Good morning. My name is Theya and I'll be your conference facilitator. At this time, I would like to welcome everyone to the BorgWarner 2008 Fourth Quarter and Full Year Earnings Conference Call. All lines have been placed on a mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. (Operator Instructions). I would now like to turn the call over to Mary Brevard, Vice President, Investor Relations. Ms. Brevard, you may begin your conference.

Thank you very much. Welcome and we appreciate all of you joining us this morning. We issued copies of our release this morning before the market opened. It's also posted on our website at borgwarner.com, under Investor Information. The conference call today will be replayed through February 19. The phone number is 800-642-1687. Our conference ID is 80716755. There is also a replay available on our website. Before we begin, I need to inform you that during this call, we may make forward-looking statements which involve risks and uncertainties as detailed in our 10-K. Our actual results may differ significantly from the matters discussed today. I'll now turn to Tim Manganello, our Chairman and CEO, who will be providing comments on the quarter and the year. And then, Robin Adams will discuss operating results. Tim?

Thank you, Mary and good day everyone. Before talking about the quarter, I want to look back on 2008. The incredible disparity between the two halves of the year is truly amazing. During the first half of 2008, we enjoyed strong demand for our products with particular strength in our turbochargers and dual clutch transmission business leading to record sales and record earnings. However, with the mid-year escalation of gas prices, vehicle production in North America contracted. In addition, the economic crisis and sharp downturn in the consumer confidence caused a dramatic reduction in global auto production in the second half of the year. So let's talk about our full year highlights. Against this backdrop, 2008 sales were basically flat at $5.3 billion. This compares with worldwide auto production that was down 4%. Full year 2008 earnings per share for BorgWarner were $2.07 excluding non-recurring items. And our operating income margin was 6.3%, excluding these same one-time items. For the fourth quarter, sales were 932 million, down 32% from last year's fourth quarter, and we were breakeven for operating profits, excluding one-time items in Q4. These items include major restructuring charges and a warranty issue on a transmission product sold in Europe for the period mid-2007 through May of 2008, and Robin will cover more of this in detail in the financials. So, let's talk about our restructuring actions. In the face of these very challenging market conditions, BorgWarner has acted swiftly. Our focus has been, and continues to be, aimed at improving operational efficiency and sizing our business to manage through these very uncertain times. The deep declines in North America and sudden cuts in European production schedules late in the year made it difficult to reduce our costs fast enough to match those rapidly changing conditions. However, we…

Thank you, Tim and good morning everyone. Before I get into the financials, let's go over the industry environment a little bit more detail. For the full year, global vehicle production was down about 4%. In the U.S. production was down 19%. And when you look at the light truck portion of the market, it was actually down 38% year-over-year in the U.S. When you look at production outside the U.S., it was down 1% for the year. In Europe, production was down 5%, and Asian production was actually up slightly about 2% during the year. For BorgWarner in the U.S. our sales were down 18%, pretty much in line with the U.S. production declines and 2% outside the U.S. excluding currency, if you look which is better than the global market. Excluding currency, our sales were up 2% in Europe, again, versus European production which was down 5 and our sales were up 5% in Asia. As Tim mentioned, the world and the light vehicle production market changed dramatically in the fourth quarter. We saw vehicle production fall in every region of the world with the exception of China. Vehicle production U.S. was down 28% in the quarter and our sales were down 27% in the quarter in the U.S. Production outside of the U.S. was down 17% and our sales outside the U.S. excluding currency were down 22%. European industry production in the quarter was down 25%, and Tim and I remember discussion back in, I think it was September of the Paris Auto Show about the fourth quarter. And I don't think anyone was expecting that type of performance in Europe. Nonetheless, production was down 25%. Our sales were down 18% in the quarter in Europe. As we look at the full year in consolidated... the fourth…

Thank you very much Robin. I will have the call coordinator Theya to give you the procedures for the Q&A session. Theya?

(Operator Instructions) The first question is from Brian Johnson with Barclays Capital.

Good afternoon or good morning.

Hi Brian. All right.

As we look forward to 1Q, we saw 28% decremental margins in 4Q. When do you get margins back to the 20 to 25% decremental that you are looking for in '09? And when do that flexible stat... and what gets you there, is it flexible staffing, I mean how do we can come around that?

I’ll start with that Brian. We continually target the next quarter to get to 20-25%. But as you know we have been chasing volumes here for the last couple of quarters. If we get some stability here, which we haven’t seen, the restructuring actions we’ve taken and the four-day work weeks in our European operations should get us close to that 20 to 25% range.

And second, kind of relate to that. If we are stuck at 12 to 13 million which, gradually (ph) and say Europe that's more like 18 million instead of 20 million production. Could you get back to your old level of profitability in each business unit? And if so, what's the timeframe for getting that?

