Good morning. My name is Tracy, and I will be your conference facilitator. At this time, I would like to welcome everyone to the BorgWarner 2009 fourth quarter and full year earnings conference call. All lines have been placed on 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 Ken Lamb, Director, Investor Relations. Mr. Lamb, you may begin your conference.

Thanks, Tracy. Good morning, and thank you all for joining us. We issued our release this morning at approximately 8:00 a.m. Eastern. It's posted on our Web site on the Investor Relations homepage. There will be a replay of today's conference call available through February 18th. The dial-in number for the replay is 800-642-1687. You'll need the conference ID, which is 52013358. The replay will also be available on our Web site. With regard to our IR calendar, we’ll be attending the following conferences over the next three months, the Barclays Industrial Conference in Miami on February 17th, the Sidoti Institutional Investor Forum in New York on March 23rd, the Bank of America/Merrill Lynch Inaugural Automotive Summit in New York on March 31st, and the City Industrial Conference in New York on May 5th. 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 these matters discussed today. Now moving on to our results, Tim Manganello, Chairman and CEO, will be providing highlights on the quarter and full year, and he'll also share his perspective on recent industry trends. Then you’ll hear from Robin Adams, our CFO, with a detailed of the discussion of our fourth quarter and full year results and our guidance for 2010. With that, I'll turn it over to Tim.

Thank you, Ken, and good day, everyone. I'm pleased to review our excellent fourth quarter results and 2009 accomplishments, followed by comments on the state of the industry and our 2010 guidance. I'll begin by briefly highlighting our fourth quarter results. We recorded fourth quarter sales of $1.2 billion, up 29% from the same period last year and US GAAP ratings of $0.45 per share. This marks the third consecutive quarter the BorgWarner has posted both higher sales and higher operating profits, compared with the prior quarter. Our earnings performance in the fourth quarter was the result of controlling costs, combined with increased volumes in our base business. And at the group level, the engine group sales were $853 million for the quarter, up 25% from the same period a year ago. Increased demand for our turbochargers and engine timing systems in Europe and China drove higher segment sales and operating profits. It was another impressive quarter for the Drivetrain Group as sales were up 37% to approximately $350 million versus the fourth quarter of 2008. Sales growth in our transmission and All-Wheel Drive business significantly outpaced industry growth in every major region of the world. Our balance sheet continued to strengthen as strong cash flow from operations, combined with efficient capital spending, generated nearly $80 million of free cash flow in the quarter. However, and most importantly, we continued to invest for the long term as evidenced by our continued spending for R&D and new program launches. And in addition to our improved financial strength or performance, we also announced a number of developments during the quarter. These programs are representative of the importance of BorgWarner’s fuel efficient technologies. We were very pleased to announce that Ford has selected BorgWarner as the turbo charger supplier for all of its…

Thank you, Tim. Good morning, everyone. Before I give you the financial update in detail, let’s review the industry environment again in the fourth quarter, which showed encouraging signs, as Tim mentioned, as we look toward 2010. During the last quarter’s call, we noted the improvement in global vehicle production over the previous two quarters. This is an indication that the market appears to be headed in the right direction for us. And fourth quarter 2009 was a continuation of that trend as global production was up 9% from – sequentially from the third quarter 2009. Relative to fourth quarter of 2008, or a year ago, our global production was up 16%, in which frankly, it’s the first year-over-year quarterly improvement that we’ve seen since the first half of 2008. And it feels good to be talking about growth. It was the strong quarter for the industry relative to our recent production levels, and a good sign, as Tim said that there are better days ahead. From a regional perspective, production volumes were up in every major region of the world versus the third quarter. And most areas are up year-over-year fourth quarter 2009 versus fourth quarter 2008, with the exception of Japan, which was actually down 5% and North America surprisingly was flat year-over-year in the quarter. From a BorgWarner perspective, our sales were up 29% in the quarter versus last year. We did get some benefits from currency in the quarter year-over-year, excluding currency, we were up 20%. Again, looking at that relative global vehicle market, which was up 16%. Comparing sales growth on a sequential basis, our fourth quarter sales were up 17% from our third quarter sales levels. And yes, there were some currency benefits there. Excluding currency, we showed sequential growth of about 11%. Again,…

Thanks, Robin. Now we’ll turn to the Q&A portion of the call. Tracy, can you announce the procedure please.

(Operator instructions) We’ll pause for just a moment to compile the Q&A roster. Your first question comes from Itay Michaeli with Citi. Itay Michaeli – Citi: Thanks. Good morning.

