Brian.

Your next question comes from the line of John Murphy with Bank of America.

I have yet another follow-up question on drivetrain. I apologize to stay stuck on that topic. But the 100 basis points that you referred to as the potential margin expansion, as you work through these restructuring actions or reallocation actions, what is the time frame that you think you can get those? I think you had mentioned six quarters would be where the $90-million incremental restructuring costs would come in. Is it over six quarters you think you can get that 100 basis points, or maybe it would be just a little bit longer?

Let me be clearer here. Over the next six quarters, we are going to be implementing restructuring activities, which would require us to move some facilities and close facilities -- move equipment and close facilities. After the six quarters is when we start to see the significant improvement of margins going forward. It's 100 basis points or better -- I will say that, or better -- going forward after we get all of this in place. Okay? So, we have -- there's a lot of work over the next six quarters to get ourselves in that position.

Got you. So, the benefits would come six quarters out. Between here and there, it will just be the mix, and your execution is like what you saw in the second half of this year. Is that a fair characterization?

Yes, the full benefits will start after that. We'll see some incrementals as we go forward, but the full benefits of all the restructuring would start after that.

Okay. Very helpful.

The second question, and this is a high-class problem, but you have been spending a little bit more than 4% on R&D towards the end of 2013 or for 2013. Would that potentially come in as your sales grow going forward? Or should we expect you to be spending more closer to the 4.5% range, as opposed to your 4% long-term target, in the near term?

John, I think the 4% is still a decent number for you to think of, as you look forward. But as -- to your point, I think when we get an opportunity to spend a little more in R&D, if we've got some critical innovation programs and products we want to work on, we're going to find a way to do that.

I think 4% is not a bad number. You may see it go a little below that quarter to quarter, or you may see it go a little bit above it, but we are not going to slow down the R&D spend. That's a critical, critical part of the Company.

Okay, that's great.

Just lastly, we have heard a lot of issues in the industry of shortage of casting capacity in all sorts of parts. Are you seeing any problems with that in any of your parts, particularly around your turbo housings? It just seems like there might be some risk going forward, particularly as Ford ramps up its EcoBoost engines with the new F-150 late this year.

John, I would say 2013 was really a very good year for us in terms of capacity utilization and all that came with that. We are not really seeing anything of significance at this point, John -- around the world, we are not.

There is always day-to-day, week-to-week challenges, but I would say nothing fundamental and nothing holding us back delivering what we need to deliver. I think you've seen some of that translated into our incrementals that Ron alluded to. So far so good for us, other than I would say normal challenges, John.

That's great news. Thank you, guys.

Your next question comes from the line of Colin Langan with UBS.

Great. Thanks for taking my question.

Can I just follow-up -- I think the first question was on free cash flow. Net income was up about $70 million, but the cash flow was down about -- or about $160 million. You have a pretty big delta between the two of over $200 million. So, the $140 million was the pension. Was the tax really that large, or are there other items going on that are affecting the cash flow this year?

The $140 million is the funding of the pension, is what it is. So, there was cash left. There's other adjustments and liabilities at the end of the year that you true up.

And then, working capital actually was in pretty -- we do a really good job. If you just look at true working capital -- receivables, inventory, and payables. But you have what I call non-operating items like tax changes and things of that on the balance sheet that changes the working capital number, that you have to fund some certain tax payments, pre-payments, and so on and so forth.

I am comfortable as far as the working capital related to the operations of the Business. I would say some of these adjustments were non-operating.

Okay. So, you're comfortable with the cash flow guidance for next year. Because that implies a pretty big swing, I believe.

Absolutely. If you track throughout the year, what typically happens is the first quarter is a neutral cash flow. You start to build second and third. Fourth is typically a pretty good quarter, but again, we had some funding requirements that we met in the quarter that would take that out, which you would have seen on a normal cycle.

Okay. And then, in terms of the pension contribution, any color on where that brings your pension funding by the end of the year? That must be pretty close to getting fully funded.

Well, 90%, if that's close. That's about where we are at, especially with the German and the total Company. In the US, our funds are very well funded right now.

