Financial overview

(in million dollars)

	FY2008	FY2007	Rate of change (%)	Factors
Overall
Net Sales	5,263.9	5,328.6	(1.2)	-
Engine Segment
Net Sales	3,861.5	3,761.3	2.7	-The Engine segment continued to benefit from Asian automaker demand for turbochargers and timing systems, European automaker demand for turbochargers, timing systems, exhaust gas recirculation (EGR) valves and diesel engine ignition systems. -This benefit was offset by lower North American production of light truck and sport-utility vehicles.
EBIT	394.9	418.0	(5.5)	-The Segment EBIT margin was 10.2% in 2008, down from 11.1% in 2007, due to the significant reduction in customer production schedules in the U.S. and European markets, and increased costs for raw materials, principally steel.
Drivetrain Segment
Net Sales	1,426.4	1,598.8	(10.8)	-The group was negatively impacted by lower U.S. production of light trucks and SUVs equipped with its torque transfer products and lower sales of its traditional transmission products.
EBIT	(4.9)	118.1	-	-Segment EBIT margin was (0.3)% in 2008, down from 7.4% in the prior year, due to the combined effect of DCT product start-up cost pressures and lower North American production of light trucks and sport-utility vehicles equipped with its torque transfer products.

Contracts
-In Jun. 2008, the Company announced that the Company supplies the all-new 2009 Dodge Journey crossover with Interactive Torque Management (ITM 3e(TM)) system as an option. In addition to providing the all-wheel drive coupling in the Dodge Journey SXT AWD and Journey R/T AWD, the Company supplies the electronics, software controls and vehicle integration support. (From a press release on June 5)

-In Jul. 2008, the Company announced that the Company's new InterActive Torque Management(R) Transfer Case (ITM(R) tc) all-wheel-drive (AWD) technology will be supplied to the Chrysler 300 and Dodge Charger as optional equipment for the 2009 model year. (From a press release on Jul 1, 2008)

-In Sep. 2008, the Company announced that it will supply patented Cam Torque Actuated (CTA) variable cam timing technology for the Ford Duratec 3.0-liter V-6 engine, debuting in the 2009 Ford Escape. (From a press release on Sep 3, 2008)

-In Sep. 2008Athe Company announced that it will supply NexTrac (R) system, the Company's all-wheel drive (AWD) system, for the 2009 Hyundai Santa Fe, Tucson and Kia Sportage. (From a press release on Sep. 24, 2008)

-In Oct. 2008, the Company announced that it will supply its DualTronic(R) clutch module for the 7-speed "M double-clutch transmission (DCT) Drivelogic" in the BMW M3. (From a press release on Oct 9, 2008)

New Business 2009 thru 2011 -2.1 billion USD of Net New Business Americas: 20% Net new business with GM, Ford and Chrysler in the U.S. is 10% of total net new business Ford: GDI turbochargers, Variable cam timing, Transmission modules and components, AWD Chrysler: AWD systems, Engine timing GM: Transmission components, Engine timing, AWD systems Asian & European OEMs: Turbochargers, Engine timing, Emissions International: Turbochargers Commercial: Turbochargers, Thermal systems Europe: 50% VW/Audi: Turbochargers, DualTronic(R), Diesel cold start Ford: Turbochargers, DualTronic(R) Daimler: Turbochargers, Beru systems, Engine timing BMW: Turbochargers, Diesel cold start, DualTronic(R) Fiat: Turbochargers, Diesel cold start, Transmission modules PSA: Turbochargers, Diesel cold start Renault/Nissan: Turbochargers, Beru systems Asia: 30% Net new business in China and Korea is ~10% and ~6% of total net new business, respectively Hyundai/Kia: Engine timing, AWD systems, Transmission components, Turbochargers, Beru systems VW/Audi: Turbochargers Chery: AWD, Engine timing, Turbochargers FAW: Transmission modules, Engine timing Renault/Nissan: Turbochargers, DualTronic(R) Tata Motors: Engine timing

Acquistions
-In December 2007, the Company announced it informed BERU that it has crossed the threshold of 75% voting rights in BERU on December 10, 2007, and that it is intended to start preparation for the conclusion of a domination and profit transfer agreement between the Company as controlling party and BERU as controlled party. The Executive Board of BERU welcomes this intention and will start with the preparations.

