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5. BorgWarner Inc. Business Report FY ended 2015

Factors
1) Net Sales
-Net sales for the fiscal year ended December 31, 2015 decreased 3.4% from the previous fiscal year to USD 8,023.2 million. The decrease in sales was caused by weakening currencies compared to the U.S. dollar, the Wahler acquisition in 2014, and the acquisitions of BERU Diesel and Remy International in 2015. Excluding these contributions, the Company's net sales increased 4.3%.

2) Engine Segment
-The Engine segment's sales for the fiscal year ended December 31, 2015 were USD 5,500.0 million, a decrease of 3.6% from the previous fiscal year. Excluding the effects of weakening currencies compared to the U.S. dollar, and the acquisition of Wahler and BERU Diesel, net sales for the Engine segment increased by 6.7% compared to the fiscal year ended December 31, 2014. This was primarily due to increased sales of light vehicle turbochargers.

3) Drivetrain Segment
-The Company's Drivetrain segment had sales of USD 2,556.7 million in the fiscal year ended December 31, 2015, a decrease of 2.8% from the previous year. Excluding the effects of weakening foreign currencies and the Remy acquisition, sales in the segment decreased 0.8% from the previous year. Sales of transmission components in Europe decreased compared to the previous fiscal year.

Acquisitions

-On November 10, 2015 the Company finalized its acquisition of Remy International, Inc. Remy manufactures rotating electrical components such as alternators, starter motors and electric traction motors for the automotive and commercial vehicle industry and operates in ten countries. The Company acquired each of Remy's outstanding shares for USD 29.50 in cash, giving Remy an enterprise value of approximately USD 1.2 billion. (From a press release on November 10, 2015)

-In January 2015, the Company completed the acquisition of the remaining 51% of BERU Diesel Start Systems Pvt. Ltd., from its joint venture partner for USD 12.6 million. BERU Diesel Start Systems Pvt. Ltd. was created in 1996 to develop and manufacture glow plugs for the Indian market. The Company now owns 100% of BERU Diesel Start Systems Pvt. Ltd.

Recent Developments

-The Company announced that it has developed the first flex fuel turbocharger made in Brazil for the country's growing passenger car market. The B01-series turbocharger helps boost performance, improve fuel economy, and reduce emissions, enabling automakers to comply with Brazil's INOVAR-AUTO requirements. Designed for 0.8- to 1.6-liter engines, The Company's new flex fuel turbocharger will debut with a major global automaker in mid-2015. The turbochargers are built at the Company's facility in Itatiba City, Brazil. (From a press release on January 8, 2015)

Contracts

-The Company announced that its advanced engine and drivetrain technologies are featured in all 15 finalists of the World Car of the Year, including all winners of each of the five categories:

• 2015 World Car of the Year: Mercedes-Benz "C-Class"
  
• 2015 World Luxury Car: Mercedes-Benz "S Coupe"
  
• 2015 World Performance Car: Mercedes-AMG "GT"
  
• 2015 World Car Design of the Year: Citroen "C4 Cactus"
  
• 2015 World Green Car: BMW "i8"
  

The Company provides advanced technologies, such as variable cam timing systems, chain timing drives, ignition technologies, coolant control valves, diesel cold-start technologies, exhaust gas recirculation (EGR) coolers and valves, friction plates, dual-clutch and mechatronic modules, one-way clutches, solenoids and all-wheel drive couplings as well as Twin Scroll, variable turbine geometry (VTG) and regulated two-stage (R2S) turbochargers. (From a press release on April 15, 2015)

-The Company announced that all of the finalists of the 2015 North American Car and Truck/Utility of the Year, including the winners, feature the Company's advanced technologies. These models include the Volkswagen Golf, Ford F-150, Ford Mustang, Hyundai Genesis, Chevrolet Colorado, and Lincoln MKC. The Company provides technologies including chain timing systems, HY-VO transfer case chains, variable cam timing technologies, turbochargers, ignition coils, friction plates and one-way clutches for automatic transmissions, dual-clutch and mechatronic modules for dual-clutch transmissions, part-time and on-demand all-wheel drive transfer cases, and front-wheel drive electronic limited-slip differentials. (From a press release on January 12, 2015)

-The following are major contracts from a press release in 2015.
<Engine Segment>

<Drivetrain Segment>

Awards

-The Company announced that it has received a 2014 World Excellence Award in the Aligned Business Framework category from Ford Motor Company. Ford also presented the Company's facility in Rzeszow, Poland, with a Gold Award. (From a press release on August 17, 2015)

-The Company announced that it has received a 2015 GM Supplier IMPACT Award. The Company ranked as one of GM's Top 20 Tier 1 suppliers for 2014. (From a press release on August 13, 2015)

-The Company announced that its manufacturing plant in Seneca, South Carolina, U.S., was presented with an Excellence in Quality Award 2014 from Honda North America. The Company supplies its InterActive Torque Management II (ITM II) all-wheel drive technology for the Honda Pilot. (From a press release on July 9, 2015)

-The Company's facilities in Bellwood and Frankfort, Illinois, U.S., received 2014 Certificates of Achievement from Toyota Motor Engineering & Manufacturing North America, Inc. for Quality Performance. Both facilities achieved 100% quality ratings and 0 PPMs in 2014. Both facilities produce one-way clutch assemblies and friction plate components for various Toyota passenger cars and pickup trucks. (From a press release on May 20, 2015)