In Germany, we made this contribution. We got into the 70%, so I think the average is like high-80%s as a Company.

More importantly, now we are able to put this money to work, and match the liabilities with the assets. And in that way we can risk going forward, adjust movements and discount rates and earnings, so that we don't see as much volatility going forward.

And high-80%s -- is that about $100 million or $150 million underfunded?

I'd have to check exactly.

We'll get that to you, Colin.

Okay. And just lastly, any color on why the Q4 tax rate was so much lower than normal?

Yes, like I mentioned, we are about -- our effective tax rates -- run rate was 27%. We came in, to be exact, 25.9%. What happened is, you can go on our Q, but we took a look at some US state valuation allowances, then released a couple of those, offset by a few other items. There was like six -- four or five items in there that -- puts and takes, but the net result was a benefit.

Okay. And the guidance for next year is still 27%.

Yes, it is. And I'll just expand my comment on why it's still 27%. Like I said, those will stack. There's those estate tax valuation adjustments, and we will re-evaluate the tax rate probably halfway through the year to make sure where it is at.

We are always trying to lower that tax rate, and maybe we will have some opportunity. But at this point, I've got to take -- get a half year under me to see where we're at.

Okay. All right, thank you very much.

Your next question is from the line of Ryan Brinkman with JPMorgan.

Hi, good morning. Congrats on the quarter.

Thank you.

Looks like you didn't make any repurchases this quarter, after doing so in each of the past four. I'm just curious -- probably it doesn't owe, or does it, to the rise in your stock price during the quarter. More does it have to do with maybe the acquisition coming up, or the German pension contribution. What do you attribute that to?

Yes, you know, obviously, I have the ability to look to see where my cash needs are going forward. The pension, I thought, was a very good move for BorgWarner, given that the cash is in Europe. We could take a liability, and start to de-risk a liability going forward. That was a real good move for us.

Now I'm also looking -- we have the Wahler acquisition here right around the corner, and there is other opportunities for us as well for cash that we are looking at.

Great. And then just a real high-level question about your revenue guidance. I guess, now you are pointing to $700 million of backlog for 2014. That would be 9.4% growth on the 2013 revenue that you just reported. And then HIS at least has global light vehicle production up 3% next year, so that gets you to 12.4% growth, although you've guided to 7% to 11%.

What are the differences there between that 12.4% I walked to? Obviously, there is price down; there's maybe geographical profile. Is there anything else that we should be thinking about, like diesel versus gas mix or anything?

Ryan, this is James. I think the first thing for me that is probably worth reinforcing is: 7% to 11% growth isn't too shabby. We feel really actually very good about that. That gets us back in the somewhat normal, typical growth rates of BorgWarner. We feel good about that.

The simple way to look at it is: You take our backlog, as you articulated, and that's a strong number. Then you take our price down effect out, and then you look at, I will call it a BorgWarner mix-adjusted production volumes around the world. That is about where you get to where we are.

So, the quick way of saying it is the pricing is probably a couple percent global production adjusted for BorgWarner mix around the world. And our products is also a couple percent, and that's what gets you to the 9% number.

Again, we feel good about that. That is organically, as we have reinforced, as Ron alluded to, if all goes well and we close out the Wahler transaction, that's going to add another 300 or 400 basis points on top of that, which gets us to where we think we are going to be over the long term, which is this low-double-digit growth rate, which we feel is very, very strong.

Okay, that's great. Really helpful.

Just very last question. I know you already asked about this a little bit, but can you just take us around the world? I know you haven't, in previous quarters, about how you performed relative to light vehicle production in maybe some of your key end markets?

So, what we provided was our global growth, you know. And we have maybe stepped away from the comparisons versus the regional look. Primarily because -- and we have talked about this over the last month or so -- it's not really constructive exercise, as we have seen. Every time we kind of go down that path, it's a pretty complex analysis from what the market did in the region versus what our sales did.

What's really important to us is our absolute growth. That's what we are focused on as a Company. That's how we manage the Company. Frankly, that's what really matters, I think.

When you think about growth, where it comes from is not as important as why we are growing. So, that is why we are going to talk to you about where our growth was and where it is coming from, and I think that's the right message for you.

