Good morning. My name is Brandy and I will be your conference facilitator. At this time, I would like to welcome everyone to the BorgWarner 2012 Fourth Quarter Results Earnings Release 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 of Investor Relations. Mr. Lamb, you may begin your conference.

Thanks Brandy. Good morning and thank you all for joining us. We issued our earnings release this morning at approximately 8:00 a.m. Eastern Time. It's posted on our website, borgwarner.com, on our homepage. A replay of today's conference call will be available through February 21st. The dial-in number for that replay is 800-585-8367. You’ll need the conference ID, which is 93239384. The replay will also be available on our website. With regard to our IR calendar, we will be attending a number of conferences over the next couple of months. February 20th we will be at the Barclays’ Industrial Select Conference in Miami. March 12th we will be at the UBS Auto Supplier Mini Conference in Boston. March 19th we’ll be at the Sidoti’s Emerging Growth Conference in New York and on March 27th we’ll be at the BofA Merrill Lynch Auto Summit in New York. 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 10K. Our actual results may differ significantly from the matters discussed here today. Now, moving on to our results James Verrier, President & CEO will comment on fourth quarter and full year results and current industry trends and then, Ron Hundzinski our CFO, will discuss the details of our operating results and also our outlook for 2013. With that, I’ll turn it over to James.

Thank you, Ken, and good day to everybody. Today, I’m very pleased to review our fourth quarter and full year results, as well as our fourth quarter accomplishments. First off, I’d like to congratulate all the BorgWarner employees on a truly outstanding 2012. You dedication to our customers and shareholders is reflected in the Company’s strong performance for this year. Now on to our results and I will start with the fourth quarter. Reported sales were $1.7 billion, flat from a year ago excluding the impact of foreign currencies and dispositions made in the last 12 months. U.S. GAAP earnings were $1.03 per share, but excluding the non-comparable items, earnings were $1.16per share. Our reported operating income margin was 9.9%, but again, as we exclude non-comparable items, our operating income margin was 10.9% in the quarter, and Ron will discuss the non-comparable items later. Two key factors drove our results. First, our sales were impacted by a weak production environment, most notably live vehicles in Europe and commercial vehicles globally. And secondly strong operational efficiency and cost controls enabled us to post a solid operating margin despite challenging conditions. By looking to the segments, first the Engine Group, fourth quarter sales were about $1.2 billion. That’s down 2% from a year ago after excluding the impact of foreign currencies and dispositions made during the last 12 months. Our results were led by turbocharger growth in China, increased sales of BCT in Japan, but these positive results were offset significantly by the lower production volumes in Europe. At the Drivetrain Group, sales were about $560 million, and that’s up 5% from the fourth quarter of 2011, excluding foreign currencies. Drivetrain’s results were driven by increased all-wheel drive system sales in North America and India and we saw growth in traditional IT…

Thanks James and good day everyone. Before I begin reviewing the financials, I would like to put BorgWarner’s performance into perspective within the broader auto industry. Global light vehicle production was up 1% in the fourth quarter,, compared with the same quarter last year. BorgWarner’s reported sales were down 3% from a year ago, but as James explained earlier, if we exclude the impact of foreign currencies and M&A activity in 2011-2012, our sales in the quarter were flat with last year. To get a clear picture of our performance relative to the market, we need to review the light vehicle and commercial vehicle market separately. First let's take a closer look at the light vehicle market from a regional perspective. In Asia, which I'm defining as China, Korea and Japan, light vehicle production was up 6%. Our light vehicle sales in Asia excluding currency was up 13%. In Europe, light vehicle production was down around 11% in the quarter, our light vehicle sales excluding currency and 2011 and 2012 disposals were down 4%. In North America, light vehicle production was up 8%., our light vehicle sales growth in North America growth was about 10%, slightly better than the market. Now, let’s review the commercial vehicle market. The fourth quarter saw continued weakness in the commercial vehicle markets around the world. Commercial vehicle production in Brazil and China were sharply lower, while North America and Europe were basically flat. As a result our commercial vehicle sales were down 10% in the quarter. So to summarize, our typical outperformance of the light vehicle markets was intact in Asia and Europe in the fourth quarter. Despite outperforming the market in Europe, the 11% volume decline in that market had a meaningful impact on our total company growth in the quarter. Weak commercial…

Thanks Ron. Now let’s move to the Q&A portion of the call. I’ll ask the call coordinator to please announce the Q&A procedure.