-In May 2015, the Company was honored by Volvo Cars with an Award of Excellence in the Cost Competitiveness category. The Company delivers a variety of turbocharging technologies to Volvo Cars. (From a press release on May 7, 2015)

-In 2015, Great Wall awarded the Company its second consecutive Innovation and Quality Award for its transfer case technology. (From a press release on May 4, 2015)

-The Company won a 2015 Automotive News PACE Award for its first-to-market front cross differential (FXD) technology. First featured on the Volkswagen "Golf GTI" and Seat "Leon Cupra", the system enhances FWD driving performance. (From news releases issued by multiple sources on April 20, 2015)

-The Company announced that its manufacturing plants in Nabari and Aoyama, Japan received 2014 Supplier Excellence Awards from Honda Japan. (From a press release on March 31, 2015)

-The Company announced that it has received a 2014 Regional Contribution Award from Toyota Motor Corporation. The award recognizes the Company's contribution to Toyota's localization success as its sole North American supplier of part-time four-wheel drive transfer cases for the 2014 "Tundra" pick-up truck. The Company produces the transfer cases at its facility in Seneca, South Carolina, U.S. (From a press release on March 27, 2015)

-BorgWarner Morse TEC, a subsidiary of the Company, received a Best Powertrain EMEA (Europe, Middle East and Africa) Supplier Award 2014 from Fiat Chrysler Automobiles (FCA). The Company was honored for its strong engineering contributions throughout the development of FCA's Global Small Engine (GSE) platform and its excellent service level especially in part quality. (From a press release on March 3, 2015)

-The Company announced that its manufacturing plant in Manesar, India, was presented with a 2014 Supplier Quality Excellence Award from GM India. The Manesar facility produces exhaust gas recirculation coolers for GM Thailand and Brazil. (From a press release on January 27, 2015)

-The Company expects to spend approximately 4% of its net sales in R&D every year.

R&D Facilities

-The Company started research and development activities at its new engineering center in Itatiba City, Brazil. The Company's new 2,000-square-meter engineering center provides capabilities for application engineering, research and development to create new technologies for the rapidly growing Brazilian automotive market. Totaling over 21,000 square meters, the campus also includes a production facility to manufacture several environmentally friendly technologies for passenger cars and commercial vehicles such as turbochargers, viscous fans and fan drives, engine timing systems and emissions technologies. (From a press release on February 5, 2015)

Product Development

2-speed fan drive
-The Company's new DuroSpeed 2-speed fan drive is specifically designed to deliver reliable cooling for severe operating and vocational truck applications such as construction vehicles and municipal trucks. While on/off models provide durability and fuel efficiency for over-the-road applications, the DuroSpeed fan drive significantly reduces fan engagements for greater reliability and less noise. The modular design allows any Company Kysor on/off fan drive to be easily converted to a DuroSpeed fan drive. The Company will begin supplying this product in May 2015. (From a press release on March 19, 2015)

Patents

-As of December 31, 2015, the Company has more than 5,600 active patents and patent applications pending.

Investments outside U.S.

<South Korea>
-BorgWarner Transmission Systems Korea, a joint venture majority-owned by the Company, opened a new transmission technology facility in Jincheon, South Korea, the third such facility in the country. The new facility will produce a variety of automatic transmission components, including clutch modules, clutch sets and friction plates. The new 17,000-square-meter facility will also provide space for engineering, sales and administrative functions and includes ample area for future expansions. (From a press release on October 21, 2015)

-The Company announced that it has opened a new 6,000-square-meter facility in Chungju, South Korea, to expand manufacturing for its emissions technologies. In addition to the ignition products produced at the previous plant in the same city, the new facility will manufacture exhaust gas recirculation (EGR) valves and coolers, variable force solenoids, diesel cold-start technologies and coolant control valves. The wholly-owned facility also provides space for application engineering, sales, quality, supply chain management and administrative functions. The Company expects the facility to double employment in the next five years. (From a press release on April 9, 2015)

<Hungary>
-The Company announced its plant opening in Oroszlany, Hungary. The wholly-owned 4,032-square-meter campus manufactures advanced all-wheel drive (AWD) solutions such as transfer cases, feeder pumps, valves and AWD couplings for global automakers. The Oroszlany campus already produces turbochargers for gasoline and diesel engines. (From a press release on August 6, 2015)

<Mexico>
-The Company announced that it has expanded its manufacturing facility at its campus in Ramos Arizpe, Mexico, to meet increasing demand for emissions technologies in North America. The facility will produce exhaust gas recirculation (EGR) modules, ignition coils and coolant control valves for gasoline- and diesel-powered passenger cars, minivans and light-duty trucks. The Company expects to create approximately 350 new manufacturing jobs at the facility over the next two years. (From a press release on March 25, 2015)

<Brazil>
-In late 2015, the Company will begin manufacturing advanced engine timing chains at its campus in Itatiba City, Brazil, making it the first automotive supplier to produce chains locally in Brazil for the South American market. The Company's expansion in Brazil will support a major light vehicle program with one of the country's top automakers. (From a press release on March 12, 2015)

<China>
-The Company is expanding capacity in Ningbo, China, with a new production line for its exhaust gas recirculation (EGR) valves for passenger cars and commercial vehicles. The Company expects to supply its EGR technology to a large Chinese automaker beginning in May 2015. (From a press release on March 5, 2015)