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~~

[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended~~September 30, 2007~~March 31, 2008


o		~~Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934~~

[ ] 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)~~

Delaware 13-3404508

~~Registrant’s~~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.YESþ [ X ] NOo [ ]

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

Large Accelerated Filerþ [ X ] Accelerated Filero [ ] Non-Accelerated Filero [ ] Smaller Reporting Company [ ]

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

On ~~September 30, 2007,~~March 31, 2008, the registrant had ~~57,984,237~~116,104,528 shares of Common Stock outstanding.

BORGWARNER INC.

FORM 10-Q

THREE MONTHS ENDED MARCH 31, 2008

INDEX

~~BORGWARNER INC.~~
~~FORM 10-Q~~
~~THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2007~~

~~INDEX~~

PART I.	Financial Information	Page No.
Item 1.	Financial Statements
		~~Page No.~~
~~PART I.Financial Information~~

~~Item 1. Financial Statements~~

Condensed Consolidated Balance Sheets as of ~~September 30, 2007~~March 31, 2008 (Unaudited) and December 31, ~~2006~~ 2007			3

Condensed Consolidated Statements of Operations (Unaudited) for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2008 and 2007 ~~and 2006~~			4

Condensed Consolidated Statements of Cash Flows (Unaudited) for the ~~nine~~three months ended ~~September 30,~~March 31, 2008 and 2007 ~~and 2006~~			5

Notes to Condensed Consolidated Financial Statements (Unaudited)			6

Item 2. ~~Management’s~~	Management's Discussion and Analysis of Financial Condition and Results of Operations			24	23

Item 3.	Quantitative and Qualitative Disclosures About Market Risk			34	32

Item 4.	Controls and Procedures			34

~~PART II.Other Information~~

~~Item 1. Legal Proceedings~~			35

~~Item 2. Repurchases of Equity Securities~~			35

~~Item 6. Exhibits~~			36

~~SIGNATURES~~			37
~~Rule 13a-14(a)/15d-14(a) Certification of the Principal Executive Officer~~PART II	Other Information	32
~~Rule 13a-14(a)/15d-14(a) Certification of the Principal Financial Officer~~Item 1.	Legal Proceedings	32
~~Section 1350 Certifications~~Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds (Repurchases and Authorization of Equity Securities)	32
Item 5.	Other Information	33
Item 6.	Exhibits	34
SIGNATURES		35

PART I. FINANCIAL INFORMATION

BORGWARNER INC. AND CONSOLIDATED SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(millions of dollars)


	September 30,			December 31,			March 31,			December 31,
	2007			2006			2008			2007
	(Unaudited)						(Unaudited)
ASSETS
Cash	$	137.4		$	123.3		$	203.4		$	188.5
Marketable securities		38.9			59.1			11.8			14.6
Receivables, net		870.1			744.0			955.1			802.4
Inventories, net		450.9			386.9			471.8			447.6
Deferred income taxes		40.3			33.7			46.8			42.8
Prepayments and other current assets		98.0			90.5			78.2			84.4

Total current assets		1,635.6			1,437.5			1,767.1			1,580.3

Property, plant and equipment, net		1,524.9			1,460.7

Investments and advances		243.2			198.0
Property, plant & equipment, net								1,672.2			1,609.1
Investments & advances								272.0			255.1
Goodwill		1,113.1			1,086.5			1,199.8			1,168.2
Other non-current assets		337.4			401.3			376.1			345.8

Total non-current assets		1,693.7			1,685.8

Total assets	$	4,854.2		$	4,584.0		$	5,287.2		$	4,958.5


LIABILITIES AND STOCKHOLDERS’ EQUITY
Notes payable and current portion of long-term debt	$	37.1		$	151.7
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable							$	144.3		$	63.7
Current portion of long-term debt								138.6			-
Accounts payable and accrued expenses		963.2			843.4			1,035.6			993.0
Income taxes payable		33.9			39.7			17.9			27.2

Total current liabilities		1,034.2			1,034.8			1,336.4			1,083.9

Long-term debt		564.4			569.4			446.7			572.6
Other non-current liabilities:
Retirement-related liabilities		567.0			660.9			507.9			500.4
Other		324.6			281.4			394.8			362.6

Total other non-current liabilities		891.6			942.3			902.7			863.0

Minority interest in consolidated subsidiaries		169.2			162.1			122.0			117.9

Common stock		0.6			0.6			1.2			1.2
Capital in excess of par value		927.7			871.1			951.6			943.4
Retained earnings		1,235.2			1,064.1			1,369.5			1,295.9
Accumulated other comprehensive income (loss)		69.1			(60.3	)
Accumulated other comprehensive income								213.2			127.1
Treasury stock		(37.8	)		(0.1	)		(56.1	)		(46.5	)

Total stockholders’ equity		2,194.8			1,875.4

Total liabilities and stockholders’ equity	$	4,854.2		$	4,584.0

Total stockholders' equity								2,479.4			2,321.1
Total liabilities and stockholders' equity							$	5,287.2		$	4,958.5

See accompanying Notes to Condensed Consolidated Financial Statements

BORGWARNER INC. AND CONSOLIDATED SUBSIDIARIES

(millions of dollars, except share and per share data)

See accompanying Notes to Condensed Consolidated Financial Statements

BORGWARNER INC. AND CONSOLIDATED SUBSIDIARIES CONDENSED CONSOLIDATED

(millions of dollars)

Nine Months Ended
September 30,
2007 2006
OPERATING

Net earnings $ 217.3 $ 170.7
Adjustments to reconcile net earnings to net cash flows from operations:
Non-cash charges (credits) to operations:
Depreciation and tooling amortization 177.3 173.6
Amortization of intangible assets and other 12.6 10.1
Restructuring expense — 11.5
Stock option compensation expense 12.7 9.1
Deferred income tax benefit (27.0 ) (1.6 )
Equity in affiliates’ earnings, net of dividends received, minority interest and other 8.1 14.6

Net earnings adjusted for non-cash charges (credits) to operations 401.0 388.0
Changes in assets and liabilities:
Receivables (83.9 ) (28.1 )
Inventories (43.8 ) (30.7 )
Prepayments and other current assets (4.7 ) (32.4 )
Accounts payable and accrued expenses 91.1 (18.0 )
Income taxes payable (8.2 ) (7.2 )
Other non-current assets and liabilities 14.6 (0.9 )

Net cash provided by operating activities 366.1 270.7

INVESTING

Capital expenditures, including tooling outlays (194.6 ) (191.9 )
Net proceeds from asset disposals 7.2 5.8
Purchases of marketable securities (12.8 ) (41.6 )
Proceeds from sales of marketable securities 36.3 14.1
Payments for business acquired, net of cash acquired — (64.4 )

Net cash used in investing activities (163.9 ) (278.0 )

FINANCING

Net decrease in notes payable (117.0 ) (56.6 )
Additions to long-term debt 20.0 115.0
Repayments of long-term debt (23.8 ) (42.5 )
Payments for purchases of treasury stock (37.8 ) —
Proceeds from stock options exercised 34.5 11.2
Dividends paid to BorgWarner stockholders (29.6 ) (27.5 )
Dividends paid to minority shareholders (16.0 ) (16.2 )

Net cash used in financing activities (169.7 ) (16.6 )
Effect of exchange rate changes on cash (18.4 ) 1.2

Net increase (decrease) in cash 14.1 (22.7 )
Cash at beginning of year 123.3 89.7

Cash at end of period $ 137.4 $ 67.0

SUPPLEMENTAL CASH FLOW INFORMATION

Net cash paid during the period for:
Interest $ 33.0 $ 33.2
Income taxes 65.6 70.0
Non-cash financing transactions:
Issuance of common stock for stock performance plans 2.3 3.0

	Three Months Ended
	March 31,
	2008			2007

OPERATING
Net earnings	$	88.7		$	58.4
Adjustments to reconcile net earnings to net cash flows from operations:
Non-cash charges (credits) to operations:
Depreciation and tooling amortization		66.8			60.2
Amortization of intangible assets and other		5.4			4.1
Stock option compensation expense		5.5			4.2
Deferred income tax loss (benefit)		4.0			(7.0	)
Equity in affiliates' earnings, net of dividends received, minority interest and other		4.4			6.8
Net earnings adjusted for non-cash charges to operations		174.8			126.7
Changes in assets and liabilities:
Receivables		(111.2	)		(45.3	)
Inventories		(5.3	)		(35.3	)
Prepayments and other current assets		8.0			(12.2	)
Accounts payable and accrued expenses		22.2			49.9
Income taxes payable		(11.4	)		(0.5	)
Other non-current assets and liabilities		(2.6	)		(0.7	)
Net cash provided by operating activities		74.5			82.6

INVESTING
Capital expenditures, including tooling outlays		(75.4	)		(58.3	)
Net proceeds from asset disposals		0.3			2.1
Purchases of marketable securities		-			(12.5	)
Proceeds from sales of marketable securities		3.7			14.4
Net cash used in investing activities		(71.4	)		(54.3	)

FINANCING
Net increase (decrease) in notes payable		79.0			(39.7	)
Additions to long-term debt		-			20.0
Repayments of long-term debt		(5.1	)		(7.5	)
Payment for purchase of treasury stock		(13.5	)		-
Proceeds from stock options exercised, net of tax benefit		2.7			13.1
Dividends paid to BorgWarner stockholders		(12.8	)		(9.8	)
Dividends paid to minority shareholders		(8.2	)		(10.9	)
Net cash (used in) provided by financing activities		42.1			(34.8	)
Effect of exchange rate changes on cash		(30.3	)		1.3
Net increase (decrease) in cash		14.9			(5.2	)
Cash at beginning of year		188.5			123.3
Cash at end of period	$	203.4		$	118.1

SUPPLEMENTAL CASH FLOW INFORMATION
Net cash paid during the period for:
Interest	$	11.7		$	11.8
Income taxes		45.3			27.4
Non-cash financing transactions:
Stock Performance Plans		1.5			2.3

See accompanying Notes to Condensed Consolidated Financial Statements

BORGWARNER INC. AND CONSOLIDATED SUBSIDIARIES

(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 ~~and nine~~ months ended ~~September 30, 2007~~March 31, 2008 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2007.~~2008. The balance sheet as of December 31, ~~2006~~2007 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, ~~2006.~~2007.

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.

On November 14, 2007, the Company’s Board of Directors approved a two-for-one stock split effected in the form of a stock dividend on its common stock. To implement this stock split, shares of common stock were issued on December 17, 2007 to stockholders of record as of the close of business on December 6, 2007. All prior year share and per share amounts disclosed in this document have been restated to reflect the two-for-one stock split.

(2) Research and Development

The following table presents the Company’s gross and net expenditures on research and development (“R&D”) activities:

Three Months Ended Nine Months Ended
September 30, September 30,
(millions) 2007 2006 2007 2006
Gross R&D expenditures $ 59.3 $ 53.1 $ 184.8 $ 160.9
Customer reimbursements (10.2 ) (6.9 ) (28.1 ) (20.8 )

Net R&D expenditures $ 49.1 $ 46.2 $ 156.7 $ 140.1

(millions)
Three months ended March 31,	2008			2007
Gross R&D expenditures	$	67.0		$	60.5
Customer reimbursements		(9.5	)		(9.6	)
Net R&D expenditures	$	57.5		$	50.9

The Company’s net R&D expenditures are included in the selling, general and administrative expenses of the Condensed Consolidated Statements of Operations. Customer reimbursements are netted against gross R&D expenditures upon billing of services performed. The Company has contracts with several customers at the Company’s various R&D locations. No such contract exceeded $6 million in any of the periods presented.

