Good morning. My name is Melissa, and I will be your conference facilitator. At this time, I would like to welcome everyone to the BorgWarner 2016 First Quarter Results 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, VP of Investor Relations. Mr. Lamb, you may begin your conference.

Thank you, Melissa. Good morning and thank you all for joining us. We issued our earnings release this morning at around 8:00 a.m. Eastern, it's posted on our Web site, borgwarner.com, on our Investor Relations home page. A replay of today's conference call will be available through May 13. The dial-in number for that replay is 800-585-8367. You'll need the conference ID, which is 77109071 or you can listen to the replay on our Web site. With regard to our investor relations calendar, we will be attending the following conferences between now and our next earnings release. The Wells Fargo Industrial Conference in New York on May 10. The Barclays Americas Select Conference in London on May 18. The KeyBanc Automotive Industrial and Transportation conference in Boston on June 1st, Deutsche Bank Industrials Conference in Chicago on June 9th and the Citi Industrials Conference in Boston on June 14. Now, back to today's earnings release. 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. Now, moving on to our results, James Verrier, President and CEO, will comment on the industry and provide a high level overview of our results and expectations for the remainder of 2016. And then Ron Hundzinski, our CFO, who will discuss the details of our results and guidance. Please note that we have posted an earnings call presentation to the IR page of the Web site. You'll find the link at the events and presentation section beneath the notice for this conference call. We encourage you to follow along with these charts during the discussion our results. With that, I will turn it over to James.

Thank you, Ken. And welcome to everybody. Thanks for joining the call today. Ron and I will spend a little bit of time with you going through Q1 2016 and then obviously we'll get in share with some of our thoughts around the outlook for the rest of the year. So you can see on Slide 2 let's start there and let me give you some our perspective on some of the bigger picture issues little bit around the macro-environments and then the industry in general. I think the headline for us as we look at the macro in the industry. This as we know there is a lot of uncertainty out there in the world and whether that's Federal Reserve issues, China monetary policy, oil Middle East the list is pretty extensive and we do see a general tone of uncertainty in the general macro-environment. That said our view is all those are relatively stable and I'll get into more color on that. So we see an unstable macro, but all those are in pretty good shape actually. If I take that down a little further and talk more specifically about our view on the market, I'll start with the light vehicle view and we will continue to remain pretty plus realign with IHS as we've done through the year actually. So that points us to a projection for 2016 light vehicle growth in Europe of about 2%, North America around 4%, China somewhere around 5% to 6%. So we continue to share a similar set of views to those of IHS. If I switch over to commercial vehicle which is obviously a key market for BorgWarner, we still see that very challenge, we’re not seeing a lot of uplifting news frankly speaking on the environment around commercial vehicle.…

Thank you, James, and good day, everyone. Before I review the financials detail, I would like to provide you some of the financial highlights as I see them for the quarter. As James said, we have experienced expected sales growth for the quarter. We also expanded our free margins on a comparable basis and we flowed through that additional sales, but more importantly for me on the cash side we saw return to normal CapEx spending. So now as Ken mentioned I will be referring to the supplemental financial slide deck as we posted on the IR website, so I do encourage you to follow along. So let's start on Slide 3, on a reported basis which includes the change in sales due to market growth price, net new business, FX and Remy that's a mouthful by the way, segments were up 14.3%; however, to get a clear picture of how the core business performed, we have to exclude the impact of FX and Remy. So when you exclude those items, sales were up 4.5% which was above the high end of our guidance range. Gross profit as a percentage of sales was 20.5% in the quarter. On a comparable basis or excluding Remy, gross margin was 20.9% which is down 70 basis points from last year caused by plant startups and borrowed restructuring inefficiencies as James talking about earlier. SG&A as a percentage of sales was 8.3% but on a comparable basis SG&A was 7.8% of sales or 70 basis points improvement from a year ago. The Company did a good job of executive cost controls to offset the gross margin decline. R&D spending, which is including in SG&A was flat from a year ago at 3.8% in sales; however, if you do exclude Remy engineering was at 4.2%…

Thanks Ron. We're now going to move to the Q&A portion of the call. Melissa, please remind everyone of the Q&A procedures.

[Operator Instructions] Your first question comes from Rich Kwas with Wells Fargo. Your line is open.

James following up on your comments regarding risk and opportunities and more risks here maybe versus 60 to 90 days ago, if we look at first quarter you came in better on organic growth versus your initial expectation, you didn’t change the full year organic growth rate, but is it fair to say that you've taken some of these incremental risk into account through the second half of the year as it relates to the items you cited earlier?

