Quarterly Report (10-q)

Share Name	Share Symbol	Market	Type
BorgWarner Inc	NYSE:BWA	NYSE	Common Stock

	Price Change	% Change	Share Price	High Price	Low Price	Open Price	Shares Traded	Last Trade
	0.99	2.98%	34.17	34.185	33.04	33.26	367,733	16:14:02

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-Q

QUARTERLY REPORT



(Mark One)
þ		Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
		For the quarterly period ended September 30, 2014



o		Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
		For the transition period from to

Commission file number: 1-12162

BORGWARNER INC.

________________________________________________

(Exact name of registrant as specified in its charter)



Delaware		13-3404508
State or other jurisdiction of		(I.R.S. Employer
Incorporation or organization		Identification No.)

3850 Hamlin Road, Auburn Hills, Michigan		48326
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (248) 754-9200

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES þ NO o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

YES þ NO o

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



Large accelerated filer	þ	Accelerated filer	o	Non-accelerated filer	o	Smaller reporting company	o

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

YES o NO þ

As of October 24, 2014, the registrant had 227,373,617 shares of voting common stock outstanding.

BORGWARNER INC.

FORM 10-Q

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014

INDEX



	Page No.
PART I. Financial Information

Item 1. Financial Statements

Condensed Consolidated Balance Sheets as of September 30, 2014 and December 31, 2013 (Unaudited)	3

Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2014 and 2013 (Unaudited)	4

Condensed Consolidated Statements of Comprehensive (Loss) Income for the three and nine months ended September 30, 2014 and 2013 (Unaudited)	5

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2014 and 2013 (Unaudited)	6

Notes to Condensed Consolidated Financial Statements (Unaudited)	7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	26

Item 3. Quantitative and Qualitative Disclosures About Market Risk	37

Item 4. Controls and Procedures	37

PART II. Other Information

Item 1. Legal Proceedings	37

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	37

Item 6. Exhibits	38

SIGNATURES	39

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

BORGWARNER INC. AND CONSOLIDATED SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)



(millions of dollars)	September 30, 2014			December 31, 2013
ASSETS
Cash	$	782.8		$	939.5
Receivables, net	1,466.1			1,248.5
Inventories, net	531.8			458.1
Deferred income taxes	49.7			68.7
Prepayments and other current assets	121.4			83.7
Total current assets	2,951.8			2,798.5

Property, plant and equipment, net	2,067.4			1,939.4
Investments and advances	460.8			405.1
Goodwill	1,210.8			1,197.0
Other non-current assets	591.5			577.0
Total assets	$	7,282.3		$	6,917.0

LIABILITIES AND EQUITY
Notes payable and other short-term debt	$	605.7		$	201.6
Accounts payable and accrued expenses	1,503.9			1,383.8
Income taxes payable	13.2			38.5
Total current liabilities	2,122.8			1,623.9

Long-term debt	705.8			1,021.0
Other non-current liabilities:
Retirement-related liabilities	295.1			312.9
Other	358.4			326.8
Total other non-current liabilities	653.5			639.7

Common stock	2.5			2.5
Capital in excess of par value	1,104.3			1,121.9
Retained earnings	3,606.5			3,177.4
Accumulated other comprehensive loss	(199.9		)	(14.0		)
Common stock held in treasury	(782.8		)	(727.2		)
Total BorgWarner Inc. stockholders’ equity	3,730.6			3,560.6
Noncontrolling interest	69.6			71.8
Total equity	3,800.2			3,632.4
Total liabilities and equity	$	7,282.3		$	6,917.0

See accompanying Notes to Condensed Consolidated Financial Statements.

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BORGWARNER INC. AND CONSOLIDATED SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)



	Three Months Ended September 30,						Nine Months Ended September 30,
(in millions, except per share amounts)	2014			2013			2014			2013
Net sales	$	2,032.1		$	1,806.2		$	6,313.2		$	5,551.2
Cost of sales	1,607.6			1,426.6			4,970.1			4,400.3
Gross profit	424.5			379.6			1,343.1			1,150.9

Selling, general and administrative expenses	174.5			157.7			529.5			472.6
Other expense (income), net	12.3			(3.7		)	62.1			10.8
Operating income	237.7			225.6			751.5			667.5

Equity in affiliates’ earnings, net of tax	(14.8		)	(10.4		)	(35.8		)	(31.2		)
Interest income	(1.4		)	(1.3		)	(4.3		)	(3.3		)
Interest expense and finance charges	9.0			8.1			26.2			26.6
Earnings before income taxes and noncontrolling interest	244.9			229.2			765.4			675.4

Provision for income taxes	71.9			56.3			225.3			173.8
Net earnings	173.0			172.9			540.1			501.6
Net earnings attributable to the noncontrolling interest, net of tax	6.4			6.1			24.2			18.7
Net earnings attributable to BorgWarner Inc.	$	166.6		$	166.8		$	515.9		$	482.9

Earnings per share — basic	$	0.73		$	0.73		$	2.27		$	2.11

Earnings per share — diluted	$	0.73		$	0.72		$	2.25		$	2.08

Weighted average shares outstanding:
Basic	227.077			227.638			227.395			229.168
Diluted	228.668			230.476			229.222			231.936

Dividends declared per share	$	0.13		$	0.125		$	0.38		$	0.125

See accompanying Notes to Condensed Consolidated Financial Statements.

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BORGWARNER INC. AND CONSOLIDATED SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(UNAUDITED)



	Three Months Ended September 30,					Nine Months Ended September 30,
(millions of dollars)	2014			2013		2014			2013
Net earnings attributable to BorgWarner Inc.	$	166.6		$	166.8	$	515.9		$	482.9

Other comprehensive (loss) income
Foreign currency translation adjustments^(a)	(196.1		)	94.5		(199.9		)	4.7
Hedge instruments^(a)	11.9			0.4		11.3			14.0
Defined benefit postretirement plans^(a)	2.9			1.9		2.8			11.1
Other^(a)	—			—		(0.1		)	0.5
Total other comprehensive (loss) income attributable to BorgWarner Inc.	(181.3		)	96.8		(185.9		)	30.3

Comprehensive (loss) income attributable to BorgWarner Inc.	(14.7		)	263.6		330.0			513.2
Comprehensive (loss) income attributable to the noncontrolling interest	(1.8		)	2.7		(0.6		)	0.4
Comprehensive (loss) income	$	(16.5	)	$	266.3	$	329.4		$	513.6

____________________________________


^(a)	Net of income taxes.

See accompanying Notes to Condensed Consolidated Financial Statements.

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BORGWARNER INC. AND CONSOLIDATED SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)



	Nine Months Ended September 30,
(millions of dollars)	2014			2013
OPERATING
Net earnings	$	540.1		$	501.6
Adjustments to reconcile net earnings to net cash flows from operations:
Non-cash charges (credits) to operations:
Depreciation and tooling amortization	226.3			202.4
Amortization of intangible assets and other	20.7			20.1
Restructuring expense, net of cash paid	44.2			—
Stock-based compensation expense	24.1			29.3
Deferred income tax provision (benefit)	44.8			(9.0		)
Equity in affiliates’ earnings, net of dividends received, and other	(10.3		)	(28.2		)
Net earnings adjusted for non-cash charges to operations	889.9			716.2
Changes in assets and liabilities:
Receivables	(225.7		)	(195.3		)
Inventories	(50.8		)	(13.0		)
Prepayments and other current assets	(30.5		)	(39.7		)
Accounts payable and accrued expenses	74.4			85.5
Income taxes payable	(30.6		)	(25.9		)
Other non-current assets and liabilities	(80.5		)	(13.0		)
Net cash provided by operating activities	546.2			514.8

INVESTING
Capital expenditures, including tooling outlays	(397.9		)	(297.9		)
Net proceeds from asset disposals	3.2			22.8
Payments for business acquired, net of cash acquired	(106.4		)	—
Net cash used in investing activities	(501.1		)	(275.1		)

FINANCING
Net increase in notes payable	369.9			14.3
Additions to long-term debt, net of debt issuance costs	107.8			272.0
Repayments of long-term debt, including current portion	(422.7		)	(76.9		)
Payments for purchase of treasury stock	(90.0		)	(225.5		)
Proceeds from stock options exercised, including the tax benefit	16.2			25.3
Taxes paid on employees' restricted stock award vestings	(23.5		)	(29.2		)
Dividends paid to BorgWarner stockholders	(86.8		)	(28.5		)
Dividends paid to noncontrolling stockholders	(20.4		)	(10.7		)
Net cash used in financing activities	(149.5		)	(59.2		)
Effect of exchange rate changes on cash	(52.3		)	24.2
Net (decrease) increase in cash	(156.7		)	204.7
Cash at beginning of year	939.5			715.7
Cash at end of period	$	782.8		$	920.4

SUPPLEMENTAL CASH FLOW INFORMATION
Net cash paid during the period for:
Interest	$	37.6		$	37.6
Income taxes	$	177.3		$	197.6
Non-cash investing transactions
Liabilities assumed from business acquired	$	3.2		$	—
Non-cash financing transactions
Debt assumed from business acquired	$	40.3		$	—

See accompanying Notes to Condensed Consolidated Financial Statements.

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BORGWARNER INC. AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(1) Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements of BorgWarner Inc. and Consolidated Subsidiaries (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes necessary for a comprehensive presentation of financial position, results of operations and cash flow activity required by GAAP for complete financial statements. In the opinion of management, all normal recurring adjustments necessary for a fair presentation of results have been included. Operating results for the three and nine months ended September 30, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014. The balance sheet as of December 31, 2013 was derived from the audited financial statements as of that date. For further information, refer to the Consolidated Financial Statements and Footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.