(Operator Instructions). Our first question comes from the line of Rich Kwas with Wells Fargo Securities.

Ron, in terms of the guide, I know unchanged for the year but Europe is going to be down pretty significantly in terms of production in the first quarter. I know you don’t give quarterly guidance but just generally speaking, how should we think about the cadence or the earning performance as the year goes on?

I would say that it’s incrementally improving throughout the year Rich. So, every quarter-on-quarter, it’s improving.

Okay. Is that a kind of a sequential comment on an EPS line sequentially improving?

Yes.

Okay all right. And then anything from a mix standpoint that we should be aware of as it relates to your brother parts of your world. I know your European mix got worse as 2012 progressed. What’s the assumption there for ’13 as it relates to that?

As we look out into the year, we are seeing not a significant change in mix as we are looking out. As we come towards the end of last the high end higher contented vehicles kind of caught up a little bit as the year progressed. Now, we have got that assumption into our guidance and we feel pretty comfortable that that mix level is not going to shift too significantly. So that’s what we are seeing it right now.

And then just on the consumer reports article from a week or a so ago, as you are probably aware they came out with some negative comments about the benefits of turbochargers and the OEMs have kind of backed the performance, in terms of what they have seen but what are your thoughts on that I mean. I can imagine, I know your stance is but just what’s your thoughts on the report and are you aware of any key differences in terms of the testing or any color you could share on your thoughts, would be helpful?

Yes, we are fully aware of it obviously, Rich and I would say with any of those types of reports, we take them seriosuly. We simply don’t want to dismiss them or anything like that. So we do take a hard look at anything like that, particularly when it relates obviosuly to one of our core products. But I think there is a couple of keypoints here in that specific report. It's very difficult to get a sense of what the testing and driving conditions that are associated with the results, that are coming out of that report and as you know Rich and I think everybody else kind of gets it that you can get variations in the results that you get depending on what test cycle you use, what type of driving behaviour, actually indepndent of any technology. At a simple level though our view is almost every indicator we look at towards turbocharger penetration continues to be very strong and we see that in our clothing activity, we see it in our net new book of business. We’re not seeing any slowdown in adoption rates, we’re not seeing any slowdown in activity and interest levesls from customers and I think that's just driven by, from our view that the fundamentals of turbochargers remain extremly solid. It’s a key technology to help the engineer's downsize their engines and get the type of fuel economy that we need and we have seen that success all around the world for many, many years and we just see that trend continuing on. So in a nutshell, we pay attention to the report, but we pay attention to all of those reports and there’s a aweful lot of them that are very postive about turbocharger performance and adoption rates. So hopefully that helps you a little bit Rich.

Our next question comes from the line of Chris Ceraso with Credit Suisse.

Maybe just a follow up on that James. I think the big picture is the difference between what the EPA says fuel economy is versus what real world driving is and as you point out it’s not just turbo it’s a host of different technology's but I wonder if the EPA sort of figures this out and says, we need more realistic testing procedures and when those stickers numbers end up coming down a little bit. Does that threaten at all, what you think car companies would be willing to pay for certain technologies? Had there been a link in the past, where I said okay if I had a turbo I am going to get a 15% bump in my window sticker number. Maybe now it’s only 10%, so I’m not going to pay as much for turbo. So do you think that's a risk?

In a nutshell Chris, I don’t see that as a risk. I think there is always a discussion around the real world driving conditions and the stated conditions, as I've said independent of technology. So I don’t see that as a risk to us and we remain very comfortable as we work with the OEMs and they go through all the testing and validation that they go through and the date of the debt scene is still consistently driving towards the type of technologies that BorgWarner has in the profile. So we're not seeing this as a significant risk to BorgWarner at all Chris.

Okay, so even OEM data supports the improvement, so they're willing to go for the technology?

Yes absolutely. That's why we continue to see the adoption rates and penetration rates of the BorgWarner type products that we offer.

