Financial Overview

(in million dollars)

	FY2011	FY2010	Rate of change (%)	Factors
Overall
Net Sales	7,114.7	5,652.8	25.9	-
Engine Segment
Net Sales	5,050.6	4,060.8	24.4	1)
*Adjusted EBIT	774.3	537.9	43.9
Drivetrain Segment
Net Sales	2,084.5	1,611.4	29.4	2)
*Adjusted EBIT	161.2	137.0	17.7

*Adjusted EBIT is comprised of earnings before interest, income taxes and non controlling interest ("EBIT") adjusted for restructuring, goodwill impairment charges, affiliates' earnings and other items not reflective of on-going operating profit or loss.

Factors
1) Engine Segment
-The net sales and segment EBIT increases were primarily driven by strong global growth in all major product groups and continued cost management.

2 ) Drivetrain Segment
-The net sales increase was a result of strong four-wheel drive system and traditional transmission component sales in South Korea and higher dual clutch transmission module sales in Europe.

-The segment EBIT margin was 7.7% in the year ended December 31, 2011, which was decreased 0.8% from 8.5% in the year ended December 31, 2010, primarily due to operational inefficiencies in its European operations and Traction Systems acquisition (from Haldex AB) related expenses.

Acquisitions

-The Company has completed its acquisition of the Traction Systems division of Haldex Group. From production facilities in Sweden, Mexico and Hungary, Haldex Traction Systems supplies all-wheel drive systems for passenger car and crossover vehicles. Customers include Volkswagen, Audi, Skoda, Seat, Lamborghini, Bugatti, Volvo, Land Rover, Saab and GM. The purchase price was 205 million USD. (From a press release on February 1, 2011)

-The Company has acquired a Spanish company Dytech ENSA SL. With locations in Spain, Portugal and India, Dytech produces exhaust gas recirculation (EGR) coolers, EGR tubes, and integrated EGR modules including valves. Its annual sales for 2009 were approximately 180 million USD. It supplies customers such as Renault/Nissan, VW/Audi, Ford, Fiat, Navistar, GM, Daimler, PSA, Suzuki, Mahindra & Mahindra, TATA, Ashok Leyland, MAN, and IVECO. (From a press release on April 9, 2010)

-BorgWarner BERU Systems has gained full control of BERU Eichenauer GmbH by acquiring the shares of its former joint venture partner, Eichenauer Heizelemente GmbH & Co. KG in Germany. The acquired business is based in Kandel, Germany and engages in the development and manufacturing of electric cabin heaters. (From a press release on May 3, 2010)

Business Partnership

-The Company announced that it has signed comprehensive strategic cooperation agreements with Great Wall Motors. The companies will cooperate over products such as timing chain transmission system and torque management device. The cooperation between Great Wall Motors and the Company began in 2005. The Company first provided electronically controlled four-wheel-drive transfer case for Haval SUV and Wingle Pickups. Now, the turbocharger and transfer case applied on new Haval H5 series have been put into production. The torque management device applied on Haval H6 series will also start production by the end of 2011. (From a press release on October 8, 2011)

Divestitures

-The Company announced that it has agreed to sell its tire pressure monitoring business to Huf Electronics GmbH. The sale includes a manufacturing facility in Bretten, Germany, which employs approximately 230 people. The tire pressure monitoring business was acquired in 2005 as a part of the BERU diesel cold start and ignition systems business. (From a press release on November 30, 2011)

Awards

-BorgWarner Morse TEC Inc., a subsidiary of the Company announced that its facility in Ningbo, Zhejiang province, China received a Best Supplier Award from Shanghai Volkswagen Powertrain. The Ningbo facility produces timing chain drives for the EA111 engine used to power the VW Polo and Touran as well as the Skoda Octavia, Superb and Fabia. (From a press release on June 23, 2011)

-BorgWarner Turbo Systems received an Excellent Supplier Award for performance in delivery and quality from China National Heavy Duty Truck Group Corporation (CNHTC). (From a press release on April 14, 2011)