Good morning, Itay. Itay Michaeli – Citi: Two quick questions on the 2010 guidance, and I apologize if I missed it, but can you share what you’re assuming for the tax rate as well as your mix assumptions for Europe?

Well as I said, the tax rate, it’s going to be somewhere between 15% and 20%. We did 14% in the fourth quarter. Going through 2009, and again, if you looked at what we were reported, the tax rate made no sense for the full year. As we come back out of the loss that we had in the first half of 2009 and growing earnings, we expect to gravitate towards that 20% rate. But right now, as we look at the range and guidance we’ve given, we've bracketed the tax rate between 15% to 20%. And as I said, I think that if you look at the impact there, that’s maybe – that range is somewhere between about $0.10 to $0.12 a share difference on the year between the two ranges – two numbers. All right? Itay Michaeli – Citi: Right. And the mix assumption in Europe?

Well, the mix assumption in Europe is – first of all, we see diesels coming back more towards the traditional 53%, 52% market share penetration in the light vehicle side, mainly fast car. We’re seeing the mix shift towards higher content vehicles, mid-sized and larger-sized, or premium and tight vehicles. So the mix is coming back our way, Itay. Itay Michaeli – Citi: That’s helpful, and just as a follow up, can you maybe talk about how you’re thinking about cash deployment in 2010, you’ve had some strong progress on cash flow, particularly as it pertains to how you’re thinking about the dividend? And to what extent would a Moody's upgrade to investment grade influence any of the decision process?

Well, first of all, we look at – for uses of the cash, acquisitions first for – strategic acquisitions. Then we look at paying down debt, although I’m not so sure of that factor given our financial strength right now, and our debt to total cap. Then we look at the dividend policy. But right now we have restrictions on dividends. We have caps. And we’ll have to – when we get those things lifted, we can readdress the dividends like we do every year at the November Board meeting. Itay Michaeli – Citi: Terrific. Thank you so much.

Your next question comes from the line of Rod Lache with Deutsche Bank. Rod Lache – Deutsche Bank: Good morning, everybody.

Hi, Rod.

Hi, Rod. Rod Lache – Deutsche Bank: I was hoping you can elaborate a little bit more on this mix issue in Europe. It definitely looks like the diesel penetration’s been picking up over course of 2009 and into early 2010. And maybe just to characterize it a little bit, if you don’t mind, if you would sort of say, hypothetically, production was flat in Europe and if you were to exclude the backlog that you’ve got coming in, what – how much of a tailwind would you assume the – that the mix could be? Could it be like an extra percent or two or would it be more? How do you put it into perspective?

An extra percent or two of what? Rod Lache – Deutsche Bank: Of top line growth just from the mix in a flat production environment.

Well, I think you can see, if things continue to improve in Europe, you may be able to see the kind of change that we saw from the third to the fourth of 2009. You may see that – we're going to see that probably from the fourth quarter to the first quarter of 2010. Now how long that remains is anybody’s guess in Europe right now. But if the mix shift comes up – continues to improve like it has been, you’re going to see a first quarter that’s stronger than the fourth quarter. And I can’t really give you a percentage of because it's like – it’s just too difficult to nail down. Rod Lache – Deutsche Bank: Okay. So even if European, I believe, the production is down sequentially, global production slightly down in Q1 versus Q4 because of the improving mix, you think that BorgWarner’s revenue at the end of the day could be up sequentially, is that fair?

Yes. And I think you – I’ll go back to what I say, the kind of change you saw from the third quarter to the fourth quarter of 2009, you'll probably start to see that from the fourth quarter of 2009 to the first quarter of 2010, and then we’ll just see how it happens quarter by quarter is we go throughout the year. I think Europe’s going to be a little bit wobbly. It’s going to be up. It’s going to be down. It’s going to be up and be down, by country, and between Western Europe and Eastern Europe. Rod Lache – Deutsche Bank: Okay. And can you remind us of the backlog breakdown by year, 2010, '11, and '12?

It’s about $570 million for 2010. I don’t remember '11 and '12. Rod Lache – Deutsche Bank: It was about $600 million in 2011, and $630 million in 2012

That's it for me. It closed up all the way up. Rod Lache – Deutsche Bank: And then what was the end of your pension and OPEV-funded status, you expect that to be a tailwind in 2010 versus ’09. And is this – in terms of dollars, is this a good run rate to use for the SG&A for 2010?

