Quarterly Report (10-q)

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-Q

QUARTERLY REPORT



(Mark One)
þ		Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
		For the quarterly period ended March 31, 2015



o		Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
		For the transition period from to

Commission file number: 1-12162

BORGWARNER INC.

________________________________________________

(Exact name of registrant as specified in its charter)



Delaware		13-3404508
State or other jurisdiction of		(I.R.S. Employer
Incorporation or organization		Identification No.)

3850 Hamlin Road, Auburn Hills, Michigan		48326
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (248) 754-9200

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES þ NO o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

YES þ NO o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filer	þ	Accelerated filer	o	Non-accelerated filer	o	Smaller reporting company	o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES o NO þ

As of April 24, 2015, the registrant had 226,265,323 shares of voting common stock outstanding.

BORGWARNER INC.

FORM 10-Q

THREE MONTHS ENDED MARCH 31, 2015

INDEX



	Page No.
PART I. Financial Information

Item 1. Financial Statements

Condensed Consolidated Balance Sheets as of March 31, 2015 and December 31, 2014 (Unaudited)	3

Condensed Consolidated Statements of Operations for the three months ended March 31, 2015 and 2014 (Unaudited)	4

Condensed Consolidated Statements of Comprehensive (Loss) Income for the three months ended March 31, 2015 and 2014 (Unaudited)	5

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2015 and 2014 (Unaudited)	6

Notes to Condensed Consolidated Financial Statements (Unaudited)	7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	24

Item 3. Quantitative and Qualitative Disclosures About Market Risk	33

Item 4. Controls and Procedures	33

PART II. Other Information

Item 1. Legal Proceedings	33

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	34

Item 6. Exhibits	35

SIGNATURES	36

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

BORGWARNER INC. AND CONSOLIDATED SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)



(in millions)	March 31, 2015			December 31, 2014
ASSETS
Cash	$	1,035.5		$	797.8
Receivables, net	1,564.7			1,443.5
Inventories, net	506.3			505.7
Deferred income taxes	79.9			93.6
Prepayments and other current assets	139.0			130.2
Total current assets	3,325.4			2,970.8

Property, plant and equipment, net	2,049.9			2,093.9
Investments and other long-term receivables	422.5			403.3
Goodwill	1,168.6			1,205.7
Other non-current assets	556.2			554.3
Total assets	$	7,522.6		$	7,228.0

LIABILITIES AND EQUITY
Notes payable and other short-term debt	$	107.8		$	623.7
Accounts payable and accrued expenses	1,484.4			1,530.3
Income taxes payable	9.3			14.2
Total current liabilities	1,601.5			2,168.2

Long-term debt	1,730.6			716.3

Other non-current liabilities:
Retirement-related liabilities	315.0			326.6
Other	313.0			326.0
Total other non-current liabilities	628.0			652.6

Common stock	2.5			2.5
Capital in excess of par value	1,096.7			1,112.4
Retained earnings	3,866.6			3,717.1
Accumulated other comprehensive loss	(616.9		)	(383.6		)
Common stock held in treasury	(844.9		)	(832.2		)
Total BorgWarner Inc. stockholders’ equity	3,504.0			3,616.2
Noncontrolling interest	58.5			74.7
Total equity	3,562.5			3,690.9
Total liabilities and equity	$	7,522.6		$	7,228.0

See accompanying Notes to Condensed Consolidated Financial Statements.

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BORGWARNER INC. AND CONSOLIDATED SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)



	Three Months Ended March 31,
(in millions, except share and per share amounts)	2015			2014
Net sales	$	1,984.2		$	2,084.1
Cost of sales	1,555.2			1,638.3
Gross profit	429.0			445.8

Selling, general and administrative expenses	168.2			173.8
Other expense, net	1.2			38.8
Operating income	259.6			233.2

Equity in affiliates’ earnings, net of tax	(8.5		)	(8.8		)
Interest income	(1.7		)	(1.5		)
Interest expense and finance charges	10.0			8.2
Earnings before income taxes and noncontrolling interest	259.8			235.3

Provision for income taxes	72.1			68.1
Net earnings	187.7			167.2
Net earnings attributable to the noncontrolling interest, net of tax	8.8			8.1
Net earnings attributable to BorgWarner Inc.	$	178.9		$	159.1

Earnings per share — basic	$	0.79		$	0.70

Earnings per share — diluted	$	0.79		$	0.69

Weighted average shares outstanding (thousands):
Basic	225,796			227,430
Diluted	227,088			229,327

Dividends declared per share	$	0.13		$	0.125

See accompanying Notes to Condensed Consolidated Financial Statements.

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BORGWARNER INC. AND CONSOLIDATED SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(UNAUDITED)



	Three Months Ended March 31,
(in millions)	2015			2014
Net earnings attributable to BorgWarner Inc.	$	178.9		$	159.1

Other comprehensive (loss) income
Foreign currency translation adjustments	(249.8		)	(2.7		)
Hedge instruments*	4.2			(1.3		)
Defined benefit postretirement plans*	12.3			1.2
Total other comprehensive loss attributable to BorgWarner Inc.	(233.3		)	(2.8		)

Comprehensive (loss) income attributable to BorgWarner Inc.	(54.4		)	156.3
Comprehensive income (loss) attributable to the noncontrolling interest	0.1			(1.1		)
Comprehensive (loss) income	$	(54.3	)	$	155.2

____________________________________


*	Net of income taxes.

See accompanying Notes to Condensed Consolidated Financial Statements.

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BORGWARNER INC. AND CONSOLIDATED SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)



	Three Months Ended March 31,
(in millions)	2015			2014
OPERATING
Net earnings	$	187.7		$	167.2
Adjustments to reconcile net earnings to net cash flows from operations:
Non-cash charges (credits) to operations:
Depreciation and tooling amortization	72.7			74.1
Amortization of intangible assets and other	4.4			6.0
Restructuring expense, net of cash paid	8.1			34.3
Gain on previously held equity interest	(10.8		)	—
Stock-based compensation expense	10.9			7.8
Deferred income tax provision	10.4			15.6
Equity in affiliates’ earnings, net of dividends received, and other	(9.8		)	(9.0		)
Net earnings adjusted for non-cash charges to operations	273.6			296.0
Changes in assets and liabilities:
Receivables	(202.1		)	(246.5		)
Inventories	(30.6		)	(7.9		)
Prepayments and other current assets	(9.8		)	(2.2		)
Accounts payable and accrued expenses	32.5			69.3
Income taxes payable	(7.8		)	(30.9		)
Other non-current assets and liabilities	(23.1		)	(31.4		)
Net cash provided by operating activities	32.7			46.4

INVESTING
Capital expenditures, including tooling outlays	(140.0		)	(126.2		)
Payments for businesses acquired, net of cash acquired	(12.6		)	(106.4		)
Proceeds from asset disposals and other	0.8			1.5
Net cash used in investing activities	(151.8		)	(231.1		)

FINANCING
Net (decrease) increase in notes payable	(512.3		)	111.3
Additions to long-term debt, net of debt issuance costs	1,012.8			100.0
Repayments of long-term debt, including current portion	(3.1		)	(100.1		)
Payments for purchase of treasury stock	(33.7		)	—
Proceeds from stock options exercised, including the tax benefit	11.5			9.4
Taxes paid on employees' restricted stock award vestings	(13.1		)	(22.2		)
Dividends paid to BorgWarner stockholders	(29.4		)	(28.4		)
Dividends paid to noncontrolling stockholders	(15.9		)	(14.0		)
Net cash provided by financing activities	416.8			56.0
Effect of exchange rate changes on cash	(60.0		)	(2.7		)
Net increase (decrease) in cash	237.7			(131.4		)
Cash at beginning of year	797.8			939.5
Cash at end of period	$	1,035.5		$	808.1

SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for:
Interest	$	12.8		$	18.1
Income taxes, net of refunds	$	50.0		$	72.8
Non-cash investing transactions
Liabilities assumed from business acquired	$	—		$	3.2
Non-cash financing transactions
Debt assumed from business acquired	$	—		$	33.3

See accompanying Notes to Condensed Consolidated Financial Statements.

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BORGWARNER INC. AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(1) Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements of BorgWarner Inc. and Consolidated Subsidiaries (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes necessary for a comprehensive presentation of financial position, results of operations and cash flow activity required by GAAP for complete financial statements. In the opinion of management, all normal recurring adjustments necessary for a fair presentation of results have been included. Operating results for the three months ended March 31, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015. The balance sheet as of December 31, 2014 was derived from the audited financial statements as of that date. For further information, refer to the Consolidated Financial Statements and Footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.

Management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and accompanying notes, as well as, the amounts of revenues and expenses reported during the periods covered by those financial statements and accompanying notes. Actual results could differ from these estimates.

(2) Research and Development Expenditures

The Company's net Research & Development ("R&D") expenditures are included in selling, general and administrative expenses of the Condensed Consolidated Statements of Operations. Customer reimbursements are netted against gross R&D expenditures as they are considered a recovery of cost. Customer reimbursements for prototypes are recorded net of prototype costs based on customer contracts, typically either when the prototype is shipped or when it is accepted by the customer. Customer reimbursements for engineering services are recorded when performance obligations are satisfied in accordance with the contract and accepted by the customer. Financial risks and rewards transfer upon shipment, acceptance of a prototype component by the customer or upon completion of the performance obligation as stated in the respective customer agreement.

The following table presents the Company’s gross and net expenditures on R&D activities:



	Three Months Ended March 31,
(in millions)	2015			2014
Gross R&D expenditures	$	92.4		$	94.5
Customer reimbursements	(17.0		)	(12.5		)
Net R&D expenditures	$	75.4		$	82.0

The Company has contracts with several customers at the Company's various R&D locations. No such contract exceeded 5% of annual net R&D expenditures in any of the periods presented.

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(3) Other Expense, net

Items included in other expense, net consist of:



	Three Months Ended March 31,
(in millions)	2015			2014
Restructuring expense	$	12.1		$	39.5
Gain on previously held equity interest	(10.8		)	—
Other income	(0.1		)	(0.7		)
Other expense, net	$	1.2		$	38.8

During the first quarters of 2015 and 2014, the Company recorded restructuring expense of $12.1 million and $39.5 million, respectively, primarily related to Drivetrain segment actions designed to improve future profitability and competitiveness. See the Restructuring footnote to the Condensed Consolidated Financial Statements for further discussion of these expenses.

During the first quarter of 2015, the Company completed the purchase of the remaining 51% of BERU Diesel Start Systems Pvt. Ltd. ("BERU Diesel") by acquiring the shares of its former joint venture partner. As a result of this transaction, the Company recorded a $10.8 million gain on the previously held equity interest in this joint venture. See the Recent Transactions footnote to the Condensed Consolidated Financial Statements for further discussion of this acquisition.

(4) Income Taxes

The Company's provision for income taxes is based upon an estimated annual tax rate for the year applied to federal, state and foreign income. On a quarterly basis, the annual effective tax rate is adjusted, as appropriate, based upon changed facts and circumstances, if any, as compared to those forecasted at the beginning of the fiscal year and each interim period thereafter.

The annual effective tax rates differ from the U.S. statutory rate primarily due to foreign rates which differ from those in the U.S., the realization of certain business tax credits, including foreign tax credits, and favorable permanent differences between book and tax treatment for certain items, including equity in affiliates' earnings.

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(5) Inventories, net

Inventories are valued at the lower of cost or market. The cost of U.S. inventories is determined by the last-in, first-out (“LIFO”) method, while the operations outside the U.S. use the first-in, first-out (“FIFO”) or average-cost methods. Inventories consisted of the following:



	March 31,			December 31,
(in millions)	2015			2014
Raw material and supplies	$	321.7		$	319.5
Work in progress	83.1			89.0
Finished goods	119.3			115.5
FIFO inventories	524.1			524.0
LIFO reserve	(17.8		)	(18.3		)
Inventories, net	$	506.3		$	505.7

(6) Property, Plant and Equipment, net



	March 31,			December 31,
(in millions)	2015			2014
Land, land use rights and buildings	$	754.8		$	784.8
Machinery and equipment	1,863.3			1,940.3
Capital leases	8.8			8.4
Construction in progress	342.6			310.4
Total property, plant and equipment, gross	2,969.5			3,043.9
Less: accumulated depreciation	(1,046.5		)	(1,076.8		)
Property, plant and equipment, net, excluding tooling	1,923.0			1,967.1
Tooling, net of amortization	126.9			126.8
Property, plant and equipment, net	$	2,049.9		$	2,093.9

As of March 31, 2015 and December 31, 2014, accounts payable of $38.4 million and $58.4 million, respectively, were related to property, plant and equipment purchases.

Interest costs capitalized for the three months ended March 31, 2015 and 2014 were $3.8 million and $3.5 million, respectively.

(7) Product Warranty

The Company provides warranties on some, but not all, of its products. The warranty terms are typically from one to three years. Provisions for estimated expenses related to product warranty are made at the time products are sold. These estimates are established using historical information about the nature, frequency and average cost of warranty claim settlements as well as product manufacturing and industry developments and recoveries from third parties. Management actively studies trends of warranty claims and takes action to improve product quality and minimize warranty claims. Management believes that the warranty accrual is appropriate; however, actual claims incurred could differ from the original estimates, requiring adjustments to the accrual.

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The following table summarizes the activity in the product warranty accrual accounts:



(in millions)	2015			2014
Beginning balance, January 1	$	132.0		$	72.7
Provisions	6.3			5.0
Acquisition*	—			64.9
Payments	(8.2		)	(7.3		)
Translation adjustment	(19.3		)	—
Ending balance, March 31	$	110.8		$	135.3

____________________________________

The 2014 acquisition relates to the Company's 2014 purchase of Gustav Wahler GmbH u. Co. KG and its general partner. In the fourth quarter of 2014, a measurement period adjustment of $42.1 million was made to increase the fair value of the warranty liability at the acquisition date, see Note 7 "Product Warranty" to the Company's Annual Report on Form 10-K for the year ended December 31, 2014 for additional details.