Okay. And then a follow up again for Ron about the progression of earnings through the year. Not to get too cute, but typically your cadence is roughly 50% first half, 50% back half. Do you expect this year it'll be more like 40-60 or can you give us some bands around first half versus back half?

So we're talking sequentially, right Chris? First of all, I'd have to go back and take a look at some numbers here. I would say it's more rated to the back half of the year. I wouldn’t say its 50-50, okay. I'd say it’s more backend weighted than it is front weighted.

Right, of course. The question is normally you're 50-50. Is this year going to be more like 40% first half, 60% back half? How tilted is it, is the question.

It's not material. I guess I'll say it that way. There's going to be slight difference but it's not material.

Okay, and then just lastly on the incremental margins, Drivetrain you commented was pretty low sub 10%. What's your expectation there for 2013?

You know our guidance on total company is 11.5% plus or better, right, very similar to what we saw in 2012. I would suggest that operating margins within those segments would be relatively similar as well in 2013 as they were in 2012.

Our next question comes from the line of Joe Spak with RBC Capital Markets.

Is there any update on - I know in the past you've talked about being able to flex down in Europe on some of the temporary workers. Can you give us just the latest metrics there and what you see on card?

Yes sure. Let me talk through that. Just a quick recap is - where we were last year was, we were in the mid 20's type number and to clarify that, temporary employees as a percentage of total direct temporary employees. So we were in the mid 20's in the second quarter and as we explained, I think in the past that we would come down to a high single digits, that type of range. That's fairly much where we at. So we may be in the 10%, 12%, 13% type range of temps as we are going into the year and we think that's a pretty good number for us if there is any further erosion. Just to add another comment onto that though, as we look around the world we are still seeing growth in all parts of the world from a BorgWarner perspective. And the production volumes may be down but from a BorgWarner perspective we are still seeing growth in every region of the world. So we feel good that we got that 10% to 15% type number of temporary employees in place. And then any updated thoughts on the cash, the free cash flow guidance is again strong for 13. The cash bounce builds quite quickly. So now I know you talked about repatriating cash. That would lead me to believe its maybe not as M&A focused as in the past. Can you just provide any more color there? I would not say it’s not M&A focused. I think that is our number one focus as M&A. I am very much aware where my balance sheet is and where the cash and like I demonstrated in the fourth quarter, I am being very proactive in addressing that with the share repurchases. So that flexibility still continues for me but we are very much M&A focused on where the cash needs to be.

Our next question comes from the line of Brett Hoselton with KeyBanc Securities.

Two questions for you. First of all, with regards to production, there is probably some concern that European production is going to be done in the first quarter. My question is as you talk to your customers about Europe in particular with regards to first quarter production schedules, with regards to full year production schedules, do you sense a particular bias towards the upside or the downside? I think everybody is surprised that fourth quarter came in better than expected. I am wondering what's the first quarter shaping up like.

Let me take a shot at that Brett and talk about the yearend first of all and the 3% down for light vehicle production in Europe that we talked about a few weeks ago and we still feel good about that number. We feel pretty comfortable and I would say as we have rolled through the first couple of weeks here in the year, where it’s off to a decent start, there is nothing we have seen in our January run rates and as we go into February run rates that would make us feel uncomfortable at all. We feel good about where we were at from a run rate prospective, from where were say five or six weeks ago. I think if you take it in a slightly broader prospective, it seems to me that the range of guidance on European light vehicle production seems to have narrowed a little bit. I think people were talking some fairly large spreads of what it could be a couple of months ago and that seems to be narrowing a little bit. So the bottom line that we feel pretty good where we were at from a guide of the 3% down.

And Ron can you maybe provide a little bit more color on your expectations for share repurchases. I mean over the past 10 to 15 years as I’ve covered you, you have never really been an aggressive re-purchaser of shares and this past quarter you’ve have gone out and brought 1.5 million shares and you always have a very good balance sheet. I know your priority is to grow the business and make acquisitions and so forth but I’m wondering, what are your expectations for share repurchase over the next year or two years or something along those lines?

