Financial Overview

(in million dollars)

	FY ended Dec. 31, 2012	FY ended Dec. 31, 2011	Rate of change (%)	Factors
Overall
Sales	7,183.2	7,114.7	1.0	-Increased sales growth by 17% in North America and by 19% in Japan, partially offset by a 6% decrease in Europe.
Operating Income	752.9	797.5	(5.6)	-
Engine Segment
Sales	4,913.0	5,050.6	(2.7)	1)
Drivetrain Segment
Sales	2,298.7	2,084.5	10.3	2)

Factors
1) Engine Segment
-The Engine Segment's sales in FY ended Dec. 31, 2012 decreased by 2.7% year-on-year to 4,913.0 million dollars.
-Excluding the impact of the fourth quarter 2011 and third quarter 2012 dispositions and weaker foreign currencies, primarily the Euro, sales increased 4% from the year ended Dec. 31, 2011. This increase was primarily driven by global growth in most major product groups.

2 ) Drivetrain Segment
-The Drivetrain Segment's sales in FY ended Dec. 31, 2012 increased by 10.3% year-on-year to 2,298.7 million dollars.
-Excluding the acquisition of Haldex Traction AB (from Haldex AB) and the impact of weaker foreign currencies, primarily Euro, sales increased 13% from the year ended Dec. 31, 2011. This increase was primarily driven by strong global growth in all major product groups.

Contracts

-Followings are major contracts from a press release in 2012.
<Engine Segment>

Product	Installed model (Engine)		Note
3-stage turbocharger	BMW "M550d xDrive" Sedan, "Touring", "X5 M50d Touring", "X6 M50d" (M Performance diesel engine, the six-cylinder in-line diesel engine)		-This turbocharger consists of two small high-pressure variable turbine geometry turbochargers integrated with one larger low-pressure water-cooled turbocharger. -Compared with the BMW 740d boosted by its regulated two-stage turbocharging system, the BMW M550d xDrive Sedan with its three-stage turbocharging technology increases power output nearly 25 percent and improves fuel economy 8 percent.
2-stage turbocharger	Hyundai "Aero Town", "Green City", "Mega Truck" (5.9-liter I-6 diesel engine)		-The turbocharger enables the engine to reach a maximum torque of 981 Nm at 1,400 rpm and helps the engine comply with Euro 5 emissions standards.
2-stage turbocharger	Daimler "Mercedes-Benz S 250 CDI BlueEFFICIENCY" (2.2-liter four-cylinder diesel)		-The turbocharger consists of one small high-pressure exhaust gas turbocharger and one large low-pressure exhaust gas turbocharger. -The engine boosted with this turbocharger provides its maximum torque from just 1,600 rpm and achieves a fuel consumption rating of 5.7 liters per 100 kilometers (41mpg).
Variable turbine geometry (VTG) turbocharger	Renault "Scenic"(Europe model), "Grand Scenic (Europe model) (1.6-liter four-cylinder Energy dCi 130 diesel engine)		-Its VTG turbocharger helps the engine set high standards of efficiency with CO2 emissions of less than 115 g/km (185 grams/mile) and 20 percent better fuel economy compared with its 1.9-liter predecessor.
Turbocharger	BYD "G6" Sedan (China model) (1.5-liter I-4 gasoline direct-injection (GDI) engine)		-The inline four-cylinder engine boosted by this turbocharger achieves a power output of 154 HP (113 kW) and a maximum torque of 240 Nm (177 lb.-ft.), helping the engine comply with Euro 5 emissions standards.
Turbocharger	2012 Ford "F-150" (3.5L EcoBoost)		-
Turbocharger	2012 Ford "Explorer" (North America model), "Edge" (North America model) Changan Ford "Mondeo" (2.0-liter four-cylinder EcoBoost)		-
Turbocharger	Daimler "Mercedes-Benz" (12.8-liter six-cylinder in-line BlueEFFICIENCY Power)		-Turbocharger for the engine is designed to meet upcoming Euro VI emissions standards. -The engine will be used in on-road commercial vehicles as well as off-highway vehicles.
Turbocharger, engine timing system, and variable cam timing (VCT) system with Cam Torque Actuated (CTA) technology	BMW "335i" Coupe (3.0-liter N55 Turbocharged DOHC I-6) Chrysler "300S", "Jeep Wangler" (3.6-liter Pentastar DOHC V-6) Ford "Edge" (2.0-liter EcoBoost DOHC I-4), "Mustang Boss 302" (5.0-liter DOHC V-8) GM "Buick Regal GS" (2.0-liter DOHC I-4)		-
Cam Torque Actuated (CTA) variable cam timing (VCT) technology	2012 Subaru "Impreza" (2.0-liter SUBARU BOXER)		-
Timing drive system	2012 Ford "F-150"		-
Variable cam timing phaser	Ford (5.0-liter Coyote and 6.2-liter Boss)		-
Low-friction silent chain and compact hydraulic tensioner	Daihatsu "Mira e:S" (0.66-liter I-3 gasoline engine)		-The products help the Daihatsu Mira e:S achieve 30 km/liter (70.5 mpg).