(3) Income Taxes

The ~~Company’s provisions~~Company's provision for income taxes ~~resulted in effective rates of 10.9% and 21.7%~~is based upon an estimated annual tax rate for the ~~three~~year applied to federal, state and ~~nine months ended September 30, 2007, respectively. These~~foreign income. The projected effective tax ~~rates differ~~rate of 26.0% for 2008 differs 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 R&D and foreign tax credits and favorable permanent differences between book and tax treatment for items, including equity in affiliates’ earnings and a Medicare prescription drug ~~benefit, and tax account adjustments, primarily due~~benefit. This rate is expected to ~~a change in~~be less than the ~~statutory tax rate in Germany. If the effect of the tax account adjustments is not taken into account, the Company’s~~full year 2007 effective tax rate ~~associated with its on-going~~of 26.5% because the 2007 rate included: a) foreign rates which differ from those in the U.S.; b) realization of certain business ~~operations was 27.0%. The Company’s full-year 2006 effective~~ tax ~~rate associated with its on-going business operations was 26.0%~~credits including R&D and foreign tax credits; c) other permanent items, including equity in affiliates’ earnings and Medicare prescription drug benefit; d) the tax effects of other miscellaneous dispositions; e) the change of tax accrual accounts upon conclusion of certain tax audits; and f) adjustments to various tax accounts, including changes in tax laws, primarily in Europe.

The Company adopted the provisions of FASB Interpretation No. 48,Accounting for Uncertainty in Income Taxes(“ (“FIN 48”), on January 1, 2007. As a result of the implementation of FIN 48, the Company recognized a $16.6 million reduction to the January 1, 2007 balance of retained earnings. At December 31, 2007, the Company reported $71.7 million of unrecognized tax benefits; approximately $62.5 million represent the amount that, if recognized, would affect the Company’s effective income tax rate in future periods.

At ~~January 1, 2007,~~March 31, 2008, the balance of gross unrecognized tax benefits is ~~$50.5~~$65.6 million. Included in the balance at ~~January 1, 2007~~March 31, 2008 are ~~$43.1~~$55.9 million of tax positions that are permanent in nature and, if recognized, would reduce the effective tax rate. ~~Due~~The reduction in the gross unrecognized tax benefits is primarily due to ~~new developments~~a $6.6 million cash payment to the Internal Revenue Service ("IRS") to resolve agreed upon issues of the ongoing IRS examination of the Company’s 2002-2004 tax year. The Company intends to appeal an issue related to the 2002-2004 IRS audit during 2008, which is not expected to be resolved in ~~third quarter 2007, an additional liability was recorded. However,~~the next 12 months. In addition, the Company’s federal, certain state and certain non-U.S. income tax returns are currently under various stages of audit by applicable tax authorities and the amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ materially from the amounts accrued for each year. Any other possible change in the unrecognized tax benefits within the next 12 months cannot be reasonably estimated.

The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense. The Company had $9.7 million accrued at December 31, 2007 for the payment of any such interest and penalties. The Company had approximately $11.6 million for the payment of interest and penalties accrued at March 31, 2008.

The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions. The Company is no longer subject to income tax examinations by tax authorities in its major tax jurisdictions as follows:


		~~Years No Longer~~
Tax Jurisdiction		Years No Longer Subject to Audit
U.S. Federal		2001 and prior
Brazil		2002 and prior
France		2003 and prior
Germany		2002 and prior
Hungary		2004 and prior
Italy		~~2001~~2002 and prior
Japan		~~2005~~2006 and prior
South Korea		2004 and prior
United Kingdom		~~2003~~2004 and prior

In certain tax jurisdictions the Company may have more than one taxpayer. The table above reflects the status of the major ~~taxpayers~~taxpayer in each major tax jurisdiction.

The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense. The Company had $5.3 million accrued at January 1, 2007 for the payment of any such interest and penalties.

(4) Marketable Securities

As of ~~September 30, 2007~~March 31, 2008 and December 31, ~~2006,~~2007, the Company held ~~$38.9~~$11.8 million and ~~$59.1~~$14.6 million, respectively, of highly liquid investments in marketable securities, primarily bank notes. The securities are

carried at fair value with the unrealized gain or loss, net of tax, reported in other comprehensive income. As of ~~September 30, 2007~~March 31, 2008 and December 31, ~~2006, $31.8~~2007, $3.9 million and ~~$45.5~~$7.3 million of the contractual maturities are within one to five years and ~~$7.1~~$7.9 million and ~~$13.6~~$7.3 million are due beyond five years, respectively. The Company does not intend to hold these investments until maturity; rather, they are available to support current operations if needed.

(5) Sales of Receivables

The Company securitizes and sells certain receivables through third party financial institutions without recourse. The amount sold can vary each month based on the amount of underlying receivables. At both ~~September 30, 2007~~March 31, 2008 and December 31, ~~2006,~~2007, the Company had sold $50 million of receivables under a Receivables Transfer Agreement for face value without recourse. During both of the ~~nine-month~~three-month periods ended ~~September 30,~~March 31, 2008 and 2007, ~~and 2006,~~ total cash proceeds from sales of accounts receivable were ~~$450~~$150 million. The Company paid servicing fees related to these receivables for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2008 and 2007 ~~and 2006~~ of ~~$0.8~~$0.6 million and $0.7 ~~million and $2.2 million and $2.0~~ million, respectively. These amounts are recorded in interest expense and finance charges in the Condensed Consolidated Statements of Operations.

(6) Inventories

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:

September 30, December 31,
(millions) 2007 2006
Raw material and supplies $ 235.3 $ 207.4
Work in progress 112.3 100.0
Finished goods 117.4 91.9

FIFO inventories 465.0 399.3
LIFO reserve (14.1 ) (12.4 )

Inventories, net $ 450.9 $ 386.9

(millions) March 31, December 31,
2008 2007

Raw material and supplies $ 256.0 $ 246.7
Work in progress 107.3 99.8
Finished goods 121.8 114.6
FIFO inventories 485.1 461.1
LIFO reserve (13.3 ) (13.5 )
Inventories, net $ 471.8 $ 447.6

(7) Property, ~~plant~~Plant & ~~equipment~~Equipment

As of ~~September 30, 2007~~March 31, 2008 and December 31, ~~2006,~~2007, accounts payable of ~~$24.9~~$33.9 million and ~~$36.0~~$45.8 million, respectively, were related to property, plant and equipment purchases.

As of ~~September 30, 2007~~March 31, 2008 and December 31, ~~2006,~~2007, specific assets of ~~$23.0~~$17.8 million and ~~$21.3~~$16.5 million, respectively, were pledged as collateral under certain of the Company’s long-term debt agreements.

(8) Product Warranty

The Company provides warranties on some 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 claims. Management actively studies trends of warranty claims and takes action to improve product quality and minimize warranty claims. While management believes that the warranty accrual is appropriate, actual claims incurred could differ from the original estimates, requiring adjustments to the accrual. The accrual is recorded in both long-term and short-term liabilities on the balance sheet. The following table summarizes the activity in the warranty accrual accounts:

Nine months ended
September 30,
(millions) 2007 2006
Beginning balance $ 60.0 $ 44.0
Acquisition — 0.1
Provision 51.6 15.8
Payments (36.0 ) (17.1 )
Currency translation 3.6 2.9

Ending balance $ 79.2 $ 45.7

	Three months ended
(millions)	March 31,
	2008			2007

Beginning balance	$	70.1		$	60.0
Provision		10.1			24.9
Payments		(6.7	)		(5.6	)
Currency translation		3.3			0.5
Ending balance	$	76.8		$	79.8

Contained within the provision recognized in the ~~nine~~three months ended ~~September 30,~~March 31, 2007 is approximately $14 million for a warranty-related issue surrounding a product, built during a 15-month period in 2004 and 2005, that is no longer in production.

(9) Notes Payable and Long-Term Debt

Following is a summary of notes payable and long-term ~~debt.~~debt, including current portion. The weighted average interest rate on all borrowings outstanding as of ~~September 30, 2007~~March 31, 2008 and December 31, ~~2006~~2007 was ~~5.1%~~4.7% and ~~4.9%~~5.4%, respectively.

September 30, 2007 December 31, 2006
(millions) Current Long-Term Current Long-Term
Bank borrowings and other $ 5.3 $ 5.6 $ 131.8 $ 5.9
Term loans due through 2013 (at an average rate of 3.1% in 2007 and 3.0% in 2006) 31.8 21.8 19.9 23.1
5.75% Senior Notes due 11/01/16, net of unamortized discount (a) — 149.1 — 149.0
6.50% Senior Notes due 02/15/09, net of unamortized discount (a) — 136.5 — 136.4
8.00% Senior Notes due 10/01/19, net of unamortized discount (a) — 133.9 — 133.9
7.125% Senior Notes due 02/15/29, net of unamortized discount — 119.2 — 119.2

Carrying amount of notes payable and long-term debt 37.1 566.1 151.7 567.5
Impact of derivatives on debt — (1.7 ) — 1.9

Total notes payable and long-term debt $ 37.1 $ 564.4 $ 151.7 $ 569.4

(millions)	March 31, 2008				December 31, 2007
	Current		Long-Term		Current		Long-Term
Bank borrowings and other	$	103.0	$	6.7	$	30.0	$	6.0
Term loans due through 2013 (at an average rate of
4.3% in 2008 and 4.0% in 2007)		41.3		18.6		33.7		18.8
5.75% Senior Notes due 11/01/16, net of unamortized discount (a)		-		149.1		-		149.1
6.50% Senior Notes due 02/15/09, net of unamortized discount (a)		136.5		-		-		136.5
8.00% Senior Notes due 10/01/19, net of unamortized discount (a)		-		133.9		-		133.9
7.125% Senior Notes due 02/15/29, net of unamortized discount		-		119.2		-		119.2
Carrying amount		280.8		427.5		63.7		563.5
Impact of derivatives on debt		2.1		19.2		-		9.1
Total notes payable and long-term debt, including current portion	$	282.9	$	446.7	$	63.7	$	572.6

(a) The Company entered into several interest rate swaps, which have the effect of converting $325.0 million of these fixed rate notes to variable rates as of March 31, 2008 and December 31, 2007. The weighted average effective interest rates for these borrowings, including the effects of outstanding swaps as noted in Note 11, were 5.0% as of March 31, 2008 and December 31, 2007, respectively.

The Company has a multi-currency revolving credit facility, which provides for borrowings up to $600 million through July 2009. At ~~September 30, 2007~~March 31, 2008 and December 31, ~~2006,~~2007 there were no borrowings outstanding under the facility. The credit agreement is subject to the usual terms and conditions applied by banks to an investment grade company. The Company was in compliance with all covenants at ~~September 30, 2007~~March 31, 2008 and expects to beremain compliant in future periods. The Company had outstanding letters of credit of $22.0 million at ~~September 30, 2007~~March 31, 2008 and ~~$27.0 million at~~ December 31, ~~2006.~~2007. The letters of credit typically act as a guarantee of payment to certain third parties in accordance with specified terms and conditions.

As of ~~September 30, 2007~~March 31, 2008 and December 31, ~~2006,~~2007, the estimated fair values of the Company’s senior unsecured notes totaled ~~$561.6~~$571.6 million and ~~$572.7~~$572.4 million, respectively. The estimated fair values were ~~$22.9~~$32.8 million higher at ~~September 30, 2007~~March 31, 2008 and ~~$34.2~~$33.7 million higher at December 31, ~~2006~~2007 than their respective carrying values. Fair market values are developed by the use of estimates obtained from brokers and other appropriate valuation techniques based on information available as of quarter-end and year-end. The fair value estimates do not necessarily reflect the values the Company could realize in the current markets.

(10) Fair Value Measurements

On January 1, 2008, the Company partially adopted as required, Statement of Financial Accounting Standards No. 157 – “Fair Value Measurements” (“SFAS 157”) which expands the disclosure of fair value measurements and its impact on the Company’s financial statements. In February 2008, the FASB issued FSP 157-2, which delayed the effective date of adoption with respect to certain non-financial assets and liabilities until 2009. We intend to defer the adoption of SFAS 157 with respect to certain non-financial assets and liabilities as permitted.

Statement No. 157 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, SFAS 157 establishes a fair value hierarchy, which prioritizes the

Level 1:	Observable inputs such as quoted prices 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.

Assets and liabilities measured at fair value are based on one or more of the following three valuation techniques noted in SFAS 157:

Techniques to convert future amounts to a single present amount based upon market expectations (including present value techniques, option-pricing and

excess earnings models).

