Financial Overview

(in million dollars)

	FY2009	FY2008	Rate of change (%)	Factors
Overall
Net Sales	3,961.8	5,263.9	(24.7)	-
Engine Segment
Net Sales	2,883.2	3,861.5	(25.3)	-The Engine segment decrease was primarily driven by reduced global vehicle production and depressed demand for engine products.
EBIT	219.8	394.9	(44.3)	-
Drivetrain Segment
Net Sales	1,093.5	1,426.4	(23.3)	-The segment was negatively impacted by lower global production of light trucks and SUVs equipped with its torque transfer products and lower sales of its traditional transmission products.
EBIT	(13.5)	(4.9)	-	-

Acquistions

-In Sep. 2009, the German court confirmed the transfer of the shares of the other shareholders of BERU AG (Minority Shareholders) to BorgWarner Germany GmbH (Principal Shareholder) in return for cash compensation in the amount of EUR 73.39 per share. This approval marks the conclusion of the process initiated by the Company to make BERU its 100% subsidiary. (From a press release on Sep. 30, 2009)

-In Dec. 2009, BERU AG, having been fully integrated into the Company, officially changed its name to "BorgWarner BERU Systems GmbH". (From a press release on Dec. 14, 2009)

Joint Ventures

-In Jan. 2009, the Company announced that it will establish a joint venture with China Automobile Development United Investment Co., Ltd. Known as BorgWarner United Transmission Systems Co., Ltd., the joint venture will be located in Dalian, China. The Company holds a 66% majority ownership in the joint venture. The new company will produce DualTronic(R) dual-clutch transmission modules beginning in 2011. (CDUI), a company owned by 12 leading Chinese automakers including FAW, SAIC, Dongfeng, Chery, ChangAn, Brilliance, Guangzhou, Changfeng, JAC, Geely, Polarsun and Great Wall Motor. (From a press release on Jan 14, 2009)

Recent Developments outside USA

<Poland>
-The Company has opened its new production facility in Rzeszow, Poland.
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Outlook

-The Company will strengthen its business to supply major components of dual clutch transmission systems (DCTs) globally. Dual clutch transmissions offer better fuel efficiency than manual and driving performance as easy as that offered by automatic. Up until now, the DCT application was limited to some high-end models manufactured by European and Japanese automakers. In line with North American and Chinese companies' moves to start using this system on their vehicles around 2011 and 2012, the Company will start local supply in these new markets. In China, it will start operations at a new R&D center in 2009 and a joint-venture production company at the end of 2011, which will become the Group's hub for expanding Asian business. By 2014, the Company aims to increase sales of these products to 2.5 million units, fivefold those of the 2009's result. (From an article in the Nikkan Jidosha Shimbun on Apr. 24, 2009)

-The Company announced 1.8 billion USD of expected new powertrain business for 2010 through 2012. Of its total new business, 80% is anticipated from engine-related products and the other 20% is expected in drivetrain-related products. Turbochargers for diesel and gasoline direct injected (GDI) engines are projected to account for about 35% of the total sales. Another 13% is tied to its dual-clutch technology. By region, the Company foresees new business sales in Europe will constitute about 50% of the overall new business. The Asian market is expected to account for 30%, with China representing more than half of it. North America is about 20% of its anticipated new business over the three years. (From a press release on Nov. 9, 2009)

R&D Expenditure

(in million dollars)

	FY2009	FY2008	FY2007
Total	155.2	205.7	210.8
% of sales	3.9%	3.9%	4.0%

-Each of the Company's operating segments has its own research and development ("R&D") organization.
-The Company has approximately 700 employees, including engineers, mechanics and technicians, engaged in R&D activities at facilities worldwide.

Product Development

Exhaust gas recirculation (EGR) valve
-In Jan. 2009, the BorgWarner Turbo Systems Division announced that it has developed a new exhaust gas recirculation (EGR) valve with a brushless motor actuator. The electric butterfly EGR valve, which offers precise and responsive control combined with high flow capability, can be paired with EGR systems for heavy commercial vehicles and cooled EGR systems designed to meet tighter emissions standards. A further advantage is its high-strength brushless motor actuator, which is able to provide feedback to ensure precise control of the recirculated exhaust gas through its sensor system. The electric butterfly EGR valve will be manufactured in Illinois, U.S.A. and be supplied to manufacturers of commercial engines, starting in 2010. (From an article in the Nikkan Jidosha Shimbun on Jan. 15, 2009)

Butterfly EGR valve
-The Company developed new butterfly EGR valve which will debut with a commercial diesel engine manufacturer in 2010. Its EGR valve is easily integrated with an EGR cooler and cooler bypass valve and can also be applied to diesel passenger car applications. (From a press release on Jun. 15, 2009)

Turbocharger
-The Company has designed a turbocharger for Fiat Powertrain Technologies' (FPT) 1.8-liter direct-injection gasoline engine. The new engine complies with the Euro 5 emissions standard and is available in the Lancia Delta and Alfa Romeo 159. (From a press release on Jul. 23, 2009)

Technological Alliance

-The Company announced that it will acquire an gasoline ignition technology from Etatech, Inc of U.S.A. The high-frequency ignition technology enables lean burning engines to significantly improve fuel economy and reduce emissions compared with conventional combustion technologies. Independent lab tests showed peak energy efficiency improved up to 40%, NOx emissions decreased 80% and CO2 emissions fell 50%. The Company expects to commercialize the technology, which will replace conventional spark plugs, for powertrain applications in the next few years. (From a press release on Jun. 2, 2009)

Capital Expenditure

(in million dollars)

	FY2009	FY2008	FY2007
Total	172.0	369.7	293.9
% of sales	4.3%	7.0%	5.5%

Investment Outside USA

<Poland>
-The Company has opened its new production facility in Rzeszow, Poland. The operation has the capacity to produce up to 500,000 diesel and gasoline turbochargers a year for the sites of carmakers in Europe, including Fiat Powertrain Polska factory in Poland which manufactures Fiat 1.3-liter diesel engines. (From a press release on Jul 15, 2009)