I don't know whether we will get exactly up to that level. But I think we'll have a really good shot at it. When we have really leaned up this company, and like I said, Brian, we are going to be staffed right now roughly by starting with the beginning of February, we'll staff close to 9.3 production build in North America and about 16.6 in total Europe for productions schedules. And if we get those volumes, we should be in pretty good shape in terms of having pretty good operating margins. We are going to be really tight on bringing anybody back, I'll tell you that. It's hard to get them out, once I get them out, it's going to be very difficult in my mind for me to allow them to come back. But we'll bring back what we'd need to make those, to meet those kind of volumes. I would hope that we get those volumes soon. You're going to see those operating margins at historical 8.5 to 9% operating margins reasonably small.

Planning assumptions which you are making more conservative in you expenses, is that your planning assumption? Does that mean you'll shoot for breakeven at that level? Or does it mean you should be making a profit or loss in that one?

Brian, as we've said based on those assumptions, we expect to generate positive earnings and positive cash flow in 2009 at those levels.

I'll be happy with $1 positive cash flow at those levels.

One longer term question, the 1.7 or 1.4 million you had for Chinese DCT. Was that included in your investor presentation slides in your projection of the DCT market... is that incremental to that?

Almost none of it was included. If there was any included it was just a tip... a touch of it, at the end of the third year or something like that. But there is really almost none of it. And that's a longer term projection because that's the full market number, not a ramp-up number.

And Brian, I think if you are talking about the charts that's in there, it's 2009 to 2014 that has the full market for transmission. So there is some of it in there but not in the backlog.

Yeah I was talking about the backlog. I thought when you're talking about the chart, I was talking about the backlog, Brian.

So, it wasn't what's in the backlog, some of it might have been in the market projection?

Yes.

Right.

So the bottom line gives us more comfort in the overall market projection and then we'll see where it takes the backlog when it rolls back.

Yeah I'm glad you brought that question up because I actually think that the market has somewhat underestimated the importance of that joint venture project in China. This is a big deal by the Chinese OEM standards. And it's actually a big deal by in terms of the opportunity for BorgWarner. We actually have positioned BorgWarner as the major supplier of... almost the preferred and major transmission product for a whole region or the whole market, like China.

When do we get a sense, when do we expect to see those go into the backlog? Is that a tough part before 2011 where you get projections...

I think that someone starts to ramp up in 2011, so you'll start to see it in 2012, 13 and 14. But I think we have a touch... we started doing a little bit of ramp up towards the end of 2011.

Okay. And when do you know if the programs are actually in place?

Well.

DCT in various programs?

We haven't announced any programs. But there are definitely programs in China that will be the purchaser of these products come out of this joint venture. This is a module joint venture for clutch modules and control modules which means in order for the 12 OEMs to put into money to support this joint venture, they plan to have one transmission manufacturing. So what we haven't announced is the transmission programs that this product will sell too.

And roughly what timeframe could we expect those announcements?

I can't tell you that. And not that I wouldn't like to, it's just that we're still in negotiations.

Okay, thanks.

Thanks Brian.

The next question is from Himanshu Patel with JP Morgan.

Hi, good morning guys.

Good morning, Himanshu.

I just wanted to go back to the question on decremental margins. The 20 to 25% number that you threw out there, Robin, should we think of that as sort of an average for '09 but maybe the first half could be higher and the second half sort to gets to below that level? Or do you think you can actually get there as early as Q1?

No, that's a great point. We are still... although we announced 4400 people... some of those people were not out the door by December 31st. We took the charge for them and now work their way out of the system within the next few months. It will be more of an average for the year. And a way to help you think about that is 4400 people at an average of $50,000 of cost is about $220 million. And again depending on your revenue assumption decline that would cover about $900 million decline in sales 2009 versus 2008. And then you need to factor in the four-day work week process versus five-day work week in our European operations for the rest of the sales. And maybe that'll help you visualize how you can get the savings on the labor side, you need to get to maintain 20 to 25% decremental margin. As we said before, about 52% of a sales dollar is purchase component, raw material and we expect that when you don't have a sale to not have to make the purchase, not incur the costs and the wages and benefits of about 25%. So again if you look at on average 50,000 for the 4400 people, that's $220 million in savings, which would support about $900 million decline in sales to maintain that decremental margin and then you have to look at our European operations which is currently about 60% of our sales and look at that workforce and look at about a 20% decline in costs year-over-year because of the four-day work week versus the five and align that up with the overall sales decline on the company. But that should help you kind of get in line with the efforts we've made and the expectations we have to... have those impact on our financials.

And then just on the Europe four-day work week, I understand the working hours goes down by 20% but would the actual leverage savings be 20% because you'd still retain some of the benefit costs, wouldn't you?

Well, the government supports a lot, most of that 20% that the employees that we don't have to pay the government back of that, with the government subsidies. We have to pick up a little bit of the benefits cost but it varies from country to country. But we pick up a small percentage of this compared to what they pick up. So, we may be picking up 15% of it, I don't know, within that range plus or minus, while they are picking up the other 85% of that gap.

The other thing, Himanshu, is in many of our European operations, the employees first worked off accrued over time. They worked, didn't get paid for it, sat on the balance sheet is a liability. And some of those early work week reductions were actually from an accounting perspective paid for by liabilities on the balance sheet.

Okay and then the CapEx decline, could you just repeat that again what was the guidance for '09?

We are looking at capital spending close to $200 million.

And the big drivers of the decline there?