Basis of Fair Value Measurements
Quoted Significant Significant
Prices in Other Unobservable
Active Observable Inputs
Balance at Markets for Inputs
March 31, Identical Items
2008 (Level 1) (Level 2) (Level 3)
Assets:
Marketable Securities $ 11.8 $ 11.8 $ - $ -
Interest rate swap contracts 21.3 - 21.3 -
Commodity contracts 2.6 - 2.6 -
Foreign exchange contracts 1.0 - 1.0 -
$ 36.7 $ 11.8 $ 24.9 $ -

Liabilities:
Commodity contracts $ 14.1 $ - $ 14.1 $ -
Foreign exchange contracts 33.7 - 33.7 -
Net investment hedge contracts 67.2 - 67.2 -
$ 115.0 $ - $ 115.0 $ -

(11) Financial Instruments

The Company manages its interest rate risk by balancing its exposure to fixed and variable rates while attempting to minimize its interest costs. The Company selectively uses interest rate swaps to reduce market value risk associated with changes in interest rates (fair value hedges). The Company also selectively uses cross-currency swaps to hedge the foreign currency exposure associated with ~~its~~our net investment in certain

foreign operations (net investment hedges).

A summary of these instruments outstanding at ~~September 30, 2007 follows (currency in millions):~~March 31, 2008 follows:

Notional

Hedge Type

Amount

Maturity (a)

Amount

Hedge Type

(millions)

Maturity (a)

Interest rate swaps

Fixed to floating

Fair value

100

February 15, 2009

Fair value

100

February 15, 2009

Fixed to floating

Fair value

150

November 1, 2016

Fair value

150

November 1, 2016

Fixed to floating

Fair value

October 1, 2019

Fair value

October 1, 2019

Cross currency swap

Floating $ to floating €

Net Investment

100

February 15, 2009

Net Investment

100

February 15, 2009

Floating $ to floating ¥

Net Investment

150

November 1, 2016

Net Investment

150

November 1, 2016

Floating $ to floating €

Net Investment

October 1, 2019

Net Investment

October 1, 2019

(a) The maturity of the swaps corresponds with the maturity of the hedged item as noted in the debt summary, unless otherwise indicated.

Effectiveness for ~~interest rate~~fair value and ~~cross currency swaps~~net investment hedges is assessed at the inception of the hedging relationship. If specified criteria for the assumption of effectiveness are not met at hedge inception, effectiveness is assessed quarterly. Ineffectiveness is measured quarterly and results are recognized in earnings.

$51.3 million. The fair values for certain commodity derivative instruments are based on Level 2 evidence (for example, future prices reported on commodity exchanges) under SFAS 157. See Note 10 for further discussion of fair value measurements. As of ~~September 30, 2007,~~March 31, 2008, the Company was holding commodity derivatives with positive and negative fair market values of ~~$2.5~~$2.6 million and ~~$(14.5)~~($14.1) million, respectively, ~~($2.1~~of which $2.6 million in gains and ($~~9.4)~~12.3) million in losses mature in less than one ~~year).~~year. To the extent that derivative instruments are deemed to be effective as defined by FAS 133, gains and losses arising from these contracts are deferred in other comprehensive income. Such gains and losses will be reclassified into income as the underlying operating transactions are realized. Gains and losses not qualifying for deferral treatment have been credited/charged to income as they are recognized. As of December 31, ~~2006,~~2007, the Company had forward and option commodity contracts with a total notional value of ~~$19.1~~$67.3 million. ~~The~~As of December 31, 2007, the Company was holding commodity derivatives with positive and negative fair market values of ~~the forward contracts were negative~~$0.1 million and ($~~2.0)~~18.4) million, ~~($(1.9)~~respectively, of which $0.1 million in gains and ($14.5) million in losses ~~maturing~~mature in less than one ~~year). Gains and losses~~year. Losses not qualifying for deferral associated with these contracts for ~~September 30, 2007~~March 31, 2008 were negligible. At December 31, ~~2006,~~2007, losses not qualifying for deferral were ~~$(0.1)~~($0.1) million.

The Company uses foreign exchange forward and option contracts to protect against exchange rate movements for forecasted cash flows for purchases, operating expenses or sales transactions designated in currencies other than the functional currency of the operating unit. Most contracts mature in less than one year, however, certain long-term commitments are covered by forward currency arrangements to protect against currency risk through ~~2009.~~2011. Foreign currency contracts require the Company, at a future date, to either buy or sell foreign currency in exchange for the operating units’ local currency. At ~~June 30, 2007,~~March 31, 2008, contracts were outstanding to buy or sell British Pounds Sterling, Euros, Hungarian Forints, Japanese Yen, Mexican Pesos, South Korean Won, Indian Rupee and U.S. Dollars. To the extent that derivative instruments are deemed to be effective as defined by FAS 133, gains and losses arising from these contracts are deferred in other comprehensive income. Such gains and losses will be reclassified into income as the underlying operating transactions are realized. Any gains or losses not qualifying for deferral are credited/charged to income as they are recognized. The fair values of foreign exchange forward and option contracts are based on Level 2 evidence under SFAS 157, such as quoted exchange rates by various exchanges. See Note 10 for further discussion of fair value measurements. As of ~~September 30,~~March 31, 2008, the Company was holding foreign exchange derivatives with a positive market value of $1.0 million, of which $0.9 million matures in less than one year. Derivative contracts with negative value amounted to ($33.7) million, of which ($17.3) million matures in less than one year. As of December 31, 2007, the Company was holding foreign exchange derivatives with a positive market value of ~~$2.6~~$1.9 million, ~~($2.2 million~~all maturing in less than one year). Derivative contracts with negative value amounted to $(2.7) million ($(2.0) million maturing in less than one year). As of December 31, 2006, the Company was holding foreign exchange derivatives with a positive market value of $5.1 million ($4.5 million maturing in less than one year).year. Derivatives contracts with negative value amounted to ~~$(0.1)~~($9.9) million, ~~(all maturing~~of which ($5.9) million matures in less than one ~~year). Gains not qualifying for deferral associated with these contracts as of September 30, 2007 were $0.1 million.~~year. As of March 31, 2008 and December 31, ~~2006,~~2007, there were no gains or losses which did not ~~qualifying~~qualify for ~~deferral amounted to $0.7 million.~~deferral.

~~(11)~~

(12) Retirement Benefit Plans

The Company has a number of defined benefit pension plans and other post employment benefit plans covering eligible salaried and hourly employees. The other post employment benefits plans, which provide medical and life insurance benefits, are unfunded plans. The estimated contributions to the Company’s defined benefit pension plans for ~~2007~~2008 range from ~~$12~~$10 to ~~$15~~$20 million, of which ~~$9.5~~$2.8 million has been contributed through the first ~~nine~~three months of the year.

In September 2007, the Company made changes to its U.S. retiree medical program that impact certain non-union active employees with a future retiree benefit and current retirees participating in a health care plan. These changes will become effective on January 1, 2009. The effect of the changes to both groups is that most members will pay a higher percentage of the annual premium for Company-sponsored retiree medical coverage between ages 60 to 64, and neither group will receive Company-sponsored Medicare Supplemental coverage once entitled to Medicare. Instead, certain active employees will receive a lump sum credit into a non-contributory cash balance pension plan earning interest each year. Current retirees will receive an annual per member allowance toward the purchase of individual Medicare Supplemental coverage and for reimbursement of medical out-of-pocket expenses.

Given the significance of these changes, the retiree medical plan was remeasured and the newly established non-contributory cash balance pension plan was measured. The combined financial statement impact was a one-time expense recognition of $3.2 million, a $36.1 million reduction to other non-current assets, a $109.2 million reduction to retirement-related liabilities, a $37.4 million increase to accumulated other comprehensive income and a $38.8 million decrease to non-current deferred tax assets. The financial statement impact due to the remeasurement of the retiree medical plan was a one-time benefit recognition of $33.9 million, a $109.2 million reduction to retirement-related liabilities, a $36.8 million increase to accumulated other comprehensive income and a $38.4 million decrease to non-current deferred tax assets. The financial statement impact due to the measurement of the non-contributory cash balance pension plan was a one-time expense recognition of $37.1 million, a $36.1 million reduction to other non-current assets, a $0.6 million increase to accumulated other comprehensive income and a $0.4 million decrease to non-current deferred tax assets.

The weighted average discount rate used to determine the benefit obligation of the Company’s retiree medical plan was 6.25%. This represents a 25 basis point increase from the 6.00% weighted average discount rate used at year-end 2006. The weighted average discount rate used to determine the benefit obligation of the Company’s non-contributory cash balance pension plan was 6.25%.

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

Other post
Pension benefits employment
(millions) 2007 2006 benefits
Three months ended September 30, US Non-US US Non-US 2007 2006
Components of net periodic benefit cost:

Service cost $ 0.5 $ 2.7 $ 0.7 $ 3.3 $ 1.4 $ 2.7
Interest cost 4.5 4.1 4.1 3.6 7.0 7.4
Expected return on plan assets (7.3 ) (3.2 ) (7.1 ) (2.8 ) — —
Settlement/Curtailment 37.1 — — — (33.9 ) —
Amortization of unrecognized prior service cost (benefit) — — 0.3 — (4.5 ) (4.6 )
Amortization of unrecognized loss 0.5 0.3 1.6 0.7 3.6 4.8
Other — 0.2 — — — —

Net periodic benefit cost (benefit) $ 35.3 $ 4.1 $ (0.4 ) $ 4.8 $ (26.4 ) $ 10.3

~~(12)~~
(13) Stock-Based Compensation

Under the ~~Company’s~~Company's 1993 Stock Incentive Plan (“1993 Plan”), the Company granted options to purchase shares of the ~~Company’s~~Company's common stock at the fair market value on the date of grant. The options vest over periods up to three years and have a term of ten years from date of grant. As of December 31, 2003, there were no options available for future grants under the 1993 ~~Plan.~~plan. The 1993 ~~Plan~~plan expired at the end of 2003 and was replaced by the ~~Company’s~~Company's 2004 Stock Incentive Plan, which was amended at the Company’s 2006 Annual Stockholders Meeting, ~~to,~~ among other things, to increase the number of shares available for issuance under the plan. Under the BorgWarner Inc. Amended and Restated 2004 Stock Incentive Plan (“2004 Stock Incentive Plan”), the number of shares authorized for grant ~~is 5,000,000.~~was 10,000,000, of which approximately 1,541,000 shares are available for future issuance. As of ~~September 30, 2007,~~March 31, 2008, there were a total of ~~3,346,326~~6,176,342 outstanding options under the 1993 ~~Plan~~ and 2004 Stock Incentive ~~Plan.~~Plans.

Stock option compensation expense reduced income before income taxes and net earnings by $3.6 million

and $2.6 million ($~~0.05 and $0.04~~0.02 per basic and diluted ~~shares, respectively)~~share) and by ~~$3.2~~$4.2 million and ~~$2.5~~$3.1 million ($~~0.04~~0.03 per basic and diluted share) for the three months ended ~~September 30,~~March 31, 2008 and 2007, and 2006, respectively. Stock option compensation expense reduced income before income taxes and net earnings by $12.7 million and $9.3 million ($0.16 per basic and diluted shares) and by $9.1 million and $6.7 million ($0.12 per basic and diluted share) for the nine months ended September 30, 2007 and 2006, respectively. Stock option compensation expense affected both operating activities ($~~12.7~~5.5 million and ~~$9.1~~$4.2 million non-cash charge backs) and financing activities ($~~3.4~~1.0 million and ~~$2.4~~$1.1 million tax benefits) of the Condensed Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~September 30,~~March 31, 2008 and 2007, ~~and 2006,~~ respectively.

Total unrecognized compensation cost related to nonvested stock options at ~~September 30, 2007~~March 31, 2008 is approximately ~~$25~~$17.3 million. This cost is expected to be recognized over the next ~~2.3~~1.8 years. On a weighted average basis, this cost is expected to be recognized over ~~1.0 year.~~0.8 years.