We have never announced a formal program as you know and the way I would say this is that the M&A activities are not always at a schedule that you would like to have the transactions down right, every year so much. So, as our cash starts to build on the balance sheet, I am very much aware of the leveraging issue we have on our balance sheet, which then says I need to be much more proactive in those periods where the M&A activity is slower and then I have to return capital issues using the flexibility of share repurchases. So what I would say is that I use share repurchases in the periods of time where the M&A activity is not being able to close a transaction. It gives me the flexibility to still maintain or return of capital strategy for our investors while the M&A activities that we do internally continue. Does that help you?

Is there any particular metric or threshold that you kind of use as a guide to say look if I got X amount of cash or X leverage ratio and I start to dip beyond a certain point, I’m going to use that access money to repurchase shares?

There are several things that go on Brett that I look at internally. We do some valuation modeling ourselves internally for the company. So I get a basis from where I think the value should be. We take a look at the stock prices as well. We know where we’re at on our M&A activity. So, it’s not just a one item. I look at several items that’s going on at a given time and we make decisions based on that. We have a targeted net debt to equity ratio and all that. We've been higher in the mid-20s in the past but I wouldn’t say it’s one metric that I use to determine what I’m going to do when I do it. It’s several factors.

Our next question comes from the line of Rod Lache with Deutsche Bank.

Let me answer the first question first on the R&D spend. We have always stated that our targeted percent to sales of R&D spend is 4% and we are at the 3.9% in the fourth quarter and I would say that our target still is the 4%. Now can you go through that second part, it’s kind of long question, exactly what you are trying to get at the second part of your question?

I apologize. So this year you are doing a very good job of controlling costs, and as a result your able to maintain margins with lower growth than you’ve historically needed to achieve flat margins. So in the eventual production recovery that we could see in ‘14, ‘15, does that mean your incremental margins would be lower than your historic level because the costs would come back a little bit faster?

No, okay I see what question is. As we start to get growth again on the top line, my incremental margin will be in that 20ish range plus or minus. That's where you could expect our margin, that's where we drive our businesses at that 20% range.

Okay that cost cutting measures that you’re taking in 2013, we shouldn’t view those as kind of temporary measures that eventually that cost us to come back?

I wouldn’t classify as cost reductions. I would classify them more as cost controls. I guess there is a difference. What we would do is we would defer certain investments at times. It’s not that I am taking costs necessary out. Now with that said we are being more productive. I’m not going to discount the productivity side of it but that's just normal work. So we're not taking our people and cost right now, we're just being very prudent on many line items in our expense reports as far as where we want to put investments in the short term and what we can defer as far as investments. So it's more cost controls than cost reductions.

And if I could just sneak one more in, can you give us a rule of thumb for your yen sensitivity to the top line and how it flows through the margin?

We have a facility in Japan and it's not a significant portion of our exposure quite frankly, but it can impact us and we just pointed out because it is a sizeable operation we have up there, it’s 20% (ph) of sales.

3.5%

Yes 3.5% of sales.

Our next question comes from the line of David Leiker with Robert W. Baird & Company. David Leiker - Robert W. Baird & Company: I want to take a cut at this quarterly numbers on a different fashion. And as we are hearing a lot of comments that some of those production cuts you saw in December, particularly with Audi carried over into the first quarter of January. As we look at Q4 to Q1 what things do you think are different? Weather is about the same, seasonality is about the same. What things do you think are different that make Q1 different than what we saw in Q4?

You're referring to the market? David Leiker - Robert W. Baird & Company: Your earnings.

Oh, earnings. What I would say is that obviously the top line sequentially has to be looked at very closely, right? Going through the cost structure side of it, I think we managed our gross profit margin fairly well. We're down 30 basis points year-over-year. I would suspect that we can maintain decent gross profit margins as well going sequentially. If you go further down the SG&A line items and corporate charges, there were some, what I would call some investments in the fourth quarter that may be increased to spend in the corporate line items and SG&A, especially the R&D spend. Maybe that would back to more normalized spend level. David, did I help you? David Leiker - Robert W. Baird & Company: Great that's useful. And then just to circle back on the turbocharger thing, I think some of what is going around in the market here, are people, I think consumer reports is comparing a 1.6 liter normally aspirated engine with 1.6 liter turbocharged engine and I think James in that scenario, the fuel economy differences may not be that great. What the real opportunity for, the turbos are doing 1.2 turbocharged engine versus a 1.6 liter. Is that some of the misunderstanding that's going on here?

