Financial Overview

(in million dollars)

	FY ended Dec. 31, 2013	FY ended Dec. 31, 2012	Rate of change (%)	Factors
Overall
Sales	7,436.6	7,183.2	3.5	-Excluding the impact of 2012 dispositions and strengthening foreign currencies, primarily the Euro, net sales increased approximately 4%.
Operating Income	855.2	752.9	13.6	-
Engine Segment
Sales	5,022.1	4,913.0	2.2	1)
Drivetrain Segment
Sales	2,446.5	2,298.7	6.4	2)

Factors
1) Engine Segment
-The Engine Segment's sales in FY ended Dec. 31, 2013 increased by 2.2% year-on-year to 5,022.1 million dollars.
-Excluding the impact of 2012 dispositions and strengthening foreign currencies, primarily the Euro, net sales increased approximately 4% from the year ended December 31, 2012 primarily due to higher sales of turbochargers, EGR components and engine timing systems including variable cam timing devices.

2 ) Drivetrain Segment
-The Drivetrain Segment's sales in FY ended Dec. 31, 2013 increased by 6.4% year-on-year to 2,446.5 million dollars.
-Excluding the impact of strengthening foreign currencies, primarily the Euro, net sales increased approximately 4% from the year ended December 31, 2012 primarily due to higher sales of all-wheel drive systems and transmission components.

Production Launch

<Mexico>
-The Company has begun manufacturing its advanced engine timing systems in El Salto, Mexico, providing localized production for Volkswagen's third-generation 2.0- and 1.8-liter DOHC I4 engines built at Volkswagen's new engine plant in Silao, Mexico. Developed by Audi, the gasoline engines power the Volkswagen Jetta and Beetle as well as other models designated for the U.S. market. Initially, Volkswagen is expected to build over 300,000 engines per year at its new engine plant in Mexico, with the potential for higher volumes in the future. BorgWarner also supports these Volkswagen engines with local manufacturing in Europe and Asia. (From a press release on January 22, 2014)

Contracts

-The Company announced USD 2.9 billion of expected net new powertrain business for 2014 through 2016, up 26% from the previous three-year net new business. Demand for the company's powertrain technologies, such as gasoline and diesel turbochargers, all-wheel drive systems, engine timing systems including variable cam timing devices, and emissions products, is expected to continue to drive strong growth. The European market accounts for approximately 27% of its expected new business compared with 30% in the previous three-year net new business. New business sales in Asia are expected to account for about 47% of the total by the end of the period. Approximately 32% of the company's expected new business is in China. Approximately 26% of the anticipated new business over the three years is in the Americas; this includes 19% with the North American domestic OEMs compared with 11% in the previous three-year net new business. (From a press release on November 5, 2013)

-Followings are major contracts from a press release in 2013.
<Engine Segment>

Product	Installed model (Engine)		Note
Next-generation 6.35 mm inverted tooth silent engine timing chains	Mitsubishi, Suzuki, Hyundai, General Motors Korea and one Chinese automaker		The new engine timing chain is designed to reduce friction, resulting in as much as 0.3 to 0.6 percent improvement in fuel economy based on customer testing.
Exhaust gas recirculation (EGR) cooler	Renault "Scenic" and "Megane", Nissan "Qashqai"		BorgWarner's advanced EGR cooler with integrated hybrid tube technology helps improve fuel economy up to 3 percent while helping to achieve upcoming Euro 6 emissions standards.
Turbocharger	Hyundai "Veloster Turbo" (new 1.6-liter turbocharged gasoline direct injection (T-GDI) engine)		The turbocharged engine features a maximum output of 150 kW (204 HP), an increase of 46 percent compared with Hyundai's standard 1.6-liter GDI engine. BorgWarner integrated the exhaust manifold into the stainless steel turbine housing to reduce size and weight while optimizing heat energy recovery for better efficiency.
Timing systems for models with EA888 engines	Volkswagen "Golf"		-
Glow plugs, pressure sensor glow plugs, glow plug control units and cabin heaters for diesel engines	Volkswagen "Golf"		-
Ignition coils for gasoline engines	Volkswagen "Golf"		-
Ignition coils	Porsche "Boxster/Cayman"		-
Turbocharger	Jaguar Land Rover's (JLR's) new family of four-cylinder gasoline and diesel engines		The new engines are expected to launch in 2015.
Regulated two-stage (R2S) and twin scroll turbochargers	Mercedes-Benz "A45 AMG" (2.0-liter gasoline engine)		-

<Drivetrain Segment>

Product	Installed model (Transmission)		Note
DualTronic control modules and clutch modules with integral torsional dampers	SAIC "Roewe 550"		SAIC Motor plans to equip additional models, including the Roewe 350 and 750, with BorgWarner's wet dual-clutch technology in the future. Both DualTronic modules are being built at the BorgWarner United Transmission Systems plant in Dalian, China.
GenV all-wheel drive couplings	Volkswagen "Golf"		-
Dual-clutch and control modules for the 6-speed dual-clutch transmission	Volkswagen "Golf"		-
Variable cam timing phasers and friction plates for 8-speed automatic transmission	Volkswagen "Golf"		-

Acquisitions

-The Company announced that is has signed an agreement to acquire all shares in Gustav Wahler GmbH u. Co. KG and its general partner (Wahler), a producer of exhaust gas recirculation (EGR) valves, EGR tubes and thermostats. With locations in Germany, Brazil, the U.S., China and Slovakia, Wahler employs approximately 1,250 people and supplies customers such as Daimler, Volkswagen, BMW, GM and John Deere. Wahler's annual sales for 2013 are expected to be approximately USD 350 million. The deal is expected to close in the first quarter of 2014. (From a press release on December 17, 2013)