A summary of the plans’ shares under option as of and for the ~~nine~~three months ended ~~September 30, 2007~~March 31, 2008 is as follows:

��															Weighted
										Shares					Average		Aggregate
						Weighted				Under			Weighted-		Remaining		Intrinsic
				Weighted		Average		Aggregate		Option			average		Contractual		Value
				Average		Remaining		Intrinsic		(thousands)			exercise price		Life (in years)		(in millions)
	Shares			exercise		Contractual		Value
	(thousands)			Price		Life (in years)		(in millions)
Outstanding at December 31, 2006		3,471		$	47.48
Outstanding at December 31, 2007											6,331		$	27.75
Granted		908			69.89						-			-
Exercised		(295	)		35.12						(96	)		23.15
Forfeited		(169	)		41.04						(59	)		32.53
Outstanding at March 31, 2008											6,176		$	27.78		7.4	$	94.2

Outstanding at March 31, 2007		3,915		$	53.88		8.2	$	84.3


Exercised		(107	)		32.43
Forfeited		(35	)		53.86

Outstanding at June 30, 2007		3,773		$	54.49		8.1	$	119.0


Exercised		(295	)		47.67
Forfeited		(132	)		57.42

Outstanding at September 30, 2007		3,346		$	54.98		7.9	$	122.3


Options exerciseable at September 30, 2007		1,323		$	42.50		6.4	$	64.9

Options exerciseable at March 31, 2008											2,205		$	20.95		5.8	$	48.7

In calculating earnings per share, earnings are the same for the basic and diluted calculations. Shares increased for diluted earnings per share by ~~1,028,000~~2,219,000 and ~~531,000~~1,406,000 for the three months ended ~~September 30,~~March 31, 2008 and 2007, ~~and 2006, respectively, and 863,000 and 592,000 for the nine months ended September 30, 2007 and 2006,~~ respectively, due to the effects of stock options and shares issued and issuable under the 1993 Plan and 2004 Stock Incentive Plan.

The fair value for options granted in February 2007 was ~~$21.04~~$10.52 per option. The fair value ~~for options granted in July 2006 was $17.81 per option. The fair values~~ at date of grant ~~were~~was estimated using the Black-Scholes options pricing model with the following assumptions:

2007 2006
Risk-free interest rate 4.82 % 5.04 %
Dividend yield 0.97 % 1.10 %
Volatility factor 28.64 % 29.06 %
Expected life 4.7 years 4.8 years

	2007

Risk-free interest rate	4.82%
Dividend yield	0.97%
Volatility factor	28.64%
Expected life	4.7 years

The expected lives of the awards are based on historical exercise patterns and the terms of the options. The risk-free interest rate is based on zero coupon Treasury bond rates corresponding to the expected life of the awards. The expected volatility assumption was derived by referring to changes in the Company’s historical common stock prices over the same timeframe as the expected life of the awards. The expected dividend yield of stock is based on the Company’s historical dividend yield. The Company has no reason to believe

that the expected dividend yield or the future stock volatility is likely to differ from historical patterns.

At its November 2007 meeting, our Compensation Committee decided that restricted common stock would be awarded in place of stock options for the 2008 long-term incentive award grants to employees. These restricted shares for employees vest fifty percent after two years and the remainder after three years from the date of grant. The Company also grants restricted common stock to its non-employee directors. For non-employee directors restricted shares vest ratably on the anniversary of the date of the grant over a period of three years. The market value of the Company’s restricted common stock at the date of grant determines the value of the restricted common stock. In February 2008, 390,873 restricted shares were granted to employees under the 2004 Stock Incentive Plan. The value of the awards is recorded as unearned compensation within capital in excess of par value in stockholders’ equity, and is amortized as compensation expense over the restriction periods. The Company recognized compensation expense related to restricted common stock of $2.0 million and $0.1 million at March 31, 2008 and 2007, respectively.

A summary of the status of the Company’s nonvested restricted stock as of and for the three months ended March 31, 2008 is as follows:

Shares
Subject to Weighted
Restriction Average
(thousands) Price
Nonvested at December 31, 2007 27.5 $31.95
Granted 390.9 46.34
Vested - -
Nonvested at March 31, 2008 418.4 $45.39

(14) Comprehensive Income ~~(Loss)~~

The amounts presented as changes in accumulated other comprehensive income, ~~(loss),~~ net of related taxes, are added to (deducted from) net earnings resulting in comprehensive ~~income (loss).~~income. The following table summarizes the components of comprehensive income ~~(loss)~~ on an after-tax basis for the ~~three and nine-month~~three-month periods ended ~~September 30, 2007~~March 31, 2008 and ~~2006.~~2007.

~~(14)~~
Three months ended
March 31,
(millions) 2008 2007
Foreign currency translation adjustments, net $ 118.9 $ 19.0
Market value change in hedge instruments, net (32.9 ) 1.2
Unrealized (loss) gain on available-for-sale securities, net 0.1 (0.2 )
Change in accumulated other comprehensive income 86.1 20.0
Net earnings as reported 88.7 58.4
Total comprehensive income $ 174.8 $ 78.4

(15) Contingencies

In the normal course of business the Company and its subsidiaries are parties 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 and its subsidiaries 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 the results 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.

(“Superfund”) and equivalent state laws and, as such, may presently be liable for the cost of clean-up and other remedial activities at 3435 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 large 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; remediation alternatives; and estimated legal ~~fees; and other factors)~~fees), the Company has established an accrual for indicated environmental liabilities with a balance at ~~September 30, 2007~~March 31, 2008 of ~~$16.2~~$12.0 million. Excluding the Crystal Springs site discussed below for which ~~$5.5~~$3.1 million has been accrued, the Company has accrued amounts that do not exceed $3.0 million related to any individual site and management does not believe that the costs related to any of these other individual sites will have a material adverse effect on the Company’s results of operations, cash flows or financial condition. The Company expects to pay out substantially all of the ~~$16.2 million~~amounts accrued for environmental liability over the next three to five years.

In connection with the sale of Kuhlman Electric Corporation, the Company agreed to indemnify the buyer and Kuhlman Electric for certain environmental liabilities, then unknown to the Company, relating to ~~the past operations of Kuhlman Electric. The liabilities at issue result from~~certain operations of Kuhlman Electric that pre-date the Company’s 1999 acquisition of Kuhlman ~~Electric’s parent company, Kuhlman Corporation, in 1999.~~Electric. During 2000, Kuhlman Electric notified the Company that it discovered potential environmental contamination at its Crystal Springs, Mississippi plant while undertaking an expansion of the plant. The Company is continuing to work with the Mississippi Department of Environmental Quality and Kuhlman Electric to investigate and remediate to the extent necessary, ~~if any,~~ historical contamination at the plant and surrounding area. Kuhlman Electric and others, including the Company, were sued in numerous related lawsuits, in which multiple claimants alleged personal injury and property damage. In 2005, the Company and other defendants ~~including the Company’s subsidiary Kuhlman Corporation,~~ entered into settlements that resolved approximately 99% of the then known personal injury and property damage claims relating to the alleged environmental contamination. Those settlements involved payments by the ~~defendants~~Company of $28.5 million in the second half of 2005 and $15.7 million in the first quarter of 2006, in exchange for, among other things, dismissal with prejudice of these lawsuits.

In December 2007, a lawsuit was filed against Kuhlman Electric and others, including the Company, on behalf of approximately 209 plaintiffs, alleging personal injury relating to the alleged environmental contamination. Given the early stage of the litigation, the Company cannot make any predictions as to the outcome, but its current intent is to vigorously defend against the suit.

Conditional Asset Retirement Obligations

In March 2005, the FASB issued Interpretation No. 47,Accounting for Conditional Asset Retirement Obligations —- an interpretation of FASB Statement No. 143(“ (“FIN 47”), which requires the Company to recognize legal obligations to perform asset retirements in which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the entity. Certain government regulations require the removal and disposal of asbestos from an existing facility at the time the facility undergoes major renovations or is demolished. The liability exists because the facility will not last forever, but it is conditional on future renovations (even if there are no immediate plans to remove the materials, which pose no health or safety hazard in their current condition). Similarly, government regulations require the removal or closure of underground storage tanks (“USTs”) when their use ceases, the disposal of polychlorinated biphenyl (“PCB”) transformers and capacitors when their use ceases, and the disposal of used

furnace bricks and liners, and lead-based paint in conjunction with facility renovations or demolition. The Company currently has 17 manufacturing locations that have been identified as containing these items. The fair value to remove and dispose of this material has been estimated and recorded at $1.0 million as of ~~September 30, 2007~~March 31, 2008 and December 31, ~~2006.~~2007.

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. Management believes that the Company’s involvement is limited because, in general, these claims relate to a few types of automotive friction 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 ~~September 30, 2007,~~March 31, 2008, the Company had approximately ~~42,000~~37,000 pending asbestos-related product liability claims. Of these outstanding claims, approximately ~~32,000~~27,000 are pending in just three jurisdictions, where significant tort reform activities are underway.

The Company’s policy is to aggressively 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 the first ~~nine months of 2007,~~quarter 2008, of the approximately ~~3,800~~5,100 claims resolved, only ~~155 (4.1%~~49 (1.0%) resulted in any payment being made to a claimant by or on behalf of the Company. In ~~2006,~~2007, of the approximately ~~27,000~~4,400 claims resolved, only ~~169 (0.6%~~194 (4.4%) resulted in any 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 covered by the Company’s primary layer insurance coverage, and these carriers administered, defended, settled and paid all claims under a funding arrangement. In June 2004, primary layer insurance carriers notified the Company of the alleged exhaustion of their policy limits. This led the Company to access the next available layer of insurance coverage. Since June 2004, secondary layer insurers have paid asbestos-related litigation defense and settlement expenses pursuant to a funding arrangement. To date, the Company has paid ~~$24.6~~$31.7 million in defense and indemnity in advance of insurers’ reimbursement and has received ~~$7.1~~$11.5 million in cash from insurers. The outstanding balance of ~~$17.5~~$20.2 million is expected to be fully recovered. Timing of the recovery

is dependent on final resolution of the declaratory judgment action referred to below. At December 31, ~~2006,~~2007, insurers owed ~~$11.7~~$20.6 million in association with these claims.

At ~~September 30, 2007,~~March 31, 2008, the Company has an estimated liability of ~~$40.7~~$38.5 million for future claims resolutions, with a related asset of ~~$40.7~~$38.5 million to recognize the insurance proceeds receivable by the Company for estimated losses related to claims that have yet to be resolved. Insurance carrier reimbursement of 100% is expected based on the Company’s experience, its insurance contracts and decisions received to date in the declaratory judgment action referred to below. At December 31, ~~2006,~~2007, the comparable value of the insurance receivable and accrued liability was ~~$39.9~~$39.6 million.

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


	September 30,		December 31,		March 31,		December 31,
(millions)	2007		2006		2008		2007
Assets:
Prepayments and other current assets	$	20.9	$	23.3	$	22.0	$	20.1
Other non-current assets		19.8		16.6		16.5		19.5

Total insurance receivable	$	40.7	$	39.9	$	38.5	$	39.6

Liabilities:
Accounts payable and accrued expenses	$	20.9	$	23.3	$	22.0	$	20.1
Other non-current liabilities		19.8		16.6		16.5		19.5

Total accrued liability	$	40.7	$	39.9	$	38.5	$	39.6

The Company cannot reasonably estimate possible losses, if any, in excess of those for which it has accrued, because it cannot predict how many additional claims may be brought against the Company (or parties the Company has an obligation to indemnify) in the future, the allegations in such claims, the possible outcomes, or the impact of tort reform legislation that may be enacted at the State or Federal levels.

A declaratory judgment action was filed in January 2004 in the Circuit Court of Cook County, Illinois by Continental Casualty Company and related companies (“CNA”) against the Company and certain of its other historical general liability insurers. CNA provided the Company with both primary and additional layer insurance, and, in conjunction with other insurers, is currently defending and indemnifying the Company in its pending asbestos-related product liability claims. The lawsuit seeks to determine the extent of insurance coverage available to the Company including whether the available limits exhaust on a “per occurrence” or an “aggregate” basis, and to determine how the applicable coverage responsibilities should be apportioned. On August 15, 2005, the Court issued an interim order regarding the apportionment matter. The interim order has the effect of making insurers responsible for all defense and settlement costs pro rata to time-on-the-risk, with the pro-ration method to hold the insured harmless for periods of bankrupt or unavailable coverage. Appeals of the interim order were denied. However, the issue is reserved for appellate review at the end of the action. In addition to the primary insurance available for asbestos-related claims, the Company has substantial additional layers of insurance available for potential future asbestos-related product claims. As such, the Company continues to believe that its coverage is sufficient to meet foreseeable liabilities.