Okay, thanks. Congrats again.

Thank you.

Your next question comes from the line of Joseph Spak with RBC Capital Markets.

Thanks. (technical difficulty) big picture. I don't know if you saw or not, but there was a JD Power report which cited some reliability issues with smaller (technical difficulty) engines. And while they didn't specific call turbos or anything, I know you guys are increasing on those engines. Is that consistent with some of the feedback you have been getting from your customers, or any comments on that report, I guess?

Yes, I am not sure of the actual specific JD Power report -- the specific one you're referring to. But at a high level, we had -- with the adoption rate and desire for turbo just continues to go as strong as we have thought over the last several quarters. That, I would say, is across all of the displacement ranges. We continue to see a huge shift towards smaller downsized turbo engines.

We are not seeing anything there. We have not really seen any meaningful issues around launches or volumes relative to that type of stuff. We are not seeing it in our Business, is the real quick answer for you.

Joe, I read that article; earlier in the week, I think I saw it. There seemed to be some confusion about the consumers' expectations of certain things. It wasn't truly a durability issue, as you would think that the engines are failing prematurely or anything like that. It was -- if I recall, reading that article, that there was some confusion by the end users on what their expectations were on some of these things. If I remember going deeper down in that article.

Okay. I know we will probably hear more about Wahler as it closes, but it does seem like there may be some off-highway exposure there. I was wondering if that accelerates your plans to move into some non-auto adjacencies, which is something you highlighted last Summer as for the longer-term goal. Maybe just a general update as to if there is any progress on some of those other end markets.

Yes, Joe, our current emissions business is balanced between both light vehicle and commercial vehicle. So, we play in that space today, both light and commercial vehicle. Your assumption is a good one, that Wahler will bring both light vehicle and commercial vehicle revenue stream into the Company, and technology as well.

A couple of other comments around Wahler. As we have unfolded over the last few years really, around this emissions business, we have taken a number of really critical steps. We started off with a primarily EGR valve business, North American-centric, and have taken that more globally. Then we did the Dytech ENSA acquisition that gave us the cooler capability, which was primarily in Europe, but we have now been successful in taking that globally.

What this really brings is a really key piece for us, which is valve, tube and thermostat capability, but with somewhat of a European-centric view, which we feel is a fabulous asset for us, because that really brings strength to us from the German OEMs, both light vehicle and some commercial vehicle. This is a terrific fit for us strategically, and we are excited to move forward and get it closed, and start integrating it into BorgWarner and growing the business.

One other last thought for you, Joe, in terms of the broader question of end markets, our backlog, again, was pretty robust. I think we were -- 15%-plus of our backlog was tied to commercial vehicle market. I use that term generically, because that includes a lot of off-highway type volumes as well. We are continuing to make progress in serving those broader end markets beyond light vehicle.

Okay. And maybe just one quick one, near term. Given some of the elevated inventory levels and (technical difficulty) at least some role. Are you seeing any change to the near-term schedules, call offs yet?

You're specifically talking North America, right?

Yes. In North America.

So far, what we're seeing is schedules and releases are holding up pretty well, as we've started out the year -- we are five or six weeks in. We are like everybody else. We pay close attention to inventory levels and pricing dynamics in the industry to not kind of get ahead of ourselves. But I would say, so far so good, is what we're seeing in terms of what we were hoping North America would start off at. So far so good is kind of our sense, Joe.

Thanks. Congrats, guys.

Your next question comes from the line of Brian Sponheimer with Gabelli.

Good morning, guys. Another outstanding quarter executionally. Congratulations.

Thank you very much.

Just looking at the balance sheet, and I know I ask this a lot, given that the leverage is so low, even after this Wahler acquisition, you mentioned that some of your -- a good portion of your cash is in Europe, and that's why it works so well. Would repatriation be something that would keep you from being more aggressive, from a share repurchase perspective?

Repatriation is always going to be a concern for a multi-national company. We are putting structures in place to make it more efficient to bring back cash. I wouldn't say that's a primary concern.