That could well be David. Your example there is a good one. Not to keep repeating myself but I think the key here is the fundamentals of what we're doing with turbochargers is generally to enable the downsizing of the engine and maintain similar levels of performance and get good fuel economy, and that fundamental still remains intact and we've got this test data out there with this consumer report and it's very easy to mix and match and not draw the appropriate conclusion. David Leiker - Robert W. Baird & Company: What is the fuel efficiency gain, on a 1.6 liter versus a 1.6 liter turbo? It's single digit percentages isn't it?

Well first of all I don’t want to comment for Ford, David on that particular thing. They would be better because it can depend on the whole issue, the calibration of the engine and what other technologies they are utilizing on that engine. So I don't want to comment specifically for Ford on that 1.6 application. David Leiker - Robert W. Baird & Company: Okay, I was just talking generically. And then onto Europe on the truck side, there is a Euro 6 emission change here at the start of 2014. I guess two questions, one, does Euro 6 present a content opportunity for you, as you look to 2014 and secondly what are your thoughts of whether there's a pre-buy there or not that may push off launches of 2014 Euro 6 engines?

The first part David I think, as we migrate to Euro 6, in general that will help us as they adopt more technology to that level of engine. So that at a general level will help BorgWarner. In terms of a kind of pre-buy for it, as we get through ‘13 ahead of ’14, I don't think that's going to be significant for us. We're actually showing Europe year-over-year about flat for commercial vehicle. So not significant or material for us in terms of pre-buy but Euro 6 does help us a little bit from a technology perspective.

Our next question comes from the line of Itay Michaeli - Citigroup.

Just want to back to cash deployment. Ron you mentioned M&A is still a top priority but typically when the environment isn't as active, you go out and buy back more stocks. So is it fair to characterize the current environment as not particularly active in terms of what you're seeing out there in M&A and if so why, maybe you could just talk about the M&A landscape a little bit and what you're seeing out there, what's available out there and so on.

I would not say that M&A activity is not active, it's extremely active. What I was referring to is that the bill that closed transaction currently in the environment, we're a little bit behind paced that would like quite frankly, but I would not say that the activity level is any lower than it ever has been. In fact it's I would say increased in some way. So, if I said that the activity was decreasing I didn't mean to say it that way.

Okay that's helpful, that's good to hear, and then just in terms of a couple of housekeeping items. Just help us in terms of how to think about interest expense in ‘13, is Q4 a good run rate and then also depreciation, amortization?

Interest rate I say, I would say it that what you saw on the end of the fourth quarter is a good run rate going forward, and depreciation and amortization is on a full year basis, has been around that 4% of sales. I think it was slightly higher in the fourth quarter but I think you're going to have to look at it, on a total year basis, it's at 4%.

That's helpful and then just lastly as we strupping (ph) up our euro sensitivities, can you remind us what, how the European operating margin fee looks relative to the corporate average?

They're the same so we're trying to understand what the margin impact would be on a change on the Euro, I would use the corporate average.

Our next question comes from the line of Colin Lengen with UBS.

This is Rahul Chadha on behalf of Colin. Could you provide us a little more color on what's driving the strong growth in all wheel drive and is this becoming the story for the Drivetrain business going forward?

It's a couple of things that are going on. Well first of all, it's a critical part of our growth plan and we're very confident about the growth opportunities for the all-wheel drive segment. It's a couple of things that we're benefiting from, (inaudible) content in the North American market is strong as we've seen growth and recovery in the north America market, and our acquired business, the Haldex business from a coupling perspective has also seen significant growth in different parts of the world. So both if you like both parts of the all-wheel drive segment for us, both couplings and transfer cases have seen growth in the region and some incremental gains.

Sorry, what sort of credential does it have to outperform the industry productions sort of over the next couple of years.

I would say there's probably a little more opportunity on the coupling side of the business for us versus the transfer case side of the business, but as we look at it, our long term projection, we some level of outperformance on the transfer case business and the coupling business offers us very good opportunities as we look forward?

