Contracts
- In January 2006, the Company announced it is supplying drivetrain and engine components for the Honda Ridgeline. This winning vehicles of the 2006 North American Car and Truck of the Year awards uses the Company's electronically controlled all-wheel drive InterActive Torque Management II (ITM II) system, as well as a number of components for the vehicle's transmission and the clutchpack assemblies for the ITM system.

- In January 2006, the Company announced it is supplying its ITM 3e torque management system for the Chery Tiggo, the first domestic OEM-designed crossover vehicle (COV) to be built in China using an active all-wheel drive system.

- In January 2006, the Company announced it will supply the "DualTronic" wet dual-clutch module technology for the Skoda Laura, which is being launched in India. The Skoda Laura is also equipped with a 1.9-liter direct-injection diesel engine that uses the Company's turbocharger.

- In March 2006, the Company announced, for the first time, it is supplying the Porsche 997 Turbo 900T3 3.6-liter engine with a high-flow air pump, which provides a 30-percent increase in air flow over previous-generation air pumps.

- In September 2006, the Company announced it will ship the millionth T-Trac torque management system from its Seneca, South Carolina facility to Honda Motor Company this month. The system, which was developed jointly by BorgWarner and Honda, was produced beginning in August 2000 for the Acura MDX and was initially shipped to Honda of Canada Manufacturing in Alliston, Ontario. Production of the system for the Honda Pilot began in April 2002, and expanded again in 2005 to include the Honda Ridgeline.

- In September 2006, the Company announced that the 2006 Porsche sports car is equipped with the BorgWarner's InterActive Torque Management (ITM3e) all-wheel drive system as standard.

- In November 2006, the Company announced that it will provide its industry-first DualTronic transmission technology to Shanghai Automobile Gear Works Co. Ltd. (SAGW), a subsidiary of Shanghai Automotive Industry Co. Ltd. (SAIC), for the development of China's first dual-clutch transmission. BorgWarner develops and provides five production modules, which include the dual clutch, the torsional vibration damper, the hydraulic controls with shift actuation, the synchronizers and the hydraulic pump. The transmission assembly is jointly developed by SAGW and GIF, a German engineering company. Transmission assembly production is to be conducted at SAGW in China.

- In November 2006, the Company announced that its electric shift-on-the-fly transfer case and electronic control unit are standard on all part-time all-wheel drive versions of AutoAlliance Thailand Ford New Ranger and Everest automatic transmission- equipped vehicles. This is the first application of BorgWarner's part-time all-wheel drive technology in Thailand, Beginning with the 2007 model year, the vehicles using the BorgWarner all- wheel drive system will be assembled at the Auto Alliance facility in Thailand and shipped to more than 25 markets worldwide.

- In December 2006, the Company announced that BorgWarner Morse TEC is the single-source supplier of preassembled timing chain systems for the new 3.2-L Volvo I-6 engine, the first of a new family of engines, that will equip mid-class Volvo vehicles and future Ford PAG models.

For the first time in its history, it's new business growth in Asia over the next years is expected to equal that in North America at 27 % of total net sales growth, with Europe at 46%.
VW/Audi is expected to be its largest customer in 2007.

New Business 2007 thru 2009
Americas: 27%
Net new business with GM, Ford and Chrysler in the U.S. is 12% of total net new business
International: Turbochargers
DaimlerChrysler: Transfer cases, Transmission modules and components, AWD systems, Engine timing
GM: Transmission components, Engine timing, Variable cam timing, Transfer cases
Ford: Engine timing, Transmission modules and components
John Deere: Turbochargers

Europe: 46%
VW/Audi: Turbochargers, DualTronic, Engine sensors, Engine timing, Diesel cold start
Ford: Turbochargers, DualTronic, Engine timing, Diesel cold start
DaimlerChrysler: Turbochargers, Engine Timing
BMW: Turbochargers, Tire pressure monitoring

Asia: 27%
Net new business in Korea and China is 15% and 9% of total net new business, respectively
Hyundai: Engine timing, AWD systems, Turbochargers
VW/Audi: Turbochargers
Ssangyong: Transfer cases
Chinese OEMs: Turbochargers, Thermal systems, DualTronic, AWD systems
Japanese OEMs: Engine timing, Emissions systems

Acquisitions
- In October 2006, the Company acquired the European Transmission and Engine Controls ("ETEC") product lines from Eaton Corporation. With 2006 sales anticipated at $57 million, the transmission and engine controls operation specializes in high pressure control solenoids for automated transmissions, common rail diesel and gas engines and other applications that complement BorgWarner's expertise in engine and drivetrain electronics.