No, it’s not a good run rate to use. It’s the percent of sales – we're about 12% – north 12% the quarter. We've not run the business at a 12% SG&A level, and we’re not going to. We expect that to decline close to the 11% of sales level. As we look at pension and OPEV, actually, the – our funding position is better at the end of 2009 versus 2008. We actually made some headway there. We’ve made some adjustments to the liability through the closure of Muncie. We also funded a little bit of our pension plan in the fourth quarter. And we did get some returns on our assets. So we’re in better position at the end of 2009, at the end of 2008 from a liability perspective. Rod Lache – Deutsche Bank: What do you expect to the P&L impact ’09 – ’10 versus ’09?

We’ll still see a little of incremental expense ’09 versus – I mean ’10 versus ’09. Rod Lache – Deutsche Bank: Great. Okay, thank you.

You’re welcome.

Your next question comes from Chris Ceraso with Credit Suisse. Chris Ceraso – Credit Suisse: Thanks, good morning.

Good morning, Chris.

Good morning, Chris. Chris Ceraso – Credit Suisse: A couple of follow up, you mentioned that the contribution margin will start out strong like what you saw in Q3, and then get a little bit back more to normal by the end of the year. Were you talking about a year-over-year contribution, Robin, or sequential?

Sequential. When I say a little bit back to normal towards the end of the year, I would expect to be at 15% to 20% rate in the fourth quarter, but trending towards that level. You know what I mean? So if it will be north of there, so we should be in that 30% range for the first couple quarters, and we’ll be trending downwards towards the end of the year. But I don't expect to be at 15% contribution margin sequentially in the fourth quarter. Chris Ceraso – Credit Suisse: Okay. That gets to my second question, I think when we were in Detroit earlier in the year, you mentioned that by the end of the year, you could be back at an 8.5% to 9% operating margin. Is that consistent with what you’ve told us here in terms of full year guidance for earnings? Will you be quite that strong by the end of 2010?

It all depends on revenue growth, Chris. I think that if you look at the sequential margin improvement that we expect, if we get that type of revenue growth probably towards the high top end of the year – of the range here, then we should be close, towards the end of the year, at a run rate basis of about that 8% range. Chris Ceraso – Credit Suisse: That puts you above your guidance range or is that at the top of your guidance range?

Well, as I've said, we expect to be about 6% for the year, somewhere in that range to be a little bit stronger, a little bit weaker. Third quarter is always the weak margin – margin quarter because of the shutdowns and so on, and so. Again, that's built in to some expectations on the top end. Chris Ceraso – Credit Suisse: Can you give us an update on the Chinese DCT situation? I think on the last quarter you said that there has been some delays. What’s your expectation now on the launch timing for that program?

Well it’s still in our backlog. I think it’s on schedule with a slight delay built-in that’s already taken into consideration. We’ll be watching probably in the 2011, 2012 timeframe for DCTs in China. And we’re still working in developing new – a new transmission and a new program was a Chinese OEM, in actuality, in addition to a potential Japanese OEMs. So and that’s focused on this new technology we developed a smaller and more fuel efficient, and more price competitive dual clutch transmissions. So nothing's changed since the last quarter is the short answer, Chris. Chris Ceraso – Credit Suisse: Okay. Just a quick one on some of the expense items. You mentioned expenses probably up a little bit. Can you give us a feel, up or down or sideways 2010 versus ’09 on things like launch cost, engineering cost and any other wage compensation?

That’s a great point. I can’t remember if Tim mentioned or not, but last year, as part of our cost-cutting efforts. The salaried employees of BorgWarner around the globe took a 10% reduction in salary. And the executives of the company took a 15% of reduction in salary. Those wages were reinstated January 1st of 2010. So we’re back to 2008 levels from the salary compensation. So we will see an increase in cost above and beyond normal incremental, decremental margins as a result of that. We’ll see if slight increase in pension (inaudible) I think as I said earlier, commodity cost right now will to be – again, prominently still related $20 million to $25 million, up year-over-year nickel relatively flat for us.

And as far as our engineering expense and CapEx spending, I will continue to spend in our traditional levels, they were the levels, percentage-wise, that drove us up to $6 billion run-rate in 2008. So we have not –Although we prioritize and although we scrutinized to make sure our R&D spending is being spent on the right programs, and actually some of us being shifted a little bit towards hybrids and electrics, we’re continuing to spend at the same rate we’ve always spent and we’ve never really cut spending on any project that has a growth attached to it. CapEx we’ve actually scrutinized capital spending. Like we said in 2009, some of the excess capacity we now have, we’ve been able to take some of the newer programs and put them on existing capacity which will allow us to eliminate some of the CapEx spending in 2010. And as I look forward to 2011 and 2012, we’ll probably have a little bit less capital spending in 2011 but we’re still spending on all programs as necessary for growth or cost reductions.