Significant decline in demand for product in the current year and the ability to delay some capacities, we have obviously more excess capacity than we intended to have in 2009. Therefore, we can delay some of the capital spending for these programs. Some examples Tim...

Example, there are some capacity in North America and Europe that we're using now to fulfill schedules in China, whereas originally we had some plan to put the capacity in China. We are going to delay the capacity in China, because we can now fill orders out of Europe and North America. And there is a lot of little examples like that all over the company where we are utilizing excess capacity. We were going to put transfer cases onto Mexico when we shut down the Muncie operation. We've now put a small annex onto our transfer case plant in Seneca. We basically have not... we have stopped as much of the equipment as we could for Mexico and slowdown in CapEx and the building is now sitting empty. Although the building's built it's now sitting empty because we're using... we shifted all our production into Seneca, and we are just going to have one transfer case plant.

Okay and then two last questions, could you give us some commentary on just what's happening with incoming schedules you're getting from European OEMs? Any sign of relative stability I guess sequentially or does it still feel like it's a falling knife?

It's a falling knife. I think the Europeans have been in the Nile and I don't mean the river. They've been in the Nile in terms of schedules. They've been too optimistic. Now they basically are cutting schedules. We're seeing one week... one and two week shutdowns in February, another one and two week shutdowns in March and they basically... Volkswagen is a good example, I think. They said that the European market was going to be down 20%. They said this about a month ago. European market is going to be down about 20% but they're only going to be down about 10%. Well in January, Volkswagen came down minus 20%. So they're now correcting schedules. We've seen a lot of that in Europe and the schedules aren't as stable in Europe as we need them to be in order to run a smooth business.

Okay, and then last housekeeping question for you, Robin. On the revolver, how do you think of that as you go into extended or replace it... amendment fees and repricing. I think that would be normal in this environment. But would you feel, what... is it unreasonable to think that the actual commitment size could be shrunk as well?

Debt facility was $350 million for like 10 years. And the last time we extended up we upped it to 600. And frankly we've never used any of it. And at the pricing we're seeing for commitment fees you got to think twice about whether you want to pay a commitment fee for $250 million of debt that you have never used and probably won't continue to use. So that will be part of the whole process. You are right in this market, the costs for these facilities are quite a bit more than they were a few years ago. So, there will be some trade-offs there for costs relative to size. And the other thing that we should point out, some of the European banks, if you look at our bank group we have a pretty international group that supports us. Because of our international nature from a business perspective, some of the European banks that are getting government funding, may have some issues with respect to providing loans in the U.S. market. But I'm more than happy to continue to provide the type of commitment to companies like ourselves in Europe.

It's okay for us with our growth that's in Europe and Asia.

Yeah. So we may end up with a couple of different pieces here rather than what we have today.

Okay, great. Thank you.

The next question is from Rich Kwas with Wachovia.

Hi, good morning.

Hi Rich.

So it seems like on the restructuring front, you've done for now Robin, that you've got a fair amount of your stats at current levels were 9.3 and 16.6 of total Europe. What kind of level would you... what kind of stair step down would you need to see before you ask to commence another program?

Rich, we're managing this business almost weekly with respect to adjusting our cost structure. And so what you'll see right now, what we expect to see right now is a little bit of tinkering. I think that at the levels that Tim has laid out for us is, to use as an assumption for manning our operations and planning our business for 2009. We feel comfortable that we're not off 20%. To the extent there... again any need to adjust the cost structure, we think it'll be more week-to-week plus or minus adjustments rather than a requirement so for a big reduction in workforce here.

I'll give you a couple of thoughts. Of the 4400 people approximately that we've laid off about 55% of that was in North America. So we're pretty good shape in terms of being sized right for North America. And actually schedules I think are... the U.S. OEMs have actually taken their schedules down on a point where they're starting... I think they're going to be a little bit more stable than we've seen for last two months. So, that should help and we should be sized right. In Europe, I can't remember, I think we took somewhere like... it was about 35% as a reduction in Europe. We have some plants in Europe that are on the verge of going to three day... from a four-day work week to three-day work week. There will be some hit and miss. And right now every plant in Europe is on a four-day work week. But we have a couple of BERU plants that are on three-day work weeks. We have some other plants that are tipping into a three day zone right now. But the good news is, Rich, we can react very quickly. We actually have the ability to go down to one-day work week or zero work week in lot of our German plants.

Okay, that's really helpful. And just for housekeeping question, 60.6 of total European production, what is the Western European assumption?

I'll give you that. It's 11.7.

Okay. So that's pretty much unchanged from when you spoke into trade (ph) months ago.

Yeah. What I think has come down as... everybody was higher than that. Everybody seems to be coming down closer to our number. I wish our number was going up instead of their number coming down.

Okay. On the warranty issue, have you replaced the suppliers that... should we expect anything further on that front?

I hope not. I don't know of any warranty issues as we speak right now. There was a supplier that caused us a problem, their part ended up in sub... we had to take their parts and build them into our sub-assemblies. We shifted in to our customer. The customer is something that what you don't find until you get miles on the vehicle. We were able to capture the time period, and now we're in negotiations with that supplier to us.