Yes, it's a good way to think about it Rich. Yes that is the good way and that’s kind of the way I thought it would be useful to at least let you know what some of them could be, we're not necessarily saying that it will happen, but we just thought it was prudent and it does get back a little bit through to China, story a little you know that we've seeing some acceleration in the first half on these incentives that made way a little bit on the backend. Clearly, we have the Volkswagen business with China particularly and Europe for the market share risk point of view and just on that one Rich as an example we saw some of that way on us in the first quarter with China -- in Volkswagen in China. You can see the numbers. They were down in the production pretty significantly in the first quarter and still 20 plus percent of that business. So I mean the last Rich is we got some pretty big launches which we talked about on the prior calls with us penned to start with the super duty the Duramax and so. These are all -- I would say, these are kind of pretty small nuance and things, it's not big but when we add all of those up, we just see slightly skewed to the risk side than the opportunity side. We just think it’s prudent reflect that and then play it from there.

And then in North America inventory appear to be elevated here and we need some real descent flow through on the sale side over the next few months to justify that IHS number that you've referenced, what are you seeing on schedules at this point here in North America and it doesn't seem like you've factored in much on the North American front on the back half, but just curious on how you see things potentially playing out here?

You're right Rich, that one we didn't reflect into our numbers in the back half of the year. We pretty much left that alone. I think what we're seeing is largely what you do, you know builds are -- you know the first quarter came in where it did. I think everybody's kind of looking at the second quarter as a kind of key one in terms of where we're stacking between production builds and inventory levels and that's going to give us a -- for me I think it's a pretty key quarter across all the OEMs. Generally, we're seeing build rates pretty good in general Rich, we're seeing not a whole lot of volatility, they're coming out pretty much as we'd anticipated. So we're not seeing I would just -- and that's why we didn't do anything with the back half guidance Rich. We left it alone. It's just an area like you and all of us were just paying attention and I think we'll get a little bit of a better readout to when we can look at the second quarter data and see what went on with the inventory and what went on with the production build. But we need the production builds to stay pretty strong and so far I would say they're holding pretty good and they hold like that we should be okay. Which is why we didn't adjust the back half.

And then just last one, thanks James by the way. And this is the last one, Ron, I think it was referenced that Europe was maybe a little bit below expectation and I don't recall if you said exactly why maybe it was Volkswagen share, but what was -- volumes are coming better at least so far for 2016, just curious on what drove the [indiscernible]?

It was -- we're just trying to get most of them and get actually for what it’s -- we see Europe running pretty well in general. If you recall Rich in the fourth quarter and we had some transmission programs that we’re running out and so you get a little bit of that noise flows through as those programs run off, and we did see a little bit of transmission build adjustment on VW which I obviously talked about. We saw a little bit of, little bit of share challenge from a VW perspective so that was, I mean it was a little lower than what we wanted, it wasn’t a big number but there was a little bit of noise there and each -- those are the two big ones Rich, VW and transmission roll offs, those are the two for us.

Your next question comes from Brett Hoselton with KeyBanc, your line is open.

I wanted to kind of take a step back and just ask a longer term conceptual question, you've obviously provided the backlog guidance of 4% to 6% through 2018, my question is this. As you kind of looked that backlog number that growth number, ideally how should we think about kind of upside versus downside. Upside opportunity versus downside risk and then secondly as you look out beyond that three year time horizon is that a pace that you anticipate maintaining or would it -- is it likely to decelerate or accelerate?

That’s a great thought -- let me take a shot at it okay. So first thing I would say, we're in the first year of the net new business and that's where we're communicating. We're comfortable, confident and feeling pretty good about this year okay. So that's what we think. As we look out, I'm going to say a couple of things. Are we comfortable internally as a company with the projection we made? Yes. Do we like it? Not really. I'd rather be much higher than 4% to 6% and we're working like crazy to get higher than 4% to 6% and as we get through this year we'll have a better read on what that looks like, and obviously we need a little bit more time. So our focus right now is we're comfortable with what's out there. We're going to execute and perform against which I think we're starting to do, which is really good. And I would say incrementally as I look out we will go up from mid-single digit growth at some point if not yet. That's kind of the way to think of it Brett, we will. And I don't anticipate that. It's certainly not '16 and I don't yet think it would be '17 either. I want you to know BorgWarner is not happy being a mid-single digit growth company. We're going to go -- we're not, we're going to focus like crazy to go higher than that. But it's too early Brett, we got to deliver and we got to execute on the mid-single digit growth. I think the Investor Day will, that's later this year will help provide some clarity and color on why we believe there is opportunity to transition up. But it is too early at this point Brett, we need a little more time to execute, deliver and do our work.