The product warranty liability is classified in the Condensed Consolidated Balance Sheets as follows:



	March 31,		December 31,
(in millions)	2015		2014
Accounts payable and accrued expenses	$	78.5	$	91.9
Other non-current liabilities	32.3		40.1
Total product warranty liability	$	110.8	$	132.0

(8) Notes Payable and Long-Term Debt

As of March 31, 2015 and December 31, 2014, the Company had short-term and long-term debt outstanding as follows:



	March 31,		December 31,
(in millions)	2015		2014
Short-term debt
Short-term borrowings	$	89.0	$	601.2

Long-term debt
5.75% Senior notes due 11/01/16 ($150 million par value)	$	149.8	$	149.8
8.00% Senior notes due 10/01/19 ($134 million par value)	134.0		134.0
4.625% Senior notes due 09/15/20 ($250 million par value)	248.5		248.4
3.375% Senior notes due 03/15/25 ($500 million par value)	499.0		—
7.125% Senior notes due 02/15/29 ($121 million par value)	119.5		119.4
4.375% Senior notes due 03/15/45 ($500 million par value)	498.4		—
Term loan facilities and other	89.1		75.1
Unamortized portion of debt derivatives	11.1		12.1
Total long-term debt	1,749.4		738.8
Less: current portion	18.8		22.5
Long-term debt, net of current portion	$	1,730.6	$	716.3

The weighted average interest rate on short-term borrowings outstanding as of March 31, 2015 and December 31, 2014 was 1.6% and 0.8%, respectively. The weighted average interest rate on all borrowings outstanding as of March 31, 2015 and December 31, 2014 was 4.6% and 2.9%, respectively.

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The Company has a $1 billion multi-currency revolving credit facility which includes a feature that allows the Company's borrowings to be increased to $1.25 billion. The facility provides for borrowings through June 30, 2019. The Company has one key financial covenant as part of the credit agreement which is a debt to EBITDA ("Earnings Before Interest, Taxes, Depreciation and Amortization") ratio. The Company was in compliance with the financial covenant at March 31, 2015 and expects to remain compliant in future periods. At March 31, 2015 and December 31, 2014, the Company had no outstanding borrowings under this facility.

The Company's commercial paper program allows the Company to issue short-term, unsecured commercial paper notes up to a maximum aggregate principal amount outstanding of $1 billion. Under this program, the Company may issue notes from time to time and will use the proceeds for general corporate purposes. The Company had no borrowings outstanding under this program at March 31, 2015. At December 31, 2014, the Company had outstanding borrowings of $460.9 million under this program, which is classified in the Condensed Consolidated Balance Sheets in Notes payable and other short-term debt.

The total current combined borrowing capacity under the multi-currency revolving credit facility and commercial paper program cannot exceed $1 billion.

As of March 31, 2015 and December 31, 2014, the estimated fair values of the Company’s senior unsecured notes totaled $1,796.6 million and $750.3 million, respectively. The estimated fair values were $147.5 million and $98.7 million higher than their carrying value at March 31, 2015 and December 31, 2014, respectively. Fair market values of the senior unsecured notes are developed using either observable inputs for identical debt instruments in active markets or observable values for similar debt instruments, which are considered Level 1 and Level 2 inputs, respectively, as defined by ASC Topic 820. The carrying values of the Company's multi-currency revolving credit facility and commercial paper program approximates fair value. The fair value estimates do not necessarily reflect the values the Company could realize in the current markets.

The Company had outstanding letters of credit of $27.1 million and $28.3 million at March 31, 2015 and December 31, 2014, respectively. The letters of credit typically act as guarantees of payment to certain third parties in accordance with specified terms and conditions.

(9) Fair Value Measurements

ASC Topic 820 emphasizes that fair value is a market-based measurement, not an entity specific measurement. Therefore, a fair value measurement should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering market participant assumptions in fair value measurements, ASC Topic 820 establishes a fair value hierarchy, which prioritizes the inputs used in measuring fair values as follows:


Level 1:	Observable inputs such as quoted prices for identical assets or liabilities in active markets;


Level 2:	Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and


Level 3:	Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

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Assets and liabilities measured at fair value are based on one or more of the following three valuation techniques noted in ASC Topic 820:


A.	Market approach: Prices and other relevant information generated by market transactions involving identical or comparable assets, liabilities or a group of assets or liabilities, such as a business.


B.	Cost approach: Amount that would be required to replace the service capacity of an asset (replacement cost).


C.	Income approach: Techniques to convert future amounts to a single present amount based upon market expectations (including present value techniques, option-pricing and excess earnings models).

The following tables classify assets and liabilities measured at fair value on a recurring basis as of March 31, 2015 and December 31, 2014:



			Basis of fair value measurements
(in millions)	Balance at March 31, 2015		Quoted prices in active markets for identical items (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Valuation technique
Assets:
Foreign currency contracts	$	10.2	$	—	$	10.2	$	—	A
Other long-term receivables (insurance settlement agreement note receivable)	$	90.7	$	—	$	90.7	$	—	C
Liabilities:
Foreign currency contracts	$	3.6	$	—	$	3.6	$	—	A



			Basis of fair value measurements
(in millions)	Balance at December 31, 2014		Quoted prices in active markets for identical items (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Valuation technique
Assets:
Foreign currency contracts	$	3.8	$	—	$	3.8	$	—	A
Other long-term receivables (insurance settlement agreement note receivable)	$	90.4	$	—	$	90.4	$	—	C
Liabilities:
Foreign currency contracts	$	2.9	$	—	$	2.9	$	—	A

(10) Financial Instruments

The Company’s financial instruments include cash and marketable securities. Due to the short-term nature of these instruments, their book value approximates their fair value. The Company’s financial instruments may include long-term debt, interest rate and cross-currency swaps, commodity derivative contracts and foreign currency derivatives. All derivative contracts are placed with counterparties that have an S&P, or equivalent, investment grade credit rating at the time of the contracts’ placement. At March 31, 2015 and December 31, 2014, the Company had no derivative contracts that contained credit risk related contingent features.

The Company uses certain commodity derivative contracts to protect against commodity price changes related to forecasted raw material and supplies purchases. The Company primarily utilizes forward and option contracts, which are designated as cash flow hedges. The Company did not have any commodity derivative contracts outstanding at March 31, 2015 and December 31, 2014.

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The Company uses foreign currency forward and option contracts to protect against exchange rate movements for forecasted cash flows, including capital expenditures, purchases, operating expenses or sales transactions designated in currencies other than the functional currency of the operating unit. Foreign currency derivative contracts require the Company, at a future date, to either buy or sell foreign currency in exchange for the operating units’ local currency.

At March 31, 2015 and December 31, 2014, the following foreign currency derivative contracts were outstanding:



Foreign currency derivatives (in millions)
Functional currency	Traded currency	Notional in traded currency March 31, 2015	Notional in traded currency December 31, 2014	Duration

Chinese yuan	Euro	16.4	—	Jun - 16
Chinese yuan	US dollar	22.8	24.9	Dec - 16
Euro	British pound	4.3	5.7	Dec - 15
Euro	Japanese yen	3,751.7	4,371.8	Feb - 16
Euro	US dollar	33.5	23.5	Apr - 16
Japanese yen	Chinese yuan	67.1	88.6	Dec - 15
Japanese yen	Korean won	4,951.6	6,712.5	Dec - 15
Japanese yen	US dollar	2.9	3.8	Dec - 15
Korean won	Euro	7.6	2.5	Dec - 15
Korean won	Japanese yen	590.1	72.0	Dec - 15
Korean won	US dollar	17.1	22.7	Dec - 15
Mexican peso	US dollar	6.3	22.6	Dec - 15
Swedish krona	Euro	23.7	31.4	Dec - 15

At March 31, 2015 and December 31, 2014, the following amounts were recorded in the Condensed Consolidated Balance Sheets as being payable to or receivable from counterparties under ASC Topic 815:



	Assets					Liabilities
(in millions)	Location	March 31, 2015		December 31, 2014		Location	March 31, 2015		December 31, 2014
Foreign currency	Prepayments and other current assets	$	10.1	$	3.7	Accounts payable and accrued expenses	$	2.9	$	2.4
	Other non-current assets	$	0.1	$	0.1	Other non-current liabilities	$	0.7	$	0.5

Effectiveness for cash flow and net investment hedges is assessed at the inception of the hedging relationship and quarterly, thereafter. To the extent that derivative instruments are deemed to be effective, gains and losses arising from these contracts are deferred into accumulated other comprehensive income (loss) ("AOCI") and reclassified into income as the underlying operating transactions are recognized. These realized gains or losses offset the hedged transaction and are recorded on the same line in the statement of operations. To the extent that derivative instruments are deemed to be ineffective, gains or losses are recognized into income.

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The table below shows deferred gains (losses) reported in AOCI as well as the amount expected to be reclassified to income in one year or less. The amount expected to be reclassified to income in one year or less assumes no change in the current relationship of the hedged item at March 31, 2015 market rates.



(in millions)	Deferred gain (loss) in AOCI at				Gain (loss) expected to be reclassified to income in one year or less
Contract Type	March 31, 2015		December 31, 2014
Foreign currency	$	6.7	$	1.3	$	7.2
Net investment hedges	0.2		0.2		—
Total	$	6.9	$	1.5	$	7.2

Derivative instruments designated as hedging instruments as defined by ASC Topic 815 held during the period resulted in the following gains and losses recorded in income:



		Gain (loss) reclassified from AOCI to income (effective portion)							Gain (loss) recognized in income (ineffective portion)
(in millions)		Three Months Ended							Three Months Ended
Contract Type	Location	March 31, 2015			March 31, 2014			Location	March 31, 2015			March 31, 2014
Foreign currency	Sales	$	(0.3	)	$	0.3		SG&A expense	$	(0.3	)	$	—
Foreign currency	Cost of goods sold	$	1.5		$	(0.8	)	SG&A expense	$	0.1		$	0.1
Foreign currency	SG&A expense	$	—		$	(0.3	)	SG&A expense	$	—		$	—
Cross-currency swap	N/A							Interest expense	$	—		$	0.7

At March 31, 2015, derivative instruments that were not designated as hedging instruments as defined by ASC Topic 815 were immaterial.

(11) Retirement Benefit Plans

The Company has a number of defined benefit pension plans and other postretirement benefit plans covering eligible salaried and hourly employees and their dependents. The estimated contributions to the Company's defined benefit pension plans for 2015 range from $15.0 million to $25.0 million, of which $4.5 million has been contributed through the first three months of the year. The other postretirement benefit plans, which provide medical and life insurance benefits, are unfunded plans.

The components of net periodic benefit cost recorded in the Condensed Consolidated Statements of Operations are as follows:



	Pension benefits												Other postretirement employee benefits
(in millions)	2015						2014						Other postretirement employee benefits
Three Months Ended March 31,	US			Non-US			US			Non-US			2015			2014
Service cost	$	—		$	3.7		$	—		$	3.3		$	0.1		$	—
Interest cost	2.8			3.6			3.1			4.6			1.4			1.7
Expected return on plan assets	(4.3		)	(6.2		)	(4.4		)	(5.4		)	—			—
Amortization of unrecognized prior service benefit	(0.2		)	—			(0.2		)	—			(1.4		)	(1.6		)
Amortization of unrecognized loss	1.6			1.7			1.6			1.2			0.7			0.7
Net periodic benefit (income) cost	$	(0.1	)	$	2.8		$	0.1		$	3.7		$	0.8		$	0.8

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(12) Stock-Based Compensation

Under the Company's 2004 Stock Incentive Plan ("2004 Plan"), the Company granted options to purchase shares of the Company's common stock at the fair market value on the date of grant. The options vested over periods of up to three years and have a term of 10 years from date of grant. At its November 2007 meeting, the Company's Compensation Committee decided that restricted common stock awards and stock units ("restricted stock") would be awarded in place of stock options for long-term incentive award grants to employees. Restricted stock granted to employees primarily vests 50% after two years and the remainder after three years from the date of grant. Restricted stock granted to non-employee directors generally vests on the first anniversary date of the grant. In February 2014, the Company's Board of Directors replaced the expired 2004 Plan by adopting the BorgWarner Inc. 2014 Stock Incentive Plan ("2014 Plan"). On April 30, 2014, the Company's stockholders approved the 2014 Plan. Under the 2014 Plan, 8 million shares are authorized for grant, of which approximately 7.2 million shares are available for future issuance as of March 31, 2015.

Stock options A summary of the Company’s stock option activity for the three months ended March 31, 2015 is as follows:



	Shares under option (thousands)		Weighted average exercise price		Weighted average remaining contractual life (in years)	Aggregate intrinsic value (in millions)
Outstanding and exercisable at December 31, 2014	1,714		$	16.11	1.7	$	66.5
Exercised	(251	)	$	14.72
Outstanding and exercisable at March 31, 2015	1,463		$	16.35	1.5	$	64.6

Restricted stock The value of restricted stock is determined by the market value of the Company’s common stock at the date of grant. In 2015, restricted stock in the amount of 563,074 shares was granted to employees. The value of the awards is recorded as unearned compensation within capital in excess of par value in equity and is amortized as compensation expense over the restriction periods.

The Company recorded restricted stock compensation expense of $7.3 million and $4.5 million for the three months ended March 31, 2015 and 2014, respectively.