Okay. And then on the '09 contribution from the backlog. Robin, I think you mentioned 600 million, originally it should be 20% lighter. How do we think about 10 and 11? I know that you're not going to update that until later this year. But is it reasonable to assume that 10 and 11 contribution would come down that much or is that just too aggressive that you expect volumes to kind of gravitate backup?

Our expectation, Rich, is by the time we get to 2011, most of these programs will get much closer to what our expectation was for a field perspective. I mean when we put that backlog together in the fall, we already had kind of an expectation of a tough environment for the next few years. Obviously not as tough as what we have here in 2009 but our expectation is looking at these programs that... again this is a three-year ramp that by the time you get to 2011, we'd still be pretty close to that gross number.

Okay, that's helpful.

Let me add to something there, Rich. We actually have, I'm looking at kind of what have... the business that was awarded to us in the fourth quarter. And it was a pretty high rate of award. So I think some of the stuff may backfill. Some of the losses you've seen may backfill, some of the volume losses may back. Some of the new awards may backfill some of that, and when you get out in the outer years.

Okay, great. Thank you.

Thanks Rich.

The next question is from Itay Michaeli with Citi.

Thank you. Good morning. Robin, wanted to hear a couple of points on your '09 cash flow assumption. I know you mentioned CapEx of around 200 million. Can you share what you're thinking about working capital? Does that become more of a tailwind for you as you clear some inventory and also anything you can share on cash restructuring and maybe the pension as well?

Yeah, we expect significant improvement in working capital in 2009. As I said earlier, sales were down year-over-year substantially, and our inventory is relatively flat. So we do have some work to do on the inventory side. As I said capital spending will be closer to 200 this year, not 200 but closer to 200. So capital spending should be a significant reduction. We should see some improvement in working capital versus the outlay we had in 2008. We do have some pension funding outside the U.S. which is minimal and pretty much consistent with the funding levels we've had last year. And I forget what your other question was.

On the cash restructuring?

Cash restructuring, there's about 44 million left at year-end 2008 that needs to be passed out or paid out. And as I said that will be paid out kind of fairly, evenly over a period of time in 2009 with a piece coming due in mid 2010.

Yeah, that's helpful. And then just on the bond maturity, Robin, I think you mentioned a dividend from NSK. Can you quantify that? I think last year was maybe 16 million. So was that... was it quite a bit higher than this quarter?

It was a nice healthy dividend.

Okay. And I think you have mentioned cash from foreign subsidiaries. Is that, was that cash extract or was that borrowing in foreign subsidiaries that you brought back to use to underpin it?

Some of that was just cash extracted. As we said, we had $100 million of cash on the balance sheet at year end.

Right.

Some of that was overseas, but most of them was overseas. So it was a matter of bringing that cash back home plus some cash generated by some of our foreign operations and a little bit of foreign borrowings.

So would it be safe to assume that between now and the July maturity of the revolver you do not expect to be... I mean to tap significantly into that?

It's hard to forecast liquidity day by day. But we've not used the facility. And it's there to be used obviously. It's hard to say if we'll ever tap into it. My crystal ball is not that good on a daily basis. There are so many potential events here that could swing cash on a daily basis. But you have a customer that pays late at the end of the month or something but we don't anticipate, to the extent it's used, it's an overnight use. And we don't expect to draw on that meaningfully.

If somebody can guarantee, none of customers or suppliers are going to go into bankruptcy. And all orders will stay stable, we could probably make those... have those kind of discussions. But I don't think anybody can guarantee... people are going to stay out of bankruptcy as we look forward in the next two to three months.

Absolutely. And just a final one for you, Tim. Could you weigh in on the whole EPA situation, as I guess California's momentum to get the waiver is increasing, how do you think that ultimate outcome affects your business longer term, kind of what are you hoping is going to happen here with some of your particularly European customers, how they're weighing in when you talk to them about the situation?

Well I think the situation can best be described... and I think it's a good question Itay. It can best be described as everything... all indications are that we're going to have tighter fuel economy standards and tighter emission standards. And I won't say anything about emissions but I'll just say in terms... we all want clean air, so I think that's a good thing. We all want better fuel economy. Anything that drives an improvement in clean air or drives an increase in fuel economy requirements is a big plus for BorgWarner. So if everybody deals (ph) on the California standards, and that goes to all 50 states, it's probably going to be beneficial to BorgWarner. We would just assume not have... as an industry every state has the ability to set their own ambitions, regulations or fuel economy regulations.

Great. Thank you so much.

The next question is from Chris Ceraso with Credit Suisse.

Hi, this is Joe Dorman (ph) for Chris.

Hi Joe.

Hi Joe.

Hi Joe.

Hi. So looking at the EBIT breakout with the segments in the corporate buckets, the corporate bucket has been lower for a couple of quarters now. Can you detail some of the savings that you are having in that segment and what do you expect that corporate line to look like for 2009?

That's a painful discussion for me because most of that so called savings has incentive compensations. The vast majority of employees of BorgWarner will not receive in 2008.

Let's just say this. We are not receiving any annual bonus in 2008. And there is only one business in the whole company that actually is going to get a bonus so.