Chris, let me help you on the margin question you have and on the impact of the reinstatement of wage levels. You know in the fourth quarter we were put up with an income of 5.6%, if you’ll use that as a jumping-off point here. The reinstatement of wages to 2008 levels would convert that to about 5.1%. So we are looking for margin improvement in 2010. As I said, we expect to be about at a 6% rate, may be plus for the year on average which means some improvements is going to be driven by contribution margins and additional revenue. Okay? Chris Ceraso – Credit Suisse: That makes sense. Appreciate it.

Your next question comes from Brian Johnson with Barclays Capital. Brian Johnson – Barclays Capital: Good morning.

Good morning. Brian Johnson – Barclays Capital: I’d like to drive down on the driveline business. Just trying to understand where it stands now. What are the components of revenue? If you could maybe split it between Europe, US, Asia, and then between torque transfer, traditional transmission products, and DCT. What of those segments is accounting for both the revenue, and then what of those segments is (inaudible) corporate and margin expansion, particularly quarter-over-quarter?

I tell you, we’re seeing, if you look at year-over-year, a significant portion of the revenue was driven by the transmissions of the component part of the business first, as the four-wheel drive, all-wheel drive business. We talked before that four-wheel drive, all-wheel drive for, I don’t know, the last three years quarter-over-quarter was only the drag. It was always the decline is that market (inaudible) in North America here. And fourth quarter ’09 versus ’08 basically revenues stabilized or are relatively flat in that side of the business. So almost all the growth in the sales side in the quarter is coming out of the transmission component side of the business. On the income side it’s a mixture of both, the restructuring that took place in North America, a major portion that was in the torque transfer four-wheel drive side of the business. That Muncie facility we talked about, that was a four-wheel drive facility, we call that facility consolidated manufacturing in different locations. We’re in the process of closing a facility in Margam, Wales, also part of the business units. So the majority of restructuring actions took place in that business to give it back to the upper tax return level that we feel we need as we run this business to make that business financially viable. And frankly, we’re back there. Sales, predominantly in the transmission systems business. The income improvement year-over-year basically both sides of the business but probably on a percentage basis. The operating income gain is much stronger in the torque transfer business, just as a function of the restructuring.

I will. So in addition to the improvements and profits to the restructuring in 2010, we expect to have a really good year in the form of drive business because of the restructuring and improvements in cost structure. And when we start to pick-up, we started to launch this case of transfer case business which we haven’t mad price for business for Dodge or for RAM trucks now, but Dodge RAM trucks for a long time, that’s going to make that business even much more profitable as we go forward. So that huge amount of business we picked up on the RAM truck will be a major, major benefit for the Drivetrain Group business in the next few years. Brian Johnson – Barclays Capital: And is that the electronic cash transfer case on their heavy duties?

We picked up all transfer cases for Dodge trucks including 1500, 2500, and 3500. All RAM trucks. Brian Johnson – Barclays Capital: Are you doing transfer cases on any other Super Duties?

At Ford. We have pretty much all the transfer cases at Ford except the Super Duty. And we have some miscellaneous transfer cases at General Motors. We have almost all the Cadillac, Four-wheel Drive, General Motors, some of the vehicle stability system transfer cases at General Motors on the larger side SUVs and I don’t know if they have that on the pick-ups. I don’t think they have that on pick-up truck. Brian Johnson – Barclays Capital: They just find all the sum-up, where does that get you in terms of sustainability of these 5% to 6% margins in the Driveline business through 2010?

I think that the sustainability is there. Both margins will be sustainable, if not better as we move through 2010. Brian Johnson – Barclays Capital: Okay, thanks.

Sure.

Thanks, Brian. Operator We have time for one final question, and that question comes from Rich Kwas with Wells Fargo Securities. Rich Kwas – Well Fargo Securities: Hi, Good morning.

Hi, Rich. How are you doing? Rich Kwas – Well Fargo Securities: Good, doing all right. A couple of quick questions around the guidance. The 6% operating margin, is that the midpoint? So, Robin, if we think about 140 to 170, I think it's a midpoint of about 155, does 6% reflect that?

Yes, it's kind of the midpoint. Rich Kwas – Well Fargo Securities: Okay. All right. And then, Tim, or maybe Robin, you talked about production guidance for Europe. It sounds like the low end, about 40% assumes some production decline in Europe. And mix will helpful, but there’s actual unit production decline? Could you quantify how you’re thinking about production for Europe in terms of bracketing the 140 and the 150?