Outlook for 2007
(1) The Engine segment expects to deliver continued growth from further penetration of diesel engines in Europe, which will continue to boost demand for turbochargers and BERU technologies, and increased market penetration of its turbocharger and emissions product sales into the commercial vehicle market in North America. Investments in South Korea and China are expected to continue to contribute to sales and EBIT. This growth is expected to help offset anticipated weakness in North American light vehicle production.

(2) The Drivetrain segment is expected to grow slightly as stagnant demand for the Company's rear-wheel-drive based four-wheel-drive systems in North America is expected to be offset by content growth with its traditional transmission products and controls in automatic transmissions in North America, increased penetration of automatic transmissions in Europe and Asia, including increased sales of dual-clutch transmission products.

R&D Expenditure

Each of the Company's operating segments has its own research and development ("R&D") organization. The Company has approximately 800 employees, including engineers, mechanics and technicians, engaged in R&D activities at facilities worldwide. The Company also operates testing facilities such as prototype, measurement and calibration, life testing and dynamometer laboratories.
- By working closely with the OEMs and anticipating their future product needs, the Company's R&D personnel conceive, design, develop and manufacture new proprietary automotive components and systems.
- The Company has approximately 3,800 active domestic and foreign patents and patent applications pending or under preparation,

Product Development
The i-Trac: The Company introduces several new front-wheel drive/all-wheel drive (FWD/AWD) technologies. Its enhanced FWD/AWD portfolio, called the "i-Trac" FWD/AWD product family, is comprised of two subgroups - Stability and Traction, and Handling and Performance.

Advanced Air Management Technologies: The Company and the U.S. Environmental Protection Agency (EPA) jointly develop advanced air management technologies that will enable the automotive and trucking industries to utilize EPA's Clean Diesel Combustion (CDC) and High-Efficiency Gasoline combustion technologies. The partnership is particularly focused on technologies that lead to products that improve efficiency with lower emissions and have the best potential for commercialization.

High-Flow Air Pump: The Company is developing new high-flow air pump technology designed to address its global customers' need to meet increasingly stringent industry standards for emissions and fuel economy. The new BorgWarner high-flow air pump technology enables the replacement of dual-pump systems with a single, submersible, high-flow pump -- called 1000-T3. The benefits include reductions in cost, space, and weight, as well as enhanced energy conversion efficiency. The latter enables the pump to convert electric power into more flow and pressure. The pump also provides flexibility in engine and catalyst packaging.

Joint technology with Audi: Audi's recently launched 1.8-liter TFSI engine is developed in close cooperation with the Company's Turbo & Emissions Systems. The new engine continues the collaboration that built Audi's award-winning 2.0-liter TFSI engine - the first to combine turbocharging with gasoline direct injection worldwide - and represents the starting point for a completely new sporty and efficient world engine family.

<- In 2007 the Company's target for capital spending is to be approximately 6.5% of sales.

Overseas Investment
- In March 2006, BorgWarner opens a new operation in Ningbo, China for the assembly of turbochargers and transmission solenoids. A new office building there houses employees of BorgWarner Turbo & Emissions Systems, BorgWarner Morse TEC and BorgWarner Transmission Systems, as well as a Shared Services group of finance, information technology and human resources professionals who will support all of the Company's business units in China.

- In December 2006, BorgWarner nearly doubles the size of its Engine Group manufacturing facility in Pyongtaek, South Korea, initially started its production in 2003, aiming to meet increasing demand for engine timing systems. The 90,000 sq-foot plant manufactures engine timing systems for Hyundai/Kia's family of engines. Annual volumes are expected to reach over three million engines by 2010. The campus produces Morse TEC engine timing products as well as Turbo & Emissions Systems turbochargers.

- In December 2006, the Company opens the Eyrein factory in France, a site of 170,000 sq-foot, and the new facility replaces a smaller facility in central Tulle and includes application engineering, testing, prototyping and manufacturing capabilities. The new facility currently employs about 280 people.

- In addition to the currently existing seven manufacturing plants in Germany, France, Monaco and the United Kingdom, the Drivetrain Group re-affirms in February 2007 to open the eighth facility with a new 34,000 sq feet European Drivetrain Competence Center in Ketsch, Germany. Together with the Drivetrain Group's European headquarters and technical center, it will accommodate about 120 Transmission Systems and Torq Transfer Systems employees.