On November 13, 2013, the Company's Board of Directors declared a two-for-one stock split effected in the form of a stock dividend on its common stock. To implement this stock split, shares of common stock were issued on December 16, 2013 to stockholders of record as of the close of business on December 2, 2013. All prior year share and per share amounts disclosed in this document have been restated to reflect the two-for-one stock split.

Management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and accompanying notes, as well as, the amounts of revenues and expenses reported during the periods covered by those financial statements and accompanying notes. Actual results could differ from these estimates.

(2) Research and Development Expenditures

The Company's net Research & Development ("R&D") expenditures are included in selling, general and administrative expenses of the Condensed Consolidated Statements of Operations. Customer reimbursements are netted against gross R&D expenditures as they are considered a recovery of cost. Customer reimbursements for prototypes are recorded net of prototype costs based on customer contracts, typically either when the prototype is shipped or when it is accepted by the customer. Customer reimbursements for engineering services are recorded when performance obligations are satisfied in accordance with the contract and accepted by the customer. Financial risks and rewards transfer upon shipment, acceptance of a prototype component by the customer or upon completion of the performance obligation as stated in the respective customer agreement.

The following table presents the Company’s gross and net expenditures on R&D activities:



	Three Months Ended September 30,						Nine Months Ended September 30,
(millions of dollars)	2014			2013			2014			2013
Gross R&D expenditures	$	96.1		$	84.7		$	292.1		$	250.9
Customer reimbursements	(10.8		)	(12.9		)	(34.7		)	(34.7		)
Net R&D expenditures	$	85.3		$	71.8		$	257.4		$	216.2

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The Company has contracts with several customers at the Company's various R&D locations. No such contract exceeded 5% of annual net R&D expenditures in any of the periods presented.

(3) Other Expense (Income), net

Items included in other expense (income), net consist of:



	Three Months Ended September 30,						Nine Months Ended September 30,
(millions of dollars)	2014			2013			2014			2013
Restructuring expense	$	13.1		$	—		$	67.6		$	—
Pension settlement	2.7			—			2.7			—
Program termination agreement	—			—			—			11.3
Retirement related obligations	—			—			—			5.9
Other income	(3.5		)	(3.7		)	(8.2		)	(6.4		)
Other expense (income), net	$	12.3		$	(3.7	)	$	62.1		$	10.8

During the first nine months of 2014, the Company recorded restructuring expense of $67.6 million related to Drivetrain and Engine segment actions designed to improve future profitability and competitiveness. See the Restructuring footnote for further discussion of these expenses.

In July 2014, the Company discharged certain U.S. pension plan obligations by making lump-sum payments to former employees of the Company. As a result of this action, the Company recorded a settlement loss of $2.7 million in the U.S. pension plan during the third quarter of 2014.

In March 2013, the Company recorded an $11.3 million expense related to a program termination agreement, which was paid in 2013.

During the fourth quarter of 2012, the Company waived the forfeiture provision associated with future restricted stock grants made to certain retiring Named Executive Officers. The Company recorded a $5.9 million retirement related obligation primarily related to a first quarter 2013 grant of restricted stock awards to these Named Executive Officers.

(4) Income Taxes

The Company's provision for income taxes is based upon an estimated annual tax rate for the year applied to federal, state and foreign income. On a quarterly basis, the annual effective tax rate is adjusted, as appropriate, based upon changed facts and circumstances, if any, as compared to those forecasted at the beginning of the fiscal year and each interim period thereafter.

At September 30, 2013, the Company's effective tax rate for the first nine months was 25.7%, which included tax benefits of $3.8 million and $2.1 million related to the program termination agreement and retirement related obligations discussed in the Other Expense (Income), net footnote. This rate also included a net tax benefit of $7.3 million, which is comprised of a $6.6 million tax benefit related to the extension of the federal research and development credit and other international tax provisions resulting from the retroactive impact of U.S. legislation enacted in January 2013, $3.1 million related to 2012 provision to return adjustments and $2.5 million related to the reversal of certain deferred tax asset valuation allowances, partially offset by a $4.9 million tax expense related to a comprehensive income adjustment.

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The annual effective tax rates differ from the U.S. statutory rate primarily due to foreign rates which differ from those in the U.S., the realization of certain business tax credits, including foreign tax credits, and favorable permanent differences between book and tax treatment for certain items, including equity in affiliates' earnings.

(5) Inventories, net

Inventories are valued at the lower of cost or market. The cost of U.S. inventories is determined by the last-in, first-out (“LIFO”) method, while the operations outside the U.S. use the first-in, first-out (“FIFO”) or average-cost methods. Inventories consisted of the following:



	September 30,			December 31,
(millions of dollars)	2014			2013
Raw material and supplies	$	322.3		$	279.8
Work in progress	91.2			78.0
Finished goods	136.5			116.3
FIFO inventories	550.0			474.1
LIFO reserve	(18.2		)	(16.0		)
Inventories, net	$	531.8		$	458.1

(6) Property, Plant and Equipment, net



	September 30,			December 31,
(millions of dollars)	2014			2013
Land, land use rights and buildings	$	799.6		$	753.9
Machinery and equipment	1,953.3			1,897.5
Capital leases	8.8			2.4
Construction in progress	282.3			272.3
Total property, plant and equipment, gross	3,044.0			2,926.1
Less: accumulated depreciation	(1,101.0		)	(1,099.3		)
Property, plant and equipment, net, excluding tooling	1,943.0			1,826.8
Tooling, net of amortization	124.4			112.6
Property, plant and equipment, net	$	2,067.4		$	1,939.4

As of September 30, 2014 and December 31, 2013, accounts payable of $46.9 million and $62.8 million, respectively, were related to property, plant and equipment purchases.

Interest costs capitalized for the nine months ended September 30, 2014 and 2013 were $10.5 million and $8.5 million, respectively.

(7) Product Warranty

The Company provides warranties on some, but not all, of its products. The warranty terms are typically from one to three years. Provisions for estimated expenses related to product warranty are made at the time products are sold. These estimates are established using historical information about the nature, frequency and average cost of warranty claim settlements as well as product manufacturing and industry developments and recoveries from third parties. Management actively studies trends of warranty claims and takes action to improve product quality and minimize warranty claims. Management believes that the warranty accrual is appropriate; however, actual claims incurred could differ from the original estimates, requiring adjustments to the accrual.

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The following table summarizes the activity in the product warranty accrual accounts:



(millions of dollars)	2014			2013
Beginning balance, January 1	$	72.7		$	64.9
Provisions	27.7			29.1
Acquisition^(a)	22.8			—
Payments	(32.4		)	(28.3		)
Translation adjustment	(4.6		)	0.7
Ending balance, September 30	$	86.2		$	66.4

____________________________________


(a)	The Company recorded a $12.4 million insurance receivable related to the $22.8 million liability, which is classified in the Condensed Consolidated Balance Sheet in Investments and advances.

The product warranty liability is classified in the Condensed Consolidated Balance Sheets as follows:



	September 30,		December 31,
(millions of dollars)	2014		2013
Accounts payable and accrued expenses	$	27.7	$	38.4
Other non-current liabilities	58.5		34.3
Total product warranty liability	$	86.2	$	72.7

(8) Notes Payable and Long-Term Debt

As of September 30, 2014 and December 31, 2013, the Company had short-term and long-term debt outstanding as follows:



	September 30,		December 31,
(millions of dollars)	2014		2013
Short-term debt
Short-term borrowings	$	478.0	$	84.8
Receivables securitization	110.0		110.0
Total short-term debt	$	588.0	$	194.8

Long-term debt
5.75% Senior notes due 11/01/16 ($150 million par value)	$	149.7	$	149.7
8.00% Senior notes due 10/01/19 ($134 million par value)	134.0		133.9
4.625% Senior notes due 09/15/20 ($250 million par value)	248.4		248.2
7.125% Senior notes due 02/15/29 ($121 million par value)	119.4		119.4
Multi-currency revolving credit facility	—		320.0
Term loan facilities and other	58.8		40.4
Unamortized portion of debt derivatives	13.2		16.2
Total long-term debt	723.5		1,027.8
Less: current portion	17.7		6.8
Long-term debt, net of current portion	$	705.8	$	1,021.0

The weighted average interest rate on all borrowings outstanding as of September 30, 2014 and December 31, 2013 was 3.3% and 3.7%, respectively.

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borrowings to be increased to $1.25 billion). The facility provides for borrowings through June 30, 2019. The Company has one key financial covenant as part of the credit agreement which is a debt to EBITDA ("Earnings Before Interest, Taxes, Depreciation and Amortization") ratio. The Company was in compliance with the financial covenant at September 30, 2014 and expects to remain compliant in future periods. At September 30, 2014, the Company had no outstanding borrowings under this facility. At December 31, 2013, the Company had outstanding borrowings of $320.0 million under the multi-currency revolving credit agreement.

On March 12, 2014, the Company entered into a new commercial paper program pursuant to which the Company may issue short-term, unsecured commercial paper notes up to a maximum aggregate principal amount outstanding of $1 billion. Under this program, the Company may issue notes from time to time and will use the proceeds for general corporate purposes. At September 30, 2014, the Company had outstanding borrowings of $355.0 million under this program, which is classified in the Condensed Consolidated Balance Sheet in Notes payable and other short-term debt.

The total current combined borrowing capacity under the multi-currency revolving credit facility and commercial paper program cannot exceed $1 billion.