Well, here's what we've got, for total Europe, we think that production will be relatively flat. Okay. But there are a lot of people, and they've done a lot of estimates, and talked to a lot of CEOs, they're thinking a minus – a 5% decline, and that's probably at the lower end. They're actually thinking 5% to 10% decline in Europe. And we don't see it. We don't see the production decline. We think it will be flat for the full year. We also see the mix shift moving in our favor. But so, our guidance has some degree of conservatism that if Europe goes down a little bit, we've got it covered in terms of guidance. But we actually – like Robin said, we think that on our guidance, it's all skewed towards the upside.

Let me put it in a different way, this whole issue of our guidance, we struggle with it. I look at the guidance and feel – things feel good. But here's the issue we're looking at, you're looking at the fourth quarter. I think a lot of people are using the fourth as a jumping off point from relative performance. If you're looking in the fourth quarter where they produced – and remember, Europe's about 55% of our sales. They produced 4.5 million units in Europe in the fourth quarter. If you annualize that, that's 18 million units a year. There isn't anyone out there publicly that comes close to saying production in 2010 in Europe's going to be 18 million. In fact, the average of the analysts we cover is about 16.4, the range is 15.3 to 17.3. I think Europe's probably is at the higher end of the range, right? But if you look at the data that's staring us in the face, as we look at 2010, it says that from fourth quarter levels, we'll see some design – some decline in production in Europe. And again, it's 55% of our sales. So when we look at 2010, that's a dilemma for us. It feels a lot better. Believe me, it feels a lot better than 16.4, a lot better. But when you look at the data, and that's what we're doing, we're looking at data rather than how we feel – because Tim and I feel good every day. But if we look at the data – and this is what's driving both Tim and I crazy. And I think we've had this discussion before in January at the North (inaudible). We had this with a number of you, how frustrated we were looking at what…

Let me just– Rich Kwas – Wells Fargo Security: Is it fair to say that about 40% reflects some kind of production decline in Europe?

Oh yes, I would say so.

Definitely. And Rich, let me just a little bit what I believe at this point at the risk of over-killing this thing. But when I talked to you guys in January and we talked with a number of the analysts, I was – what the word was – and my network was, first quarter was going to be somewhat positive. The mix shift was going to be positive in our favor. But at the end of the first quarter in Europe – we're talking Europe now, the automotive sector may struggle and the economy may struggle. And consequently, it was a big question mark of what was going to happen in Europe. I spent a week in Davos a couple of weeks ago now, and I talked to a lot of CEOs from a lot of different companies that were automotive and non-automotive related. And I walked away more positive about Europe after I came back from Davos, and here's what I picked up. The feeling was now that the auto sector, not only was it probably going to be – have a decent first quarter, but it was probably going to have a decent second quarter. And then, if things get a little bit shaky in Europe, in general, both the economy and the auto sector, it would probably be towards the second half. So what happens is that optimism and this better economy in Europe seems to be gathering momentum that – instead of just being possibly a first quarter phenomenon. It could be a second quarter phenomenon. So the bad news of the European economy seems to be getting snow-plowed towards the second half. And at first I think that every quarter that goes by, the bad news is just going to slowly disappear or melt, so it's a smaller level of bad news and will be pushed out farter. But until we get a better window into Europe, like Robin says, maybe at the end of the first quarter we'll have a better window into Europe. We've given the guides we've given. It may be conservative, but we've got all year to adjust it. Rich Kwas – Wells Fargo Security: Okay. That's really helpful. Last question is just on the – on EcoBoost, the I-4s, do you have that outside of North America?

Yes. The four-cylinder EcoBoost engine we've picked up is a global engine. It's going to start production in Europe. And then eventually, the products will be sold in Europe, and eventually be brought – the engine will be used in products or sold in North America. Rich Kwas – Wells Fargo Security: Okay.

And it's also going to be in China – it's going to be in China, so a Chinese engine also. Rich Kwas – Wells Fargo Security: Okay. Great. That's great. I appreciate it. Thanks.

Yes, sure. Oh, one thing I would add, Ford said that by 2013, they're going to have 1.3 million engines, EcoBoost engines with turbo chargers on it globally. And so far, we picked up the majority of all that global EcoBoost engine. And their number is 1.3 million units globally by 2013. Rich Kwas – Wells Fargo Security: Great. Thanks.

Thanks, Rich. All right. Thank you. I'd like to thank you all for joining us. As Robin said, we expect to file the cable for the end of the–