Contracts

<Engine>

Product	Installed model	Engine	Note
Turbochargers	Ford	3.5-liter "Ecoboost"	-
Two-stage turbochargers	Fiat	3.0-liter F1C common-rail diesel engines	-Helps the engine comply with EPA 2010 emissions standards while improving fuel economy up to 10 percent compared with its predecessor.
Variable turbine geometry (VTG) turbochargers	Great Wall Motor "Hover/Haval H5" (China model)	2.0-liter diesel engines	-Helps Great Wall Motor's engine comply with Euro 4 emissions standards and achieve an average fuel consumption of 34 mpg (6.8 liter / 100km)
Variable turbine geometry (VTG) turbochargers	BMW "MINI"	1.6-liter four -cylinder common-rail diesel engines	-Helps downsizing the diesel engine's displacement form 2.0-liter to 1.6-liter
Silent chains	-Hyundai "Sonata" (US, Korea model) -Kia "Sorento" (US, Korea model), "K5" (US, Korea model), "Sportage" (US, Korea model)	Four-cylinder gas direct-injection (GDI) and turbo-GDI engines	-Delivers lower noise, vibration and harshness (NVH) and greater durability compared with roller chain systems for balance drive applications.
Timing chain drives	-Volkswagen "Polo", "Touran" -Skoda "Octavia","Superb","Fabia"	"EA111"	-
Cam Torque Actuated (CTA) variable cam timing (VCT) technology	Subaru "Forester"	Four-cylinder 2.0- and 2.5-liter boxer engines	-
Engine timing systems with silent chain technology	Chrysler "Jeep Grand Cherokee" (2011 model)	3.6-liter Pentastar V6 engines	-
-Cam Torque Actuated (CTA) variable cam timing (VCT) technology -Timing drive systems	Ford "Super Duty" (2011 model)	6.2-liter V8 gasoline engines	-Helps Super Duty trucks provide 385 horsepower, contributes to delivering 405-lb-ft of torque and assists in attaining 15 percent better fuel economy than the previous 5.4-liter engines.
-Engine timing systems -Exhaust gas recirculation (EGR) tubes -Instant start systems	-Ford "Transit", "T6-GCP-Ranger" -Fiat "Ducato" -PSA "Boxer" -Land Rover "Defender"	I4 2.2-liter and I5 3.2-liter diesel engines	-
Electronically controlled Visctronic fan drives	-Freightliner Trucks "Cascadia" (US model)	DD13 and DD15 engines	-Improves engine cooling for better fuel economy and improved horsepower. -Tighter control of engine temperature extends engine and component life.
Double platinum spark plugs for plug top ignition coils	-Audi "A4", "A4 Avant", "A5", "A5 Sportback", "A5 Cabrio"	1.8- and 2.0-liter TFSI engines	-Meets high high voltage specifications while minimizing the risk of arcing and flashover, which can cause engine misfires. -Reduces erosion for longer service life.
Compact plug top ignition coils	Fiat	0.9-liter TwinAir gasoline engines	-Utilizes new magnetic circuitry technology resulting in reduced part size. -Produces higher combustion energy and greater ignition voltage.
Electric butterfly exhaust gas recirculation (EGR) valves	Cummins on-highway commercial diesel trucks	11.9- and 15.0-liter engines	-

<Drivetrain>

Product	Installed model	Engine	Note
The third generation Tire Safety System (TSS)	Volkswagen "Passat" (US model)	-	-Consists of a compact control unit with an integrated antenna and four wheel electronic unites. -Measures the central pressure and temperature of each tire. Through signal strength analysis from the antenna, TSS detects the position of each wheel and informs the driver of a derivation of as little as 0.2 bar from the specified tire pressure.
Transfer cases	Great Wall Motor "Haval H5"	-	-
Torque management devices	Great Wall Motor "Haval H6"	-	-
-Friction plates -Roller one-way clutches	-Hyundai "Equos" (South Korea model), "Genesis" (South Korea model) -Kia "Mohave" (South Korea model)	4.6- and 3.8-liter engines	-Installed in Hyundai's 8-speed automatic rear-wheel drive transmission.
Transfer cases	Great Wall Motor "Hover/Haval H5" (China model)	2.0-liter	-
Transfer cases	Tata "Aria"	2.2-liter	-The Company and Tata engineers worked side by side to integrate the Company's ECU and software into Tata's in-vehicle network, allowing the transfer case to automatically switch from two-wheel drive to four-wheel drive and back without driver intervention.