On February 11, 2014, the Company's universal shelf registration expired. The Company filed a new universal shelf registration with the Securities and Exchange Commission on February 28, 2014.

As of September 30, 2014 and December 31, 2013, the estimated fair values of the Company’s senior unsecured notes totaled $749.1 million and $729.7 million, respectively. The estimated fair values were $97.6 million and $78.5 million higher than their carrying value at September 30, 2014 and December 31, 2013, respectively. Fair market values of the senior unsecured notes are developed using observable values for similar debt instruments, which are considered Level 2 inputs as defined by ASC Topic 820. The carrying values of the Company's multi-currency revolving credit facility and commercial paper program approximates fair value. The fair value estimates do not necessarily reflect the values the Company could realize in the current markets.

The Company had outstanding letters of credit of $29.2 million and $27.8 million at September 30, 2014 and December 31, 2013, respectively. The letters of credit typically act as guarantees of payment to certain third parties in accordance with specified terms and conditions.

(9) Fair Value Measurements

ASC Topic 820 emphasizes that fair value is a market-based measurement, not an entity specific measurement. Therefore, a fair value measurement should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering market participant assumptions in fair value measurements, ASC Topic 820 establishes a fair value hierarchy, which prioritizes the inputs used in measuring fair values as follows:


Level 1:	Observable inputs such as quoted prices for identical assets or liabilities in active markets;


Level 2:	Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and


Level 3:	Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

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Assets and liabilities measured at fair value are based on one or more of the following three valuation techniques noted in ASC Topic 820:


A.	Market approach: Prices and other relevant information generated by market transactions involving identical or comparable assets, liabilities or a group of assets or liabilities, such as a business.


B.	Cost approach: Amount that would be required to replace the service capacity of an asset (replacement cost).


C.	Income approach: Techniques to convert future amounts to a single present amount based upon market expectations (including present value techniques, option-pricing and excess earnings models).

The following tables classify assets and liabilities measured at fair value on a recurring basis as of September 30, 2014 and December 31, 2013:



			Basis of fair value measurements
(millions of dollars)	Balance at September 30, 2014		Quoted prices in active markets for identical items (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Valuation technique
Assets:
Foreign currency contracts	$	3.7	$	—	$	3.7	$	—	A
Other non-current assets (insurance settlement agreement note receivable)	$	29.2	$	—	$	29.2	$	—	C
Liabilities:
Foreign currency contracts	$	1.4	$	—	$	1.4	$	—	A
Net investment hedge contracts	$	9.5	$	—	$	9.5	$	—	A



			Basis of fair value measurements
(millions of dollars)	Balance at December 31, 2013		Quoted prices in active markets for identical items (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Valuation technique
Assets:
Foreign currency contracts	$	3.4	$	—	$	3.4	$	—	A
Other non-current assets (insurance settlement agreement note receivable)	$	35.6	$	—	$	35.6	$	—	C
Liabilities:
Foreign currency contracts	$	7.4	$	—	$	7.4	$	—	A
Net investment hedge contracts	$	24.3	$	—	$	24.3	$	—	A

(10) Financial Instruments

The Company’s financial instruments include cash and marketable securities. Due to the short-term nature of these instruments, their book value approximates their fair value. The Company’s financial instruments also include long-term debt, interest rate and cross-currency swaps, commodity derivative contracts and foreign currency derivatives. All derivative contracts are placed with counterparties that have an S&P, or equivalent, investment grade credit rating at the time of the contracts’ placement. At September 30, 2014 and December 31, 2013, the Company had no derivative contracts that contained credit risk related contingent features.

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The Company selectively uses cross-currency swaps to hedge the foreign currency exposure associated with its net investment in certain foreign operations (net investment hedges). Exchange rates at the end of the third quarter of 2014 allowed for the early termination of the Euro cross-currency swap position at a zero cash outlay. The Company elected to take this option and no longer holds a Euro cross-currency swap position as of September 30, 2014. The impact on net earnings in the three and nine months ended September 30, 2014 was negligible.

At September 30, 2014 and December 31, 2013, the following cross-currency swaps were outstanding:



(in millions)	Cross-currency swaps
As of September 30, 2014	Notional in USD		Notional in local currency		Duration
Floating $ to floating ¥	$	125.0	€	14,651.3	Nov - 16



(in millions)	Cross-currency swaps
As of December 31, 2013	Notional in USD		Notional in local currency		Duration
Floating $ to floating €	$	75.0	€	58.5	Oct - 19
Floating $ to floating ¥	$	150.0	¥	17,581.5	Nov - 16

The Company uses certain commodity derivative contracts to protect against commodity price changes related to forecasted raw material and supplies purchases. The Company primarily utilizes forward and option contracts, which are designated as cash flow hedges. The Company did not have any commodity derivative contracts outstanding at September 30, 2014 and December 31, 2013.

The Company uses foreign currency forward and option contracts to protect against exchange rate movements for forecasted cash flows, including capital expenditures, purchases, operating expenses or sales transactions designated in currencies other than the functional currency of the operating unit. Foreign currency derivative contracts require the Company, at a future date, to either buy or sell foreign currency in exchange for the operating units’ local currency.

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At September 30, 2014 and December 31, 2013, the following foreign currency derivative contracts were outstanding:



Foreign currency derivatives (in millions)
Functional currency	Traded currency	Notional in traded currency September 30, 2014	Notional in traded currency December 31, 2013	Duration
Brazilian real	US dollar	4.8	19.3	Dec - 14
Chinese yuan	Japanese yen	—	215.0	Feb - 14
Chinese yuan	US dollar	3.3	12.3	Dec - 14
Euro	British pound	0.7	3.0	Dec - 14
Euro	Hungarian forint	1,587.8	6,430.5	Dec - 14
Euro	Japanese yen	1,380.2	5,830.7	Dec - 14
Euro	Korean won	—	663.1	Jul - 14
Euro	Polish zloty	22.8	96.0	Dec - 14
Euro	US dollar	12.8	29.4	Dec - 15
Hungarian forint	Euro	1.6	6.6	Dec - 14
Japanese yen	Chinese yuan	110.9	84.0	Dec - 15
Japanese yen	Korean won	8,508.7	5,715.5	Dec - 15
Japanese yen	US dollar	4.8	4.2	Dec - 15
Korean won	Euro	8.0	23.6	Dec - 15
Korean won	Japanese yen	115.0	380.5	Dec - 14
Korean won	US dollar	25.8	—	Dec - 15
Mexican peso	US dollar	3.8	—	Dec - 14
Swedish krona	Euro	9.7	33.7	Dec - 14
US dollar	Japanese yen	3,000.0	3,209.3	Dec - 14

At September 30, 2014 and December 31, 2013, the following amounts were recorded in the Condensed Consolidated Balance Sheets as being payable to or receivable from counterparties under ASC Topic 815:



	Assets					Liabilities
(millions of dollars)	Location	September 30, 2014		December 31, 2013		Location	September 30, 2014		December 31, 2013
Foreign currency contracts	Prepayments and other current assets	$	3.2	$	3.4	Accounts payable and accrued expenses	$	1.3	$	7.4
	Other non-current assets	$	0.5	$	—	Other non-current liabilities	$	0.1	$	—
Net investment hedge contracts	Other non-current assets	$	—	$	—	Other non-current liabilities	$	9.5	$	24.3

Effectiveness for cash flow and net investment hedges is assessed at the inception of the hedging relationship and quarterly, thereafter. To the extent that derivative instruments are deemed to be effective, gains and losses arising from these contracts are deferred into accumulated other comprehensive income (loss) ("AOCI") and reclassified into income as the underlying operating transactions are recognized. These realized gains or losses offset the hedged transaction and are recorded on the same line in the statement of operations. To the extent that derivative instruments are deemed to be ineffective, gains or losses are recognized into income.

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The table below shows deferred gains (losses) reported in AOCI as well as the amount expected to be reclassified to income in one year or less. The amount expected to be reclassified to income in one year or less assumes no change in the current relationship of the hedged item at September 30, 2014 market rates.



(millions of dollars)	Deferred gain (loss) in AOCI at						Gain (loss) expected to be reclassified to income in one year or less
Contract Type	September 30, 2014			December 31, 2013
Foreign currency	$	1.9		$	(3.7	)	$	1.5
Net investment hedges	(10.8		)	(22.1		)	—
Total	$	(8.9	)	$	(25.8	)	$	1.5

Derivative instruments designated as hedging instruments as defined by ASC Topic 815 held during the period resulted in the following gains and losses recorded in income:



		Gain (loss) reclassified from AOCI to income (effective portion)							Gain (loss) recognized in income (ineffective portion)
(millions of dollars)		Three Months Ended							Three Months Ended
Contract Type	Location	September 30, 2014			September 30, 2013			Location	September 30, 2014			September 30, 2013
Foreign currency	Sales	$	0.7		$	0.7		SG&A expense	$	0.1		$	—
Foreign currency	Cost of goods sold	$	0.2		$	(4.1	)	SG&A expense	$	(0.1	)	$	(0.1	)
Foreign currency	SG&A expense	$	(0.2	)	$	(0.1	)	SG&A expense	$	—		$	—
Cross-currency swap	N/A							Interest expense	$	0.4		$	0.4



		Gain (loss) reclassified from AOCI to income (effective portion)							Gain (loss) recognized in income (ineffective portion)
(millions of dollars)		Nine Months Ended							Nine Months Ended
Contract Type	Location	September 30, 2014			September 30, 2013			Location	September 30, 2014			September 30, 2013
Foreign currency	Sales	$	2.0		$	1.6		SG&A expense	$	0.2		$	0.2
Foreign currency	Cost of goods sold	$	(1.6	)	$	(10.1	)	SG&A expense	$	(0.1	)	$	(0.8	)
Foreign currency	SG&A expense	$	(0.6	)	$	(0.2	)	SG&A expense	$	—		$	—
Cross-currency swap	N/A							Interest expense	$	1.0		$	0.1

At September 30, 2014, derivative instruments that were not designated as hedging instruments as defined by ASC Topic 815 were immaterial.