A summary of the Company’s nonvested restricted stock for the three months ended March 31, 2015 is as follows:



	Shares subject to restriction (thousands)		Weighted average price
Nonvested at December 31, 2014	1,266		$	43.57
Granted	563		$	57.90
Vested	(568	)	$	38.35
Forfeited	(12	)	$	45.10
Nonvested at March 31, 2015	1,249		$	52.49

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(13) Accumulated Other Comprehensive Loss

The following tables summarize the activity within accumulated other comprehensive loss during the three months ended March 31, 2015 and March 31, 2014:



(in millions)	Foreign currency translation adjustments			Hedge instruments			Defined benefit postretirement plans			Other		Total
Beginning Balance, December 31, 2014	$	(160.7	)	$	1.7		$	(227.3	)	$	2.7	$	(383.6	)
Comprehensive income (loss) before reclassifications	(249.8		)	6.6			14.5			—		(228.7		)
Income taxes associated with comprehensive income (loss) before reclassifications	—			(1.6		)	(4.0		)	—		(5.6		)
Reclassification from accumulated other comprehensive income (loss)	—			(1.2		)	2.4			—		1.2
Income taxes reclassified into net earnings	—			0.4			(0.6		)	—		(0.2		)
Ending Balance March 31, 2015	$	(410.5	)	$	5.9		$	(215.0	)	$	2.7	$	(616.9	)



(in millions)	Foreign currency translation adjustments			Hedge instruments			Defined benefit postretirement plans			Other		Total
Beginning Balance, December 31, 2013	$	181.1		$	(16.0	)	$	(181.5	)	$	2.4	$	(14.0	)
Comprehensive loss before reclassifications	(2.7		)	(3.4		)	—			—		(6.1		)
Income taxes associated with comprehensive loss before reclassifications	—			1.3			—			—		1.3
Reclassification from accumulated other comprehensive loss	—			0.9			1.7			—		2.6
Income taxes reclassified into net earnings	—			(0.1		)	(0.5		)	—		(0.6		)
Ending Balance March 31, 2014	$	178.4		$	(17.3	)	$	(180.3	)	$	2.4	$	(16.8	)

(14) Contingencies

In the normal course of business, the Company is party to various commercial and legal claims, actions and complaints, including matters involving warranty claims, intellectual property claims, general liability and various other risks. It is not possible to predict with certainty whether or not the Company will ultimately be successful in any of these commercial and legal matters or, if not, what the impact might be. The Company's environmental and product liability contingencies are discussed separately below. The Company's management does not expect that an adverse outcome in any of these commercial and legal claims, actions and complaints will have a material adverse effect on the Company's results of operations, financial position or cash flows, although it could be material to the results of operations in a particular quarter.

Litigation

In January 2006, BorgWarner Diversified Transmission Products Inc. ("DTP"), a subsidiary of the Company, filed a declaratory judgment action in United States District Court, Southern District of Indiana (Indianapolis Division) against the United Automobile, Aerospace, and Agricultural Implements Workers of America (“UAW”) Local No. 287 and Gerald Poor, individually and as the representative of a defendant class. DTP sought the Court's affirmation that DTP did not violate the Labor-Management Relations Act or the Employee Retirement Income Security Act (ERISA) by unilaterally amending certain medical plans effective April 1, 2006 and October 1, 2006, prior to the expiration of the then-current collective bargaining agreements. On September 10, 2008, the Court found that DTP's reservation of the right to make such amendments reducing the level of benefits provided to retirees was limited by its collectively bargained

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health insurance agreement with the UAW, which did not expire until April 24, 2009. Thus, the amendments were untimely. In 2008, the Company recorded a charge of $4.0 million as a result of the Court's decision.

DTP filed a declaratory judgment action in the United States District Court, Southern District of Indiana (Indianapolis Division) against the UAW Local No. 287 and Jim Barrett and others, individually and as representatives of a defendant class, on February 26, 2009 again seeking the Court's affirmation that DTP did not violate the Labor - Management Relations Act or ERISA by modifying the level of benefits provided retirees to make them comparable to other Company retiree benefit plans after April 24, 2009. Certain retirees, on behalf of themselves and others, filed a mirror-image action in the United States District Court, Eastern District of Michigan (Southern Division) on March 11, 2009, for which a class has been certified. During the last quarter of 2009, the action pending in Indiana was dismissed, while the action in Michigan is continuing. The Company is vigorously defending against the suit. This contingency is subject to many uncertainties, therefore based on the information available to date, the Company cannot reasonably estimate the amount or the range of potential loss, if any.

Environmental

The Company and certain of its current and former direct and indirect corporate predecessors, subsidiaries and divisions have been identified by the United States Environmental Protection Agency and certain state environmental agencies and private parties as potentially responsible parties (“PRPs”) at various hazardous waste disposal sites under the Comprehensive Environmental Response, Compensation and Liability Act (“Superfund”) and equivalent state laws and, as such, may presently be liable for the cost of clean-up and other remedial activities at 27 such sites. Responsibility for clean-up and other remedial activities at a Superfund site is typically shared among PRPs based on an allocation formula.

The Company believes that none of these matters, individually or in the aggregate, will have a material adverse effect on its results of operations, financial position or cash flows. Generally, this is because either the estimates of the maximum potential liability at a site are not material or the liability will be shared with other PRPs, although no assurance can be given with respect to the ultimate outcome of any such matter.

Based on information available to the Company (which in most cases includes: an estimate of allocation of liability among PRPs; the probability that other PRPs, many of whom are large, solvent public companies, will fully pay the cost apportioned to them; currently available information from PRPs and/or federal or state environmental agencies concerning the scope of contamination and estimated remediation and consulting costs; and remediation alternatives), the Company has an accrual for indicated environmental liabilities of $5.6 million and $6.2 million at March 31, 2015 and at December 31, 2014, respectively. The Company expects to pay out substantially all of the amounts accrued for environmental liability over the next five years.

In connection with the sale of Kuhlman Electric Corporation (“Kuhlman Electric”), the Company agreed to indemnify the buyer and Kuhlman Electric for certain environmental liabilities, then unknown to the Company, relating to certain operations of Kuhlman Electric that pre-date the Company's 1999 acquisition of Kuhlman Electric. The Company previously settled or obtained dismissals of various lawsuits that were filed against Kuhlman Electric and others, including the Company, on behalf of plaintiffs alleging personal injury relating to alleged environmental contamination at its Crystal Springs, Mississippi plant. The Company filed a lawsuit against Kuhlman Electric and a related entity challenging the validity of the indemnity and the defendants filed counterclaims and a related lawsuit. In addition, two lawsuits by plaintiffs alleging environmental contamination relating to Kuhlman Electric's Crystal Springs plant are still pending and the Company may in the future become subject to further legal proceedings.

Product Liability

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related personal injury actions. We believe that the Company's involvement is limited because, in general, these claims relate to a few types of automotive products that were manufactured many years ago and contained encapsulated asbestos. The nature of the fibers, the encapsulation and the manner of use lead the Company to believe that these products are highly unlikely to cause harm. As of March 31, 2015 and December 31, 2014, the Company had approximately 12,500 and 13,300 pending asbestos-related product liability claims, respectively. The decrease in the pending claims is a result of the Company's continued efforts to obtain dismissal of dormant claims.

The Company's policy is to vigorously defend against these lawsuits and the Company has been successful in obtaining dismissal of many claims without any payment. The Company expects that the vast majority of the pending asbestos-related product liability claims where it is a defendant (or has an obligation to indemnify a defendant) will result in no payment being made by the Company or its insurers. In 2015, of the approximately 1,300 claims resolved, 111 (9%) resulted in payment being made to a claimant by or on behalf of the Company. In the full year of 2014, of the approximately 6,500 claims resolved, 397 (6%) resulted in payment being made to a claimant by or on behalf of the Company.

Prior to June 2004, the settlement and defense costs associated with all claims were paid by the Company's primary layer insurance carriers under a series of funding arrangements. In addition to the primary insurance available for asbestos-related claims, the Company has excess insurance coverage available for potential future asbestos-related product claims. In June 2004, primary layer insurance carriers notified the Company of the alleged exhaustion of their policy limits.

A declaratory judgment action was filed in January 2004 in the Circuit Court of Cook County, Illinois by Continental Casualty Company and related companies against the Company and certain of its historical general liability insurers. The court has issued a number of interim rulings and discovery is continuing. The Company has entered into settlement agreements with some of its insurance carriers, resolving their coverage disputes by agreeing to pay specified amounts to the Company. The Company is vigorously pursuing the litigation against the remaining insurers.

In August 2013, the Los Angeles Superior Court entered a jury verdict against the Company in an asbestos-related personal injury action with damages of $35.0 million, $32.5 million of which was non-compensatory and will not be recoverable through insurance if the verdict is upheld. The Company has appealed this verdict. The Company posted a surety bond of $55.0 million related to the appeal. The Company cannot predict the outcome of this pending litigation and therefore cannot reasonably estimate the amount of possible loss, if any, that could result from this action.

The Company's estimate of asbestos-related liabilities is subject to uncertainty because liabilities are influenced by numerous variables that are inherently difficult to predict. Key variables include the number and type of new claims, the litigation process from jurisdiction to jurisdiction and from case to case, reforms that may be made by state and federal courts and the passage of state or federal tort reform legislation. The nature of the historical product being encapsulated and the lifecycle of the product allow the Company to aggressively defend against these lawsuits and, at present, management does not believe that asbestos-related product liability claims are likely to have a material adverse effect on the Company's results of operations, financial position or cash flows.

To date, the Company has paid and accrued $353.1 million in defense and indemnity in advance of insurers' reimbursement and has received $195.9 million in cash and notes from insurers. The net balance of $157.2 million, is expected to be fully recovered. Timing of recovery is dependent on final resolution of the declaratory judgment action referred to above or additional negotiated settlements. At December 31, 2014, insurers owed $141.9 million in association with these claims.

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costs at March 31, 2015. The Company also has a related asset of $113.2 million to recognize proceeds from the insurance carriers, which is expected to be fully recovered. Receipt of these proceeds is not expected prior to the resolution of the declaratory judgment action referred to above, which is expected to occur subsequent to March 31, 2016. At December 31, 2014, the comparable value of the accrued liability and associated insurance asset was $111.8 million.

The amounts recorded in the Condensed Consolidated Balance Sheets related to the estimated future settlement of existing claims are as follows:



(in millions)	March 31, 2015		December 31, 2014
Assets:
Other non-current assets	$	113.2	$	111.8
Total insurance assets	$	113.2	$	111.8
Liabilities:
Accounts payable and accrued expenses	$	47.6	$	47.4
Other non-current liabilities	65.6		64.4
Total accrued liabilities	$	113.2	$	111.8

The Company does not believe that it can, at present, reasonably estimate possible losses in excess of those for which it has accrued. The Company's belief is based on a number of factors, including without limitation, because the Company cannot reasonably predict how many additional claims may be brought against the Company (or parties the Company has an obligation to indemnify) in the future, the particular illnesses or medical conditions that may be alleged in such claims, the allegations in such claims and the evidence submitted by claimants in support thereof, the possible outcomes in settling or litigating such claims, the time in which claims will proceed through courts in which they are asserted, or the impact of tort reform legislation that may be enacted at the state or federal levels. The Company reviews factors relevant to the asbestos claims that have been or may in the future be asserted against it on an ongoing basis.

(15) Restructuring

In the fourth quarter of 2013, the Company initiated actions primarily in the Drivetrain segment designed to improve future profitability and competitiveness. As a continuation of these actions, in 2014, the Company finalized severance agreements with two labor unions at separate facilities in Western Europe for approximately 350 employees. The Company recorded $7.3 million and $35.4 million of restructuring expense related to these facilities in the three months ended March 31, 2015 and 2014, respectively. Included in this restructuring expense are employee termination benefits of $6.4 million and $32.1 million, respectively, and other expense of $0.9 million and $3.3 million, respectively.

The Company expects additional restructuring expenses to be incurred over the next year related to the Drivetrain segment, including approximately $6 million of employee termination benefits associated with the severance agreements discussed above as well as other employee related actions. These expenses will be recognized as employees render service in accordance with terms of the agreements. Future cash payments for these restructuring activities are expected to be complete by the end of 2015.

Estimates of restructuring expense are based on information available at the time such charges are recorded. Due to the inherent uncertainty involved in estimating restructuring expenses, actual amounts paid for such activities may differ from amounts initially recorded. Accordingly, the Company may record revisions of previous estimates by adjusting previously established accruals.

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The Company recorded $2.7 million and $1.1 million of restructuring expense in the three months ended March 31, 2015 and 2014, respectively, related to a global realignment plan intended to enhance treasury management flexibility by creating a legal entity structure that better aligns with the Company's business strategy.

The following table displays a rollforward of the severance accruals recorded within the Company's Condensed Consolidated Balance Sheet and the related cash flow activity for the three months ended March 31, 2015 and 2014:



	Severance Accruals
(in millions)	Drivetrain			Engine			Total
Balance at December 31, 2014	$	41.9		$	2.0		$	43.9
Provision	7.4			0.4			7.8
Cash payments	(10.7		)	(0.9		)	(11.6		)
Translation adjustment	(4.7		)	(0.2		)	(4.9		)
Balance at March 31, 2015	$	33.9		$	1.3		$	35.2



	Severance Accruals
(in millions)	Drivetrain			Engine			Total
Balance at December 31, 2013	$	8.4		$	2.9		$	11.3
Provision	32.1			0.7			32.8
Cash payments	(1.2		)	(1.7		)	(2.9		)
Balance at March 31, 2014	$	39.3		$	1.9		$	41.2

(16) Earnings Per Share

The Company presents both basic and diluted earnings per share of common stock (“EPS”) amounts. Basic EPS is calculated by dividing net earnings attributable to BorgWarner Inc. by the weighted average shares of common stock outstanding during the reporting period. Diluted EPS is calculated by dividing net earnings attributable to BorgWarner Inc. by the weighted average shares of common stock and common equivalent stock outstanding during the reporting period.