Okay. So, what are you thinking about that for 2009? Do you expect it to be more consistent with the run rate that you saw coming out of 2008?

Well...

We expect at least... on the bonus portion of it we do expect they have a bonus. For no other reason, we are going to... people, really we're going to have to make 2009 a year that's worthwhile.

We'll provide you the names and addresses of our contact numbers and you could...

Just allowing for us (ph).

All right.

This is very truthful... it is a very interesting discussion here on the last couple of days.

Okay, so, on the backlog, I am thinking about the 600 million taking down about 20%, is that... I know that's largely driven by declining industry assumptions, volume assumptions globally. But is there any component of that, that's due to delayed launches or launches that have been canceled because of CapEx cuts at the OEs?

No, they're basically the same. If we look at our top programs, those are about the top 12 programs, they are still already in production or going to be in production on schedule, just a lower volume.

Clearly volume. And then when we think about the effect of this lower volume, what kind of contribution margin can we think about that, Robin for the operating lines?

Well as we look at new business whether it's 600 million or 480 million that's sizable and we would expect to generate at least 15% incremental margin on that business. Given the capacity that we talked about earlier that we haven't placed and will not have to put in place this year, that could get closer to the $0.20 on the dollar range.

All right. Thanks guys.

Thank you.

The next question is from Brett Hoselton with KeyBanc.

Good morning.

Hi Brett.

How are you guys doing?

Doing great.

Just looking at your notes payables in the current portion of your long term debt, I assume the current portion is the bonds 137 million, the notes payable of 184 million. Can you just... what makes or what does that comprise?

Those are primarily bank facilities in different geographies around the world. The way we fund our operations and we have talked about this before to hedge our currency risk as we invest in new geographies rather than put in equity, we tend to raise local, local debt. And in most of the markets the predominant vehicle is bank facilities.

Okay. And given the current credit markets, I mean do you see any challenges there in terms of renewing those facilities?

No. As I said earlier I think that many of the institutions that are home based in a different geographies are looking to do more business in their home geography as opposed to the U.S. banks who... now they don't want to do business internationally but they don't want to do business in the U.S. either.

And they like the auto sector.

Yeah, the Chinese DCT announced 8 million cars being produced in China give or take and 90% of them apparently are, these companies that you're doing business with here. My question is, can you give us a sense of what you think or anticipate the breakdown between some of the different transmission styles might be, what portion of it specifically might be DCT's of that 8 million?

I think I said that the pass car market for automatic transmissions will probably have about 80% market share of the automatic transmission market or DCTs will have about 80% of the market share. Right now that we tie pretty close to that percentage. There will be some CVTs over there. There's going to be some automated manuals. Automated manuals I think when people see the difference between the dual clutch and automated manual does not gravitate to the dual clutch. So you'll see some CVTs, you'll see some traditional automatics and you'll probably see some AMTs. But I can tell you right now the Chinese government and their technical experts surveyed the world for leading technology for automatic transmissions. They basically concluded the DCT was the transmission of the future and that's why they are investing their money in DCT.

And I apologize. I guess I don't necessarily fully understand. So you're saying that you think 80% of the cars produced in China are going to have automatic transmissions and the majority of those are going to be DCTs today. Am I saying correctly or...

80% of the automatic transmission market will be DCT. And we think that's about 1.7 million units. The breakdown of... in China, how much each technology will be used or what percentage of total transmission market, you're not talking about the total transmission market, how much of it's manual, how much of it's DCT, how much of it's I don't have that for the future. Only I'll tell you right now is today it's predominantly manual transmissions and manual transmission technology is easily convertible to dual clutch transmission in terms of utilizing existing CapEx.

And when you think about the 1.7 million of DCTs, is that the manual transmissions that are being converted to the DCTs which I think are more expensive? I am taking around the $400 in content per vehicle or is it more of the fully... the new DCT that you just recently designed?

Well there's going to be some of the traditional DCTs which have a fair amount of BorgWarner content. And I won't reference your number, I'll just say it's a large BorgWarner content. And then some of it will be the new technology for DCT what we call DCT Flex, DCT Light or whatever we've used over the years what I mean. So there will be a combination of both technology, some will be the DCT flexible version or lower cost modules (ph) on the smaller scale vehicles and the more traditional larger DCT or larger vehicles we use the traditional DCTs. Both of those products, the modules, clutch modules, control modules will be supplied out of that joint venture we have with our Chinese partner.

Right, thank you Tim and Robin, just a couple of quick ones here, automarker accounts receivables, any changes there at all?

No, no, our customers continue to pay on standard terms. We did have one non-U.S. customer who used our balance sheet to free up theirs at year end... it was not acceptable but our U.S. customers continue to pay us in time.

And then from a supplier level, have you seen any alteration or changes in accounts payable demands or terms?

I'll take this.

Go ahead.

You know from time to time as we've seen over the past 5-7 years, we get a supplier that gets in a situation where there is a request to provide some assistance and every once in a while unfortunately we end up providing a little assistance.

We have done a couple where we've done with some quick pays. We haven't provided on anything that's within our realm and we just paid them little bit quicker.