Although it is impossible to predict the outcome of pending or future claims or the impact of tort reform legislation that may be enacted at the State or Federal levels, due to the encapsulated nature of the products, the Company’s experiences in aggressively defending and resolving claims in the past, and the Company’s significant insurance coverage with solvent carriers as of the date of this filing, 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, cash flows or financial condition.

(16) Leases and Commitments

The Company has guaranteed the residual values of certain leased machinery and equipment at one of its facilities. The guarantees extend through the maturity of the underlying lease, which is in September ~~2008.~~2009. In the event the Company exercises its option not to purchase the machinery and equipment, the Company has guaranteed a residual value of ~~$12.2~~$10.0 million. The Company has accrued $4.1 million as a loss on this guarantee, ~~of $6.0 million,~~ which is expected to be paid in ~~2008.~~

~~(16) Restructuring~~2009.

On September 22, 2006, the Company announced the reduction of its North American workforce by approximately 850 people, or 13%, spread across its 19 operations in the U.S., Canada and Mexico. In addition to employee related costs of $6.7 million, the Company recorded $4.8 million of asset impairment charges related to the North American restructuring. The restructuring expenses broken out by segment were as follows: Engine $7.3 million, Drivetrain $3.6 million and Corporate $0.6 million.

During the fourth quarter of 2006, the Company recorded restructuring expense associated with closing its Drivetrain plant in Muncie, Indiana and adjusted the carrying values of other assets primarily related to its four-wheel drive transfer case product line. Production activity at the Muncie facility is scheduled to cease no later than the expiration of the current labor contract in 2009. The Company recorded employee related costs of $14.8 million, asset impairments of $51.6 million and pension curtailment expense of $6.8 million in the fourth quarter of 2006. The expenses broken out by segment were as follows: Engine $5.9 million and Drivetrain $67.3 million.(17) Restructuring

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 reserves.

The table below summarizes accrual activity for employee related costs related to the Company’s previously announced restructuring actions for the ~~nine~~three months ended ~~September 30, 2007~~March 31, 2008 (in millions):

Employee
Related Costs
Balance at December 31, 2006 $ 16.2
Cash payments (6.1 )

Balance at March 31, 2007 10.1
Cash payments (0.9 )

Balance at June 30, 2007 9.2
Cash payments —

Balance at September 30, 2007 $ 9.2

	Employee
	Related Costs
Balance at December 31, 2007	$	9.1
Cash payments		-
Balance at March 31, 2008	$	9.1

Future cash payments for these restructuring activities are expected to be complete by the end of 2009.

~~(17) Operating~~

(18) Reporting Segments

The Company’s business is comprised of two ~~operating~~reporting segments: Engine and Drivetrain. These ~~reportable~~reporting 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. The ROIC is comprised of projected earnings before interest and income taxes (“EBIT”) adjusted for income taxes compared to the projected average capital investment required.

EBIT is considered a “non-GAAP financial measure.” Generally, a non-GAAP financial measure is a

numerical measure of a company’s financial performance, financial position or cash flows that excludes (or includes) amounts that are included in (or excluded from) the most directly comparable measure calculated and presented in accordance with GAAP. EBIT is defined as earnings before interest, income taxes and minority interest. “Earnings” is intended to mean net earnings as presented in the Consolidated Statements of Operations under GAAP.

The Company believes that EBIT is useful to demonstrate the operational profitability of ~~its~~our segments by excluding interest and income taxes, which are generally accounted for across the entire Company on a consolidated basis. EBIT is also one of the measures used by the Company to determine resource allocation

within the Company. Although the Company believes that EBIT enhances understanding of our business and performance, it should not be considered an alternative to, or more meaningful than, net earnings or cash flows from operations as determined in accordance with GAAP.

The following tables ~~show~~present net sales, ~~Segment~~segment EBIT and total assets for the Company’s ~~reportable operating~~reporting segments.

~~Net Sales by Operating Segment~~
~~(millions)~~

Three months ended Nine months ended
September 30, September 30,
2007 2006 2007 2006
Engine $ 933.9 $ 736.4 $ 2,783.4 $ 2,314.3
Drivetrain 387.2 330.1 1,196.9 1,093.4
Inter-segment eliminations (7.5 ) (6.7 ) (24.6 ) (24.0 )

Net sales $ 1,313.6 $ 1,059.8 $ 3,955.7 $ 3,383.7

~~Segment Earnings Before Interest and Income Taxes~~
~~(millions)~~

Three months ended Nine months ended
September 30, September 30,
2007 2006 2007 2006
Engine $ 100.9 $ 76.1 $ 294.5 $ 267.8
Drivetrain 26.8 13.2 87.8 64.5

Segment earnings before interest and income taxes (“Segment EBIT”) 127.7 89.3 382.3 332.3
Corporate, including equity in affiliates’ earnings and stock-based compensation 19.5 9.4 52.6 32.1

Consolidated earnings before interest and taxes (“EBIT”) 108.2 79.9 329.7 300.2
Restructuring expense — 11.5 — 11.5
Interest expense and finance charges 8.4 9.5 26.6 28.8

Earnings before income taxes and minority interest 99.8 58.9 303.1 259.9
Provision for income taxes 10.9 13.9 65.8 70.2
Minority interest, net of tax 5.7 5.8 20.0 19.0

Net earnings $ 83.2 $ 39.2 $ 217.3 $ 170.7

~~Total Assets~~
~~(millions)~~

Net Sales by Reporting Segment						Three months ended
(millions)						March 31,
						2008			2007
Engine						$	1,098.1		$	894.1
Drivetrain							409.8			392.0
Inter-segment eliminations							(9.0	)		(8.3	)
Net sales						$	1,498.9		$	1,277.8


Segment Earnings Before Interest and Income Taxes
(millions)
						Three months ended
	September 30,		December 31,			March 31,
	2007		2006			2008			2007
Engine	$	3,411.9	$	3,103.1		$	137.9		$	85.3
Drivetrain		1,151.9		1,191.0			18.3			27.7
Segment earnings before interest and income taxes ("Segment EBIT")							156.2			113.0
Corporate, including equity in affiliates' earnings and stock-based compensation							(20.4	)		(13.9	)
Consolidated earnings before interest and taxes ("EBIT")							135.8			99.1
Interest expense and finance charges							6.5			8.9
Earnings before income taxes and minority interest							129.3			90.2
Provision for income taxes							33.6			24.4
Minority interest, net of tax							7.0			7.4
Net earnings						$	88.7		$	58.4


Total Assets
(millions)
						March 31,			December 31,
						2008			2007
Engine						$	3,561.0		$	3,357.9
Drivetrain							1,359.4			1,294.2
Total		4,563.8		4,294.1			4,920.4			4,652.1
Corporate, including equity in affiliates^(a)		290.4		289.9			366.8			306.4

Total assets	$	4,854.2	$	4,584.0		$	5,287.2		$	4,958.5

(a) Corporate assets, including equity in affiliates, are net of trade receivables securitized and sold to third parties, and include cash, deferred income taxes and investments & advances.					(a) Corporate assets, including equity in affiliates, are net of trade receivables securitized and sold to third parties, and include cash, deferred income taxes and investments & advances.


^(a)		~~Corporate assets, including equity in affiliates, are net of trade receivables securitized and sold to third parties, and include cash, deferred income taxes and investments & advances.~~

~~(18)~~
21

(19) New Accounting Pronouncements

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157,Fair Value Measurements(“ (“FAS 157”). FAS 157 defines fair value, establishes a framework for measuring fair value in GAAP and expands disclosures about fair value measurements. FAS 157 is effective for the Company beginning with its quarter ending March 31, 2008. ~~The adoption~~See Note 10 to the Consolidated Financial Statements for more information regarding the implementation of FAS ~~157 is not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.~~157.

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159,The Fair Value Option for Financial Assets and Financial Liabilities(“ (“FAS 159”). FAS 159 allows entities to irrevocably elect to recognize most financial assets and financial liabilities at fair value on an instrument-by-instrument basis. The stated objective of FAS 159 is to improve financial reporting by giving entities the opportunity to elect to measure certain financial assets and liabilities at fair value in order to mitigate earnings volatility caused when related assets and liabilities are measured differently. FAS 159 is effective for the Company

beginning with its quarter ending March 31, 2008. The Company chose to not make the election to adopt.

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141 (Revised 2007), Business Combinations (“FAS 141(R)”). FAS 141(R) establishes principles and requirements for recognizing identifiable assets acquired, liabilities assumed, noncontrolling interest in the acquiree, goodwill acquired in the combination or the gain from a bargain purchase, and disclosure requirements. Under this revised statement, all costs incurred to effect an acquisition will be recognized separately from the acquisition. Also, restructuring costs that are expected but the acquirer is not obligated to incur will be recognized separately from the acquisition. FAS 141(R) is effective for the Company beginning with its quarter ending March 31, 2009. The Company is currently assessing the potential impacts, if any, on its consolidated financial statements.

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, Noncontrolling Interests in Consolidated Financial Statements (“FAS 160”). FAS 160 requires that ownership interests in subsidiaries held by parties other than the parent are clearly identified. In addition, it requires that the amount of consolidated net income attributable to the parent and to the noncontrolling interest be clearly identified and presented on the face of the statement of operations. FAS 160 is effective for the Company beginning with its quarter ending March 31, 2009. The adoption of FAS ~~159~~160 is not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities (“FAS 161”). FAS 161 requires entities to provide enhanced disclosures about how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations, and how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. FAS 161 is effective for the Company beginning with its quarter ending March 31, 2009.

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 systems and components primarily for powertrain applications. Our products help improve vehicle performance, fuel efficiency, air quality and vehicle stability. They are manufactured and sold worldwide, primarily to original equipment manufacturers (“OEMs”) of light vehicles (i.e., passenger cars, sport-utility vehicles (“SUVs”), cross-over vehicles, vans and light-trucks). Our products are also manufactured and sold to OEMs of commercial trucks, buses and agricultural and off-highway vehicles. We also manufacture and sell our products into the aftermarket for light and commercial vehicles. We operate manufacturing facilities serving customers in the Americas, Europe and Asia, and are an original equipment supplier to every major automaker in the world.

The Company’s products fall into two ~~reportable operating~~reporting segments: Engine and Drivetrain. The Engine segment’s products include turbochargers, timing chain systems, air management, emissions systems, thermal systems, as well as diesel and gas ignition systems. The Drivetrain segment’s products are all-wheel drive transfer cases, torque management systems, and components and systems for automated transmissions.

Stock Split

RESULTS OF OPERATIONS

Three ~~months ended September 30, 2007~~Months Ended March 31, 2008 vs. Three ~~months ended September 30, 2006~~Months Ended March 31, 2007

Consolidated net sales for the ~~third~~first quarter ended ~~September 30, 2007~~March 31, 2008 totaled ~~$1,313.6~~$1,498.9 million, a ~~23.9%~~17.3% increase over ~~third~~the first quarter ~~2006.~~of 2007. This increase occurred while light-vehicle production was up 6%2% worldwide and ~~up 5%~~down 8% in North America from the previous year’s quarter. Light-vehicle production increased approximately 8% in ~~Asia-Pacific~~Asia and 4%was flat in Europe. The net sales increase included the effect of stronger foreign currencies, primarily the Euro, of approximately ~~$60~~$115 million. Turbochargers, timing chain systems, ignition systems and automatic transmission components and systems are the products most affected by currency fluctuations in Europe and ~~Asia-Pacific.~~Asia. Without the currency impact, the increase in net sales would have been ~~18.3%~~8.3% due to strong demand for the Company’s products in Europe and ~~Asia-Pacific.~~Asia.