The dilutive impact of stock-based compensation is calculated using the treasury stock method. The treasury stock method assumes that the Company uses the assumed proceeds from the exercise of awards to repurchase common stock at the average market price during the period. The assumed proceeds under the treasury stock method include the purchase price that the grantee will pay in the future, compensation cost for future service that the Company has not yet recognized and any windfall/(shortfall) tax benefits that would be credited/(debited) to capital in excess of par value when the award generates a tax deduction. Options are only dilutive when the average market price of the underlying common stock exceeds the exercise price of the options.

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The following table reconciles the numerators and denominators used to calculate basic and diluted earnings per share of common stock:



	Three Months Ended March 31,
(in millions, except per share amounts)	2015		2014
Basic earnings per share:
Net earnings attributable to BorgWarner Inc.	$	178.9	$	159.1
Weighted average shares of common stock outstanding	225.796		227.430
Basic earnings per share of common stock	$	0.79	$	0.70

Diluted earnings per share:
Net earnings attributable to BorgWarner Inc.	$	178.9	$	159.1

Weighted average shares of common stock outstanding	225.796		227.430

Effect of stock-based compensation	1.292		1.897

Weighted average shares of common stock outstanding including dilutive shares	227.088		229.327
Diluted earnings per share of common stock	$	0.79	$	0.69

(17) Reporting Segments

The Company's business is comprised of two reporting segments: Engine and Drivetrain. These segments are strategic business groups, which are managed separately as each represents a specific grouping of related automotive components and systems.

The Company allocates resources to each segment based upon the projected after-tax return on invested capital ("ROIC") of its business initiatives. ROIC is comprised of Adjusted EBIT after deducting notional taxes compared to the projected average capital investment required. Adjusted EBIT is comprised of earnings before interest, income taxes and noncontrolling interest (“EBIT") adjusted for restructuring, goodwill impairment charges, affiliates' earnings and other items not reflective of on-going operating income or loss.

Adjusted EBIT is the measure of segment income or loss used by the Company. The Company believes Adjusted EBIT is most reflective of the operational profitability or loss of our reporting segments. The following tables show segment information and Adjusted EBIT for the Company's reporting segments.

Net Sales by Reporting Segment



	Three Months Ended March 31,
(in millions)	2015			2014
Engine	$	1,380.9		$	1,412.1
Drivetrain	611.2			680.7
Inter-segment eliminations	(7.9		)	(8.7		)
Net sales	$	1,984.2		$	2,084.1

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Adjusted Earnings Before Interest, Income Taxes and Noncontrolling Interest (“Adjusted EBIT”)



	Three Months Ended March 31,
(in millions)	2015			2014
Engine	$	230.4		$	231.7
Drivetrain	71.0			80.5
Adjusted EBIT	301.4			312.2
Restructuring expense	12.1			39.5
Gain on previously held equity interest	(10.8		)	—
Corporate, including equity in affiliates' earnings and stock-based compensation	32.0			30.7
Interest income	(1.7		)	(1.5		)
Interest expense and finance charges	10.0			8.2
Earnings before income taxes and noncontrolling interest	259.8			235.3
Provision for income taxes	72.1			68.1
Net earnings	187.7			167.2
Net earnings attributable to the noncontrolling interest, net of tax	8.8			8.1
Net earnings attributable to BorgWarner Inc.	$	178.9		$	159.1

Total Assets



(in millions)	March 31, 2015		December 31, 2014
Engine	$	3,947.7	$	3,936.2
Drivetrain	1,817.5		1,783.5
Total	5,765.2		5,719.7
Corporate *	1,757.4		1,508.3
Total assets	$	7,522.6	$	7,228.0

____________________________________

* Corporate assets include investments and other long-term receivables and deferred income taxes.

(18) Recent Transactions

BERU Diesel Start Systems Pvt. Ltd.

In January 2015, the Company completed the purchase of the remaining 51% of BERU Diesel by acquiring the shares of its former joint venture partner. The former joint venture was formed in 1996 to develop and manufacture glow plugs in India. After this transaction, the Company owns 100% of the entity. The cash paid, net of cash acquired, was $12.6 million (783.1 million Indian rupees).

The operating results are reported within the Company's Engine reporting segment. The Company paid $12.6 million, which is recorded as an investing activity in the Company's Condensed Consolidated Statement of Cash Flows. As a result of this transaction, the Company recorded a $10.8 million gain on the previously held equity interest in this joint venture. Additionally, the Company acquired assets of $16.0 million, including $11.2 million in definite-lived intangible assets, and assumed liabilities of $4.6 million. The Company also recorded $13.9 million of goodwill, which is expected to be non-deductible for tax purposes.

The Company is in the process of finalizing purchase accounting adjustments related to the BERU Diesel acquisition. Subsequent fair value adjustments may be necessary based on the finalization of certain estimates.

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Gustav Wahler GmbH u. Co KG

On February 28, 2014, the Company acquired 100% of the equity interests in Gustav Wahler GmbH u. Co. KG and its general partner ("Wahler"). Wahler was a producer of exhaust gas recirculation ("EGR") valves, EGR tubes and thermostats, and had operations in Germany, Brazil, the U.S., China and Slovakia. The cash paid, net of cash acquired was $110.5 million (80.1 million Euro).

The operating results and assets are reported within the Company's Engine reporting segment as of the date of the acquisition. The Company paid $110.5 million, which is recorded as an investing activity in the Company's Condensed Consolidated Statement of Cash Flows. Additionally, the Company assumed retirement-related liabilities of $3.2 million and assumed debt of $40.3 million, which are reflected in the supplemental cash flow information on the Company's Condensed Consolidated Statement of Cash Flows.

The following table summarizes the aggregated estimated fair value of the assets acquired and liabilities assumed on February 28, 2014, the date of acquisition:



(in millions)
Receivables, net	$	52.4
Inventories, net	46.8
Property, plant and equipment, net	55.3
Goodwill	74.6
Other intangible assets	42.7
Other assets and liabilities	(47.4		)
Accounts payable and accrued expenses	(70.4		)
Total consideration, net of cash acquired	154.0

Less: Assumed retirement-related liabilities	3.2
Less: Assumed debt	40.3
Cash paid, net of cash acquired	$	110.5

In connection with the acquisition, the Company capitalized $24.9 million for customer relationships, $10.2 million for know-how, $4.1 million for patented technology and $3.5 million for the Wahler trade name. These intangible assets will be amortized over a period of 5 to 15 years. The income approach was used to determine the fair value of all intangible assets. Additionally, $56.9 million in goodwill is expected to be non-deductible for tax purposes.

(19) New Accounting Pronouncements

In April 2015, the Financial Accounting Standards Board issued Accounting Standards Update No. 2015-03, "Simplifying the Presentation of Debt Issuance Costs," which changes the presentation of debt issuance costs in financial statements. Under this guidance such costs would be presented as a direct deduction from the related debt liability rather than as an asset. This guidance is effective for interim and annual reporting periods beginning after December 15, 2015. The Company is currently evaluating the impact this guidance will have on its Consolidated Balance Sheet, but expects that as of March 31, 2015 this guidance would result in the reduction of assets and liabilities by approximately $17 million.

In May 2014, the Financial Accounting Standards Board amended the Accounting Standards Codification to add Topic 606, "Revenue from Contracts with Customers," outlining a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and superseding most current revenue recognition guidance. This guidance is effective for interim and annual reporting periods beginning after December 15, 2016. The Company is currently evaluating the impact this guidance will have on its Consolidated Financial Statements.

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Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

INTRODUCTION

BorgWarner Inc. and Consolidated Subsidiaries (the “Company”) is a leading global supplier of highly engineered automotive systems and components primarily for powertrain applications. Our products help improve vehicle performance, fuel efficiency, stability and air quality. These products are manufactured and sold worldwide, primarily to original equipment manufacturers (“OEMs”) of light vehicles (passenger cars, sport-utility vehicles ("SUVs"), vans and light trucks). The Company's products are also sold to other OEMs of commercial vehicles (medium-duty trucks, heavy-duty trucks and buses) and off-highway vehicles (agricultural and construction machinery and marine applications). We also manufacture and sell our products to certain Tier One vehicle systems suppliers and into the aftermarket for light, commercial and off-highway vehicles. The Company operates manufacturing facilities serving customers in the Americas, Europe and Asia and is an original equipment supplier to every major automotive OEM in the world.

The Company's products fall into two reporting segments: Engine and Drivetrain. The Engine segment's products include turbochargers, timing devices and chains, emissions systems and thermal systems. The Drivetrain segment's products include transmission components and systems and all-wheel drive torque management systems.

RESULTS OF OPERATIONS

Three Months Ended March 31, 2015 vs. Three Months Ended March 31, 2014

Net sales for the three months ended March 31, 2015 totaled $1,984.2 million, a 4.8% decrease from the three months ended March 31, 2014. Excluding the impact of weakening foreign currencies, primarily the Euro, the 2014 acquisition of Gustav Wahler GmbH u. Co. KG and its general partner ("Wahler") and the 2015 acquisition of BERU Diesel Start Systems Pvt. Ltd. ("BERU Diesel"), net sales increased approximately 3%.

Cost of sales as a percentage of net sales decreased to 78.4% in the three months ended March 31, 2015 from 78.6% in the three months ended March 31, 2014. Gross profit and gross margin were $429.0 million and 21.6% in the three months ended March 31, 2015 compared to $445.8 million and 21.4% in the three months ended March 31, 2014. The Company's material cost of sales was 50% to 55% of net sales in both the three months ended March 31, 2015 and 2014.

Selling, general and administrative ("SG&A") expenses for the three months ended March 31, 2015 decreased $5.6 million to $168.2 million from $173.8 million. SG&A as a percentage of net sales was 8.5% for the three months ended March 31, 2015, up slightly from 8.3% for the three months ended March 31, 2014. Research and development ("R&D") expenses, which are included in SG&A expenses, decreased $6.6 million to $75.4 million from $82.0 million as compared to the three months ended March 31, 2014. As a percentage of net sales, R&D expenses were 3.8% and 3.9% in the three months ended March 31, 2015 and 2014, respectively. Our continued investment in a number of cross-business R&D programs, as well as other key programs, is necessary for the Company’s short- and long-term growth.

Other expense, net of $1.2 million and $38.8 million for the three months ended March 31, 2015 and 2014, respectively, relates to $12.1 million and $39.5 million of restructuring expense associated with both the Drivetrain and Engine segments. The Drivetrain segment charges mostly represent a continuation of expenses associated with the first quarter 2014 finalization of severance agreements with two labor unions at separate facilities in Western Europe for approximately 350 employees. The Engine segment charges mainly relate to the restructuring of the Wahler acquisition. Both the Drivetrain and Engine restructuring actions are designed to improve the future profitability and competitiveness of each segment. The Company estimates that additional restructuring expense of approximately $21 million will be incurred over the next year related to the Drivetrain segment. Additionally, approximately $16 million will be incurred over the next

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two years related to the Engine segment restructuring. Furthermore, the Company recorded $2.7 million and $1.1 million of restructuring expense for the three months ended March 31, 2015 and 2014, respectively, related to a global realignment plan intended to enhance treasury management flexibility by creating a legal entity structure that better aligns with the Company's business strategy. The Company also recorded a $10.8 million gain on the previously held equity interest in BERU Diesel as a result of the first quarter 2015 acquisition.

Equity in affiliates’ earnings of $8.5 million decreased $0.3 million as compared with the three months ended March 31, 2014 primarily due to lower earnings from the Company's 50% interest in NSK-Warner.

At March 31, 2015, the Company's effective tax rate for the first quarter was 27.8%. This rate includes tax benefits of $2.4 million primarily related to foreign tax incentives and $1.2 million related to restructuring expense as discussed in the Other Expense, net footnote to the Condensed Consolidated Financial Statements. Excluding the impact of these non-comparable items, the Company has estimated its annual effective tax rate associated with ongoing operations to be approximately 29% for the year ending December 31, 2015.

At March 31, 2014, the Company's effective tax rate for the first quarter was 28.9%, which included tax benefits of $8.8 million related to restructuring expense discussed in the Other Expense, net footnote to the Condensed Consolidated Financial Statements. Excluding the impact of this non-comparable item, the Company had estimated its annual effective tax rate associated with ongoing operations to be approximately 28% for the year ending December 31, 2014.

The Company’s earnings per diluted share were $0.79 and $0.69 for the three months ended March 31, 2015 and 2014, respectively. The Company believes the following table is useful in highlighting non-comparable items that impacted its earnings per diluted share.



	Three Months Ended March 31, 2015			Three Months Ended March 31, 2014
Non-comparable items:
Restructuring expense	$	(0.05	)	$	(0.13	)
Gain on previously held equity interest	0.05			—
Tax adjustments	0.01			—
Total impact of non-comparable items per share — diluted	$	0.01		$	(0.13	)

Reporting Segments

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Net Sales by Reporting Segment



	Three Months Ended March 31,
(in millions)	2015			2014
Engine	$	1,380.9		$	1,412.1
Drivetrain	611.2			680.7
Inter-segment eliminations	(7.9		)	(8.7		)
Net sales	$	1,984.2		$	2,084.1

Adjusted Earnings Before Interest, Income Taxes and Noncontrolling Interest (“Adjusted EBIT”)



	Three Months Ended March 31,
(in millions)	2015			2014
Engine	$	230.4		$	231.7
Drivetrain	71.0			80.5
Adjusted EBIT	301.4			312.2
Restructuring expense	12.1			39.5
Gain on previously held equity interest	(10.8		)	—
Corporate, including equity in affiliates' earnings and stock-based compensation	32.0			30.7
Interest income	(1.7		)	(1.5		)
Interest expense and finance charges	10.0			8.2
Earnings before income taxes and noncontrolling interest	259.8			235.3
Provision for income taxes	72.1			68.1
Net earnings	187.7			167.2
Net earnings attributable to the noncontrolling interest, net of tax	8.8			8.1
Net earnings attributable to BorgWarner Inc.	$	178.9		$	159.1

Three Months Ended March 31, 2015 vs. Three Months Ended March 31, 2014

The Engine segment net sales decreased $31.2 million, or 2.2%, from the three months ended March 31, 2014. Excluding the impact of weakening foreign currencies, primarily the Euro, the 2014 Wahler acquisition and the 2015 BERU Diesel acquisition, net sales increased approximately 6% from the three months ended March 31, 2014, primarily due to higher sales of turbochargers. The Engine segment Adjusted EBIT margin was 16.7% in the three months ended March 31, 2015 up from 16.4% in the three months ended March 31, 2014.