Awards

-The Company received a Daimler Supplier Award 2012 in the Mercedes-Benz Cars and Vans-Powertrain category. BorgWarner supplies a variety of turbocharging technologies to Mercedes-Benz, including regulated two-stage (R2S) and twin scroll turbochargers. BorgWarner's twin scroll turbocharging technology powers the 2.0-liter gasoline engine installed on the Mercedes-Benz A45 AMG. BorgWarner's turbocharging technologies have also received a first prize as one of ten Porsche Supplier of the Year Award winners in 2012. (From a press release on April 15, 2013)

Plant Closure

-BorgWarner Cooling Systems Korea, Inc., which is a Korean unit of BorgWarner Cooling Systems Korea, Inc. announced that it will close down its Changwon plant, Kyongsang-namdo, which produces engine cooling systems for Hyundai Motor and other automakers. The plant's operations are scheduled to be transferred to the Group's facilities in China and other countries by February 2014. The Korean subsidiary will continue to perform sales and marketing activities. (From a press release on October 23, 2013)

R&D Expenditure

(in million dollars)

	FY ended Dec. 31, 2013	FY ended Dec. 31, 2012	FY ended Dec. 31, 2011
Total	303.2	265.9	243.7
% of sales	4.1%	3.7%	3.4%

R&D Facilities

<Poland>
-The Company announced that it has expanded its campus in the Podkarpackie Science and Technology Park in Rzeszow, Poland, with a new production plant and engineering center. The 78,500-square-foot (7,300-square-meter) production plant produces advanced chain-driven engine timing systems, including variable cam timing technologies, and provides expanded capacity for transmission components. Covering more than 72,000 square feet (6,700 square meters), the technical center provides capabilities for application engineering and research and development to create new technologies designed to improve fuel economy and reduce emissions while enhancing performance. Production for several major European car manufacturers began recently. (From a press release on September 26, 2013)

<Brazil>
-The Company announced that it has opened a new 215,200-square-foot (20,000-square-meter) Brazilian plant and engineering center. With a total area of nearly 100,000 square meters, the campus also offers additional space for future expansion. With its new facilities in Brazil, BorgWarner is positioned to support car manufacturers in complying with the new regulations, Inovar-Auto. In addition, the company expects to strengthen its local market position as a leading supplier of environmentally friendly technologies such as gasoline and diesel turbochargers, dual-clutch transmission technology, engine timing systems and emissions products for passenger cars and commercial vehicles. (From a press release on June 18, 2013)

Product Development

Electronic limited slip differentiall
-The Company introduced its new electronic limited slip differential designed for the front transaxle of a front-wheel drive (FWD) vehicle on the 2013 Volkswagen Golf GTI with Performance Pack. Known as front cross differential (FXD) technology, the system greatly enhances vehicle traction, handling and stability without sacrificing engine power. The technology uses the same electro-hydraulic actuation technology recently launched on BorgWarner's fifth generation AWD coupling, and offers automakers a compact and easy-to-install electronic limited slip differential solution. (From a press release on November 19, 2013)

Capital Expenditure

(in million dollars)

	FY ended Dec. 31, 2013	FY ended Dec. 31, 2012	FY ended Dec. 31, 2011
Total	417.8	407.4	393.7
% of sales	5.6%	5.7%	5.5%

Investment Outside USA

<Poland>
-The Company announced that it has expanded its campus in the Podkarpackie Science and Technology Park in Rzeszow, Poland, with a new production plant and engineering center. The 78,500-square-foot (7,300-square-meter) production plant produces advanced chain-driven engine timing systems, including variable cam timing technologies, and provides expanded capacity for transmission components. Covering more than 72,000 square feet (6,700 square meters), the technical center provides capabilities for application engineering and research and development to create new technologies designed to improve fuel economy and reduce emissions while enhancing performance. Production for several major European car manufacturers began recently. (From a press release on September 26, 2013)

<Portugal>

-The Company announced that it is building a new manufacturing facility in Viana do Castelo, Portugal, about 31 miles (50 km) from its current site in Valenca. Construction began in August 2013 and is expected to be completed in 2014. BorgWarner's new larger building comprises 160,000 square feet (15,000 square meters) of manufacturing space, with adjacent room for future expansion. Expanded production capacity will allow BorgWarner to efficiently serve customers with several technologies such as exhaust gas recirculation (EGR) coolers and EGR tubes as well as glow plug control modules. The construction of its new plant in Portugal is part of BorgWarner's strategy to expand production of its diesel cold-start technologies while meeting growing demand for the EGR technologies currently produced at the Valenca plant. The company plans to gradually transfer current production to Viana do Castelo with completion by early 2015. (From a press release on September 17, 2013)

<Brazil>
-The Company announced that it has opened a new 215,200-square-foot (20,000-square-meter) Brazilian plant and engineering center. With a total area of nearly 100,000 square meters, the campus also offers additional space for future expansion. With its new facilities in Brazil, BorgWarner is positioned to support car manufacturers in complying with the new regulations, Inovar-Auto. In addition, the company expects to strengthen its local market position as a leading supplier of environmentally friendly technologies such as gasoline and diesel turbochargers, dual-clutch transmission technology, engine timing systems and emissions products for passenger cars and commercial vehicles. (From a press release on June 18, 2013)