-As a result of the tendering of shares in 2008, the Company owns approximately 96% of all BERU's outstanding shares. On January 7, 2009, the Company informed BERU of its intention to purchase the remaining outstanding shares of approximately 4%

-In Dec. 2008, the Company announced that with its engine timing system sales in India expected to show strong growth in the future, BorgWarner Morse TEC has completed the acquisition of its joint venture with Murugappa Group's Tube Investments of India (TII) located in Chennai, India. In 2001, BorgWarner Morse TEC partnered with TII to manufacture silent chains for the Indian automotive and two-wheeler markets. Its customers in the region include Hyundai, Mahindra & Mahindra, Maruti Suzuki and Tata. (From a press release on Dec 10, 2008)


Restructuring
Proactive actions are taken including the followings;
-Reduced 24% of workforce
-Closing Drivetrain facility in UK

R&D Expenditure

(in million dollars)

	FY2008	FY2007	FY2006
The Company spent	205.7	210.8	187.7

-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.


Product Development
Turbochargers for Ford's EcoBoost Engine
-The Company announced that BorgWarner will supply turbochargers for rear-wheel drive cars and pickup trucks featuring Ford's upcoming EcoBoost engine, a downsized gasoline direct-injection engine with dual turbochargers. (From a press release on May 1, 2008)

R2S(R) regulated two-stage turbocharging system
-R2S(R) regulated two-stage turbocharging system consists of two turbochargers. At low engine speeds, the smaller high-pressure turbocharger ensures spontaneous engine response without "turbo lag". With increasing engine speed, the larger low-pressure turbocharger ensures constantly increasing power and high output torque across a wide range of engine speeds. The combination allows car makers to offer low-fuel-consumption engines with lower emissions. (From a press release on Nov 17, 2008)

Capital Expenditure

(in million dollars)

	FY2008	FY2007	FY2006
Total	485.1	293.9	268.3
% of sales	7.0%	5.5%	5.9%

Investment Plan
-In May 2008, the Company announced that the Board of Directors of the Company has approved investments of approximately $125 million to increase the company's global passenger car turbocharger capacity by more than three million units. The increased capacity is expected to meet growing demand for the company's turbocharger technology and will support new business awards in North America, Europe and Asia. The investments include construction of new facilities in Mexico and Thailand, and expansion of facilities in Hungary and Poland. The added capacity will produce turbochargers for both diesel and gasoline engines. The spending for these projects will occur over the next few years. (From a press release on May 1, 2008)


Investment outside USA
<Europe>
-The Company expanded its facility in Oroszlany, Hungary. The new 50,000-square-foot (4,650-square-meter) building will provide added manufacturing, training, development and administrative space. With an area now totaling over 145,000 square feet (13,500 square meters), the four- building campus employs about 600 people who produce turbochargers that equip over 50 car models for customers in Europe, China, India and Mexico. Since the plant in Hungary first opened, the operation has increased annual production from 40,000 units in 2000 to 1.5 million units in 2007. (From a press release on Feb. 25, 2008)

-In Mar. 2008, the Company announced thatit has opened its second manufacturing facility at its Drivetrain campus in Arnstadt, Germany. The new facility will double the manufacturing area of the current site to over 107,000 square feet (10,000 square meters). In addition, a new vehicle lab and test track has been constructed for on-site evaluation of series-production technologies. (From a press release on Mar. 11, 2008)

-In Mar. 2008, the Company announced that it broke ground for a new production facility in Rzeszow, Poland. The location in southeast Poland offers economic advantages and allows the Company to serve vehicle manufacturers in both Western and Eastern Europe. The 54,000-square-foot (5,000-square-meter) operation is expected to create about 200 jobs. (From a press release on Mar. 25, 2008)

<Asia>
-In Jan. 2008, the Company announced that BorgWarner Thermal Systems has broken ground for a new facility near Chennai, India. Located in a high-tech business park near several automakers, the new 63,000-square-foot (5,900-square-meter) facility will include manufacturing, training, design services and administrative space for over 100 employees with room for future expansion. The facility is expected to be complete by October 2008. BorgWarner Thermal Systems in India produces viscous fan drives, fans, exhaust gas recirculation (EGR) valves and solenoids.(From a press release on Jan. 10, 2008)

-In Apr. 2008, the Company announced that BorgWarner Thermal Systems opened a new production facility at its campus in Ningbo, China, where it will produce fans, viscous fan drives, Visctronic(R) fan drives and water pumps. The new 194,000-square-foot (18,000-square-meter) operation is the Company's largest in China. (From a press release on Apr. 22, 2008)