There is a lot of factors you look at on share repurchases, not just one item. You look at your outlook as far as M&A activity. You look at, obviously, share price, your multiples. You look at a lot of things. I wouldn't point to just one item when you look at share repurchases.

I would agree with that. Just along those lines, Ron, when we met in the Fall, you talked about a decent acquisition pipeline. You kind of referred to it here. Has there been any change in potentially getting closer to, even beyond Wahler obviously, some larger pieces that you think would fit really nicely in the portfolio?

Brian, this is James. We're feeling pretty good actually with how the acquisition pipeline is working out. Getting Wahler closed and behind us, which hopefully is only a couple weeks away. It should be a good thing. That will be kind of in the bag.

Our pipeline is still pretty robust. We talked about it last Summer. You know, the target pool of companies of about 30 or so companies. Just like with any process, some companies are falling out, a couple more have emerged and gone into there, so it's still a really robust pipeline for us.

I think the key message that I would probably want to share is: The Wahler transaction, assuming it all goes through, won't stop us doing other ones, both from a cash perspective and probably as importantly resources and integration perspective. So, we are actively looking and engaged in a lot of conversations to get another one done, and we are working as hard on that one as we did on Wahler. So, we're feeling pretty good where that's playing out right now, Brian.

Thank you, guys.

Thank you.

Your next question comes from the line of Brett Hoselton with KeyBanc.

Good morning, gentlemen.

Good morning, Brett.

So, just following on the last conversation, or that last question, it sounds like there is a good possibility that you could get maybe another acquisition done this year possibly. No guarantee, but that's kind of the idea. Is that the idea?

It's the idea, Brett. Whether we can execute it is, as you know, I think from prior conversations, is as much a function of the seller as it is us. We have a strong desire and intent, and with a number of possibilities on the table, we are certainly hopeful. But it just really will depend on the willingness of the seller. But we are working awful hard on getting it done.

And I missed the beginning of the conversation, so I apologize if I'm asking something you've already addressed. As you think about Europe, you think about the luxury brands and so forth. What is your general sense -- what are you seeing in the marketplace today? What is your general sense for the outlook? I know you've got an outlook embedded in your guidance and so forth, but do you see things improving, deteriorating relative to your expectations?

Brett, I would say pretty similar to where we were when we were all together in Detroit a few weeks ago. Which for us, in Europe, means a little bit of growth this year in light vehicle production. Whether it's 2%, 1.5%, 3%, in that range. We don't see a significant mix shift between gas and diesel. We are not seeing much of a shift in our luxury or premium vehicles versus non.

So, it's about where we were in January. That, for us, is actually okay. That says things are holding up reasonably well. A little bit of growth, little bit of stability. And then in the out years, we are expecting it to be a very slow and modest recovery, is kind of our view, Brett.

Excellent. Thank you very much, gentlemen. Good quarter.

Thank you.

Your next question comes from the line of Matthew Stover with Guggenheim Securities.

Thank you very much. Two things -- or three things maybe. Following on to the Wahler acquisition, how should we think about that from a margin standpoint relative to the existing engine business. I would assume that it's -- after the allocation for amortization, it will probably be a lower margin business. I just want to make sure I have my concept straight.

What we are going to do here is we're going to discuss all of this once we close the acquisition. Purchase price accounting is very complex. If I start giving out estimates and things, and then have to retract them, I don't want to go down that path.

I want to close the books, allocate all the purchase price accounting, and then we will discuss these in much more full detail in our Q, and obviously as we meet with you folks as well once we close the acquisition. We will be very transparent. I just want to get a good look at this when I close this transaction.

Makes sense. And I want to fully beat this dog to death with the restructuring of the drivetrain business. If I look at the working capital intensity of the drivetrain business versus the engine business right now, are they similar? And as you think about the restructuring of this Business, do you envision any changes in terms of working capital intensity and CapEx intensity of that Business?

I don't anticipate any changes. The question is: What were they at today? It is really more complex than just one segment for us, because I have several product lines in there.

I will say a couple products in their maybe do require a little more CapEx, and a couple of them require less CapEx. It's hard to generalize in that area. They are not exactly all the same, but I will say, going forward, it should remain the same.

The working capital intensity of the two businesses is quite similar?