<Drivetrain Segment>

Product	Installed model (Transmission)		Note
Friction plate	2012 Audi "Q5 Hybrid Quattro" (ZF full hybrid 8-speed automatic transmission)		-The parallel hybrid transmission will also be featured in the Audi "A6", "A8" and BMW "5-series hybrids".
DualTronic control module and clutch module with integral torsional vibration damper	FAW "Hongqi (Red Flag)" (Seven-speed wet dual-clutch transmission)		-Featuring improved solenoids and new friction materials with clutch pack design, its DualTronic clutch and control modules deliver better fuel economy and torque transfer compared with previous wet and dry clutch systems.
Single-speed transfer case	Ford Australia "Territory"		-
Single-speed transfer case	Ford "F-150 Harley-Davidson"		-
2-speed transfer case	2012 Ford "F-150 Lariat", "F-150 King Ranch", "F-150 Platinum"		-The two-speed active all-wheel drive system for "F-150" trucks will feature 4-high, 4-low, full-time and automatic all-wheel drive modes.
HY-VO chain, friction plate, single-speed transfer case	Ford "F-150" (6-speed automatic transmission)		-

Divestitures

-Federal-Mogul Corporation announced a definitive agreement to purchase the spark plug business from the Company. The spark plug business was a segment of the BERU operations acquired by the Company in 2005. The purchase includes manufacturing sites at Chazelles sur Lyon, France and Neuhaus, Germany. The newly acquired sites, which employ approximately 500 personnel, currently manufacture a product line of BERU branded spark plugs sold to European original equipment manufacturers and the automotive aftermarket. The acquired units will add approximately 80 million USD annualized sales and increase Federal-Mogul's annual spark plug production capacity to more than 350 million. Federal-Mogul will integrate the acquired facilities into its ignition business, which includes the Champion ignition product line. The Champion brand portfolio includes spark plugs for combustion engines including small garden equipment, motorsports, automotive, commercial vehicles and industrial machinery. Federal-Mogul today operates six manufacturing sites and three technical centers within its ignition product line at facilities in the U.S., China, India and Mexico. The Company will continue its focus on expanding the core BERU Systems products of glow plugs, diesel cold start systems and other gasoline ignition technologies. (From a press release on July 2, 2012)

Awards

-BorgWarner Turbo Systems received first prize of 2011 Porsche Supplier of the Year Award for the development of its variable turbine geometry (VTG) turbocharger for gasoline engines. (From a press release on August 27, 2012)

-Daihatsu presented a Suppliers' Excellence Award to the Company to recognize its contributions toward the engine's fuel economy. (From a press release on July 19, 2012)

Outlook

-Based on weakening global economic conditions, particularly in Europe, the Company expects global production volumes to be slightly higher in 2013 compared with 2012. In Europe, its largest market, the Company expect production volumes to decline in 2013 compared with 2012. However, the Company expects that higher adoption rates of its products around the world will result in 2- 6% overall sales growth for the Company in 2013.

-The Company announced 2.3 billion USD of expected net new powertrain business for 2013 through 2015. 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. The European market accounts for 30% of its expected new business compared with 45% in the previous three-year net new business. New business sales in Asia are expected to account for about 50% of the total by the end of the period compared with 35% in the previous three-year net new business. Approximately 32% of its expected new business is in China. Approximately 20% of the anticipated new business over the three years is in the Americas including 11% with the North American domestic OEMs. (From a press release on November 6, 2012)

R&D Expenditure

(in million dollars)

	FY ended Dec. 31, 2012	FY ended Dec. 31, 2011	FY ended Dec. 31, 2010
Total	265.9	243.7	185.0
% of sales	3.7%	3.4%	3.3%

R&D Facilities

-In 2012, the Company opened a new production plant and engineering center at its campus in Ningbo, Jiangsu Province, China. With a building area of 107,000 square feet (10,000 square meters), the Ningbo Engineering Center includes a prototype shop as well as two turbocharger and engine test stands. (From a press release on December 17, 2012)

-In 2012 the Company established an engineering center in Itatiba, Brazil.

-The Company holds 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

Dual-coil ignition system
-BorgWarner BERU Systems GmbH is developing a new dual-coil ignition system. Similar to a plug top ignition coil, its new technology consists of two ignition coils inside a single housing, connected directly to the spark plug in each cylinder. Currently under testing and development with several OEMs around the world, the new ignition system significantly reduces ignition delays, allows more accurate ignition timing at different engine speeds and loads, and offers the flexibility of single- or multi-spark modes. The Company intends to offer the new ignition technology in 12-volt or 40- to 50-volt versions. (From a press release on November 20, 2012)

Cam phasers for I4 engines
-The Company will expand its variable cam timing (VCT) technology with a new family of cam phasers for I4 engines. The modular design supports a variety of cam phasing technologies, including cam torque actuated (CTA) and torsional assist (TA) phasers with optional mid position lock technology. Each phaser also features an integrated center bolt and spool valve for smaller package size and easier installation. The technology is planned to launch with a major automaker on diesel and gasoline applications in 2015. Both will be supported by production at a new facility in Eastern Europe. (From a press release on October 5, 2012)

Capital Expenditure

(in million dollars)

	FY ended Dec. 31, 2012	FY ended Dec. 31, 2011	FY ended Dec. 31, 2010
Total	407.4	393.7	276.6
% of sales	5.7%	5.5%	4.9%

Investment Outside USA

<China>
-The Company opened a new production plant and engineering center at its campus in Ningbo, Jiangsu Province, China. The new manufacturing facility will produce and test Morse TEC variable cam timing (VCT) technologies and engine timing systems to support the production and launch of over 50 programs with more than 20 different customers. The production plant at the Company's Ningbo campus comprises 177,000 square feet (16,500 square meters) of manufacturing space. With a building area of 107,000 square feet (10,000 square meters), the Ningbo Engineering Center includes a prototype shop as well as two turbocharger and engine test stands. (From a press release on December 17, 2012)

<Brazil>

-The Company established a new engine and drivetrain production facility in Itatiba, Brazil.