(11) Retirement Benefit Plans

The Company has a number of defined benefit pension plans and other postretirement benefit plans covering eligible salaried and hourly employees and their dependents. The estimated contributions to the Company's defined benefit pension plans for 2014 range from $15.0 million to $25.0 million, of which $14.5 million has been contributed through the first nine months of the year. The other postretirement benefit plans, which provide medical and life insurance benefits, are unfunded plans.

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



	Pension benefits												Other post- retirement benefits
(millions of dollars)	2014						2013						2014			2013
Three Months Ended September 30,	US			Non-US			US			Non-US			2014			2013
Service cost	$	—		$	3.3		$	—		$	3.1		$	0.1		$	0.1
Interest cost	2.9			4.5			2.9			4.2			1.6			1.7
Expected return on plan assets	(4.4		)	(5.3		)	(4.6		)	(2.8		)	—			—
Settlement	2.7			—			—			—			—			—
Amortization of unrecognized prior service benefit	(0.2		)	—			(0.2		)	—			(1.5		)	(1.6		)
Amortization of unrecognized loss	1.6			1.1			2.1			1.3			0.7			1.2
Net periodic benefit cost	$	2.6		$	3.6		$	0.2		$	5.8		$	0.9		$	1.4



	Pension benefits												Other post- retirement benefits
(millions of dollars)	2014						2013						2014			2013
Nine Months Ended September 30,	US			Non-US			US			Non-US			2014			2013
Service cost	$	—		$	9.8		$	—		$	9.3		$	0.2		$	0.3
Interest cost	9.1			13.8			8.7			12.4			5.0			5.1
Expected return on plan assets	(13.2		)	(16.1		)	(13.7		)	(8.2		)	—			—
Settlement	2.7			—			—			—			—			—
Amortization of unrecognized prior service benefit	(0.6		)	—			(0.6		)	—			(4.7		)	(4.8		)
Amortization of unrecognized loss	4.9			3.6			6.2			3.9			2.0			3.7
Net periodic benefit cost	$	2.9		$	11.1		$	0.6		$	17.4		$	2.5		$	4.3

(12) Stock-Based Compensation

Under the Company's 2004 Stock Incentive Plan ("2004 Plan"), the Company granted options to purchase shares of the Company's common stock at the fair market value on the date of grant. The options vested over periods up to three years and have a term of 10 years from date of grant. At its November 2007 meeting, the Company's Compensation Committee decided that restricted common stock awards and stock units ("restricted stock") would be awarded in place of stock options for long-term incentive award grants to employees. Restricted stock granted to employees vests 50% after two years and the remainder after three years from the date of grant. Restricted stock granted to non-employee directors generally vests on the anniversary date of the grant. In February 2014, the Company's Board of Directors replaced the expired 2004 Plan by adopting the BorgWarner Inc. 2014 Stock Incentive Plan ("the 2014 Plan"). On April 30, 2014, the Company's stockholders approved the 2014 Plan. Under the 2014 Plan, approximately 8 million shares are authorized for grant and are available for future issuance as of September 30, 2014.

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Stock options A summary of the Company’s stock option activity for the nine months ended September 30, 2014 is as follows:



	Shares under option (thousands)		Weighted average exercise price		Weighted average remaining contractual life (in years)	Aggregate intrinsic value (in millions)
Outstanding and exercisable at December 31, 2013	1,997		$	15.82	2.6	$	80.0
Exercised	(54	)	$	14.41
Outstanding and exercisable at March 31, 2014	1,943		$	15.86	2.4	$	88.6
Exercised	(101	)	$	14.03
Outstanding and exercisable at June 30, 2014	1,842		$	15.96	2.2	$	90.7
Exercised	(114	)	$	13.73
Outstanding and exercisable at September 30, 2014	1,728		$	16.10	1.9	$	63.1

Restricted stock The value of restricted stock is determined by the market value of the Company’s common stock at the date of grant. In 2014, restricted stock in the amount of 426,150 shares was granted to employees. Restricted stock in the amount of 18,730 shares was granted to non-employee directors under the 2014 Stock Incentive Plan in 2014. The value of the awards is recorded as unearned compensation within capital in excess of par value in equity and is amortized as compensation expense over the restriction periods.

The Company recorded restricted stock compensation expense of $5.4 million and $15.3 million for the three and nine months ended September 30, 2014, respectively, and $4.9 million and $20.8 million for the three and nine months ended September 30, 2013, respectively.

During the fourth quarter of 2012, the Company waived the forfeiture provision associated with future restricted stock grants made to certain retiring Named Executive Officers. The expense of $20.8 million for the nine months ended September 30, 2013 includes $5.5 million of expense related to the grant of restricted stock awards to these Named Executive Officers.

A summary of the Company’s nonvested restricted stock for the nine months ended September 30, 2014 is as follows:



	Shares subject to restriction (thousands)		Weighted average price
Nonvested at December 31, 2013	1,411		$	37.86
Granted	420		$	53.90
Vested	(498	)	$	37.38
Forfeited	(16	)	$	39.54
Nonvested at March 31, 2014	1,317		$	43.08
Granted	22		$	62.04
Vested	(31	)	$	37.84
Forfeited	(15	)	$	41.77
Nonvested at June 30, 2014	1,293		$	43.54
Granted	3		$	62.14
Vested	(1	)	$	35.95
Forfeited	(15	)	$	42.85
Nonvested at September 30, 2014	1,280		$	43.60

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(13) Accumulated Other Comprehensive Loss

The following tables summarize the activity within accumulated other comprehensive loss during the nine months ended September 30, 2014 and September 30, 2013:



(millions of dollars)	Foreign currency translation adjustments			Hedge instruments			Defined benefit postretirement plans			Other			Total
Beginning Balance, December 31, 2013	$	181.1		$	(16.0	)	$	(181.5	)	$	2.4		$	(14.0	)
Comprehensive loss before reclassifications	(199.9		)	16.7			—			(0.1		)	(183.3		)
Income taxes associated with comprehensive income (loss) before reclassifications	—			(5.7		)	—			—			(5.7		)
Reclassification from accumulated other comprehensive income	—			0.2			5.2			—			5.4
Income taxes reclassified into net earnings	—			0.1			(2.4		)	—			(2.3		)
Ending Balance September 30, 2014	$	(18.8	)	$	(4.7	)	$	(178.7	)	$	2.3		$	(199.9	)



(millions of dollars)	Foreign currency translation adjustments		Hedge instruments			Defined benefit postretirement plans			Other		Total
Beginning Balance, December 31, 2012	$	140.8	$	(37.2	)	$	(225.8	)	$	0.9	$	(121.3	)
Comprehensive loss before reclassifications	4.7		12.1			1.4			0.5		18.7
Income taxes associated with comprehensive loss before reclassifications	—		(8.5		)	—			—		(8.5		)
Reclassification from accumulated other comprehensive income	—		8.7			8.4			—		17.1
Income taxes reclassified into net earnings	—		1.7			1.3			—		3.0
Ending Balance September 30, 2013	$	145.5	$	(23.2	)	$	(214.7	)	$	1.4	$	(91.0	)

(14) Contingencies

In the normal course of business, the Company is party to various commercial and legal claims, actions and complaints, including matters involving warranty claims, intellectual property claims, general liability and various other risks. It is not possible to predict with certainty whether or not the Company will ultimately be successful in any of these commercial and legal matters or, if not, what the impact might be. The Company's environmental and product liability contingencies are discussed separately below. The Company's management does not expect that an adverse outcome in any of these commercial and legal claims, actions and complaints will have a material adverse effect on the Company's results of operations, financial position or cash flows, although it could be material to the results of operations in a particular quarter.

Litigation

In January 2006, BorgWarner Diversified Transmission Products Inc. ("DTP"), a subsidiary of the Company, filed a declaratory judgment action in United States District Court, Southern District of Indiana (Indianapolis Division) against the United Automobile, Aerospace, and Agricultural Implements Workers of America (“UAW”) Local No. 287 and Gerald Poor, individually and as the representative of a defendant class. DTP sought the Court's affirmation that DTP did not violate the Labor-Management Relations Act or the Employee Retirement Income Security Act (ERISA) by unilaterally amending certain medical plans effective April 1, 2006 and October 1, 2006, prior to the expiration of the then-current collective bargaining agreements. On September 10, 2008, the Court found that DTP's reservation of the right to make such amendments reducing the level of benefits provided to retirees was limited by its collectively bargained

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health insurance agreement with the UAW, which did not expire until April 24, 2009. Thus, the amendments were untimely. In 2008, the Company recorded a charge of $4.0 million as a result of the Court's decision.

DTP filed a declaratory judgment action in the United States District Court, Southern District of Indiana (Indianapolis Division) against the UAW Local No. 287 and Jim Barrett and others, individually and as representatives of a defendant class, on February 26, 2009 again seeking the Court's affirmation that DTP did not violate the Labor - Management Relations Act or ERISA by modifying the level of benefits provided retirees to make them comparable to other Company retiree benefit plans after April 24, 2009. Certain retirees, on behalf of themselves and others, filed a mirror-image action in the United States District Court, Eastern District of Michigan (Southern Division) on March 11, 2009, for which a class has been certified. During the last quarter of 2009, the action pending in Indiana was dismissed, while the action in Michigan is continuing. The Company is vigorously defending against the suit. This contingency is subject to many uncertainties, therefore based on the information available to date, the Company cannot reasonably estimate the amount or the range of potential loss, if any.

