29th October 2008 - BorgWarner Posts Third Quarter Results; Revises Outlook for 2008

International Sales Offset U.S. Decline; Financial Condition Remains Strong

BorgWarner Inc. today reported third quarter sales and earnings for 2008. International sales offset steep declines in U.S. revenue due to declining economic conditions in the market. The company also adjusted its outlook for the remainder of the year to reflect deteriorating global economic conditions and automotive production declines in Europe.

Third Quarter Highlights:

Comment and Outlook: 'While we continued to generate growth from our international operations, the crisis in the financial sector and deteriorating global economic conditions negatively impacted our performance,' said Tim Manganello, Chairman and CEO. 'We expect the unprecedented current economic environment to continue to affect our near-term results and create difficult conditions through 2009. However, we are responding swiftly to these challenges, having expanded our North American restructuring program during the third quarter and initiating actions in Europe.

'We have successfully managed through difficult market environments before. The underlying fundamentals of our business remain strong and our financial structure is sound. We expect to continue to outpace the growth of the auto industry and to strengthen our competitive position through our focus on fuel-efficient technologies, our diversified customer base, a strong geographic presence, and our robust pipeline of new business. We have already taken actions, and will take any necessary additional actions, to successfully navigate through this difficult period and meet the future needs of customers for BorgWarner powertrain technologies.'

Commenting on the outlook, Robin Adams, Chief Financial Officer, stated: 'Our adjusted guidance for 2008 reflects the rapid deterioration of the global economic environment beyond North America and the resulting near-term pressure on both sales and margins. Our current guidance reflects a 12% reduction in sales in the last six months of 2008 from our previous guidance, of which two-thirds of the sales decline is occurring in our operations outside of the U.S.

'Looking into 2009, our preliminary view of the year would indicate flat year-over-year sales, excluding the impact of foreign currencies which will be negative. Our current production assumptions are a build rate of less than 12 million units in North America and close to 13 million units in Western Europe. Earnings could be flat year-over-year.' The company will provide formal full-year 2009 guidance in January.

Financial Results: Sales were $1,316.9 million in third quarter 2008, flat with $1,313.6 million in third quarter 2007. The impact of foreign currencies, primarily the Euro, increased sales by $64.4 million, or 4.9%, in third quarter 2008 compared with the same period in 2007. Net income (loss) in the quarter was $(130.4) million or $(1.12) per diluted share compared with $83.2 million, or $0.70 per diluted share in third quarter 2007. Excluding one-time adjustments, third quarter 2008 net income was $51.6 million or $0.44 per diluted share. Third quarter 2007 included a net gain of $16.7 million, or $0.14 per diluted share, related to tax account adjustments, primarily due to a change in the statutory tax rate in Germany. The impact of foreign currencies, primarily the Euro, increased net income by $4.2 million, or $0.04 per diluted share, in third quarter 2008 compared with the same period in 2007.

Sales were $4,332.4 million in the first nine months of 2008, up 9.5% from $3,955.7 million, in the first nine months of 2007. The impact of foreign currencies, primarily the Euro, increased sales by $305.1 million, or 8%, in the first nine months of 2008 compared with the same period in 2007. Net income was $45.8 million in the first nine months of 2008, or $0.39 per diluted share, compared with $217.3 million, or $1.85 per diluted share in the first nine months of 2007. Excluding one-time adjustments, nine month 2008 net income was $232.2 million or $1.97 per diluted share. The first nine months of 2007 included a net gain of $16.7 million, or $0.14 per diluted share, related to tax account adjustments, primarily due to a change in the statutory tax rate in Germany. The impact of foreign currencies, primarily the Euro, increased net income by $22.6 million, or $0.19 per diluted share, in the first nine months of 2008 compared with the prior year period.

Excluding the one-time items, operating income was $74.1 million, or 5.6% of sales, in third quarter 2008 versus $98.3 million, or 7.5% of sales, in third quarter 2007. Research and development spending was $50.7 million in the quarter versus $49.1 million in 2007.