Okay, fair enough, and then switching gears, thank you James. As we think about M&A activity obviously you're digesting Remy and fairly large acquisition for you. As you kind of think about M&A activity should we think about it as kind of subsiding for another, for the next quarter or two, three, four quarters till you digest what you've bitten off so far, or can we expect maybe some additional bolt-on through the remainder of this year into next year?

I think, you're right Brett. Priority one really is flawless execution on the Remy deal which I'm pleased with how that's going. You know from a financial perspective you know we feel comfortable if another deal came along, we could do it and we would do it. So I don’t feel too inhibited from a smaller size bolt-on acquisition, I'm pretty comfortable there, and I think from a resource perspective we feel comfortable. So what I am saying to you is we're not slowing down our efforts to look at smaller bolt-on related deals whether it would be this year or next year, you always know that's kind of hard to predict the accurate timing, but I wouldn't wind you to think or anybody to think that we've done Remy, that’s all we’re doing and we've stopped kind of looking and working and talking about deals because that's not the case. We are, they would be clearly smaller than obviously the Remy transaction and they would be likely bolt-on complementary type technologies to what we have. So if that helps you Brett, that's where we're thinking.

Your next question comes from Chris McNally with Evercore ISI. Your line is open.

Thanks so much, guys. This is Chris McNally. It seems like the first half this you're on a pretty good track to execute your new plan, on the second half comments I am just very curious, you didn't mention mix and that's one of the areas of that everyone is trying to figure out, particularly in North America. Sedan production schedules sort of moving down replaced by rising truck, could you just walk through how that may affect numbers or particularly some of the programs you're associated with?

Yes, sure, this is James again, Chris. As I mentioned earlier Chris, we've not really done anything relative from a guidance perspective to reflect any meaningful shift in North America. As I alluded to earlier, it is watch point for us more fundamentally inventory and production ratios as opposed to car-truck mix, if that helps you. I would say if let's say second half of the year, trucks stays a little bit stronger. It's probably a little bit favorable for BorgWarner, but it's not a big shift for us, we generally get a little better if its truck weighted versus car weighted. But it's not a big more for us, if that helps us.

And any specific program within truck that we should pay attention to whether for launches or just the largest amount of content or incremental margin?

We have a lot of attraction for the F150.

And the super duty launch.

Your next question comes from Adam Jonas with Morgan Stanley. Your line is open.

Good morning everyone. This is [Indiscernible] standing in for Adam Jonas. Just a couple of questions and apologies if this has been address earlier, but in the past you've highlighted how Remy has a narrow band of customers and you're planning to leverage your relationships with existing BorgWarner customers especially in Europe, how have those conversations evolved in the past few months?

I would articulate it this way, think of it in two way, the core ex-Remy business starters, alternators, et cetera, and we're engaged in those conversations with customers that as of today have not in the past years from a Remy product and those conversations are going on, we're only a few months in. But I would say the opportunity for us is good, I mean we've served a lot of customers that Remy didn't, it's a little early to know how that's going to translate into revenue, we need a little more time. But I would articulate the conversations have been open and productivity and good thus far. As I alluded and mentioned in my opening comment already, the energy intensity excitement around the combination of products and future technology packages combining former BorgWarner is as probably exceeded our expectation from when we did the deal. As we've already said that’s a longer term revenue play, those are 3 to 5 years offerings. But I would say to you those have been extremely positive.

Understood and just a broader question on content going into cars. Obviously a lot of fuel efficiency content with ICE and electrification and there is also a lot of active safety content expected to get into cars, both clearly very important. And even with some content coming out, you would expect to see big net increases in cost that's in the median term, any thoughts how the consumer prioritizes different content and is actually able to afford all this increase in cost?

I can comment on that for sure. I think I mentioned earlier that we're not seeing any slowdown in the dialogue and the discussion around the need for technology to drive better fuel economy emission and vehicle performance. I know there is a little bit of perception out there that that's going to slow down and so dollars can be shifted over to these other technologies. We have not seen that. Our activity is as good as it's ever been in terms of working with our OEMs and the business equation has not changed, it's purely a value equation of how can the OEM meet their feel economy and emissions standards at the minimal cost frankly. So that minimizes any impacts on the end consumers. So when I look across the suite of BorgWarner product to do that, we're in a very-very good position that's why we're delivering the strong mid-single digit growth we're. The adoption rates for our products remain very strong and they will do because there are very good cost effective solutions that get the automakers where they need to in a way that they can support their end consumer.