Environmental

The Company and certain of its current and former direct and indirect corporate predecessors, subsidiaries and divisions have been identified by the United States Environmental Protection Agency and certain state environmental agencies and private parties as potentially responsible parties (“PRPs”) at various hazardous waste disposal sites under the Comprehensive Environmental Response, Compensation and Liability Act (“Superfund”) and equivalent state laws and, as such, may presently be liable for the cost of clean-up and other remedial activities at 27 such sites. Responsibility for clean-up and other remedial activities at a Superfund site is typically shared among PRPs based on an allocation formula.

The Company believes that none of these matters, individually or in the aggregate, will have a material adverse effect on its results of operations, financial position or cash flows. Generally, this is because either the estimates of the maximum potential liability at a site are not material or the liability will be shared with other PRPs, although no assurance can be given with respect to the ultimate outcome of any such matter.

Based on information available to the Company (which in most cases includes: an estimate of allocation of liability among PRPs; the probability that other PRPs, many of whom are large, solvent public companies, will fully pay the cost apportioned to them; currently available information from PRPs and/or federal or state environmental agencies concerning the scope of contamination and estimated remediation and consulting costs; and remediation alternatives), the Company has an accrual for indicated environmental liabilities of $6.8 million and $4.0 million at September 30, 2014 and at December 31, 2013, respectively. The Company expects to pay out substantially all of the amounts accrued for environmental liability over the next five years.

In connection with the sale of Kuhlman Electric Corporation (“Kuhlman Electric”), the Company agreed to indemnify the buyer and Kuhlman Electric for certain environmental liabilities, then unknown to the Company, relating to certain operations of Kuhlman Electric that pre-date the Company's 1999 acquisition of Kuhlman Electric. The Company previously settled or obtained dismissals of various lawsuits that were filed against Kuhlman Electric and others, including the Company, on behalf of plaintiffs alleging personal injury relating to alleged environmental contamination at its Crystal Springs, Mississippi plant. The Company filed a lawsuit against Kuhlman Electric and a related entity challenging the validity of the indemnity and the defendants filed counterclaims and a related lawsuit. In addition, two lawsuits by plaintiffs alleging environmental contamination relating to Kuhlman Electric's Crystal Springs plant are still pending and the Company may in the future become subject to further legal proceedings.

Product Liability

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related personal injury actions. We believe that the Company's involvement is limited because, in general, these claims relate to a few types of automotive friction products that were manufactured many years ago and contained encapsulated asbestos. The nature of the fibers, the encapsulation and the manner of use lead the Company to believe that these products are highly unlikely to cause harm. As of September 30, 2014 and December 31, 2013, the Company had approximately 18,000 and 17,000 pending asbestos-related product liability claims, respectively. Of the approximately 18,000 outstanding claims at September 30, 2014, approximately half were pending in jurisdictions that have undergone significant tort and judicial reform activities subsequent to the filing of these claims.

The Company's policy is to vigorously defend against these lawsuits and the Company has been successful in obtaining dismissal of many claims without any payment. The Company expects that the vast majority of the pending asbestos-related product liability claims where it is a defendant (or has an obligation to indemnify a defendant) will result in no payment being made by the Company or its insurers. In 2014, of the approximately 1,500 claims resolved, 299 (20%) resulted in payment being made to a claimant by or on behalf of the Company. In the full year of 2013, of the approximately 1,500 claims resolved, 297 (20%) resulted in payment being made to a claimant by or on behalf of the Company.

Prior to June 2004, the settlement and defense costs associated with all claims were paid by the Company's primary layer insurance carriers under a series of funding arrangements. In addition to the primary insurance available for asbestos-related claims, the Company has substantial excess insurance coverage available for potential future asbestos-related product claims. In June 2004, primary layer insurance carriers notified the Company of the alleged exhaustion of their policy limits.

A declaratory judgment action was filed in January 2004 in the Circuit Court of Cook County, Illinois by Continental Casualty Company and related companies against the Company and certain of its historical general liability insurers. The court has issued a number of interim rulings and discovery is continuing. The Company has entered into settlement agreements with some of its insurance carriers, resolving their coverage disputes by agreeing to pay specified amounts to the Company. The Company is vigorously pursuing the litigation against the remaining insurers.

In August 2013, the Los Angeles Superior Court entered a jury verdict against the Company in an asbestos-related personal injury action with damages of $35.0 million, $32.5 million of which was non-compensatory and will not be recoverable through insurance if the verdict is upheld. The Company has appealed this verdict. The Company posted a surety bond of $55.0 million related to the appeal. The Company cannot predict the outcome of this pending litigation and therefore cannot reasonably estimate the amount of possible loss, if any, that could result from this action.

Although it is impossible to predict the outcome of pending or future claims or the impact of tort reform legislation that may be enacted at the state or federal levels, due to the encapsulated nature of the products, the Company's experience in vigorously defending and resolving claims in the past, and the Company's significant insurance coverage with solvent carriers as of the date of this filing, management does not believe that asbestos-related product liability claims are likely to have a material adverse effect on the Company's results of operations, financial position or cash flows.

To date, the Company has paid and accrued $323.7 million in defense and indemnity in advance of insurers' reimbursement and has received $124.9 million in cash and notes from insurers. The net balance of $198.8 million, is expected to be fully recovered. Timing of recovery is dependent on final resolution of the declaratory judgment action referred to above or additional negotiated settlements. At December 31, 2013, insurers owed $153.6 million in association with these claims.

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from the insurance carriers, which is expected to be fully recovered. Receipt of these proceeds is not expected prior to the resolution of the declaratory judgment action referred to above, which is expected to occur subsequent to September 30, 2015. At December 31, 2013, the comparable value of the accrued liability and associated insurance asset was $96.7 million.

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



(millions of dollars)	September 30, 2014		December 31, 2013
Assets:
Other non-current assets	$	111.8	$	96.7
Total insurance assets	$	111.8	$	96.7
Liabilities:
Accounts payable and accrued expenses	$	46.8	$	41.1
Other non-current liabilities	65.0		55.6
Total accrued liabilities	$	111.8	$	96.7

The 2014 increase in the accrued liability and associated insurance asset is primarily due to an expected higher rate of claim settlement based on recent litigation claim activity.

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

(15) Restructuring

In the fourth quarter of 2013, the Company initiated actions primarily in the Drivetrain segment designed to improve future profitability and competitiveness. As a continuation of these actions, in the first quarter of 2014, the Company finalized severance agreements with two labor unions at separate facilities in Western Europe for approximately 350 employees. The Company recorded $7.4 million and $52.2 million of restructuring expense in the three and nine months ended September 30, 2014, respectively, related to these facilities. Included in this restructuring expense are employee termination benefits of $5.3 million and $43.8 million, respectively, and other expense of $2.1 million and $8.4 million, respectively.

The Company expects additional restructuring expenses to be incurred over the next two years related to the Drivetrain segment, including approximately $15 million of employee termination benefits associated with the severance agreements discussed above. These expenses will be recognized as employees render service in accordance with terms of the agreements. Future cash payments for these restructuring activities are expected to be complete by the end of 2015.

On February 28, 2014, the Company acquired 100% of the equity interests in Gustav Wahler GmbH u. Co. KG and its general partner ("Wahler"). In the second quarter of 2014, the Company initiated actions to improve the future profitability and competitiveness of Wahler and recorded $2.2 million and $5.3 million of employee termination benefits in the three and nine months ended September 30, 2014, respectively. These termination benefits relate to approximately 80 employees in Germany, Brazil and China. The Company expects additional restructuring expenses to be incurred over the next two years related to the Wahler acquisition.

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Estimates of restructuring expense are based on information available at the time such charges are recorded. Due to the inherent uncertainty involved in estimating restructuring expenses, actual amounts paid for such activities may differ from amounts initially recorded. Accordingly, the Company may record revisions of previous estimates by adjusting previously established accruals.

The Company recorded $3.5 million and $6.6 million of restructuring expense in the three and nine months ended September 30, 2014, respectively, related to a global realignment plan intended to enhance treasury management flexibility by creating a legal entity structure that better aligns with the Company's business strategy.

The following table displays a rollforward of the employee related restructuring accruals recorded within the Company's Consolidated Balance Sheet and the related cash flow activity for the nine months ended September 30, 2014:



	Employee Related Accruals
(millions of dollars)	Drivetrain			Engine			Total
Balance at December 31, 2013	$	8.4		$	2.8		$	11.2
Provision	32.1			0.7			32.8
Cash payments	(1.2		)	(1.6		)	(2.8		)
Translation adjustment	—			—			—
Balance at March 31, 2014	$	39.3		$	1.9		$	41.2
Provision	6.4			3.6			10.0
Cash payments	(2.7		)	(3.9		)	(6.6		)
Translation adjustment	(0.2		)	—			(0.2		)
Balance at June 30, 2014	$	42.8		$	1.6		$	44.4
Provision	5.3			2.2			7.5
Cash payments	(1.1		)	(1.4		)	(2.5		)
Translation adjustment	(3.2		)	(0.2		)	(3.4		)
Balance at September 30, 2014	$	43.8		$	2.2		$	46.0

(16) Earnings Per Share

The Company presents both basic and diluted earnings per share of common stock (“EPS”) amounts. Basic EPS is calculated by dividing net earnings attributable to BorgWarner Inc. by the weighted average shares of common stock outstanding during the reporting period. Diluted EPS is calculated by dividing net earnings attributable to BorgWarner Inc. by the weighted average shares of common stock and common equivalent stock outstanding during the reporting period.