Net cash provided by operating activities was $265.1 million in the first nine months of 2008 versus $366.1 million in the first nine months of 2007. Investments in capital expenditures, including tooling outlays, totaled $265.6 million for the first nine months of 2008, compared with $194.6 million for the same period in 2007. The company repurchased $48.4 million of common stock during the first nine months of 2008. Balance sheet debt increased by $78.0 million at the end of third quarter 2008 compared with the end of 2007.

The company's capital structure remains strong. The ratio of balance sheet debt to capital was 24% at the end of the third quarter. The company has ample liquidity with $136 million of cash on hand at the end of the quarter and no outstanding borrowings under its $600 million revolving credit facility.

Engine Group Results: Engine Group third quarter 2008 sales were up 4% versus third quarter 2007 to $974.1 million, while earnings before interest and income taxes were $94.1 million. Sales outside of the U.S. were up 5% excluding the impact of foreign currencies, as the group continued to benefit from European and Asian automaker demand for turbochargers. Sales in the U.S. were down 19% due to production volume declines in vehicles using the company's chain products, thermal systems and turbochargers.

Drivetrain Group Results: Drivetrain Group third quarter 2008 sales were down 10% versus third quarter 2007 to $347.2 million. Earnings before interest and income taxes were a loss of $(2.9) million. Sales outside of the U.S. were up 9%, excluding the impact of foreign currencies, driven by demand for dual clutch transmission technology. Drivetrain sales in the U.S. were down 30% primarily due to the impact of lower domestic vehicle production, especially light trucks and SUVs. Industry production of light trucks and SUVs was down 36% from the 2007 third quarter.

Recent Highlights: Two BorgWarner technologies have been named finalists for the prestigious 2009 Automotive News PACE Awards, BorgWarner's industry-first, patented Cam Torque Actuated (CTA(TM)) Camshaft Phasing System from Morse TEC and award-winning, patented Pressure Sensor Glow Plug for diesel engines from BERU. Introduced on the 2009 VW Jetta powered by a 2.0-liter CR-TDI engine, the BorgWarner Pressure Sensor Glow Plug is the first technology that allows OEMs to implement closed-loop combustion control in a mass-produced vehicle at a reasonable cost.

BorgWarner will supply Cam Torque Actuated (CTA) variable cam timing technology for the upgraded Ford Duratec 3.0-liter V-6 engine, debuting in the 2009 Ford Escape. BorgWarner's industry-first, patented technology improves engine performance and fuel economy while reducing emissions.

In addition, BorgWarner's award-winning, patented DualTronic(R) Performance Package from Transmission Systems was one of eleven innovations to earn an Honorable Mention from PACE judges. In addition, BorgWarner received a 2008 Global Innovation Award from Nissan in recognition of this innovative dual-clutch technology, used in the all-new 2008 Nissan GT-R.

BorgWarner will also supply its DualTronic(R) clutch module for the 7-speed 'M double-clutch transmission (DCT) Drivelogic' in the BMW M3, recently launched in Europe, the United States and other markets worldwide. The BorgWarner DualTronic(R) clutch module is a critical component in the BMW M DCT Drivelogic developed and manufactured by Getrag. The transmission is the world's first dual clutch transmission designed for conventional rear-wheel drive inline vehicle configurations and was developed to match BMW's highest performance vehicles. The same transmission will later be used in other BMW 3-series vehicles.

Auburn Hills, Michigan-based BorgWarner Inc. (NYSE: BWA) is a product leader in highly engineered components and systems for vehicle powertrain applications worldwide. The FORTUNE 500 company operates manufacturing and technical facilities in 64 locations in 17 countries. Customers include VW/Audi, Ford, Toyota, Renault/Nissan, General Motors, Hyundai/Kia, Daimler, Chrysler, Fiat, BMW, Honda, John Deere, PSA, and MAN.

Source: BorgWarner Press Release