Gross profit and gross margin ~~percentage~~ were ~~$228.7~~$283.5 million and ~~17.4%~~18.9% for ~~third~~first quarter ~~2007~~2008 as compared to ~~$183.3~~$215.9 million and ~~17.3%~~16.9% for ~~third~~first quarter ~~2006. Our~~2007. The gross margin percentage ~~was negatively impacted~~increase is due to favorable product mix, offset by higher raw material costs including ~~nickel,~~ steel, copper, aluminum and plastic ~~resin,~~resin; and lower vehicle production in North America. ~~Raw material costs, net of recoveries, increased~~Gross margin for the three months ended March 31, 2007 contained a charge for approximately ~~$10~~$14 million, ~~as compared to third quarter 2006. Our focused cost reduction programs~~for a warranty-related issue surrounding a product, built during a 15-month period in ~~our operations partially offset these higher raw material costs.~~2004 and 2005, that is no longer in production.

~~Third~~

First quarter selling, general and administrative (“SG&A”) costs increased ~~$17.3~~$29.0 million to ~~$134.1~~$155.7 million from ~~$116.8~~$126.7 million, ~~but decreased~~and increased as a percentage of net sales to ~~10.2%~~10.4% from ~~11.0%~~9.9%. ~~The increase~~R&D costs, which are included in SG&A ~~is primarily due to higher R&D costs and incentive compensation. R&D costs~~expenses, increased ~~$2.9~~$6.6 million to ~~$49.1~~$57.5 million from ~~$46.2~~$50.9 million as compared to ~~third~~the

first quarter ~~2006.~~of 2007. The increase is primarily driven by our continued investment in a number of cross-business R&D programs, as well as other key programs, all of which are necessary for short and long-term growth. As a percentage of sales, R&D costs decreased to ~~3.7%~~3.8% from ~~4.4% in third quarter 2006.~~

~~On September 22, 2006, the Company announced the reduction of its North American workforce by~~

~~approximately 850 people, or 13%, spread across its 19 operations~~4.0% in the ~~U.S., Canada and Mexico. In addition to employee related costs~~first quarter of ~~$6.7~~2007.

Other expense of $1.1 million for the ~~Company recorded $4.8 million~~first quarter of ~~asset impairment charges related to~~2008 is comprised primarily of the ~~North American restructuring. The restructuring expenses broken out~~realization of a loss on the sale of a product line, offset by ~~segment were as follows: Engine $7.3 million, Drivetrain $3.6 million and Corporate $0.6 million.~~

interest income. Other income of ~~$(3.7)~~($0.7) million for ~~third~~the first quarter of 2007 is comprised primarily of interest income. ~~Other income of $(5.6) million for third quarter 2006 is comprised primarily of the realization of an additional $4.9 million gain from a previous divestiture.~~

Equity in affiliates’ earnings of ~~$9.9~~$9.1 million ~~increased $2.1~~for the first quarter of 2008 is comparable to $9.2 million ~~as compared to third~~for the first quarter ~~2006 due to increased sales and improved operating performance at our joint ventures, which offset unfavorable changes in currency exchange rates.~~of 2007.

~~Third~~

First quarter interest expense and finance charges of ~~$8.4~~$6.5 million decreased ~~$1.1~~$2.4 million as compared ~~with third~~to the first quarter ~~2006,~~of 2007, primarily due to ~~lower outstanding debt levels, partially offset by rising global~~the March 31, 2008 measurement of the ineffectiveness of a cross currency interest ~~rates.~~rate swap.

The ~~Company’s~~Company's provision for income taxes ~~resulted in~~is based upon an estimated annual tax rate for the year applied to federal, state and foreign income. The projected effective tax rate of ~~10.9%~~26.0% for ~~third quarter 2007. This effective tax rate~~2008 differs 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 R&D and foreign tax credits and favorable permanent differences between book and tax treatment for items, including equity in affiliates’ earnings and a Medicare prescription drug ~~benefit, and tax account adjustments, primarily due~~benefit. This rate is expected to ~~a change in~~be less than the ~~statutory tax rate in Germany. If the effect of the tax account adjustments is not taken into account, the Company’s~~full year 2007 effective tax rate ~~associated with its on-going business operations was 27.0%. The Company’s full-year 2006 effective tax~~of 26.5% because the 2007 rate ~~associated with its on-going business operations was 26.0%.~~

Net earnings were $83.2 million for third quarter 2007, or $1.41 per diluted share, an increase of $0.73 per diluted share over the previous year’s third quarter. The Company believes the following table is useful in highlighting non-recurring or non-comparable items that impacted its earnings per diluted share:

Three months ended September 30, 2007 2006
Non-recurring or non-comparable items:
Adjustments to tax accounts $ 0.28 $ —
Restructuring expense — (0.15 )
Net gain from divestitures — 0.06

Total impact to earnings per share — diluted: $ 0.28 ($ 0.09 )

~~Nine months ended September 30, 2007 vs. Nine months ended September 30, 2006~~

Consolidated net sales for the nine months ended September 30, 2007 totaled $3,955.7 million, a 16.9% increase over the nine months ended September 30, 2006. This increase occurred while light-vehicle production was up 4% worldwide and down 2% in North America from the previous year’s first nine months. Light-vehicle production increased 7% in Asia-Pacific and 5% in Europe. The net sales increase included the effect of stronger foreign currencies, primarily the Euro, of approximately $171 million. Turbochargers, timing chain systems, ignition systems and automatic transmission components and systems are the products most affected by currency fluctuations in Europe and Asia-Pacific. Without the currency impact, the increase in net sales would have been 11.9% due to strong demand for the Company’s products in Europe and Asia-Pacific.

Gross profit and gross margin percentage were $692.2 million and 17.5% for the first nine months of 2007 as compared to $637.7 million and 18.8% for the first nine months of 2006. Our gross margin percentage was negatively impacted by: a warranty-related issue; higher raw material costs, including nickel, steel, copper and plastic resin; and lower vehicle production in North America. The warranty-related issue surrounded a product, built during a 15-month period in 2004 and 2005, that is no longer in production. This resulted in a pre-tax charge of approximately $14 million. Raw material costs, net of recoveries, increased approximately $54 million as compared to the first nine months of 2006, of which nickel was the single largest contributor. Our focused cost reduction programs in our operations partially offset these higher raw material costs.

Selling, general and administrative (“SG&A”) costs for the first nine months of 2007 increased $25.4 million to $396.0 million from $370.6 million, but decreased as a percentage of net sales to 10.0% from 11.0%. The increase in SG&A is primarily due to higher R&D costs and incentive compensation, partially offset by cost reduction initiatives. R&D costs increased $16.6 million to $156.7 million from $140.1 million as compared to the first nine months of 2006. The increase is primarily driven by our continued investment in a number of cross-business R&D programs, as well as other key programs, all of which are necessary for short and long-term growth. As a percentage of sales, R&D costs decreased to 4.0% from 4.1% in the first nine months of 2006.

Other income of $(5.6) million for the first nine months of 2007 is comprised primarily of interest income. Other income of $(6.8) million for the first nine months of 2006 is comprised primarily of the realization of an additional $4.9 million gain from a previous divestiture.

Equity in affiliates’ earnings of $27.9 million increased $1.6 million as compared to the first nine months of 2006 due to increased sales and improved operating performance at our joint ventures, which offset unfavorable changes in currency exchange rates.

Interest expense and finance charges for the first nine months of 2007 were $26.6 million compared with $28.8 million in the first nine months of 2006, primarily due to reduced debt levels, partially offset by rising global interest rates.

~~The Company’s provision for income taxes resulted in an effective rate of 21.7% for the first nine months of 2007. This effective tax rate differs from the U.S. statutory rate primarily due to~~included: a) foreign rates which differ from those in the U.S. ~~, the~~; b) realization of certain business tax credits including R&D and foreign tax ~~credits, favorable~~credits; c) other permanent ~~differences between book and tax treatment for~~ items, including equity in affiliates’ earnings and Medicare prescription drug ~~benefit,~~benefit; d) the tax effects of other miscellaneous dispositions; e) the change of tax accrual accounts upon conclusion of certain tax audits; and f) adjustments to various tax ~~account adjustments,~~accounts, including changes in tax laws, primarily in Europe.

First quarter minority interest of $7.0 million decreased $0.4 million as compared to the first quarter of 2007, primarily due to ~~a change in~~ the ~~statutory tax rate in Germany. If the effect~~fourth quarter 2007 acquisition of an additional 12.8% of the tax account adjustments is not taken into account, the Company’s 2007 effective tax rate associated with its on-going business operations was 27.0%. The Company’s full-year 2006 effective tax rate associated with its on-going business operations was 26.0%.outstanding shares of BERU.

Net earnings were $88.7 million for the first ~~nine months of 2007 were $217.3 million,~~quarter, or ~~$3.69~~$0.75 per diluted share, an increase of ~~$0.74~~$0.25 per diluted share over the previous year’s first ~~nine months. The Company believes~~quarter. Excluding the ~~following table is useful in highlighting non-recurring or non-comparable items that impacted its earnings~~$0.06 per diluted ~~share:~~share impact of stronger foreign currencies, primarily the Euro, net earnings were $0.69 per diluted share, an increase of $0.19 per diluted share over the previous year’s first quarter. The previous year’s first quarter was negatively impacted by a warranty-related charge of $0.085 per diluted share.

Nine months ended September 30, 2007 2006
Non-recurring or non-comparable items:
Adjustments to tax accounts $ 0.28 $ —
Restructuring expense — (0.15 )
Net gain from divestitures — 0.06

Total impact to earnings per share — diluted: $ 0.28 ($ 0.09 )

Reporting Segments

~~Reportable Operating Segments~~

EBIT is considered a “non-GAAP financial measure.” Generally, a non-GAAP financial measure is a numerical measure of a company’s financial performance, financial position or cash flows that excludes (or includes) amounts that are included in (or excluded from) the most directly comparable measure calculated

and presented in accordance with GAAP. EBIT is defined as earnings before interest, income taxes and minority interest. “Earnings” is intended to mean net earnings as presented in the Consolidated Statements of Operations under GAAP.

The Company believes that EBIT is useful to demonstrate the operational profitability of our segments by excluding interest and income taxes, which are generally accounted for across the entire Company on a consolidated basis. EBIT is also one of the measures used by the Company to determine resource allocation within the Company. Although the Company believes that EBIT enhances understanding of our business and performance, it should not be considered an alternative to, or more meaningful than, net earnings or cash flows from operations as determined in accordance with GAAP.

The following tables present net sales and ~~Segment~~segment EBIT by reporting segment for the three ~~and nine~~ months ended ~~September 30, 2007~~March 31, 2008 and ~~2006.~~2007.

~~Net Sales by Operating Segment~~
~~(millions)~~


Net Sales by Reporting Segment
(millions)
	Three months ended						Nine months ended						Three months ended
	September 30,						September 30,						March 31,
	2007			2006			2007			2006			2008			2007
Engine	$	933.9		$	736.4		$	2,783.4		$	2,314.3		$	1,098.1		$	894.1
Drivetrain		387.2			330.1			1,196.9			1,093.4			409.8			392.0
Inter-segment eliminations		(7.5	)		(6.7	)		(24.6	)		(24.0	)		(9.0	)		(8.3	)

Net sales	$	1,313.6		$	1,059.8		$	3,955.7		$	3,383.7		$	1,498.9		$	1,277.8


Segment Earnings Before Interest and Income Taxes
(millions)
													Three months ended
													March 31,
													2008			2007
Engine													$	137.9		$	85.3
Drivetrain														18.3			27.7
Segment earnings before interest and income taxes ("Segment EBIT")														156.2			113.0
Corporate, including equity in affiliates' earnings and stock-based compensation														(20.4	)		(13.9	)
Consolidated earnings before interest and taxes ("EBIT")														135.8			99.1
Interest expense and finance charges														6.5			8.9
Earnings before income taxes and minority interest														129.3			90.2
Provision for income taxes														33.6			24.4
Minority interest, net of tax														7.0			7.4
Net earnings													$	88.7		$	58.4

~~Segment Earnings Before Interest and Income Taxes~~
~~(millions)~~

Three ~~months ended September 30, 2007~~Months Ended March 31, 2008 vs. Three ~~months ended September 30, 2006~~Months Ended March 31, 2007

The Engine segment net sales increased ~~$197.5~~$204.0 million, or ~~26.8%~~22.8%, and ~~Segment~~segment EBIT increased ~~$24.8~~$52.6 million, or ~~32.6%~~61.7%, from ~~third~~first quarter ~~2006.~~2007. Excluding the impact of stronger foreign currencies, primarily the Euro, sales increased ~~20.3%~~12.1%. The Engine segment continued to benefit from European and Asian automaker demand for turbochargers, timing systems and emissions ~~products.~~products, and European demand for diesel engine ignition systems. In North America, higher turbocharger sales offset lower sales of other Engine segment products, which were lower primarily due to lower domestic vehicle production. The ~~Segment~~segment EBIT margin was negatively impacted in 2007 by ~~sharply higher commodity costs, primarily nickel.~~approximately $14 million for a warranty-related issue surrounding a product, built during a 15-month period in 2004 and 2005, that is no longer in production.