The dilutive impact of stock-based compensation is calculated using the treasury stock method. The treasury stock method assumes that the Company uses the assumed proceeds from the exercise of awards to repurchase common stock at the average market price during the period. The assumed proceeds under the treasury stock method include the purchase price that the grantee will pay in the future, compensation cost for future service that the Company has not yet recognized and any windfall/(shortfall) tax benefits that would be credited/(debited) to capital in excess of par value when the award generates a tax deduction. Options are only dilutive when the average market price of the underlying common stock exceeds the exercise price of the options.

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The following table reconciles the numerators and denominators used to calculate basic and diluted earnings per share of common stock:



	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions, except per share amounts)	2014		2013		2014		2013
Basic earnings per share:
Net earnings attributable to BorgWarner Inc.	$	166.6	$	166.8	$	515.9	$	482.9
Weighted average shares of common stock outstanding	227.077		227.638		227.395		229.168
Basic earnings per share of common stock	$	0.73	$	0.73	$	2.27	$	2.11

Diluted earnings per share:
Net earnings attributable to BorgWarner Inc.	$	166.6	$	166.8	$	515.9	$	482.9

Weighted average shares of common stock outstanding	227.077		227.638		227.395		229.168

Effect of stock-based compensation	1.591		2.838		1.827		2.768

Weighted average shares of common stock outstanding including dilutive shares	228.668		230.476		229.222		231.936
Diluted earnings per share of common stock	$	0.73	$	0.72	$	2.25	$	2.08

(17) Reporting Segments

The Company's business is comprised of two reporting segments: Engine and Drivetrain. These segments are strategic business groups, which are managed separately as each represents a specific grouping of related automotive components and systems.

The Company allocates resources to each segment based upon the projected after-tax return on invested capital ("ROIC") of its business initiatives. ROIC is comprised of Adjusted EBIT after deducting notional taxes compared to the projected average capital investment required. Adjusted EBIT is comprised of earnings before interest, income taxes and noncontrolling interest (“EBIT") adjusted for restructuring, goodwill impairment charges, affiliates' earnings and other items not reflective of on-going operating income or loss.

Adjusted EBIT is the measure of segment income or loss used by the Company. The Company believes Adjusted EBIT is most reflective of the operational profitability or loss of our reporting segments. The following tables show segment information and Adjusted EBIT for the Company's reporting segments.

Net Sales by Reporting Segment



	Three Months Ended September 30,						Nine Months Ended September 30,
(millions of dollars)	2014			2013			2014			2013
Engine	$	1,412.4		$	1,210.3		$	4,322.0		$	3,756.1
Drivetrain	627.0			604.0			2,016.4			1,818.9
Inter-segment eliminations	(7.3		)	(8.1		)	(25.2		)	(23.8		)
Net sales	$	2,032.1		$	1,806.2		$	6,313.2		$	5,551.2

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Adjusted Earnings Before Interest, Income Taxes and Noncontrolling Interest (“Adjusted EBIT”)



	Three Months Ended September 30,						Nine Months Ended September 30,
(millions of dollars)	2014			2013			2014			2013
Engine	$	222.6		$	195.5		$	696.0		$	618.1
Drivetrain	68.0			65.9			237.6			181.7
Adjusted EBIT	290.6			261.4			933.6			799.8
Restructuring expense	13.1			—			67.6			—
Pension settlement	2.7			—			2.7			—
Program termination agreement	—			—			—			11.3
Retirement related obligations	—			—			—			5.9
Corporate, including equity in affiliates' earnings and stock-based compensation	22.3			25.4			76.0			83.9
Interest income	(1.4		)	(1.3		)	(4.3		)	(3.3		)
Interest expense and finance charges	9.0			8.1			26.2			26.6
Earnings before income taxes and noncontrolling interest	244.9			229.2			765.4			675.4
Provision for income taxes	71.9			56.3			225.3			173.8
Net earnings	173.0			172.9			540.1			501.6
Net earnings attributable to the noncontrolling interest, net of tax	6.4			6.1			24.2			18.7
Net earnings attributable to BorgWarner Inc.	$	166.6		$	166.8		$	515.9		$	482.9

Total Assets



(millions of dollars)	September 30, 2014		December 31, 2013
Engine	$	3,968.6	$	3,519.1
Drivetrain	1,793.6		1,786.6
Total	5,762.2		5,305.7
Corporate (a)	1,520.1		1,611.3
Total assets	$	7,282.3	$	6,917.0

____________________________________


(a)	Corporate assets include investments and advances and deferred income taxes.

(18) Recent Transactions

On February 28, 2014, the Company acquired 100% of the equity interests in Wahler. Wahler is a producer of exhaust gas recirculation ("EGR") valves, EGR tubes and thermostats, and has operations in Germany, Brazil, the U.S., China and Slovakia. The cash paid, net of cash acquired was $106.4 million (77.1 million Euro).

The Wahler acquisition is expected to strengthen the Company's strategic position as a producer of complete EGR systems and create additional market opportunities in both passenger and commercial vehicle applications.

The operating results and assets are reported within the Company's Engine reporting segment as of the date of the acquisition. The impact of Wahler is not expected to be material to 2014 consolidated revenues and earnings. The Company paid $106.4 million, which is recorded as an investing activity in the Company's Condensed Consolidated Statement of Cash Flows. Additionally, the Company assumed retirement-related liabilities of $3.2 million and assumed debt of $40.3 million, which are reflected in the supplemental cash flow information on the Company's Condensed Consolidated Statement of Cash Flows.

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The following table summarizes the aggregated estimated fair value of the assets acquired and liabilities assumed on February 28, 2014, the date of acquisition:



(millions of dollars)
Receivables, net	$	55.2
Inventories, net	47.1
Property, plant and equipment, net	55.3
Goodwill	56.3
Other intangible assets	42.7
Other assets and liabilities	(32.5		)
Accounts payable and accrued expenses	(74.2		)
Total consideration, net of cash acquired	149.9

Less: Assumed retirement-related liabilities	3.2
Less: Assumed debt	40.3
Cash paid, net of cash acquired	$	106.4

In connection with the acquisition, the Company capitalized $24.9 million for customer relationships, $10.2 million for know-how, $4.1 million for patented technology and $3.5 million for the Wahler trade name. Customer relationships and know-how will be amortized over a period of up to 15 years, patented technology will be amortized over seven years and the Wahler trade name will not be amortized as it has an indefinite useful life. The income approach was used to determine the fair value of all intangible assets. Additionally, $22.4 million in goodwill is expected to be non-deductible for tax purposes.

The Company is in the process of finalizing all purchase accounting adjustments related to the Wahler acquisition. The Company has recorded fair value adjustments based on new information obtained during the measurement period. These adjustments have resulted in an increase in goodwill of $9.0 million from the Company's initial estimate. Subsequent adjustments may be necessary based on the finalization of certain estimates, including additional fair value or working capital adjustments.

(19) New Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board amended the Accounting Standards Codification to add Topic 606, "Revenue from Contracts with Customers," outlining a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and superseding most current revenue recognition guidance. This guidance is effective for interim and annual reporting periods beginning after December 15, 2016. The Company is currently evaluating the impact this guidance will have on its Consolidated Financial Statements.

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Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

INTRODUCTION

BorgWarner Inc. and Consolidated Subsidiaries (the “Company”) is a leading global supplier of highly engineered automotive systems and components primarily for powertrain applications. Our products help improve vehicle performance, fuel efficiency, stability and air quality. These products are manufactured and sold worldwide, primarily to original equipment manufacturers (“OEMs”) of light vehicles (passenger cars, sport-utility vehicles ("SUVs"), vans and light trucks). The Company's products are also sold to other OEMs of commercial vehicles (medium-duty trucks, heavy-duty trucks and buses) and off-highway vehicles (agricultural and construction machinery and marine applications). We also manufacture and sell our products to certain Tier One vehicle systems suppliers and into the aftermarket for light, commercial and off-highway vehicles. The Company operates manufacturing facilities serving customers in the Americas, Europe and Asia and is an original equipment supplier to every major automotive OEM in the world.

The Company's products fall into two reporting segments: Engine and Drivetrain. The Engine segment's products include turbochargers, timing devices and chain products, emissions systems, thermal systems, diesel cold start and gasoline ignition technology. The Drivetrain segment's products include transmission components and systems and all-wheel drive torque management systems.

Stock Split

On November 13, 2013, the Company's Board of Directors declared a two-for-one stock split effected in the form of a stock dividend on our common stock. To implement this stock split, shares of common stock were issued on December 16, 2013 to stockholders of record as of the close of business on December 2, 2013. All prior year share and per share amounts disclosed in this document have been restated to reflect the two-for-one stock split.

RESULTS OF OPERATIONS

Three Months Ended September 30, 2014 vs. Three Months Ended September 30, 2013

Net sales for the three months ended September 30, 2014 totaled $2,032.1 million, a 12.5% increase from the three months ended September 30, 2013. Excluding the impact of the 2014 acquisition of Gustav Wahler GmbH u. Co. KG and its general partner ("Wahler") and strengthening foreign currencies, primarily the Won, partially offset by the weakening Yen, net sales increased approximately 8%.