The Drivetrain segment net sales decreased $69.5 million, or 10.2%, from the three months ended March 31, 2014. Excluding the impact of weakening foreign currencies, primarily the Euro, net sales decreased approximately 2% from the three months ended March 31, 2014, primarily due to lower sales of all-wheel drive systems. The Drivetrain segment Adjusted EBIT margin was 11.6% in the three months ended March 31, 2015 down from 11.8% in the three months ended March 31, 2014.

Outlook for 2015

Our overall outlook for 2015 is positive. The Company expects strong net new business-related sales growth in 2015 due to rapid adoption of BorgWarner products around the world, partially offset by a stronger U.S. dollar, which would reduce the U.S. dollar value of its foreign currency-denominated sales.

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 our long-term growth are expected to continue, including the growth of direct injection

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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 Europe and Asia-Pacific.

FINANCIAL CONDITION AND LIQUIDITY

The Company maintains various liquidity sources including cash and cash equivalents and the unused portion of our multi-currency revolving credit agreement. At March 31, 2015, the Company had $1,035.5 million of cash, of which $612.3 million of cash is held by our subsidiaries outside of the United States. Cash held by these subsidiaries is used to fund foreign operational activities and future investments, including acquisitions. The vast majority of cash held outside the United States is available for repatriation, however, doing so could result in increased foreign and U.S. federal, state and local income taxes. A deferred tax liability has been recorded for the portion of these funds anticipated to be repatriated to the United States. The Company uses its U.S. liquidity for various corporate purposes, including but not limited to, debt service, share repurchases, dividend distributions and other corporate expenses.

On March 16, 2015, BorgWarner Inc. issued $500 million in 3.375% senior notes due March 2025 and $500 million in 4.375% senior notes due March 2045. Interest is payable semi-annually in arrears on March 15 and September 15 of each year, beginning on September 15, 2015. The Company intends to use the net proceeds from this offering for general corporate purposes, including, but not limited to, repurchasing shares of the Company's common stock pursuant to our previously announced $1 billion share repurchase program and repaying U.S. short-term debt. These senior notes are not guaranteed by any of BorgWarner Inc.'s subsidiaries.

The total current combined borrowing capacity under the multi-currency revolving credit facility and commercial paper program cannot exceed $1 billion.

In addition to the credit facility, the Company's universal shelf registration has an unlimited amount of various debt and equity instruments that could be issued.

On February 11, 2015, the Company’s Board of Directors declared a quarterly cash dividend of $0.13 per share of common stock. This dividend was paid in the three months ended March 31, 2015.

The Company's net debt to net capital ratio was 18.4% at March 31, 2015 versus 12.8% at December 31, 2014.

From a credit quality perspective, the Company has a credit rating of Baa1 from Moody's and BBB+ from both Standard & Poor’s and Fitch Ratings. On March 5, 2015, Moody's upgraded the Company's credit rating from Baa2 to Baa1. The current outlook from Moody's, Standard & Poor’s and Fitch Ratings is stable.

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None of the Company’s debt agreements require accelerated repayment in the event of a downgrade in credit ratings.

Net cash provided by operating activities decreased $13.7 million to $32.7 million in the first three months of 2015 from $46.4 million in the first three months of 2014. The $13.7 million decrease primarily reflects lower net earnings adjusted for non-cash charges to operations.

Net cash used in investing activities decreased $79.3 million to $151.8 million in the first three months of 2015 from $231.1 million in the first three months of 2014. This decrease is primarily due to the 2014 $106.4 million acquisition of Wahler, partially offset by the 2015 acquisition of BERU Diesel.

Net cash provided by financing activities increased $360.8 million to $416.8 million in the first three months of 2015 from $56.0 million in the first three months of 2014. This increase is primarily driven by the $1 billion issuance of senior notes in March 2015, partially offset by the decrease in notes payable.

We believe that the combination of cash from operations, cash balances, available credit facilities, and the universal shelf registration capacity will be sufficient to satisfy our cash needs for our current level of operations, our planned operations for the foreseeable future and our $1 billion share repurchase program. We will continue to balance our needs for internal growth, external growth, the return of capital to stockholders, debt reduction and cash conservation.

CONTINGENCIES

Litigation

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Eastern District of Michigan (Southern Division) on March 11, 2009, for which a class has been certified. During the last quarter of 2009, the action pending in Indiana was dismissed, while the action in Michigan is continuing. The Company is vigorously defending against the suit. This contingency is subject to many uncertainties, therefore based on the information available to date, the Company cannot reasonably estimate the amount or the range of potential loss, if any.

Environmental

Product Liability

Like many other industrial companies who have historically operated in the U.S., the Company (or parties the Company is obligated to indemnify) continues to be named as one of many defendants in asbestos-related personal injury actions. We believe that the Company's involvement is limited because, in general, these claims relate to a few types of automotive products that were manufactured many years ago and contained encapsulated asbestos. The nature of the fibers, the encapsulation and the manner of use lead the Company to believe that these products are highly unlikely to cause harm. As of March 31, 2015 and December 31, 2014, the Company had approximately 12,500 and 13,300 pending asbestos-related product liability claims, respectively. The decrease in the pending claims is a result of the Company's continued efforts to obtain dismissal of dormant claims.

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In addition to the $157.2 million net balance relating to past settlements and defense costs, the Company has estimated a liability of $113.2 million for claims asserted, but not yet resolved and their related defense costs at March 31, 2015. The Company also has a related asset of $113.2 million to recognize proceeds from the insurance carriers, which is expected to be fully recovered. Receipt of these proceeds is not expected prior to the resolution of the declaratory judgment action referred to above, which is expected to occur subsequent to March 31, 2016. At December 31, 2014, the comparable value of the accrued liability and associated insurance asset was $111.8 million.

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The amounts recorded in the Condensed Consolidated Balance Sheets related to the estimated future settlement of existing claims are as follows:



(in millions)	March 31, 2015		December 31, 2014
Assets:
Other non-current assets	$	113.2	$	111.8
Total insurance assets	$	113.2	$	111.8
Liabilities:
Accounts payable and accrued expenses	$	47.6	$	47.4
Other non-current liabilities	65.6		64.4
Total accrued liabilities	$	113.2	$	111.8

New Accounting Pronouncements

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CAUTIONARY STATEMENTS FOR FORWARD-LOOKING STATEMENTS

Statements contained in this Form 10-Q (including Management's Discussion and Analysis of Financial Condition and Results of Operations) may contain forward-looking statements as contemplated by the 1995 Private Securities Litigation Reform Act (the “Act”) that are based on management's current outlook, expectations, estimates and projections. Words such as "anticipates," "believes," "continues," "could," "designed," "effect," "estimates," "evaluates," "expects," "forecasts," "goal," "initiative," "intends," "outlook," "plans," "potential," "project," "pursue," "seek," "should," "target," "when," "would," variations of such words and similar expressions are intended to identify such forward-looking statements. All statements, other than statements of historical fact contained or incorporated by reference in this Form 10-Q, that we expect or anticipate will or may occur in the future regarding our financial position, business strategy and measures to implement that strategy, including changes to operations, competitive strengths, goals, expansion and growth of our business and operations, plans, references to future success and other such matters, are forward-looking statements. Accounting estimates, such as those described under the heading "Critical Accounting Policies" in Item 7 of our most recent Annual Report on Form 10-K, are inherently forward-looking. These statements are based on assumptions and analysis made by us in light of our experience and our perception of historical trends, current conditions and expected future developments, as well as other factors we believe are appropriate in the circumstances. Forward-looking statements are not guarantees of performance and the Company's actual results may differ materially from those expressed, projected or implied in or by the forward-looking statements.

You should not place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report. Forward-looking statements are subject to risks and uncertainties, many of which are difficult to predict and generally beyond our control. Such risks and uncertainties include: fluctuations in domestic or foreign vehicle production, the continued use by original equipment manufacturers of outside suppliers, fluctuations in demand for vehicles containing our products, changes in general economic conditions, as well as the other risks noted under Item 1A, “Risk Factors,” of our Annual Report on Form 10-K and in other reports that we file with the Securities and Exchange Commission. We do not undertake any obligation to update or announce publicly any updates to or revision to any of the forward-looking statements in this Form 10-Q to reflect any change in our expectations or any change in events, conditions, circumstances, or assumptions underlying the statements.

This section is intended to provide meaningful cautionary statements for purposes of the safe harbor provisions of the Act. This should not be construed as a complete list of all of the economic, competitive, governmental, technological and other factors that could adversely affect our expected consolidated financial position, results of operations or liquidity. Additional risks and uncertainties not currently known to us or that we currently believe are immaterial also may impair our business, operations, liquidity, financial condition and prospects.

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Item 3.Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes to the information concerning our exposures to interest rate risk or commodity price risk as stated in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.

Foreign currency exchange rate risk is the risk that we will incur economic losses due to adverse changes in foreign currency exchange rates. Currently, our most significant currency exposures relate to the British Pound, the Chinese Yuan, the Euro, the Hungarian Forint, the Japanese Yen, the Mexican Peso, the Swedish Krona and the South Korean Won. We mitigate our foreign currency exchange rate risk by establishing local production facilities and related supply chain participants in the markets we serve, by invoicing customers in the same currency as the source of the products and by funding some of our investments in foreign markets through local currency loans. We also monitor our foreign currency exposure in each country and implement strategies to respond to changing economic and political environments. In addition, the Company periodically enters into forward currency contracts in order to reduce exposure to exchange rate risk related to transactions denominated in currencies other than the functional currency.

The foreign currency translation adjustment losses of $249.8 million and $2.7 million for the three months ended March 31, 2015 and 2014, respectively, contained within our Condensed Consolidated Statements of Comprehensive Income represent the foreign currency translational impacts of converting our non-U.S. dollar subsidiaries financial statements to the Company’s reporting currency (U.S. Dollar). The first quarter 2015 foreign currency translation adjustment loss was primarily due to the impact of a strengthening U.S. dollar, which increased approximately 11% in relation to the Euro between December 31, 2014 and March 31, 2015. This 11% change in the Euro increased other comprehensive loss by approximately $243 million in the first quarter of 2015 and represents approximately 97% of the first quarter 2015 foreign currency translation adjustment loss balance of $249.8 million.

Item 4.Controls and Procedures

The Company maintains disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, the Company has evaluated the effectiveness of the design and operation of its disclosure controls and procedures as of the end of the period covered by this report. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that these procedures are effective. There have been no changes in internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION


Item 1.	Legal Proceedings

The Company is subject to a number of claims and judicial and administrative proceedings (some of which involve substantial amounts) arising out of the Company’s business or relating to matters for which the Company may have a contractual indemnity obligation. See Note 14 — Contingencies to the Condensed Consolidated Financial Statements for a discussion of environmental, product liability and other litigation, which is incorporated herein by reference.

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Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds

In February 2015, the Company's Board of Directors authorized the purchase of up to $1.0 billion of the Company's common stock over three years. The Company's Board of Directors has authorized the purchase of up to 69.6 million shares of the Company's common stock in the aggregate. As of March 31, 2015, the Company had repurchased 51,624,413 shares in the aggregate under the Common Stock Repurchase Program. All shares purchased under this authorization have been and will continue to be repurchased in the open market at prevailing prices and at times and in amounts to be determined by management as market conditions and the Company's capital position warrant. The Company may use Rule 10b5-1 and 10b-18 plans to facilitate share repurchases. Repurchased shares will be deemed common stock held in treasury and may subsequently be reissued for general corporate purposes.

Employee transactions include restricted shares withheld to offset statutory minimum tax withholding that occurs upon vesting of restricted shares. The BorgWarner Inc. Amended and Restated 2004 Stock Incentive Plan and the BorgWarner Inc. 2014 Stock Incentive Plan provide that the withholding obligations be settled by the Company retaining stock that is part of the Award. Withheld shares will be deemed common stock held in treasury and may subsequently be reissued for general corporate purposes.

The following table provides information about the Company's purchases of its equity securities that are registered pursuant to Section 12 of the Exchange Act during the quarter ended March 31, 2015:



Issuer Purchases of Equity Securities
Period	Total number of shares purchased	Average price per share		Total number of shares purchased as part of publicly announced plans or programs	Maximum number of shares that may yet be purchased under the plans or programs
Month Ended January 31, 2015
Common Stock Repurchase Program	—	$	—	—	18,600,843
Employee transactions	943	$	53.58	—
Month Ended February 28, 2015
Common Stock Repurchase Program	81,475	$	61.33	81,475	18,519,368
Employee transactions	214,173	$	59.60	—
Month Ended March 31, 2015
Common Stock Repurchase Program	543,781	$	60.14	543,781	17,975,587
Employee transactions	4,105	$	60.66	—

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Item 6.	Exhibits




	Exhibit 10.1		Form of BorgWarner Inc. 2014 Stock Incentive Plan Restricted Stock Agreement for Employees*

	Exhibit 10.2		Form of BorgWarner Inc. 2014 Stock Incentive Plan Performance Share Award Agreement.*

	Exhibit 10.3		Form of BorgWarner Inc. 2014 Stock Incentive Plan Stock Units Award Agreement -- Non-U.S. Employees.*

	Exhibit 10.4		Amended and Restated Executive Incentive Plan (incorporated by reference to Appendix A to the Company's Definitive Proxy Statement filed March 20, 2015.)