Your next question comes from Richard Hilgert with Morningstar. Your line is open.

Couple of questions please. In your comments James, you talked a little bit about the commercial truck outlook and how that's impacting BorgWarner. Is commercial truck still going to be viewed by BorgWarner as being you know a core market or is commercial truck something that BorgWarner might start to move away from?

Now in commercial truck, Richard, is a key part of our business and clearly it's challenged right now in terms of the market conditions, you know we'd seen you know globally you know no real growth in that sector if you wish for a while, but we're in there. You know BorgWarner has continued to grow in that sector, obviously we grow at a much faster pace on the light vehicles side of the business. So now the commercial vehicle businesses still remain very core to us. We have a number of our products across the portfolio that play in commercial vehicle, clearly the Remy transaction we did has a strong presence in commercial vehicle and that was attractive to us. So we remain committed to commercial vehicle, I think what we'll always see is with 80 plus percent of our business pass car related and a lot of growth in pass car as an end market, you're going to see that that growth generally outweighs in light vehicles over commercial vehicle, but that doesn’t step us away from focusing commitment around commercial vehicle.

With the emissions legislation the Clean Air legislation around the world getting more stringent not only on passenger cars but also on commercial as well as stationary applications or marine applications whatever the case might be, are there any types of fuel efficiency or things that are attractive to BorgWarner on the commercial side that can be adapted from passenger or some new technologies that might fit in with BorgWarner's strategy on commercial?

Yes, absolutely Richard, that's what we do today actually. You know if you think about you know the lot about what you could say commercial vehicle oriented turbo charger technology, we can and we do apply to the light vehicle side of the business and vice versa by the way. We run our turbo businesses as an example as a very integrated business that's very -- creates a lot of synergies from a technology perspective between the commercial vehicle and the light vehicle. Another great example is you know we apply that dual clutch transmission technology that emanated from light vehicle if you know with Volkswagen and you know we're applying that to the Eaton trucks, so that's another very good example. Our cooling thermal, cooling technology you know fans, fan drive, pump technology, cooling pumps, you know we apply those across both light and commercial vehicles. So it's definitely and if you think of the global situation Richard, where you know a lot of trucks commercial trucks that is, are getting smaller, think of life's little delivery van type technologies and you thinking some markets, you know light, so called light vehicles are getting bigger. You know large pickup truck type vehicles and SUVs, there is a blend of technologies that comes together that can offer competitive position, I think we do that actually very well.

Okay very good, turbo and diesel were kind of like hand-in-hand you don’t usually handle one without the other.

That's right Richard.

That makes sense.

Your next question comes from John Murphy with Bank of America Merrill Lynch. Your line is open.

Just one question here I mean in the press release you guys were talking about the Gilly or Jilly EV7 initiative and you kind of allude to that it's designed for emerging high volume electric vehicle market. It sounds like a little bit of a change intrayear perception of the EU market, is that really focused on growth and the push for NEVs in China or is that sort of a broader statement about the global industry.

John I'll take that. I'll say a couple of things, obviously we do see the EV market evolving. Our macro perspective is you know we generally pointed to you know a ’20-’25 timeline of about a couple of percent of the fleet the world fleet would be EVs. We've always said that could be a percent too high or a little low, but in that range 2% or 3%. We're not moving at this point away from that view John. I would say incrementally we see more energy enthusiasm intensity in China around electric vehicles. I would say the bigger message we’re trying to get across, John, is you know this overhang with EVs BorgWarner doesn’t have anything, is simply not true. And that's kind of what we're trying to articulate that we will serve that market. And this is a great example of hard parts and assets that are going into electric vehicles leveraging BorgWarner's technology and it’s in China and it's a reasonable volume, whether it’s 15,000 this year. So macro not really changed on EV John, 2%-3% likely in the future, China probably getting incremental a little more aggressive that way, but the key message is BorgWarner is going to be in that space and play.

That is very helpful and then just a follow-up question, I know you guys commented that shift from cars to crossovers might not have to big an impact on content directly in the short run. But I was just wondering if can comment if we see shift towards more body on frame trucks, specifically the F150, if that could be a real positive mix shift for you and also there maybe longer term as these crossovers are pushed towards all-wheel drive systems for active safety and just for the content could there be a step in content from that vantage point as well?