Cost of sales as a percentage of net sales increased to 79.1% in the three months ended September 30, 2014 from 79.0% in the three months ended September 30, 2013. Gross profit and gross margin were $424.5 million and 20.9% in the three months ended September 30, 2014 compared to $379.6 million and 21.0% in the three months ended September 30, 2013. The Company's material cost of sales was approximately 50% of net sales in both the three months ended September 30, 2014 and 2013. The Company's remaining cost to convert raw material to finished product (conversion cost) slightly increased compared to the three months ended September 30, 2013.

Selling, general and administrative ("SG&A") expenses for the three months ended September 30, 2014 increased $16.8 million to $174.5 million from $157.7 million. SG&A as a percentage of net sales was 8.6% in the three months ended September 30, 2014, down slightly from 8.7% in the three months ended September 30, 2013. Research and Development ("R&D") expenses, which are included in SG&A expenses, increased $13.5 million to $85.3 million from $71.8 million as compared to the three months ended September 30, 2013. As a percentage of net sales, R&D expenses were 4.2% in the three months ended September 30, 2014 compared to 4.0% in the three months ended September 30, 2013. Our continued investment in a number of cross-business R&D programs, as well as other key programs, is necessary for the Company’s

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short- and long-term growth. The SG&A expense increase is also reflective of the first quarter 2014 acquisition of Wahler.

Other expense, net of $12.3 million for the three months ended September 30, 2014 is primarily related to $13.1 million of restructuring expense primarily associated with both the Drivetrain and Engine segments. The Drivetrain segment charges primarily represent a continuation of expenses associated with the first quarter 2014 finalization of severance agreements with two labor unions at separate facilities in Western Europe for approximately 350 employees. The Engine segment charges primarily relate to the restructuring of the Wahler acquisition. Both the Drivetrain and Engine restructuring actions are designed to improve the future profitability and competitiveness of each segment. The Company estimates that additional restructuring expense of approximately $35 million and $23 million will be incurred over the next two years related to the Drivetrain and Engine segment restructuring plans, respectively. The Company also recorded restructuring charges related to a global realignment plan intended to enhance treasury management flexibility by creating a legal entity structure that better aligns with the Company's business strategy. Other expense, net for the three months ended September 30, 2014 also includes a pension plan settlement loss of $2.7 million related to lump-sum payments made to former employees of the Company to discharge its obligation under the plan.

Equity in affiliates’ earnings of $14.8 million increased $4.4 million as compared with the three months ended September 30, 2013 primarily due to higher earnings from the Company's 50% interest in NSK-Warner.

At September 30, 2014, the Company's effective tax rate for the first nine months was 29.4%, which includes tax benefits of $11.9 million and $0.9 million related to restructuring expense and the pension plan settlement loss, respectively, discussed in the Other Expense (Income), net footnote. Excluding the impact of these non-comparable items, the Company has estimated its annual effective tax rate associated with ongoing operations to be approximately 28.5% for the year ending December 31, 2014.

The Company’s earnings per diluted share were $0.73 and $0.72 for the three months ended September 30, 2014 and 2013, respectively. The Company believes the following table is useful in highlighting non-comparable items that impacted its earnings per diluted share.



	Three Months Ended September 30, 2014			Three Months Ended September 30, 2013
Non-comparable items:
Restructuring expense	$	(0.05	)	$	—
Pension settlement	(0.01		)	—
Tax adjustments	—			0.02
Total impact of non-comparable items per share — diluted	$	(0.06	)	$	0.02

Nine Months Ended September 30, 2014 vs. Nine Months Ended September 30, 2013

Net sales for the nine months ended September 30, 2014 totaled $6,313.2 million, a 13.7% increase from the nine months ended September 30, 2013. Excluding the impact of 2014 acquisition of Wahler and

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strengthening foreign currencies, primarily the Euro and Won, partially offset by the weakening Real and Yen, net sales increased approximately 8%.

Cost of sales as a percentage of net sales decreased to 78.7% in the nine months ended September 30, 2014 from 79.3% in the nine months ended September 30, 2013. Gross profit and gross margin were $1,343.1 million and 21.3% in the nine months ended September 30, 2014 compared to $1,150.9 million and 20.7% in the nine months ended September 30, 2013. The Company's material cost of sales was approximately 50% of net sales in both the nine months ended September 30, 2014 and 2013. The Company's remaining cost to convert raw material to finished product (conversion cost) slightly decreased compared to the nine months ended September 30, 2013.

SG&A expenses for the nine months ended September 30, 2014 increased $56.9 million to $529.5 million from $472.6 million. SG&A as a percentage of net sales was 8.4% for the nine months ended September 30, 2014, down slightly from 8.5% for the nine months ended September 30, 2013. The increase in SG&A is primarily due to higher R&D expenses during the nine months ended September 30, 2014. R&D expenses, which are included in SG&A expenses, increased $41.2 million to $257.4 million from $216.2 million as compared to the nine months ended September 30, 2013. As a percentage of net sales, R&D expenses were 4.1% and 3.9% in the nine months ended September 30, 2014 and 2013, respectively. Our continued investment in a number of cross-business R&D programs, as well as other key programs, is necessary for the Company’s short- and long-term growth. The SG&A expense increase is also reflective of the first quarter 2014 acquisition of Wahler.

Other expense, net of $62.1 million for the nine months ended September 30, 2014 is primarily related to $67.6 million of restructuring expense primarily associated with both the Drivetrain and Engine segments. The Drivetrain segment charges primarily represent a continuation of expenses associated with the first quarter 2014 finalization of severance agreements with two labor unions at separate facilities in Western Europe for approximately 350 employees. The Engine segment charges primarily relate to the restructuring of the Wahler acquisition. Both the Drivetrain and Engine restructuring actions are designed to improve the future profitability and competitiveness of each segment. The Company estimates that additional restructuring expense of approximately $35 million and $23 million will be incurred over the next two years related to the Drivetrain and Engine segment restructuring plans, respectively. The Company also recorded restructuring charges related to a global realignment plan intended to enhance treasury management flexibility by creating a legal entity structure that better aligns with the Company's business strategy. Other expense, net for the nine months ended September 30, 2014 also includes a pension plan settlement loss of $2.7 million related to lump-sum payments made to former employees of the Company to discharge its obligation under the plan.

Other expense, net of $10.8 million for the nine months ended September 30, 2013 is primarily related to an $11.3 million expense associated with a program termination agreement and a $5.9 million retirement related obligation related to a first quarter 2013 grant of restricted stock awards to certain retiring Named Executive Officers, which resulted from the Company's fourth quarter 2012 decision to waive the forfeiture provision associated with future restricted stock grants made to these Named Executive Officers.

Equity in affiliates’ earnings of $35.8 million increased $4.6 million as compared with the nine months ended September 30, 2013 primarily due to higher earnings from the Company's 50% interest in NSK-Warner.

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The Company’s earnings per diluted share were $2.25 and $2.08 for the nine months ended September 30, 2014 and 2013, respectively. The Company believes the following table is useful in highlighting non-comparable items that impacted its earnings per diluted share.



	Nine Months Ended September 30, 2014			Nine Months Ended September 30, 2013
Non-comparable items:
Restructuring expense	$	(0.24	)	$	—
Pension settlement	(0.01		)	—
Program termination agreement	—			(0.03		)
Retirement related obligations	—			(0.02		)
Tax adjustments	—			0.03
Total impact of non-comparable items per share — diluted	$	(0.25	)	$	(0.02	)

Reporting Segments

Net Sales by Reporting Segment



	Three Months Ended September 30,						Nine Months Ended September 30,
(millions of dollars)	2014			2013			2014			2013
Engine	$	1,412.4		$	1,210.3		$	4,322.0		$	3,756.1
Drivetrain	627.0			604.0			2,016.4			1,818.9
Inter-segment eliminations	(7.3		)	(8.1		)	(25.2		)	(23.8		)
Net sales	$	2,032.1		$	1,806.2		$	6,313.2		$	5,551.2

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Adjusted Earnings Before Interest, Income Taxes and Noncontrolling Interest (“Adjusted EBIT”)



	Three Months Ended September 30,						Nine Months Ended September 30,
(millions of dollars)	2014			2013			2014			2013
Engine	$	222.6		$	195.5		$	696.0		$	618.1
Drivetrain	68.0			65.9			237.6			181.7
Adjusted EBIT	290.6			261.4			933.6			799.8
Restructuring expense	13.1			—			67.6			—
Pension settlement	2.7			—			2.7			—
Program termination agreement	—			—			—			11.3
Retirement related obligations	—			—			—			5.9
Corporate, including equity in affiliates' earnings and stock-based compensation	22.3			25.4			76.0			83.9
Interest income	(1.4		)	(1.3		)	(4.3		)	(3.3		)
Interest expense and finance charges	9.0			8.1			26.2			26.6
Earnings before income taxes and noncontrolling interest	244.9			229.2			765.4			675.4
Provision for income taxes	71.9			56.3			225.3			173.8
Net earnings	173.0			172.9			540.1			501.6
Net earnings attributable to the noncontrolling interest, net of tax	6.4			6.1			24.2			18.7
Net earnings attributable to BorgWarner Inc.	$	166.6		$	166.8		$	515.9		$	482.9

Three Months Ended September 30, 2014 vs. Three Months Ended September 30, 2013

The Engine segment net sales increased $202.1 million, or 16.7%, from the three months ended September 30, 2013. Excluding the impact of the 2014 Wahler acquisition and strengthening foreign currencies, primarily the Won, partially offset by the weaking Yen, net sales increased approximately 10% from the three months ended September 30, 2013, primarily due to higher sales of turbochargers and engine timing devices. The Engine segment Adjusted EBIT margin was 15.8% in the three months ended September 30, 2014 down from 16.2% in the three months ended September 30, 2013. The decline in the Engine segment Adjusted EBIT margin was due to the Wahler acquisition, which increased sales with minimal contribution to Adjusted EBIT.