And then one housekeeping outcome, the corporate expense of $33 million seemed like it was up quite notably year-over-year. Could you help us understand what drove that?

It was up about $8 million year-over-year. I actually look at the sequential but I'll address the year-over-year. It's a whole host of items everything from a little bit of a, we put our advanced engineering expenses in corporate. R&D expenditures related to our segments, stay in the segment. So we had increased R&D spend, we had some foreign corporate offices, primarily in Germany and in Shanghai, China that we've been adding talent to as well, but it's basically a whole host of miscellaneous items there.

And is this a good rate to model going forward.

What, from the fourth quarter or from which period?

From the fourth quarter.

I would say the fourth quarter's pretty much in line where you could expect it going forward, change a few million here and there but it's not way off.

Our next question comes from the line of Ravi Shanker with Morgan Stanley

I only have a couple of housekeeping items left and one bigger picture question. You said you had a customer-specific issue in the quarter. Has that been resolved or is that going to continue for another quarter as well?

Ravi this is driven by a commercial vehicle customer that had some technology changes that they were going through that affected us without really naming the customer.

I have no idea who you're talking about, but anyway.

I don't want to name the customer Ravi but,…

I understood,

That's just the volume it's a volume related issue, I'll say it that way, not a cost side.

Got it.

Volume related in other words, they're changing technologies.

But is that expected to persist into next year as well?

It's related to a year over year comparable issue. I think the run rate on this customer will stay where it's at but on a comparable basis it becomes an issue for us.

Okay understood. And speaking of CV you said that was 20% of your revenues, that's a bit higher than normal I think. It’s usually in the 16% level. So is there something going on. Is it because the European light vehicle business is still week or have your CV business run rate kind of step up little bit.

Let me clarify that Ravi. Commercial vehicle is about 16%, 15%. Aftermarket makes up that difference up to 20%. I kind of used 20% because I combined the two of them together because a good portion of our aftermarket really is Commercial Vehicle.

And what exactly was your share count at the end of the quarter.

117.4.

Okay so similar to the fourth quarter average. And finally a bigger picture question. When you look at R3S turbo versus R2S, what are the advantages of using R3S and do you see that as being more of a niche product with these high performance diesels or do you think it becomes more widespread?

Ravi, my sense right now, it'll start out as more of a niche product. I mean if you look at the application that we're utilizing it on, with BMW, it'll start out as more of a niche application but we will have the potential to grow and I guess the reason I feel pretty comfortable about that is that was the same story with R2S. If you go back many years ago, that was applied to a niche application and it became a little bit more mainstream. Now will it become a large part of the turbo segment, probably not but what it does do is obviously enables us to support customers our customers with specific cut niche applications such as this BMW M6 that we're talking about with R3. The other follow on comment I would make is as the technology leader which we absolutely view ourselves as in turbochargers, it's another good example for us to utilize some of our new and breakthrough technology which the R3S is a good example of that.

Hey Ravi, it’s Ron. I just wanted to correct something. I told you it was 117.4. It was actually 117.8. So this 400,000 share difference there, just want to correct my number.

Our next question comes from the line of Matt Stover with Guggenheim Securities.

One the assets that were sold, were they a favorable contributor to income or neutral or did they distract last year?

Neutral.

We have time for one final question, and that question comes from the line of Brian Sponheimer with Gabelli & Company. Brian Sponheimer - Gabelli & Company: Just a question on the luxury automakers as they get more evolved in some of the entry level luxury markets or luxury platforms with the COA class and the One series. How do you guys view this penetration in North America? Is it a good thing for you or is it something that could potentially dilute some of your higher content on some of your larger vehicles if consumers trade down in size?

I would say in general it's good for us. And as we look at the luxury guys bringing those types of vehicles in, our sense is that the adoption rates of the touch technologies that we have, whether it be turbochargers or other products will be strong. So we see that as favorable.

I'd like to thank you all again for joining us. We expect to file our 10-K before the end of the day, which will provide details of our results. If you have any follow up questions about our earnings release or matters discussed during this call or our 10-K, please direct them to me. Brandy, please close out the call.

That does conclude the BorgWarner 2012 fourth quarter results earnings conference call. You may now disconnect.