I think as I mentioned earlier that we've done anything with our guidance to move away from any meaningful truck mix, truck-car mix in North America. And I said if we see a stronger second half where trucks a little better than what's expected today, I mean in general that helps us a little bit, we've been quite open that F150 is a very strongly contended vehicle for BorgWarner so that clearly helps and you have driven for us and I think you know this John, as that truck mix goes and they stop putting meaningful four-wheel drive or all-wheel drive transport capability and turbocharged engines. That starts to step up the content pretty meaningfully for BorgWarner. We have to watch and we do the GM truck share ratio because well our content is very strong on the Ford side, it’s much less so on the GM side, to be transplant with you.

Your next question comes from Joseph Spak with RBC Capital Markets. Your line is open.

First question is with respect to Wahler and the commentary there, can you provide is there any updated timing and can you still get to the ultimate goals you originally see or this can take longer or are we now to assume that this is going to be structurally lower than initially thought?

If you recall and I am sure you do, when we did the acquisition we've talked about 2 to 3 year transition period to get double-digit margins and then as we went through last year and forward a little bit of change on the restructure. We kind of pushed that, and so it’s certainly going to be closer to three. I think two things, one I think will be challenges to get it done in three, but we will get there, now is that 3.5 is it 4, it 4.5. I would ask you give a little bit more time until we can through some of this heavy lifting on the restructuring that we’re right in the middle of, but structurally we'll get there, we'll get to the double digit margins. We don't do it in the 3 year period, but we're going to get there. And give us a little more time as to whether that’s a 6 months push out or 1 year push out, just because we’re going to get through some of the challenges that we're in right now. But we will get there, I am not worried about that.

Okay and then on the guidance, so I understand that the change in revenue from Remy, the EPS is there and I know you've sort of baked in a lot of additional risk for the year. So should we read in that holding EPS guidance, you're eating into that a little bit or was there something else that I missed, maybe that’s a little bit better that allows you offset some of that softness?

What I would say Joe, is it's within the range and we're talking about 2-3 cents here, I don't think it's worth going through a lot of hoops basically for kind of immaterial at this point. You're right. The sales guidance was all driven by Remy, commercial vehicle. Now you get some moving parts on the EPS and I won't go in detail, but for example tax rate went up that was negative, right. Now we had some offset in the core business which was more positive, but then it was offset by some negatives in Wahler. So there is a little bit of walk, but at the end of the day we're in the same range.

And then last one, there has been lot more talk on 48-volt, I know that's something you guys have been incremental more excited about, are you seeing any uptick in quoting activity related to that?

I would say Joe from our viewpoint, I would say the quoting activity in general across all electrification architectures is very strong and probably getting even stronger. A lot of the dialogue we will be in because this is where BorgWarner operate is, many time with the dialogues with the customer will be, they're not sure whether they want a 12-volt or a 48 or 12-and 48-volt. People like BorgWarner can help them find that conclusion. So I am not necessarily in the view that there has been a massive uptick in pure 48-volt architecture. I think it's definitely going to move up in electrification architecture which we talked about for a while and I think this imply sort of a win, which is James’ view, the ones that conserve it’s flexibility between 12-and 48-volt and not rely on either one. And we have a bunch of products to do that. So whether that’s electric turbocharger, whether that's former Remy motor technology, just a name couple. So it's stronger and we’re right in the midst of it.

We have time for one final question and that question comes from David Leiker with Baird. Your line is open.

Hi, guys. This is Adam Schmitz on the line for David. On the two additional two additional logic vehicle programs that you won, are there any additional details you can give maybe in terms of products their content where you've won those programs?

Adam I would to but I would get in trouble. With my -- the customers and give us a little bit of time and we'll get out for you. I just really wanted to convey that we continue to get momentum on these electric vehicle programs. I know understandably you want to data, if you can just give a little bit of time we'll get the clarity once we get our customer aligned with us and get that out for you okay.

That's fair worth a shot, and then I guess you've mentioned the higher level OME activity over the past several months, I mean just kind of seeing across the entire business are there maybe any products or geographies where you're seeing a strength?

I think it's pretty linear actually pretty consistent Adam we're seeing that and quoting activity is strong across pretty much all of the business and our win rates are good and booking rates are good. I think incrementally the one I talked to a couple of time today is the electrified or electrification efforts, are incrementally a little higher and continued to go higher which is good news for us. But general it's strong, what I didn't want to convey, Adam was that all the causing activities higher strong on with electrified products and the core business is strong too.

I would like to thank you all again for joining us. We expect to file our 10-Q before the end of the year which will provide detail to results. Any follow-up questions about our earnings release, the matters discussed during this call or our 10-Q, please direct them to me. Melissa please close out the call.

That does conclude the BorgWarner 2016 first quarter results conference call. You may now disconnect.