Yeah, that doesn't sound necessarily unusual. And is that correct?

Right.

Okay. Thank you very much gentlemen.

Thanks Brett.

On that transmission thing, we have the analysis on the transmission market for China, Brett. I really don't have it at my disposal. But at one of our next presentations, we'll give you, we'll put together... we'll present a breakdown of the China transmission market.

Great, thank you, Tim.

Sure.

Your next question is from John Murphy with Merrill Lynch.

Good morning guys. Believe it or not I still have a few questions for you. It's just a follow-up on the revolver and Robin, I'm sorry to beat a dead horse. But I'm just looking cash balance at the end of 2008 was 103.4, you had 137 million that's due on Tuesday. So that leaves roughly 34 million or some million that you at least pulled in from foreign subs somehow. I mean how much more capacity is there overseas to repatriate money and really what kind of cash balance do you need to run the business sort of on a going basis, because it doesn't look like there's a lot of cash in the coffers right now?

Historically, I've never liked to have a cash balance on the balance sheet. I'd rather be a net borrower, but we're in such a position that we've got -- had nothing to repay basically and that's why we had cash on our balance sheet. I forget, what else the question was. I don't again -- we had excess cash on the balance sheet that's been sitting there. And we use to -- we tend to not have cash sitting around. We tend to be a net borrower, it's basically our position.

Is there more capacity overseas to borrow and maybe repatriate cash if necessary?

We repatriate cash a number of different ways from our foreign operations. There's dividend, there's royalty and technical agreements, there's corporate service charges. So there's a number of means throughout the year where our foreign operations are required to send cash to the U.S. At the same time, we do expect to generate a little cash here in the U.S. as well.

Okay and Tim, if we think about your capacity utilization right now, clearly you're not running 100% in a lot of facilities. And you've done... I think you did a great job of moving tooling around to shrink your plant footprint. When we look at the CapEx this year at 2009, 200 million, I mean does that support the backlog that we're going to see in 2010 and 2011? Or when we get into 2010 and 2011 is there going be a bit of a ramp up in CapEx back to the 300 million unit level to support your backlog?

Well I think the answer is kind of yes in both quick cases. It will support the backlog as we start up. And so we are not... none of our backlog is at risk due to insufficient capital investment. We have... probably have... we're probably sitting there right now worldwide with 30 to 40% capacity, on the utilization of capacity 30 or 40% right now. And we're taking... while we've shrunk the workforce, we haven't necessarily shrunk the capacity. So, we can handle the initial stages of the ramp up of all these... of this backlog that's coming at us. Yeah some business will be new that doesn't fit any of our existing capacity and we'll continue to make those investments. And that's not falling in that $200 million number that Robin referenced. But as we continue to score new business and we go back to more traditional rates, you'll see our CapEx investments will probably fall on that 250 to 350 range which is, 300 plus or minus is our traditional range. But let's face it. For now we're smaller company. We're not the... in the first half of the year we were running about $6 billion run rate, and we're not running that way now.

Okay. And then lastly I mean clearly your customers had some recourse to you on these warranty charges you had to take in the quarter. Do you have any recourse down to this supplier that potentially... you could have some of that?

We're in negotiations as we speak. Now there's always a difference of opinion as to who is responsible. But we are in negotiations. And I do expect a settlement one way or the other. But I hope it's amicable.

John, unfortunately the accounting rules won't let us book a receivable from a supplier on a warrantee issue. But they certainly will make sure we book the liability to our customer.

Got you, that's very helpful. Thank you, guys.

Thanks.

The next question is from Joe Amaturo with Buckingham Research.

Hello.

Hi Joe.

How are you? I was wondering if you could just give us some granular detail what the Volkswagen production assumption is in the 16.6 million European assumption?

I don't have that breakdown. I don't have that granularity Joe. But if you want, we can follow up.

Okay. Is there anyway you could give us what your current cash balance is?

I'm sorry I didn't hear your second question?

What the current cash balance is?

What's the current cash balance?

Current cash balance? It's positive; I don't know what it is. But we still have... there's cash still on the balance sheet.

Okay.

It's more than one and less than 100. That's what I can tell you. So I just want to remind you, I can guarantee that 16.6 is going to be wrong. So it's an assumption, it's an expectation but if you are looking for granularity down to how much is Volkswagen already, how much is Fiat, how much is GM. I don't think the level of accuracy really reflects what that 16.6 represents for us.

Okay. And I don't know if you stated this but I'll ask you again anyhow. Could you just tell us what your pension funding status was at the end of the year, and if you have any additional contributions in '09?

No, we didn't mention it. Our pensions are unfunded in the U.S. to the tune of what, 70... between 70 and $80 million.

Okay.

They were over funded last year in that we got two plans. They were over funded last year on that basis, under-funded this year obviously as a result of the equity market.

Now, is that going to cause any future cash contribution or?

We fund our pension plans globally to the tune of somewhere around 5 to 10 million a year. We expect to continue to fund at those levels.

Okay. Then just a last one. I mean is there any... could you give us a sense of, if the European production environment falls to 15.5 instead of 16.5, what kind of impact that would have on your cash flow, not earnings cash flow?