The Drivetrain segment net sales increased ~~$57.1~~$17.8 million, or ~~17.3%~~4.5%, and ~~Segment~~segment EBIT ~~increased $13.6~~decreased $9.4 million, or ~~103.0%~~33.9%, from ~~third~~first quarter ~~2006.~~2007. Excluding the impact of stronger foreign currencies, primarily the Euro, sales ~~increased 13.8%~~decreased 0.3%. ~~The~~In the quarter, sales ~~increase was driven~~were impacted by growth outside of North America including higher sales of ~~DualTronic~~^®DualTronicTM transmission ~~modules~~modules. The Drivetrain segment’s EBIT decreased due to the combined effect of start-up cost pressures and lower North American production of light trucks and sport-utility vehicles equipped with its torque transfer products.

~~Nine months ended September 30, 2007 vs. Nine months ended September 30, 2006~~

The Engine segment net sales increased $469.1 million, or 20.3%, and Segment EBIT increased $26.7 million, or 10.0%, from the first nine months of 2006. Excluding the impact of stronger foreign currencies, primarily the Euro, sales increased 14.4%. The Engine segment continued to benefit from European and Asian automaker demand for turbochargers, timing systems and emissions products. In North America, higher turbocharger sales offset lower sales of other Engine segment products, which were lower primarily due to lower domestic vehicle production. The Segment EBIT margin was negatively impacted by the approximate $14 million warranty-related charge recognized in first quarter 2007 and by sharply higher commodity costs, primarily nickel.

The Drivetrain segment net sales increased $103.5 million, or 9.5%, and Segment EBIT increased $23.3 million, or 36.1%, from the first nine months of 2006. Excluding the impact of stronger foreign currencies, primarily the Euro, sales increased 6.2%. The sales increase was driven by growth outside of North America including higher sales of DualTronic^® ~~transmission modules and torque transfer products.~~

Outlook for the ~~remainder~~Remainder of ~~2007~~2008

Our overall outlook for ~~2007~~2008 remains positive, as we expect our sales to grow in excess of a projected moderate global vehicle production growth rate. ~~The~~Our outlook for global vehicle production by region is for ~~moderate declines~~a decline in North America, a moderate ~~increases~~decrease in Europe, and solid growth in Asia. While expecting only moderate overall growth in global vehicle production, we expect to benefit from strong European and Asian automaker demand for our engine products, including turbochargers, timing systems, ignition systems and emissions products. ~~We expect continued and growing~~Growing demand for our drivetrain products outside of North America, including increased sales of dual-clutch transmission products, ~~which~~is also is a positive trend for the Company. The impact of non-U.S. currencies, which are difficult to predict, is currently planned to be negligible in 2008. The impact of raw materials, including nickel, steel, copper, aluminum and plastic resin, is expected to continue to pressure gross profit. ~~Based upon~~Assuming no major departures from these ~~and other~~ assumptions, we expect continued long-term sales and net earnings growth.

The Company maintains a positive long-term outlook for its business and is committed to new product development and strategic capital investments to enhance its product leadership strategy. The trends that we believe are driving our longer-term growth are expected to continue, including the growth of gasoline direct-injected and diesel engines worldwide, the increased adoption of automatic transmissions in Europe and ~~Asia-Pacific,~~Asia, the popularity of cross-over vehicles in North America and the move to chain engine timing systems in both Europe and ~~Asia-Pacific.~~

To take advantage of these trends, the Company is establishing a technical center in China, a turbo charger production facility to be located in Poland and a drivetrain production facility to be located in Mexico.Asia.

FINANCIAL CONDITION AND LIQUIDITY

Net cash provided by operating activities ~~increased $95.4~~decreased $8.1 million to ~~$366.1~~$74.5 million for the first ~~nine~~three months of ~~2007~~2008 from ~~$270.7~~$82.6 million in the first ~~nine~~three months of ~~2006.~~2007. The decline reflects working capital investments to support significantly higher sales in the first three months of 2008 as compared to the first three months of 2007. Capital spending, including tooling outlays, was ~~$194.6~~$75.4 million in the first ~~nine~~three months of ~~2007,~~2008, compared with ~~$191.9~~$58.3 million in ~~2006.~~2007. Selective capital spending remains an area of focus for the Company, both in order to support our book of new business, and for cost reductions and productivity improvements. The Company expects to spend approximately ~~$325~~$400 million on capital and tooling expenditures in ~~2007,~~2008, but this expectation is subject to ongoing review based on market conditions.

As of ~~September 30, 2007,~~March 31, 2008, debt ~~decreased~~increased from year-end ~~2006~~2007 by ~~$119.6~~$93.3 million, cash increased by ~~$14.1~~$14.9 million and marketable securities decreased by ~~$20.2~~$2.8 million. Our debt to capital ratio was ~~20.3%~~21.9% at the end of the ~~third~~first quarter versus ~~26.1%~~20.7% at the end of ~~2006.~~2007. The Company paid dividends to BorgWarner stockholders of ~~$29.6~~$12.8 million and ~~$27.5~~$9.8 million in the first ~~nine~~three months of ~~2007~~2008 and ~~2006,~~2007, respectively. The Company repurchased ~~449,000~~316,800 shares of its common stock for ~~$37.8~~$13.5 million in the first ~~nine~~three months of ~~2007.~~2008.

The Company securitizes and sells certain receivables through third party financial institutions without recourse. The amount sold can vary each month based on the amount of underlying receivables. At both ~~September 30,~~March 31, 2008 and December 31, 2007, ~~and 2006,~~ the Company had sold $50 million of receivables under a Receivables Transfer Agreement for face value without recourse. During both of the ~~nine-month~~three-month periods ended ~~September 30,~~March 31, 2008 and 2007, ~~and 2006,~~ total cash proceeds from sales of accounts receivable were ~~$450~~$150 million. The Company paid servicing fees related to these receivables for the three ~~and nine~~ months ended ~~September 30,~~ March 31, 2008 and

2007 ~~and 2006~~ of ~~$0.8~~$0.6 million and $0.7 ~~million and $2.2 million and $2.0~~ million, respectively. These amounts are recorded in interest expense and finance charges in the Condensed Consolidated Statements of Operations.

The Company has a multi-currency revolving credit facility, which provides for borrowings up to $600 million through July 2009. At ~~September 30, 2007~~March 31, 2008 and December 31, ~~2006,~~2007 there were no borrowings outstanding under the facility. The credit agreement is subject to the usual terms and conditions applied by banks to an investment grade company. The Company was in compliance with all covenants at ~~September 30, 2007~~March 31, 2008 and expects to beremain compliant in future periods. The Company had outstanding letters of credit of $22.0 million at ~~June 30, 2007~~March 31, 2008 and ~~$27.0 million at~~ December 31, ~~2006.~~2007. The letters of credit typically act as a guarantee of payment to certain third parties in accordance with specified terms and conditions.

From a credit quality perspective, we have an investment grade credit rating of A- from Standard & Poor’s and Baa1 from Moody’s, upgraded from Baa2 on February 11, 2008. The outlook from ~~Moody’s.~~both agencies is stable.

The Company believes that the combination of cash balances, cash flow from operations, available credit facilities and ~~$50~~$750 million available under a universal shelf registration statement ~~on file~~filed with the Securities and Exchange Commission on March 4, 2008, under which a variety of debt and equity instruments could be issued, will be sufficient to satisfy its cash needs for the current level of operations and planned operations for the remainder of ~~2007.~~2008. The Company expects that net cash provided by operating activities will be approximately ~~$500~~$550 million in ~~2007.~~2008.

OTHER MATTERS

Contingencies

In the normal course of business the Company and its subsidiaries are parties to various commercial and legal claims, actions and complaints, including matters involving warranty claims, intellectual property claims, general liability and various other risks. ~~See Notes 8 and 14 of the unaudited condensed consolidated financial statements that are part of this Quarterly Report on Form 10-Q.~~ It is not possible to predict with certainty whether or not the Company and its subsidiaries 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 the results 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.

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 3435 such sites. Responsibility for clean-up and other remedial activities at a Superfund site is typically shared among PRPs based on an allocation formula.

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; remediation alternatives; and estimated legal ~~fees; and other factors)~~fees), the Company has established an accrual for indicated environmental liabilities with a balance at ~~September 30, 2007~~March 31, 2008 of ~~$16.2~~$12.0 million. Excluding the Crystal Springs site discussed below for which ~~$5.5~~$3.1 million has been accrued, the Company has accrued amounts that do not exceed $3.0 million related to any individual site and management does not believe that the costs related to any of these other individual sites will have a material adverse effect on the Company’s results of operations, cash flows or financial condition. The Company expects to pay out substantially all of the ~~$16.2 million~~amounts accrued for environmental liability over the next three to five years.

surrounding area. Kuhlman Electric and others, including the Company, were sued in numerous related lawsuits, in which multiple claimants alleged personal injury and property damage. In 2005, the Company and other defendants ~~including the Company’s subsidiary Kuhlman Corporation,~~ entered into settlements that resolved approximately 99% of the then known personal injury and property damage claims relating to the alleged environmental contamination. Those settlements involved payments by the ~~defendants~~Company of $28.5 million in the second half of 2005 and $15.7 million in the first quarter of 2006, in exchange for, among other things, dismissal with prejudice of these lawsuits.

In December 2007, a lawsuit was filed against Kuhlman Electric and others, including the Company, on behalf of approximately 209 plaintiffs, alleging personal injury relating to the alleged environmental contamination. Give the early stage of the litigation, the Company cannot make any predictions as to the outcome, but its current intent is to vigorously defend against the suit.

Conditional Asset Retirement Obligations

Product Liability

insurance coverage. Since June 2004, secondary layer insurers have paid asbestos-related litigation defense and settlement expenses pursuant to a funding arrangement. To date, the Company has paid ~~$24.6~~$31.7 million in defense and indemnity in advance of insurers’ reimbursement and has received ~~$7.1~~$11.5 million in cash from insurers. The outstanding balance of ~~$17.5~~$20.2 million is expected to be fully recovered. Timing of the recovery is dependent on final resolution of the declaratory judgment action referred to below. At December 31, ~~2006,~~2007, insurers owed ~~$11.7~~$20.6 million in association with these claims.

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

September 30, December 31,
(millions) 2007 2006
Assets:
Prepayments and other current assets $ 20.9 $ 23.3
Other non-current assets 19.8 16.6

Total insurance receivable $ 40.7 $ 39.9

Liabilities:
Accounts payable and accrued expenses $ 20.9 $ 23.3
Other non-current liabilities 19.8 16.6

Total accrued liability $ 40.7 $ 39.9

	March 31,		December 31,
(millions)	2008		2007
Assets:
Prepayments and other current assets	$	22.0	$	20.1
Other non-current assets		16.5		19.5
Total insurance receivable	$	38.5	$	39.6

Liabilities:
Accounts payable and accrued expenses	$	22.0	$	20.1
Other non-current liabilities		16.5		19.5
Total accrued liability	$	38.5	$	39.6

New Accounting Pronouncements

more information regarding the implementation of FAS ~~157 is not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.~~157.