	Exhibit 31.1		Rule 13a-14(a)/15d-14(a) Certification of the Principal Executive Officer.*

	Exhibit 31.2		Rule 13a-14(a)/15d-14(a) Certification of the Principal Financial Officer.*

	Exhibit 32.1		Section 1350 Certifications.*

	Exhibit 101.INS		XBRL Instance Document.*

	Exhibit 101.SCH		XBRL Taxonomy Extension Schema Document.*

	Exhibit 101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document.*

	Exhibit 101.LAB		XBRL Taxonomy Extension Label Linkbase Document.*

	Exhibit 101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document.*

	Exhibit 101.DEF		XBRL Taxonomy Extension Definition Linkbase Document.*

____________________________________

*Filed herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.




			BorgWarner Inc.

			(Registrant)

	By		/s/ Steven G. Carlson
			(Signature)

			Steven G. Carlson

			Vice President and Controller
			(Principal Accounting Officer)

Date: April 30, 2015

Exhibit 10.1

BORGWARNER INC.

2014 STOCK INCENTIVE PLAN

Restricted Stock Agreement

For Employees

THIS Restricted Stock Agreement (the “Agreement”) dated as of ___________, 20__, by and between BORGWARNER INC., a Delaware corporation (the “Company”) and

__________________ (the “Employee”), is entered into as follows:

WITNESSETH:

WHEREAS, the Company has established the BorgWarner Inc. 2014 Stock Incentive Plan, a copy of which is attached hereto or which has been previously provided to the Employee;

WHEREAS, the Compensation Committee of the Board of Directors of the Company has determined that the Employee be granted shares of Restricted Stock pursuant to the terms of the Plan and the terms of this Agreement;

NOW THEREFORE, in consideration of the foregoing and the mutual covenants hereinafter set forth:


1.	Award of Restricted Stock. The Company hereby awards to Employee on this date,

«units» shares of its common stock, par value $.01 (“Stock”), subject to the terms and conditions set forth in the Plan and this Agreement (the “Award”).

Issuance of Share Certificates or Book Entry Record. The Company shall, as soon as administratively feasible after execution of this Agreement by the Employee, either (1) issue one or more certificates in the name of the Employee representing the shares of Restricted Stock covered by this Award, or (2) direct the Company’s transfer agent for the Stock to make a book entry record showing ownership for the Restricted Stock in the name of the Employee, subject to the terms and conditions of the Plan and this Agreement.


3.	Custody of Share Certificates During the Restriction Period. In the event that the Company issues one or more certificates for the Restricted Stock covered by this Award in lieu of book entry, during the Restriction Period described below:


a.	The certificate or certificates shall bear the following legend: “The transferability of this certificate and the shares of stock represented hereby are subject to the terms and conditions (including forfeiture) of the 2014 Stock Incentive Plan and a Restricted Stock Agreement. Copies of such Plan and Restricted Stock Agreement are on file at the headquarters offices of BorgWarner Inc.”

Exhibit 10.1


b.	The certificates shall be held in custody by the Company until the restrictions set forth herein shall have lapsed; and

As a condition to receipt of this Award, the Employee hereby authorizes the Company to issue such instructions to the transfer agent as the Company may deem necessary or proper to comply with the intent and purposes of this Agreement and the Plan, including their provisions regarding forfeiture, and that this paragraph shall be deemed to constitute the stock power, endorsed in blank, contemplated by Section 8(b) of the Plan.

Terms of the Plan Shall Govern. The Award is made pursuant to, and is subject to the Plan, including, without limitation, its provisions governing a Change in Control and Cancellation and Rescission of Awards. In the case of any conflict between the Plan and this Agreement, the terms of the Plan shall control. Unless otherwise indicated, all capitalized terms contained in this Agreement shall have the meaning assigned to them in the Plan.


5.	Restriction Period. The Restriction Period for the Restricted Stock awarded to the Employee under this Agreement shall commence with the date of this Agreement set forth above and shall end, for the percentage of the shares indicated below, on the date when the Restricted Stock shall have vested in accordance with the following schedule:

Date Vested Percentage

_____________, 20__ 50% of the Awarded Shares

_____________, 20__ 100% of the Awarded Shares

During the Restriction Period, the Employee shall not be permitted to sell, assign, transfer, pledge or otherwise encumber the Restricted Stock awarded herein.

Shareholder Rights. Subject to the restrictions imposed by this Agreement and the Plan, the Employee shall have, with respect to the Restricted Stock covered by this Award, all of the rights of a stockholder of the Company holding Stock, including the right to vote the shares. However, any cash dividends payable with respect to the Restricted Stock covered by this Award shall be automatically reinvested in additional Restricted Stock, based on the Restricted Stock’s Fair Market Value as of the dividend payment date; the additional Restricted Stock so awarded shall vest at the same time as the Restricted Stock to which it relates. Dividends payable with respect to the Restricted Stock covered by this Award that are payable in Stock shall also be paid in the form of Restricted Stock and shall vest at the same time as the Restricted Stock to which it relates.


7.	Death or Disability; Forfeiture of Shares. Upon the earlier of Employee’s Termination of Employment during the Restriction Period or the Employee’s giving of notice of the Employee’s voluntary Termination of Employment during the Restriction Period, all shares of Stock covered by this Award that remain subject to restriction shall be forfeited

Exhibit 10.1

by the Employee. However, if the Employee’s employment is involuntarily terminated by the Company (other than for Cause) during the Restriction Period, in the event of the Employee’s Termination of Employment by reason of death or Disability during the Restriction Period, or in the event of the Employee’s Retirement during the Restriction Period, the Compensation Committee shall have the discretion to waive, in whole or in part, any or all remaining restrictions with respect to any or all of the Restricted Stock covered by this Award.


8.	Change in Control. In the event of a Change in Control, the restrictions applicable to any shares of Stock covered by this Award shall lapse, and such shares of Stock shall become free of all restrictions and become fully vested and transferable.


9.	Delivery of Shares. At the Employee’s request, if and when the Restriction Period expires for a share or shares of Restricted Stock without a prior forfeiture, the Company will deliver certificate(s) for such share(s) to the Employee.


10.	Acquisition of Shares For Investment Purposes Only. By his or her signature hereto, the Employee hereby agrees with the Company as follows:

The Employee is acquiring the shares of Stock covered by this Award for investment purposes only and not with a view to resale or other distribution thereof to the public in violation of the Securities Act of 1933, as amended (the “1933 Act”), and shall not dispose of any of the shares of the Stock in transactions which, in the opinion of counsel to the Company, violate the 1933 Act, or the rules and regulations thereunder, or any applicable state securities or “blue sky” laws;


b.	If any of the shares of Stock covered by this Award shall be registered under the 1933 Act, no public offering (otherwise than on a national securities exchange, as defined in the Exchange Act) of any such shares shall be made by the Employee (or any other person) under such circumstances that he or she (or any other such person) may be deemed an underwriter, as defined in the 1933 Act; and


c.	The Company shall have the authority to endorse upon the certificate or certificates representing the Stock covered by this Agreement such legends referring to the foregoing restrictions.


11.	No Right to Continued Employment. Nothing contained in the Plan or this Agreement shall confer upon the Employee any right to continued employment nor shall it interfere in any way with the right of the Company or any subsidiary or Affiliate to terminate the employment of the Employee at any time.


12.	Withholding of Taxes. No later than the date as of which an amount first becomes includible in the Employee’s gross income for Federal income tax purposes, the Employee shall pay to the Company or make arrangements satisfactory to the Company regarding the payment of, any Federal, state, local or foreign taxes of any kind required by law to be withheld.


13.	Governing Law. The Award made and actions taken under the Plan and this Agreement shall be governed by and construed in accordance with the laws of the State of

Exhibit 10.1

Delaware without taking into account its conflict of laws provisions.


14.	Acceptance of Award. By the Employee’s signature below, the Employee accepts the terms of the Award, as set forth in this Agreement and in the Plan. Unless the Company otherwise agrees in writing, this Agreement shall not be effective as a Restricted Stock Award if a copy of this Agreement is not signed and returned to the Company.


15.	Binding Effect. Subject to the limitations stated above, this Agreement shall be binding upon and inure to the benefit of the parties’ respective heirs, legal representatives successors and assigns.

* * * * *

IN WITNESS WHEREOF, BORGWARNER INC. and the Executive have executed this Agreement to be effective as of the date first written above.

BORGWARNER INC.

By:

Title:

I acknowledge receipt of a copy of the Plan (either as an attachment hereto or that has been previously received by me) and that I have carefully read this Agreement and the Plan. I agree to be bound by all of the provisions set forth in this Agreement and the Plan.

Date Employee

Exhibit 10.2

BorgWarner Inc.
2014 Stock Incentive Plan
Performance Share Award Agreement

You have been selected to receive a Performance Share Award under the BorgWarner Inc. 2014 Stock Incentive Plan (the “Plan”), as specified below:

Participant:

Address:

Target Number of Performance Shares:

Performance Period: January 1, 20___ to December 31, 20___

Performance Measure: Company’s Total Shareholder Return Percentile Rank Among Total Shareholder Return of Dow Jones U.S. Auto Parts (“DJUSAT”) Index Companies.

THIS AGREEMENT, effective ____________, 20__, represents the grant of Performance Shares by BorgWarner Inc., a Delaware corporation (the “Company”), to the Participant named above, pursuant to the provisions of the Plan. All capitalized terms shall have the meanings ascribed to them in the Plan, unless specifically set forth otherwise herein. The parties hereto agree as follows:

1. Performance Period. The Performance Period commences on January 1, 20__, and ends on December 31, 20__.

2. Value of Performance Shares. Each Performance Share shall represent and have a value equal to one share of common stock, par value $0.01, of the Company, subject to adjustment as provided in Section 4(e) of the Plan.

3. Performance Shares and Achievement of Performance Goal. The number of Performance Shares to be earned under this Agreement shall be based upon the Company’s Total Shareholder Return as compared to the Total Shareholder Return of companies in the DJUSAT index (identified in Exhibit A) for the Performance Period.

For this purpose, “Total Shareholder Return” shall be determined as follows:

Total Shareholder = Change in Stock Price + Dividends Paid

Return (“TSR”) Beginning Stock Price

Exhibit 10.2

“Beginning Stock Price” shall mean the closing price as reported on the New York Stock Exchange Composite Tape of one (1) share of stock on the last trading day immediately prior to the first day of the Performance Period. “Ending Stock Price” shall mean the closing price as reported on the New York Stock Exchange Composite Tape of one (1) share of stock for the last trading day immediately prior to the end of the Performance Period. “Change in Stock Price” shall mean the difference between the Ending Stock Price and the Beginning Stock Price. Finally, “Dividends Paid” shall mean the total of all dividends paid on one (1) share of stock during the Performance Period, provided that dividends shall be treated as though they are reinvested on their respective ex-dividend dates.

Following the TSR determination, the Company’s Percentile Rank shall be determined as follows:



Percentile Rank		Company Rank minus one
Percentile Rank	=	Total Number of Companies in the DJUSAT Excluding BorgWarner Inc.

Company Rank shall be determined by listing from highest TSR to lowest TSR each company in the DJUSAT (including the Company) and counting up from the company with the lowest TSR.

The percent of Target Number of Performance Shares earned shall then be determined based on the following chart:



Company’s Percentile Rank	Percent of Target Number of Performance Shares Earned

90^th and above 75^th 65^th 50^th 35^th 25^th Below 25th	200.000% 140.000% 100.000% 71.875% 43.750% 25.000% 0.000%

Interpolation shall be used to determine the percent of Target Number of Performance Shares earned in the event the Company’s Percentile Rank does not fall directly on one of the ranks listed in the above chart.

Exhibit 10.2

The Committee shall have no discretion to increase the number of Performance Shares earned under this Agreement (or the amount payable with respect thereto) in excess of the number of Performance Shares determined under this Section 3 (taking into consideration any pro rata adjustment in the event the Committee waives the requirement that the Participant be employed by the Company through the end of the Performance Period, as provided in Section 4 hereof).

4. Termination Provisions. Except as provided in Section 11(a) of this Agreement and in the next paragraph, a Participant shall be eligible for payment of earned Performance Shares, as specified in Section 3, only if the Participant’s employment with the Company continues through the end of the Performance Period and the Participant does not give notice of the Participant’s voluntary Termination of Employment on or before the end of the Performance Period.

If a Participant suffers a Disability, dies, is terminated involuntarily without Cause during the Performance Period, or in the event of the Participant’s Retirement, the Committee, in its sole discretion, may waive the requirement that the Participant be employed by the Company through the end of the Performance Period. In such a case, the Participant (or in the event of the Participant’s death, the Participant’s beneficiary) shall be eligible for all or that proportion of the number of Performance Shares earned under Section 3 (determined at the end of the Performance Period and based on actual results) that his number of full months of participation during the Performance Period bears to the total number of months in the Performance Period.

In the event of the Participant’s Termination of Employment for Cause, the Participant’s giving of notice of voluntary Termination of Employment or the Participant’s actual voluntary Termination of Employment during the Performance Period, or if the Committee does not exercise its discretion to waive the requirement that the Participant be employed by the Company through the end of the Performance Period in the event of the Participant’s Termination of Employment by reason of the Participant’s death, Disability, involuntary termination without Cause, or Retirement prior to the close of the Performance Period, the Participant shall forfeit this entire award, with no payment to the Participant. The Participant’s transfer of employment to the Company or any Subsidiary from another Subsidiary or the Company during the Performance Period shall not constitute a Termination of Employment.