Outlook

-The Company announced 2.5 billion USD of expected net new powertrain business for 2012 through 2014, a 9% increase over its previous three-year net new business. Of the total new business, approximately 80% is anticipated from engine-related products such as turbochargers, ignition systems, emissions products, engine timing systems, variable cam timing modules and thermal systems. The remaining approximate 20% is expected from drivetrain-related products including the company's DualTronic transmission technology and its traditional automatic transmission and all-wheel drive technologies. (From a press release on November 8, 2011)

-The Company expects global production volumes to be higher in 2012 compared with 2011. In Europe, the Company expects production volumes to decline in 2012 compared with 2011. However, the Company expects that higher adoption rates of the Company's products around the world will result in sales growth for the Company above global production growth in 2012.

-The Company maintains a positive long-term outlook for its global business and is committed to new product development and strategic capital investments to enhance its product leadership strategy. The trends that are driving the Company's long-term growth are expected to continue, including the growth of direct injection diesel and gasoline engines worldwide, the increased adoption of automated transmissions in Europe and Asia-Pacific, and the move to variable cam and chain engine timing systems in both Europe and Asia-Pacific.

R&D Expenditure

(in million dollars)

	FY2011	FY2010	FY2009
Total	243.7	185.0	155.2
% of sales	3.4%	3.3%	3.9%

-Each of the Company's operating segments has its own research and development ("R&D") organization.

R&D Facilities

-The Company opened the BorgWarner China Technical Center in Shanghai, China. By 2012, the facility will be the largest in the Company's network of global technical centers and is expected to employ about 400 people. The new center will engage in the research and development of products including turbochargers, DualTronic modules, exhaust gas recirculation (EGR) valves, air pumps, timing chains, fans and fan drives, water pumps, ignition systems, transmission solenoids and controls, friction plates, and four-wheel drive systems. (From a press release on March 26, 2010)

Product Development

-The Company developed its new silent chain for the balance shaft drive on Hyundai's Theta II four-cylinder gas direct-injection (GDI) and turbo-GDI engines. These engines power the Hyundai Sonata and Kia Sorento, K5 and Sportage for the U.S. and South Korea. The new silent chain delivers lower noise, vibration and harshness (NVH) and greater durability compared with roller chain systems for balance drive applications. (From a press release on September 12, 2011)

-The Company's two-stage R2S turbochargers and Hybrid Tube exhaust gas recirculation (EGR) coolers help reduce emissions and improve fuel economy for on-highway commercial diesel trucks and buses. Launched with a major North American commercial truck maker earlier this year, the combination of technologies enables truck makers to meet 2010 EPA emissions regulations. (From a press release on December 8, 2010)

Capital Expenditure

(in million dollars)

	FY2011	FY2010	FY2009
Total	393.7	276.6	172.0
% of sales	5.5%	4.9%	4.3%

Investment Outside USA

<Mexico>
-The Company announced that it has opened a new production facility in Ramos, Mexico, which currently supports production of turbochargers for Ford's 3.5-liter Ecoboost engine for rear-wheel drive cars and trucks launched in November 2010. The Company plans to employ more than 185 people at the plant to support already awarded new business. (From a press release on October 17, 2011)

<Brazil>

-The Company announced that it will build a new production facility and engineering center in Itatiba City, Brazil. The new 204,500-square-foot (19,000-square-meter) facility will replace the current plant in Campinas and is expected to be completed in August 2012. The new facility will produce turbochargers for passenger cars and commercial vehicles, and viscous fans and fan drives. In the future, the facility will be ready to support production for variable camshaft timing (VCT) technology and engine timing systems. (From a press release on July 21, 2011)

<India>
-BorgWarner Thermal Systems has opened a manufacturing facility near Chennai, India. The new site produces viscous fans and fan drives for customers including Tata Motors, Tata Cummins, Ashok Leyland, Mahindra & Mahindra, and others. (From a press release on March 30, 2010)