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, Noncontrolling Interests in Consolidated Financial Statements (“FAS 160”). FAS 160 requires that ownership interests in subsidiaries held by parties other than the parent are clearly identified. In addition, it requires that the amount of consolidated net income attributable to the parent and to the noncontrolling interest be clearly identified and presented on the face of the income statement. FAS 160 is effective for the Company beginning with its quarter ending March 31, 2009. The adoption of FAS ~~159~~160 is not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

Recent Development

On ~~October 19, 2007,~~April 18, 2008, the Company announced a ~~$0.17~~$0.11 per share dividend to be paid on ~~November~~May 15, ~~2007~~2008 to stockholders of record on ~~November~~May 1, ~~2007.~~2008.

DISCLOSURE REGARDING 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 that are based on management’s current outlook, expectations, estimates and projections. Words such as ~~“expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates,”~~“outlook”, "expects," "anticipates," "intends," "plans," "believes," "estimates," variations of such words and similar expressions are intended to identify such forward-looking statements. Forward-looking statements are subject to risks and uncertainties, many of which are difficult to predict and generally beyond our control, that could cause actual results to differ materially from those expressed, projected or implied in or by the forward-looking statements. Such risks and uncertainties include: fluctuations in domestic or foreign vehicle production, the continued use of outside suppliers,

fluctuations in demand for vehicles containing our products, changes in general economic conditions, and other risks detailed in our filings with the Securities and Exchange Commission, including the Risk Factors, identified in ~~our Annual Report on~~the Form 10-K for the fiscal year ended December 31, ~~2006.~~2007. We do not undertake any obligation to update any forward-looking statements.

Item 3.Quantitative and Qualitative Disclosure About Market Risk

There have been no material changes to the information concerning our exposures ~~related~~ to market risk as stated in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2006.~~2007.

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 provide reasonable assurance that the information required to be disclosed in the reports it files with the Securities and Exchange Commission is collected and then processed, summarized and disclosed within the time periods specified in the rules of the Securities and Exchange Commission. 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 1415 – Contingencies to the condensed consolidated financial statements for a discussion of environmental, product liability and other litigation, which is incorporated herein by reference.

Item 2.~~Repurchases~~ Unregistered Sales of Equity Securities and Use of Proceeds (Repurchases and Authorization of Equity Securities)

The Company’s Board of Directors previously authorized the purchase of up to ~~2.4~~4.8 million shares (adjusted for the Company’s ~~2004~~2007 two-for-one stock split) of the ~~Company’s~~Company's common stock. As of ~~September 30, 2007,~~March 31, 2008, the Company ~~has~~had repurchased ~~1,882,860~~4,275,120 shares.

At the Company’s Board of Directors meeting held April 30, 2008 the Board authorized the additional purchase of up to 5.0 million shares of the Company’s common stock.

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 amounts to be determined by management as market conditions and the Company’s capital position warrant. The Company may use Rule 10b5-1 plans to facilitate share repurchases. Repurchased shares will be deemed treasury shares and may subsequently be reissued for general corporate purposes.

The following table provides information about Company purchases of its equity securities that are registered pursuant to Section 12 of the Exchange Act during the quarter ended ~~September 30, 2007,~~March 31, 2008, at a total cost of ~~$21.5~~$13.5 million:

~~ISSUER PURCHASES OF EQUITY SECURITIES~~

ISSUER REPURCHASES OF EQUITY SECURITIES
Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		(a) Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs

Month Ended January 31, 2008		-	$	-		-		841,680
Month Ended February 29, 2008		52,500		45.49		52,500		789,180
Month Ended March 31, 2008		264,300		42.03		264,300		524,880
Total		316,800	$	42.60		316,800		524,880

(a) This table does not reflect the 5.0 million shares authorized by the Company's Board of Directors on April 30, 2008.

NOTE: All purchases were made on the open market.

(d) Maximum Number
(c) Total Number of (or Approximate
Shares (or Units) Dollar Value) of Shares
(a) Total Number of Purchased as Part of (or Units) that May
Shares (or Units) (b) Average Price Paid Publicly Announced Yet be Purchased
Period Purchased per Share (or Unit) Plans or Programs Under the Plans or Programs
Month Ended July 31, 2007 25,000 $ 87.56 25,000 744,840
Month Ended August 31, 2007 132,700 84.06 132,700 612,140
Month Ended September 30, 2007 95,000 85.54 95,000 517,140

Total 252,700 $ 84.96 252,700 517,140

Item 5. Other Information

~~NOTE: All purchases were made~~

At the Annual Meeting of Stockholders held April 30, 2008, non-employee Director Brown was elected to a new three year term on the ~~open market.~~Company's Board of Directors, and was granted 5,208 shares of restricted stock as equity compensation. Restrictions on the shares of stock will expire over the three year term, one third in each year. To implement the equity component of a compensation increase for non-employee directors that was effective January 1, 2008, the Class I non-employee directors were each granted 626 shares of restricted stock with restrictions expiring one year from the date of grant, and the Class II non-employee directors were each granted 1,252 shares of restricted stock with restrictions expiring half after one year from the date of grant and the remainder expiring two years from the date of grant. Non-employee director compensation is more fully described in the Company’s proxy statement filed for its 2008 Annual Meeting of Stockholders.

On December 11, 2007, BorgWarner Germany GmbH, an indirect wholly-owned subsidiary of BorgWarner Inc., informed BERU AG as well as the German regulator of the German Securities Trading Act that the percentage of voting rights in BERU AG which is held by BorgWarner Germany GmbH, exceeded 75%. In connection with reaching the 75% voting rights threshold BorgWarner Germany GmbH requested that BERU AG join BorgWarner in the preparation of a domination and profit transfer agreement between BorgWarner Germany GmbH as controlling party and BERU AG as controlled party under the German Stock Corporation Act.

On March 17, 2008 the Supervisory Board of BERU AG approved the domination and profit transfer agreement. The agreement will be presented to the BERU shareholders at their May 21, 2008 meeting for approval.

Item 6.Exhibits


~~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~~		~~Section 1350 Certifications~~

Exhibit 3.1 Amendment to the Restated Certificate of Incorporation of BorgWarner Inc.

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

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, hereunto duly authorized.


		~~BorgWarner Inc.~~ ~~(Registrant)~~
	By	~~/s/ Jeffrey L. Obermayer~~
		~~(Signature)~~
	~~Jeffrey L. Obermayer~~ ~~Vice President and Controller~~ ~~(Principal Accounting Officer)~~

BorgWarner Inc.

(Registrant)

By: /s/ Jeffrey L. Obermayer

(Signature)

Jeffrey L. Obermayer
Vice President and Controller
(Principal Accounting Officer)

Date: ~~October 25, 2007~~May 2, 2008


	September 30,			December 31,
(millions)	2007			2006			March 31,			December 31,
							2008			2007
Land and buildings	$	586.2		$	552.3		$	634.8		$	604.9
Machinery and equipment		1,768.7			1,687.8			1,882.4			1,806.1
Capital leases		1.1			1.1			2.9			1.1
Construction in progress		123.5			112.8			155.8			143.4

Total property, plant and equipment		2,479.5			2,354.0
Total property, plant & equipment								2,675.9			2,555.5
Less accumulated depreciation		(1,055.3	)		(988.4	)		(1,096.9	)		(1,037.9	)
								1,579.0			1,517.6
		1,424.2			1,365.6
Tooling, net of amortization		100.7			95.1			93.2			91.5

Property, plant and equipment — net	$	1,524.9		$	1,460.7

Property, plant & equipment, net							$	1,672.2		$	1,609.1

Market approach:	Prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.
Cost approach:	Amount that would be required to replace the service capacity of an asset (replacement cost).
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).


	September 30, 2007					December 31, 2006
(millions)	Current		Long-Term			Current		Long-Term
Bank borrowings and other	$	5.3	$	5.6		$	131.8	$	5.9
Term loans due through 2013 (at an average rate of 3.1% in 2007 and 3.0% in 2006)		31.8		21.8			19.9		23.1
5.75% Senior Notes due 11/01/16, net of unamortized discount (a)		—		149.1			—		149.0
6.50% Senior Notes due 02/15/09, net of unamortized discount (a)		—		136.5			—		136.4
8.00% Senior Notes due 10/01/19, net of unamortized discount (a)		—		133.9			—		133.9
7.125% Senior Notes due 02/15/29, net of unamortized discount		—		119.2			—		119.2

Carrying amount of notes payable and long-term debt		37.1		566.1			151.7		567.5
Impact of derivatives on debt		—		(1.7	)		—		1.9

Total notes payable and long-term debt	$	37.1	$	564.4		$	151.7	$	569.4


~~(a)~~		The Company entered into several interest rate swaps, which have the effect of converting $325.0 million of these fixed rate notes to variable rates as of September 30, 2007 and December 31, 2006. The weighted average effective interest rates for these borrowings, including the effects of outstanding swaps as noted in Note 10, were 4.9% and 4.5% as of September 30, 2007 and December 31, 2006, respectively.

			Basis of Fair Value Measurements
			Quoted		Significant			Significant
			Prices in		Other			Unobservable
			Active		Observable			Inputs
	Balance at		Markets for		Inputs
	March 31,		Identical Items
	2008		(Level 1)		(Level 2)			(Level 3)
Assets:
Marketable Securities	$	11.8	$	11.8		$	-	$	-
Interest rate swap contracts		21.3		-			21.3		-
Commodity contracts		2.6		-			2.6		-
Foreign exchange contracts		1.0		-			1.0		-
	$	36.7	$	11.8		$	24.9	$	-

Liabilities:
Commodity contracts	$	14.1	$	-		$	14.1	$	-
Foreign exchange contracts		33.7		-			33.7		-
Net investment hedge contracts		67.2		-			67.2		-
	$	115.0	$	-		$	115.0	$	-


~~(a)~~		~~The maturity of the swaps corresponds with the maturity of the hedged item as noted in the debt summary, unless otherwise indicated.~~


													Other post
	Pension benefits												employment
(millions)	2007						2006						benefits
Three months ended September 30,	US			Non-US			US			Non-US			2007			2006
Components of net periodic benefit cost:
Service cost	$	0.5		$	2.7		$	0.7		$	3.3		$	1.4		$	2.7
Interest cost		4.5			4.1			4.1			3.6			7.0			7.4
Expected return on plan assets		(7.3	)		(3.2	)		(7.1	)		(2.8	)		—			—
Settlement/Curtailment		37.1			—			—			—			(33.9	)		—
Amortization of unrecognized prior service cost (benefit)		—			—			0.3			—			(4.5	)		(4.6	)
Amortization of unrecognized loss		0.5			0.3			1.6			0.7			3.6			4.8
Other		—			0.2			—			—			—			—

Net periodic benefit cost (benefit)	$	35.3		$	4.1		$	(0.4	)	$	4.8		$	(26.4	)	$	10.3

	Shares
	Subject to	Weighted
	Restriction	Average
	(thousands)	Price
Nonvested at December 31, 2007	27.5	$31.95
Granted	390.9	46.34
Vested	-	-
Nonvested at March 31, 2008	418.4	$45.39


	Employee
	Related Costs
Balance at December 31, 2006	$	16.2
Cash payments		(6.1	)

Balance at March 31, 2007		10.1
Cash payments		(0.9	)

Balance at June 30, 2007		9.2
Cash payments		—

Balance at September 30, 2007	$	9.2


Nine months ended September 30,	2007		2006
Non-recurring or non-comparable items:
Adjustments to tax accounts	$	0.28	$	—
Restructuring expense		—		(0.15	)
Net gain from divestitures		—		0.06

Total impact to earnings per share — diluted:	$	0.28	($	0.09	)


							(d) Maximum Number
					(c) Total Number of		(or Approximate
					Shares (or Units)		Dollar Value) of Shares
	(a) Total Number of				Purchased as Part of		(or Units) that May
	Shares (or Units)		(b) Average Price Paid		Publicly Announced		Yet be Purchased
Period	Purchased		per Share (or Unit)		Plans or Programs		Under the Plans or Programs
Month Ended July 31, 2007		25,000	$	87.56		25,000		744,840
Month Ended August 31, 2007		132,700		84.06		132,700		612,140
Month Ended September 30, 2007		95,000		85.54		95,000		517,140

Total		252,700	$	84.96		252,700		517,140