5. Dividends. The Participant shall have no right to any dividends which may be paid with respect to shares of Stock until any such shares are delivered to the Participant following the completion of the Performance Period.

6. Form and Timing of Payment of Performance Shares. The earned Performance Shares shall be paid out one hundred percent (100%) in Stock. Payment of earned Performance Shares shall be made as soon as administratively practicable in the year after the year in which the Performance Period ends, but in any event, no later than March 15 of the year following the year in which the Performance Period ends.

7. Tax Withholding. The Company shall have the power and the right to deduct or withhold, or require the Participant or beneficiary to remit to the Company, an amount sufficient to satisfy federal, state, and local taxes, domestic or foreign, required by law or regulation to be withheld with respect to any taxable event arising as a result of this Agreement. At the request of the Company, the Participant will adopt a written plan that satisfies the requirements of Rule 10b5-1(c) promulgated under the Securities Exchange Act of 1934 under which the Participant

Exhibit 10.2

directs the sale of Performance Shares sufficient to satisfy federal, state, and local tax withholding requirements, with the sale to occur on the date the Performance Shares are paid under Section 6, provided that at the time of the Company’s request the Participant is not aware of material non-public information about the Company and the Participant is not subject to any blackout period.

8. Nontransferability. Performance Shares may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution.

9. Administration. This Agreement and the rights of the Participant hereunder are subject to all the terms and conditions of the Plan, as the same may be amended from time to time, as well as to such rules and regulations as the Committee may adopt for administration of the Plan. It is expressly understood that the Committee is authorized to administer, construe, and make all determinations necessary or appropriate to the administration of the Plan and this Agreement, all of which shall be binding upon the Participant. Any inconsistency between the Agreement and the Plan shall be resolved in favor of the Plan.

10. Specific Restrictions Upon Shares. The Participant hereby agrees with the Company as follows:

(a)

The Participant shall acquire the shares of Stock issuable with respect to the Performance Shares granted hereunder for investment purposes only and not with a view to resale or other distribution thereof to the public in violation of the Securities Act of 1933, as amended (the “1933 Act”), and shall not dispose of any such Stock in transactions which, in the opinion of counsel to the Company, violate the 1933 Act, or the rules and regulations thereunder, or any applicable state securities or “blue sky” laws.


(b)	If any shares of Stock acquired with respect to the Performance Shares shall be registered under the 1933 Act, no public offering (otherwise than on a national securities exchange, as defined in the Exchange Act) of any such Stock shall be made by the Participant under such circumstances that he or she (or such other person) may be deemed an underwriter, as defined in the 1933 Act; and


(c)	The Company shall have the authority to endorse upon the certificate or certificates representing the Shares acquired hereunder such legends referring to the foregoing restrictions.

11. Miscellaneous.

(a)

Change in Control. As provided by Section 12 of the Plan, in the event of a Change in Control, the restrictions applicable to the Performance Shares granted under this Agreement that remain outstanding as of the date of the Change of Control shall lapse, the Performance Goal shall be deemed to have achieved at target level, and all other terms and conditions shall be deemed to have been satisfied. In the event that the Performance Period is shortened due to a Change in Control, the amount of the Performance Shares deemed

Exhibit 10.2

earned shall be prorated by multiplying the Target Number of Performance Shares by a fraction, the numerator of which is the actual number of whole months in the shortened Performance Period and the denominator of which is the number of whole months in the original Performance Period. Subject to Section 11(h) of this Agreement, payment shall be made in Stock or cash, at the discretion of the Committee, within thirty (30) days following the effective date of the Change in Control.

(b)

Adjustments to Shares. Subject to Plan Section 4(e), in the event of any merger, reorganization, recapitalization, stock dividend, stock split, extraordinary distribution with respect to the Stock or other change in corporate structure affecting the Stock, the Committee or Board of Directors of the Company may make such substitution or adjustments in the aggregate number and kind of shares of Stock subject to this Performance Share Award as it may determine, in its sole discretion, to prevent dilution or enlargement of rights.

(c)

Notices. Any written notice required or permitted under this Agreement shall be deemed given when delivered personally, as appropriate, either to the Participant or to the Executive Compensation Department of the Company, or when deposited in a United States Post Office as registered mail, postage prepaid, addressed, as appropriate, either to the Participant at his or her address set forth above or such other address as he or she may designate in writing to the Company, or to the Attention: Executive Compensation, BorgWarner Inc., at its headquarters office or such other address as the Company may designate in writing to the Participant.


(d)	Failure To Enforce Not a Waiver. The failure of the Company to enforce at any time any provision of this Agreement shall in no way be construed to be a waiver of such provision or of any other provision hereof.

(e)

Governing Law. All questions concerning the construction, validity and interpretation of this Agreement shall be governed by and construed according to the internal law, and not the law of conflicts, of the State of Delaware, except that questions concerning the relative rights of the Company and the Participant with respect to Shares, shall be governed by the corporate law of the State of Delaware.

(f)

Provisions of Plan. The Performance Shares provided for herein are granted pursuant to the Plan, and said Performance Shares and this Agreement are in all respects governed by the Plan and subject to all of the terms and provisions thereof, whether such terms and provisions are incorporated in this Agreement solely by reference or expressly cited herein. If there is any inconsistency between the terms of this Agreement and the terms of the Plan, the Plan’s terms shall completely supersede and replace the conflicting terms of this Agreement.


(g)	Code section 162(m). It is intended that payments pursuant to this Agreement to a Participant who is a “covered employee” within the meaning of section

Exhibit 10.2

162(m) of the Internal Revenue Code constitute “qualified performance-based compensation” within the meaning of section 1.162.27(e) of the Income Tax Regulations. To the maximum extent possible, this Agreement and the Plan shall be so interpreted and construed. Except in the case of a Change in Control, no amounts in excess of the number of Performance Shares earned under Section 3 of this Agreement (determined at the end of the Performance Period and based on actual results) shall be paid to the Participant. There shall be no waiver by the Committee of any payment limitations in the event of the Participant’s Retirement pursuant to Section 11(b)(iii) of the Plan.


(h)	Section 16 Compliance. If the Participant is subject to Section 16 of the Exchange Act, except in the case of death or disability, at least six months must elapse from the date of acquisition of the Performance Shares granted hereunder to the date of the Participant’s disposition of such Performance Shares or the underlying shares of Stock.


(i)	Year. All references to “year” in this Agreement refer to the calendar year.

Exhibit 10.2

IN WITNESS WHEREOF, the Company has executed this Agreement in duplicate on the day and year first above written.

BORGWARNER INC.

By: _______________________

The undersigned hereby accepts, and agrees to, all terms and provisions of the forgoing Agreement.

__________________________

<Name>

Exhibit A

BorgWarner Inc.

Amended and Restated 2004 Stock Incentive Plan

Performance Share Award Agreement

Dow Jones U.S. Auto Parts Index Companies as of January 1, 2015

Autoliv Inc.

BorgWarner Inc.

Dana Holding Corporation

Delphi Automotive PLC

Gentex Corporation

Genuine Parts Company

Johnson Controls, Inc.

LKQ Corporation

Lear Corporation

Tenneco Inc.

TRW Automotive Holdings*

Visteon Corporation

WABCO Holdings Inc.

* TRW Automotive Holdings will be excluded from the peer group if its impending acquisition by ZF Friedrichshafen AG is completed during the performance period.

Exhibit 10.3

BORGWARNER INC.

2014 STOCK INCENTIVE PLAN

Stock Units Award Agreement – Non-U.S. Employees

THIS Award Agreement (the “Agreement”) dated as of __________, 20__, by and between BORGWARNER INC., a Delaware corporation (the “Company”) and ______________________ (the “Employee”), is entered into as follows:

WITNESSETH:

WHEREAS, the Company has established the BorgWarner Inc. 2014 Stock Incentive Plan (the “Plan”), a copy of which is attached hereto or which has been previously provided to the Employee;

WHEREAS, the Compensation Committee of the Board of Directors (the “Compensation Committee”) of the Company has determined that the Employee be granted Stock Units pursuant to the terms of the Plan and the terms of this Agreement;

NOW THEREFORE, in consideration of the foregoing and the mutual covenants hereinafter set forth:

Award of Stock Units. The Company hereby awards to the Employee on this date, _______ Stock Units. Each Stock Unit awarded hereunder represents a contingent right to receive one share of the Company’s common stock, par value $.01 (“Stock”) upon satisfaction of the conditions for vesting as provided in Paragraph 4 of this Agreement and subject further to the terms of the Plan and the additional terms and conditions of this Agreement (the “Award”). For purposes of this Agreement, “Employer” shall mean the subsidiary or Affiliate that employs the Employee.


2.	Stock Units. The Company shall credit the Employee’s Stock Units to a Stock Units account established and maintained for the Employee on the books of the Company payable in shares of Stock or cash. The account shall constitute the record of the Stock Units awarded to the Employee under this Agreement, is solely for accounting purposes, and shall not require a segregation of any Company assets.

Dividend Equivalents. Whenever the Company pays any cash or other dividend or makes any other distribution in respect of the Stock, the Employee’s Stock Units account shall be credited with an additional number of Stock Units (including fractions thereof) determined by multiplying (i) the number of Stock Units credited to the Employee on the dividend record date by (ii) the dividend paid on each share of Stock, and dividing the result of such multiplication by (iii) the Fair Market Value of a share of Stock on the dividend payment date. Credits shall be made effective as of the date of the dividend or other distribution in respect of the Stock. Dividend equivalents credited to the Employee’s account shall be subject to the same restrictions as the Stock Units in respect of which the dividends or other distribution were credited, including, without limitation, the Award’s vesting conditions and distribution provisions.

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Exhibit 10.3


4.	Vesting of Stock Units. Subject to the terms and conditions of this Agreement and to the provisions of the Plan, the Stock Units shall vest in accordance with the following schedule:

Date Vested Percentage

______________, 20___ 50% of the Awarded Stock Units

______________, 20___ 100% of the Awarded Stock Units

provided however, that:


a.	In the event of the Employee’s Termination of Employment for Cause, the Employee immediately shall forfeit all of the Stock Units awarded, hereby and all rights to receive Stock in payment of such Stock Units;


b.	In the event of the Employee’s voluntary Termination of Employment, the Employee shall forfeit all rights to Stock Units unvested as of the date of the Employee’s Termination of Employment and all rights to receive Stock in payment of such forfeited Stock Units;


c.	In the event of a Change in Control, any remaining restrictions applicable to any then unvested Stock Units shall lapse, and such Stock Units shall become free of all restrictions and become fully vested; and


d.	In the event of the Employee’s death or disability, or in the event of the Employee’s involuntary Termination of Employment without Cause or Retirement prior to the vesting of the Stock Units, the Compensation Committee shall have the discretion to waive, in whole or in part, any or all remaining payment limitations with respect to the Stock Units awarded under this Agreement.

For purposes of this Agreement, any Termination of Employment shall be effective as of the earlier of (1) the date that the Employee tenders notice of resignation of employment, or (2) the date that the Employee ceases to actively provide services. In connection with the foregoing, the applicable termination date shall not be extended by any notice period mandated under local law (e.g., “garden leave” or similar period pursuant to local law), and the Company shall have the exclusive discretion to determine when the Employee is no longer actively providing service for purposes of the Stock Units.

EU Age Discrimination. For purposes of this Agreement, if the Employee is a local national of and employed in a country that is a member of the European Union, the grant of the Stock Units and the terms and conditions governing the Award are intended to comply with the age discrimination provisions of the EU Equal Treatment Framework Directive, as implemented into local law (the “Age Discrimination Rules”). To the extent a court or tribunal of competent jurisdiction determines that any provision of the Award is invalid or unenforceable, in whole or in part, under the Age Discrimination Rules, the Company, in its sole discretion, shall have the power and authority to revise or strike such provision to the minimum extent necessary to make it valid and enforceable to the full extent permitted under local law.

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Exhibit 10.3

Distribution of Stock. The Company shall deliver Stock to the Employee in settlement of the Stock Units awarded by this Agreement equal to the number of the Employee's vested Stock Units (including any additional Stock Units acquired as a result of dividend equivalents that have vested). Payment shall be made to the Employee as soon as practicable on or after the specified vesting date, but in no event no later than December 31 of the year in which the vesting period ends. Notwithstanding the foregoing, the Company may, in its sole discretion, settle the Stock Units in the form of: (i) a cash payment to the extent settlement in shares of Stock (1) is prohibited under local law, (2) would require the Employee or the Company to obtain the approval of any governmental and/or regulatory body in the Employee’s country of residence (and/or country of employment, if different) or (3) is administratively burdensome; or (ii) shares of Stock, but require the Employee to immediately sell such shares (in which case, this Agreement shall give the Company the authority to issues sales instructions on behalf of the Employee).

Repatriation; Compliance with Laws. The Employee agrees, as a condition of the grant of the Stock Units, to repatriate all payments attributable to the Stock Units and/or cash acquired under the Plan (including, but not limited to, dividends, dividend equivalents, and any proceeds derived from the sale of the Stock acquired pursuant to the Stock Units) in accordance with all foreign exchange rules and regulations applicable to the Employee. In addition, the Employee also agrees to take any and all actions, and consents to any and all actions taken by the Company and its subsidiaries and Affiliates, as may be required to allow the Company and its subsidiaries and Affiliates to comply with all applicable laws, rules and regulations. Finally, the Employee agrees to take any and all actions as may be required to comply with the Employee’s personal legal and tax obligations under all applicable laws, rules and regulations.