That's about 7% decline and take our European sales which is about 60% and multiply by 6% and take the decremental margin of $0.25 on a dollar and that should be pretty much...

So, it's the same exercise.

Yeah. You might get a little bit of relief on receivables hopefully. You get a little relief on inventory but predominantly it's operating income.

Okay.

One more thing, Joe, about our pension plans, just so you understand. Those liabilities basically have been kept a long time ago. There have been no new hires in BorgWarner since about 1995 that have been hired under a defined benefit plan. So that liability represents a known population that is not growing and therefore the only real variable on that is movement in asset returns year-to-year.

All right, thank you.

Thanks Joe.

The next question is from Rod Lache with Deutsche Bank.

Good morning guys.

Hi Rod.

I had a couple of things. Your sales outside the U.S. being down 22% versus production being down 17%, I assume that excludes FX and the difference was mix. Could you just pass along some thoughts on how you think mix sort of progresses looking forward into 2009?

Rod, actually that decline if you... I know I went through it fast. We actually did better in Europe. So the decline relative to the production was in Asia. And remember, if you look at production, China was still up a little bit. I mean there were regions of the world where frankly that we don't have the penetration we would like today. So I wouldn't call it mix, I call it geographies. Yes. Regions that had a little bit more growth is that where we're not as represented as we are in Europe and North America.

Okay, that's helpful. And of the 220 million of savings that you were talking about, how much did you recognize in 2008?

First Rod, those are theoretical at 50,000 per employee.

Right.

Could be higher, could be little bit lower. But as you know most of that activity took place late in the year. So a vast portion of that benefit we'll be seeing in 2009, not much in 2008. We did see some benefit but certainly close to 80% of that we would expect to see in 2009.

Right and can you tell us a little bit about how much of that might be in SG&A versus your other costs? You commented earlier about bonuses and there is big decline in corporate overhead. But how should we be thinking about SG&A going forward?

You know that's a good...

I don't have the breakdown what's in the... how much was salary, and how much was hourly. But I am trying to remember now what that salary breakdown was, one second (ph)?

The way we think of that is we've tried to maintain our SG&A at about 10% of sales and that's kind of what we're trying to target this year. As Tim said, I don't have the actual details on how much was SG&A related or how much was cost of goods sold related?

Certainly my desk has the breakdown between hourly and salary, I just haven't read, I think...

Okay, so we can get later...

But it is a fair balance. It was roughly in the range of 24 and 23%, somewhere between 22 and 25% salary.

Okay

On that 4400.

But my last one is just to clarify something you said very early on in the call. I heard you say, you'd be in the black at this level of production. But did you say that you could get back up to historical levels of margins even if this low level of production was sustained? Or were you saying that look, this is where we are at this level of production, but the recovery could bring us up to historically 9.5% kind of margins?

Well, let me... if you go back... If you remember the question, I don't know if you read that original question. They said if volumes were at the higher levels, would we be able to get back to those higher... normal levels of operating margins. And I said we would hope so. But I don't remember the numbers but whoever asked the question throughout volumes that were in 12-13 million range and not to mark... I can't remember the numbers, it was 18 million in Europe. That's a lot different than where we are at right now.

Sure. Okay, so this where you are at for now and it's getting back up there, I guess it's a lot depends on where volumes are. Just last one, the ramp up in China, where does the capital come from and when do you expect that... what was the magnitude and when does that begin to kick in?

We... it's already there, some of the capital will be spent as part of the 200 million and or whatever it is in 2010 and '11 but 2009. Robin said it's around 200 million, some of it's going to come out of there. Some will probably be shipped, we have some capacity and that was... we're planning on dual clutch transmissions in Mexico that for... was already previously announced for Chrysler. That's not going to happen now. So we're going to take that equipment. We're going to ship it to China, it's brand new, never been run. So we're going to basically... some of it has already been bought and paid for, some of it we're not going to have... we're going to delay and some of it we're going to put into 2009. I don't have exact breakdown, Rod, but it's going to come from all locations.

As far as source of funds, again, we do have cash in China. And as our practice historically has been, we will borrow locally to fund as much of that as possible.

Okay. All right, thank you.

Sure.

We have time for one final question and that question comes from David Leiker with Robert W. Baird. David Leiker - Robert W. Baird & Co., Inc.: Good morning everyone.

Hi David. David Leiker - Robert W. Baird & Co., Inc.: Tim, on the this DCT in China, how much of that volume for you... do you think comes from duals to existing manuals transmission versus your emerging market transmission you have developed?

You mean how much is going to be manual transmissions that are going to... when shall we convert it to automatics? David Leiker - Robert W. Baird & Co., Inc.: Yeah, how much is your module, new versus the transmission that you have guys developed for emerging markets?

Well, let me just back up little bit. All of dual clutch transmission that we are going to be involved with will come... will be new transmissions. But how much of it, I think the majority will be... I don't know, I probably estimate half and half between the traditional, the tradition dual clutch what we supply in Europe right now versus the new volume, the new designed dual clutch transmission that we've worked on for the last couple of years for low-cost countries. I'm just going to estimate at 50:50. We can give you a better breakdown but they are still testing, they're still developing; we're still negotiating the contracts. David Leiker - Robert W. Baird & Co., Inc.: And you think that starts up is 2011?