There is no material difference.

No material -- okay. And then, on the corporate expense side, typically in the fourth quarter you see a tick up in your corporate expense, and it was stable versus the third quarter. How should we think about that as we go into next year and its implications?

What I would say right now is: The average -- if you were to average the full year out, that's probably a good number to go into 2014. I know -- actually, we did tick up slightly in the fourth, but it's immaterial. But I would take the average for the year.

Okay. I appreciate that. Thanks very much.

Thank you.

And we have time for one final question, and that question comes from the line of Richard Hilgert with MorningStar.

Thanks. Good morning, guys.

Good morning.

A couple questions -- a couple housekeeping first. Can you disclose the R&D expense for the full year? And did you -- I apologize if I missed this, did you give a restructuring expense number for 2014?

Okay. First, Richard, was 4.1% on a full year, and in the K today, it will show you the expenses and everything. I think we are up $30 million for R&D expenditures. You can back in for the quarter, which was like 4.6%.

Switching to -- what was the other question? Restructuring. We said that the $90 million additional restructuring expenses would be over the next six quarters, I think is what I said in my script. We didn't identify how much in 2014 per se, because there's a lot of accounting rules we have to go by. We know within six quarters we should be finished with the restructuring expenses.

And in case your question was about the fourth quarter, it was $52 million in the quarter. (multiple speakers)

Okay. And then, was the $90 million primarily European?

It's going to be primary European and cash as well. It will be more on the severance side, I think is what I also said in my script.

Okay. Given the sensitivity over there to various labor issues and various regions of Europe, are there any risks that you can identify for us to that number?

Richard, this is James. It's not an easy thing to do, and it is something that we take very seriously. These are not easy decisions as a business for our employees, as well as for our customers, as well as us. It's not something we enjoy doing at all. It's something that we feel very difficult, but we do feel that we have a plan in place that will be okay, actually.

What Ron is doing -- he's quite rightly obviously, giving you estimates because things do vary. There are still a lot of discussion and negotiations that are pending with our employees, with our unions, et cetera. But I think, in terms of the approximate numbers and the timeline that Ron's outlined, Richard, I think it's a pretty good decent set of assumptions at this stage for sure.

Okay, great.

Finally, I wanted to ask a little bit about dual clutch. When the products were first coming out, some of the knocks against it were that it is a heavier product. The replacement cost is going to be much higher if you have a failed transmission in the after market. And the expense of R&D to use that kind of transmission is going to be higher.

So, there were these offsets to -- if you compare to a liquid torque converter transmission, you are getting anywhere from 5% to 10% fuel savings, but then you've got these offsets. Are there still pushback in the industry to dual clutch, or is the fuel savings enough at this point that we should see more penetration and more high-gear transmissions coming in future years?

Richard, the quick answer I would give to you is: We are not seeing a slowdown in adoption rates of DCT. What I will translate that to into specifics for you is: As we look out over the next four or five years, we see a compound annual growth rate for the DCT product line. I'm not talking BorgWarner revenue, but for DCT adoption rates of about a 15% compound annual growth rate, which is not materially different from what it was a couple years ago.

So, no, we are not seeing a slowdown at all. Which I think is good, and it's for all the reasons that I think we have articulated before. It's an extremely effective way to get fuel economy benefit and still have great driving performance. So, we are not seeing any real shift there, Richard, is the quick answer.

Are there any competing technologies to DCT?

You can utilize obviously stepped automatics, which is also a great technology for BorgWarner. You can also use CVT, or you can stick with a conventional manual transmission. Those are the four primary architectures that are used. We see manual transmissions somewhat declining, and we see growth in stepped automatic, DCT and CVT as a mix shift, with DCT being arguably the strongest growth of all of those, Richard.

Thanks, Richard. I'd like to thank you all again for joining us. We expect to file our 10-K before the end of the day, which will provide details of our results.

If you have any follow-up questions about our earnings release, the matters discussed during this call, or our 10-K, please direct them to me. Carmen, please close out the call.

That does conclude the BorgWarner 2013 fourth-quarter and full-year results earning conference call. You may now disconnect.