8.	Nontransferability. The Stock Units awarded under this Agreement, and any rights and privileges pertaining thereto, are not subject to anticipation, alienation, sale, transfer, assignment, pledge, or encumbrance by the Employee or by the Employee's beneficiary, in any manner, by operation of law or otherwise, and shall not be subject to execution, attachment or similar process.


9.	No Rights as a Stockholder. Prior to the actual delivery of Stock to the Employee in settlement of the Stock Units awarded and vested hereunder (if any), the Employee shall have no rights as a stockholder with respect to the Stock Units or any underlying Stock.


10.	No Right to Continued Employment. Nothing contained in the Plan or this Agreement shall confer upon the Employee any right to continued employment nor shall it interfere in any way with the right of the Employer to terminate the employment of the Employee at any time.

11.

Discretionary Nature of Plan; No Vested Rights. The Employee acknowledges and agrees that the Plan is discretionary in nature and limited in duration, and may be amended, cancelled, or terminated by the Company, in its sole discretion, at any time. The grant of Stock Units under the Plan is a one-time benefit and does not create any contractual or other right to receive an award or benefits in lieu of Stock Units in the future. Future awards, if any, will be at the sole discretion of the Company, including, but not limited to, the form and timing of an award, the number of shares of Stock subject to the award, and the vesting provisions.

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Exhibit 10.3

12.

Termination Indemnities. The value of the Stock Units is an extraordinary item of compensation outside the scope of the Employee’s employment contract, if any. As such, the Stock Units are not part of normal or expected compensation for purposes of calculating any severance, resignation, redundancy, end of service payments, bonuses, long-service awards, pension, or retirement benefits or similar payments.

13.

Private Placement. The grant of the Stock Units is not intended to be a public offering of securities in the Employee’s country of residence (or country of employment, if different) but instead is intended to be a private placement. As a private placement, the Company has not submitted any registration statement, prospectus or other filings with the local securities authorities (unless otherwise required under local law), and the grant of the Stock Units is not subject to the supervision of the local securities authorities.

14.

Consent to Collection, Processing and Transfer of Personal Data. Pursuant to applicable personal data protection laws, the Company and the Employer hereby notify the Employee of the following in relation to the Employee’s personal data and the collection, use, processing and transfer of such data in relation to the Company’s grant of this Award and the Employee’s participation in the Plan. The collection, use, processing and transfer of the Employee’s personal data is necessary for the Company’s administration of the Plan and the Employee’s participation in the Plan. The Employee’s denial and/or objection to the collection, use, processing and transfer of personal data may affect the Employee’s participation in the Plan. As such, the Employee voluntarily acknowledges and consents (where required under applicable law) to the collection, use, processing and transfer of personal data as described herein.

The Company and the Employer hold certain personal information about the Employee, including name, home address and telephone number, date of birth, social security number or other employee identification number, salary, nationality, job title, any shares of Stock or directorships held in the Company, details of all Stock Units, or any other entitlement to shares of Stock awarded, canceled, purchased, vested, unvested or outstanding in the Employee’s favor, for the purpose of managing and administering the Plan (“Data”). The Data may be provided by the Employee or collected, where lawful, from third parties, and the Company and the Employer each will process the Data for the exclusive purpose of implementing, administering and managing the Employee’s participation in the Plan. The Data processing will take place through electronic and non-electronic means according to logics and procedures strictly correlated to the purposes for which the Data is collected and with confidentiality and security provisions as set forth by applicable laws and regulations in the Employee’s country of residence (and country of employment, if different). Data processing operations will be performed minimizing the use of personal and identification data when such operations are unnecessary for the processing purposes sought. Data will be accessible within the Company’s organization only by those persons requiring access for purposes of the implementation, administration and operation of the Plan and for the Employee’s participation in the Plan.

The Company and the Employer each will transfer Data internally as necessary for the purpose of implementation, administration and management of the Employee’s participation

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Exhibit 10.3

in the Plan, and the Company and the Employer each may further transfer Data to any third parties assisting the Company in the implementation, administration and management of the Plan. These recipients may be located in the European Economic Area, or elsewhere throughout the world, such as the United States. The Employee hereby authorizes (where required under applicable law) them to receive, possess, use, retain and transfer the Data, in electronic or other form, for purposes of implementing, administering and managing the Employee’s participation in the Plan, including any requisite transfer of such Data as may be required for the administration of the Plan and/or the subsequent holding of shares of Stock on the Employee’s behalf by a broker or other third party with whom the Employee may elect to deposit any shares of Stock acquired pursuant to the Plan.

The Employee may, at any time, exercise his or her rights provided under applicable personal data protection laws, which may include the right to (a) obtain confirmation as to the existence of the Data, (b) verify the content, origin and accuracy of the Data, (c) request the integration, update, amendment, deletion, or blockage (for breach of applicable laws) of the Data, and (d) to oppose, for legal reasons, the collection, processing or transfer of the Data which is not necessary or required for the implementation, administration and/or operation of the Plan and the Employee’s participation in the Plan. The Employee may seek to exercise these rights by contacting the Employer's local HR manager or the Company’s Human Resources Department.

15.

16.

Tax and Social Insurance Contributions Withholding. Regardless of any action the Company and/or the Employer take with respect to any or all income tax (including U.S. federal, state and local taxes and/or non-U.S. taxes), social insurance, payroll tax, payment on account or other tax-related withholding (“Tax-Related Items”), the Employee acknowledges that the ultimate liability for all Tax-Related Items legally due by the Employee is and remains the Employee’s responsibility, and the Company and the Employer: (i) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the Stock Units, including the grant of the Stock Units, the vesting of the Stock Units, the subsequent sale of any Stock acquired pursuant to the Stock Units and the receipt of any dividends or dividend equivalents; and (ii) do not commit to structure the terms of the grant or any aspect of the Stock Units to reduce or eliminate the Employee’s liability for Tax-Related Items.

Prior to the delivery of the Stock upon the vesting of the Stock Units, if any taxing jurisdiction requires withholding of Tax-Related Items, the Company may withhold a sufficient number of whole shares of Stock otherwise issuable upon the vesting of the Stock Units that have an aggregate Fair Market Value (as defined under the Plan) sufficient to pay the minimum Tax-Related Items required to be withheld with respect to the shares. The cash equivalent of the shares withheld will be used to settle the obligation to withhold the Tax-Related Items (determined by reference to the closing price of the Stock on the New York Stock Exchange

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Exhibit 10.3

on the applicable vesting date). No fractional shares of Stock will be withheld or issued pursuant to the grant of the Stock Units and the issuance of Stock hereunder. Alternatively, the Company and/or the Employer may, in its discretion, withhold any amount necessary to pay the Tax-Related Items from the Employee’s salary/wages or other amounts payable to the Employee, with no withholding in shares of Stock.

In the event the withholding requirements are not satisfied through the withholding of shares of Stock or through the withholding from the Employee’s salary/wages or other amounts payable to the Employee, no shares of Stock will be issued upon vesting of the Stock Units unless and until satisfactory arrangements (as determined by the Committee) have been made by the Employee with respect to the payment of any Tax-Related Items which the Company and/or the Employer determine, in its sole discretion, must be withheld or collected with respect to such Stock Units. If the Employee is subject to taxation in more than one jurisdiction, the Employee acknowledges that the Company, the Employer or another subsidiary or Affiliate may be required to withhold or account for Tax-Related Items in more than one jurisdiction. By accepting this grant of Stock Units, the Employee expressly consents to the withholding of shares of Stock and/or the withholding of amounts from the Employee's salary/wages or other amounts payable to the Employee as provided for hereunder. All other Tax-Related Items related to the Stock Units and any Stock delivered in payment thereof are the Employee’s sole responsibility.

17.

Electronic Delivery. The Company may, in its sole discretion, decide to deliver any documents related to the Stock Units or other awards granted to the Employee under the Plan by electronic means. The Employee hereby consents to receive such documents by electronic delivery and agrees to participate in the Plan through an on-line or electronic system established and maintained by the Company or a third party designated by the Company.

18.

English Language. The Employee acknowledges and agrees that it is the Employee’s express intent that this Agreement, the Plan and all other documents, notices and legal proceedings entered into, given or instituted pursuant to the Stock Units, be drawn up in English. If the Employee has received this Agreement, the Plan or any other documents related to the Stock Units translated into a language other than English, and if the meaning of the translated version is different than the English version, the English version shall control.

19.

Addendum. Notwithstanding any provisions herein to the contrary, the Stock Units shall be subject to any special terms and conditions for the Employee’s country of residence (and country of employment, if different), as may be set forth in an addendum to this Agreement (the “Addendum”). Further, if the Employee transfers the Employee’s residence and/or employment to another country reflected in an Addendum, the special terms and conditions for such country will apply to the Employee to the extent the Company determines, in its sole discretion, that the application of such terms and conditions is necessary or advisable in order to comply with local laws, rules and/or regulations or to facilitate the operation and administration of the Stock Units and the Plan (or the Company may establish alternative terms and conditions as may be necessary or advisable to accommodate the Employee’s transfer). In all circumstances, any applicable Addendum shall constitute part of this Agreement.

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Exhibit 10.3

20.

Additional Requirements. The Company reserves the right to impose other requirements on the Stock Units, any shares of Stock acquired pursuant to the Stock Units, and the Employee’s participation in the Plan, to the extent the Company determines, in its sole discretion, that such other requirements are necessary or advisable in order to comply with local laws, rules and/or regulations or to facilitate the operation and administration of the Stock Units and the Plan. Such requirements may include (but are not limited to) requiring the Employee to sign any agreements or undertakings that may be necessary to accomplish the foregoing.


21.	Governing Law. The Award made and actions taken under the Plan and this Agreement shall be governed by and construed in accordance with the laws of the State of Delaware without taking into account its conflict of laws provisions.


22.	Binding Effect. Subject to the limitations stated above, this Agreement shall be binding upon and inure to the benefit of the parties’ respective heirs, legal representatives successors and assigns.


23.	Changes in Capital or Corporate Structure. In the event of any merger, reorganization, consolidation, recapitalization, stock dividend, stock split, extraordinary distribution with respect to the Stock or other change in corporate structure affecting the Stock, the number of Stock Units awarded under this Agreement shall be adjusted pursuant to Section 12 of the Plan.


24.	Entire Agreement. This Agreement is the entire agreement between the parties hereto, and all prior oral and written representations are merged into this Agreement. The headings in this Agreement are inserted for convenience and identification only and are not intended to describe, interpret, define or limit the scope, extent, or intent of this Agreement or any provision hereof.

25.

Notices. Any notice or other communication required or permitted under this Agreement must be in writing and must be delivered personally, sent by certified, registered or express mail, or sent by overnight courier, at the sender's expense. Notice shall be deemed given when delivered personally or, if mailed, three days after the date of deposit in the United States mail or, if sent by overnight courier, on the regular business day following the date sent. Notice to the Company should be sent to Attention: Vice President, Human Resources, BorgWarner World Headquarters, 3850 Hamlin Road, Auburn Hills, MI, USA 48326. The Company may change the person and/or address to whom the Employee must give notice under this paragraph by giving the Employee written notice of such change, in accordance with the procedures described above. Notices to or with respect to the Employee shall be directed to the Employee, or to the Employee's executors, personal representatives or distributees, if the Employee is deceased, or the assignees of the Employee, at the Employee's last home address on the records of the Company.


26.	Amendment of the Agreement. The Company and the Employee may amend this Agreement only by a written instrument signed by both parties.


27.	Counterparts. This Agreement may be executed in one or more counterparts, all of which together shall constitute but one agreement.

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Exhibit 10.3

[Signature page to follow]

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Exhibit 10.3

IN WITNESS WHEREOF, BORGWARNER INC. and the Employee have executed this Agreement to be effective as of the date first written above.

BORGWARNER INC.

By:

Title:

I acknowledge receipt of a copy of the Plan (either as an attachment hereto or that has been previously received by me) and that I have carefully read this Agreement, the Addendum and the Plan. I agree to be bound by all of the provisions set forth in this Agreement, the Addendum and the Plan.

Date EMPLOYEE

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EXHIBIT 31.1

Certification of the Principal Executive Officer

Pursuant to 15 U.S.C. 78m(a) or 78o(d)

(Section 302 of the Sarbanes-Oxley Act of 2002)

I, James R. Verrier, certify that:


1.	I have reviewed this quarterly report on Form10-Q of BorgWarner Inc.;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


(c)	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


(d)	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting;


5.	The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):


(a)	All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and


(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting.



Date: April 30, 2015

/s/ James R. Verrier
James R. Verrier
President and Chief Executive Officer

EXHIBIT 31.2

Certification of the Principal Financial Officer

Pursuant to 15 U.S.C. 78m(a) or 78o(d)

(Section 302 of the Sarbanes-Oxley Act of 2002)

I, Ronald T. Hundzinski, certify that:


1.	I have reviewed this quarterly report on Form10-Q of BorgWarner Inc.;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c)	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d)	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting;


5.	The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):


a)	All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and


b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting



Date: April 30, 2015

/s/ Ronald T. Hundzinski
Ronald T. Hundzinski
Vice President and Chief Financial Officer

EXHIBIT 32.1

CERTIFICATIONS OF CHIEF EXECUTIVE OFFICER

AND CHIEF FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350

In connection with the Quarterly Report of BorgWarner Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2015 (the “Report”), each of the undersigned officers of the Company certifies, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that to the best of such officer's knowledge:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



Dated: April 30, 2015

/s/ James R. Verrier
James R. Verrier
President and Chief Executive Officer

/s/ Ronald T. Hundzinski
Ronald T. Hundzinski
Vice President and Chief Financial Officer

A signed original of this written statement required by Section 906 has been provided to BorgWarner Inc. and will be retained by BorgWarner Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

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