Yeah, that's roughly when production will ramp... will start to ramp up. David Leiker - Robert W. Baird & Co., Inc.: And when do you think it ramps up to where it's meaningful volume? Is that a couple of years or does it ramp pretty quickly?

2015, 2016. David Leiker - Robert W. Baird & Co., Inc.: Great. Robin, on the depreciation number, what sort of number we should be looking at on a go-forward basis given the write-offs and charges and things like that?

The benefit we expect from the restructuring charges that we took that were fixed asset related is about $11 million a year. David Leiker - Robert W. Baird & Co., Inc.: So, with that... but some of that is reflected in your fourth quarter depreciation number, right?

No, almost all that was done at year-end. That's a full year 2009 kind of run-rate benefit. David Leiker - Robert W. Baird & Co., Inc.: So your... just depreciation in '09 could be 100 and less than 200 million?

No, well, we have depreciation and amortization and I want to say it's 280 number, I've got a bad memory but... David Leiker - Robert W. Baird & Co., Inc.: I am looking (ph) at the depreciation number?

It's about 270, 280 number you will see declines. You will see the 260? 260, I am sorry. It's about 260. You will see decline of about again 11 million related to the restructuring activity. And also because of our assumption on the dollar versus the Euro, you'll see a decline in depreciation and just as a result of the currency as well. David Leiker - Robert W. Baird & Co., Inc.: Okay. Taxes, this fourth quarter adjustment, does that $0.07... and that's really just chewing up for prior quarter accruals, correct? Is there something else there?

No. What it is, David, if you took our nine months financials and looked at our kind of run rate business and recast it at a 22% tax rate, that $0.07 would be the benefit for the first nine months. We have a tax rate for the full year, unfortunately for nine months, we had guesstimate that we missed. David Leiker - Robert W. Baird & Co., Inc.: Yeah, I understand, it's just really true and that upped at the end of the year.

Yeah, you can't take that $0.07 a share benefit in the fourth quarter and say it ain't (ph) anything to do with the fourth quarter. That's... the first nine months of the year basically we... our estimated tax expense was too high. David Leiker - Robert W. Baird & Co., Inc.: Okay. And what kind of tax rate do you think you'd look at for '09?

Right now we're looking somewhere between 23 and 24%. David Leiker - Robert W. Baird & Co., Inc.: Okay. And then two last things here, Tim, a couple of weeks ago, few weeks ago you talked about as it relates to Europe that on the context that they slowed to recognize that was happening in the market, you comment was that the second quarter production cuts would be greater than the first quarter given that they seem to be catching up a little bit, do you still feel that way?

No, I think they'd probably pull in some of those cuts they had now. So, what I would say is that we're probably seeing cuts... we're going to see the cuts in the first quarter and maybe we'll have a chance of, some degree of stability in the second quarter albeit probably at a lower level than many of us would like. David Leiker - Robert W. Baird & Co., Inc.: And then lastly, over the years you've continually done a great job of bringing out new technologies with DCT and ICM and things along those lines. What would be the timeline looking forward that we see something else new along those lines from you? Is there something in the near term horizon or it would be further out on... down the road?

Well we've got some technology that's hybrid related and electric vehicle related. You have to do your own analysis and form your opinion on how big those markets are going to be. We think that... I still think that the global hybrid markets are going to be somewhere around 6 or 8% globally. The electric vehicle market is going to play into some of that. But we're working on technology for those... we're working on transmissions for electric vehicles. As we said earlier, we've launched the transmission for the Tesla and I got to tell you, David that's getting a lot of attention. Anybody who is in the electric vehicle market or working on an electric vehicle development right now is talking to us about transmissions. And we're working on other types of technology besides transmissions for hybrids and electrics. So then we'll probably have more to talk about, with little bit more definitive product lines to talk about in the future. David Leiker - Robert W. Baird & Co., Inc.: So that's something that we'll hear about that a year two from now or do you think during '09?

Not just, I'll just stick with your timeframe a year to two. But I'd say it's probably closer to a year than two. But all depends on what kind of, how our customers react and what happens in the marketplace. Some... customers don't have the money, they use to have to invest in the technology. And if... that's I say that globally. So it's going to be interesting to see how fast some of those technologies evolve because the global auto industry doesn't have the cash to handle all this stuff. David Leiker - Robert W. Baird & Co., Inc.: No, that's true. Okay, great. Thank you.

One other thing, since there were so many questions, between your questions and Brett's questions and China transmission markets in general, well, our next presentation that I am involved with, I'll make sure we do a deep dive on China transmissions. David Leiker - Robert W. Baird & Co., Inc.: Wonderful. Thank you.

Sure.

Thanks David.

Thank you all for joining us. That will conclude our call today. And if you have any follow-up questions you can just call me. Thank you.

That does conclude the BorgWarner 2008 fourth quarter and full year earnings conference call. Thank you for joining. You may now disconnect.