The Drivetrain segment net sales increased $23.0 million, or 3.8%, from the three months ended September 30, 2013. Excluding the impact of strengthening foreign currencies, primarily the Won, net sales increased approximately 3% from the three months ended September 30, 2013, primarily due to higher sales of dual clutch transmission modules, partially offset by a planned slow ramp-up of a major program by a North American customer. The Drivetrain segment Adjusted EBIT margin was 10.8% in the three months ended September 30, 2014 down slightly from 10.9% in the three months ended September 30, 2013.

Nine Months Ended September 30, 2014 vs. Nine Months Ended September 30, 2013

The Engine segment net sales increased $565.9 million, or 15.1%, from the nine months ended September 30, 2013. Excluding the impact of the 2014 Wahler acquisition and strengthening foreign currencies, primarily the Euro and Won, partially offset by the weakening Real and Yen, net sales increased approximately 8% from the nine months ended September 30, 2013, primarily due to higher sales of turbochargers, EGR coolers and engine timing devices. The Engine segment Adjusted EBIT margin was 16.1% in the nine months ended September 30, 2014 down from 16.5% in the nine months ended September 30, 2013. The decline in the Engine segment Adjusted EBIT margin was due to the Wahler acquisition, which increased sales with minimal contribution to Adjusted EBIT primarily due to expenses associated with purchase accounting adjustments.

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The Drivetrain segment net sales increased $197.5 million, or 10.9%, from the nine months ended September 30, 2013. Excluding the impact of strengthening foreign currencies, primarily the Euro and Won, net sales increased approximately 9% from the nine months ended September 30, 2013, primarily due to higher sales of all-wheel drive systems, traditional transmission components and dual clutch transmission modules. The Drivetrain segment Adjusted EBIT margin was 11.8% in the nine months ended September 30, 2014 up from 10.0% in the nine months ended September 30, 2013.

Outlook for 2014

Our overall outlook for 2014 is positive. The Company expects moderate global vehicle production growth in 2014 compared with 2013. However, the Company's sales growth is expected to outpace global vehicle production in 2014 due to rapid adoption of BorgWarner products around the world.

The Company maintains a positive long-term outlook for its global business and is committed to new product development and strategic capital investments to enhance its product leadership strategy. The trends that are driving our long-term growth are expected to continue, including the growth of direct injection diesel and gasoline engines worldwide, the increased adoption of automated transmissions in Europe and Asia-Pacific, and the move to variable cam and chain engine timing systems in Europe and Asia-Pacific.

FINANCIAL CONDITION AND LIQUIDITY

The Company maintains various liquidity sources including cash and cash equivalents and the unused portion of our multi-currency revolving credit agreement. At September 30, 2014, the Company had $782.8 million of cash, of which $779.1 million of cash is held by our subsidiaries outside of the United States. Cash held by these subsidiaries is used to fund foreign operational activities and future investments, including acquisitions. The vast majority of cash held outside the United States is available for repatriation, however, doing so could result in increased foreign and U.S. federal, state and local income taxes. A deferred tax liability has been recorded for the portion of these funds anticipated to be repatriated to the United States. The Company uses its U.S. liquidity for various corporate purposes, including but not limited to, debt service, share repurchases, dividend distributions and other corporate expenses.

On June 30, 2014, the Company amended and extended its $750 million multi-currency revolving credit facility (which included a feature that allowed the Company's borrowings to be increased to $1 billion) to a $1 billion multi-currency revolving credit facility (which includes a feature that allows the Company's borrowings to be increased to $1.25 billion). The facility provides for borrowings through June 30, 2019. The Company has one key financial covenant as part of the credit agreement which is a debt to EBITDA ("Earnings Before Interest, Taxes, Depreciation and Amortization") ratio. The Company was in compliance with the financial covenant at September 30, 2014 and expects to remain compliant in future periods. At September 30, 2014, the Company had no outstanding borrowings under this facility. At December 31, 2013, the Company had outstanding borrowings of $320.0 million under the multi-currency revolving credit agreement.

The total current combined borrowing capacity under the multi-currency revolving credit facility and commercial paper program cannot exceed $1 billion.

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On February 11, 2014, the Company's universal shelf registration expired. The Company filed a new universal shelf registration with the Securities and Exchange Commission on February 28, 2014. In addition to the credit facility, the Company's universal shelf registration has an unlimited amount of various debt and equity instruments that could be issued.

On January 22 and April 21, 2014, the Company’s Board of Directors declared quarterly cash dividends of $0.125 per share of common stock. On July 21, 2014, the Company’s Board of Directors declared a quarterly cash dividend of $0.13. All of these dividends were paid in the nine months ended September 30, 2014.

The Company's net debt to net capital ratio was 12.2% at September 30, 2014 versus 7.2% at December 31, 2013. This increase is primarily due to the February 28, 2014 acquisition of Wahler.

From a credit quality perspective, the Company has a credit rating of Baa2 from Moody's and BBB+ from both Standard & Poor’s and Fitch Ratings. The current outlook from Moody's is positive. The current outlook from both Standard & Poor’s and Fitch Ratings is stable. None of the Company’s debt agreements require accelerated repayment in the event of a downgrade in credit ratings.

Net cash provided by operating activities increased $31.4 million to $546.2 million in the first nine months of 2014 from $514.8 million in the first nine months of 2013. This increase primarily reflects higher earnings during the first nine months of 2014 compared with the first nine months of 2013.

Net cash used in investing activities increased $226.0 million to $501.1 million in the first nine months of 2014 from $275.1 million in the first nine months of 2013. This increase is primarily due to the $106.4 million acquisition of Wahler and higher capital expenditures, including tooling outlays.

Net cash used in financing activities increased $90.3 million to $149.5 million in the first nine months of 2014 from $59.2 million in the first nine months of 2013. This increase is primarily driven by lower net borrowings in 2014 and dividends paid to BorgWarner stockholders, partially offset by higher payments for the purchase of treasury stock in 2013.

We believe that the combination of cash from operations, cash balances, available credit facilities, and the universal shelf registration capacity will be sufficient to satisfy our cash needs for our current level of operations and our planned operations for the foreseeable future. We will continue to balance our needs for internal growth, external growth, debt reduction and cash conservation.

CONTINGENCIES

Litigation

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America (“UAW”) Local No. 287 and Gerald Poor, individually and as the representative of a defendant class. DTP sought the Court's affirmation that DTP did not violate the Labor-Management Relations Act or the Employee Retirement Income Security Act (ERISA) by unilaterally amending certain medical plans effective April 1, 2006 and October 1, 2006, prior to the expiration of the then-current collective bargaining agreements. On September 10, 2008, the Court found that DTP's reservation of the right to make such amendments reducing the level of benefits provided to retirees was limited by its collectively bargained health insurance agreement with the UAW, which did not expire until April 24, 2009. Thus, the amendments were untimely. In 2008, the Company recorded a charge of $4.0 million as a result of the Court's decision.

Environmental

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environmental contamination relating to Kuhlman Electric's Crystal Springs plant are still pending and the Company may in the future become subject to further legal proceedings.

Product Liability

Like many other industrial companies who have historically operated in the U.S., the Company (or parties the Company is obligated to indemnify) continues to be named as one of many defendants in asbestos-related personal injury actions. We believe that the Company's involvement is limited because, in general, these claims relate to a few types of automotive friction products that were manufactured many years ago and contained encapsulated asbestos. The nature of the fibers, the encapsulation and the manner of use lead the Company to believe that these products are highly unlikely to cause harm. As of September 30, 2014 and December 31, 2013, the Company had approximately 18,000 and 17,000 pending asbestos-related product liability claims, respectively. Of the approximately 18,000 outstanding claims at September 30, 2014, approximately half were pending in jurisdictions that have undergone significant tort and judicial reform activities subsequent to the filing of these claims.

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of $198.8 million, is expected to be fully recovered. Timing of recovery is dependent on final resolution of the declaratory judgment action referred to above or additional negotiated settlements. At December 31, 2013, insurers owed $153.6 million in association with these claims.

In addition to the $198.8 million net balance relating to past settlements and defense costs, the Company has estimated a liability of $111.8 million for claims asserted, but not yet resolved and their related defense costs at September 30, 2014. The Company also has a related asset of $111.8 million to recognize proceeds from the insurance carriers, which is expected to be fully recovered. Receipt of these proceeds is not expected prior to the resolution of the declaratory judgment action referred to above, which is expected to occur subsequent to September 30, 2015. At December 31, 2013, the comparable value of the accrued liability and associated insurance asset was $96.7 million.

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



(millions of dollars)	September 30, 2014		December 31, 2013
Assets:
Other non-current assets	$	111.8	$	96.7
Total insurance assets	$	111.8	$	96.7
Liabilities:
Accounts payable and accrued expenses	$	46.8	$	41.1
Other non-current liabilities	65.0		55.6
Total accrued liabilities	$	111.8	$	96.7

The 2014 increase in the accrued liability and associated insurance asset is primarily due to an expected higher rate of claim settlement based on recent litigation claim activity.

New Accounting Pronouncements

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CAUTIONARY STATEMENTS FOR FORWARD-LOOKING STATEMENTS

Statements contained in this Form 10-Q (including Management's Discussion and Analysis of Financial Condition and Results of Operations) may contain forward-looking statements as contemplated by the 1995 Private Securities Litigation Reform Act (the “Act”) that are based on management's current outlook, expectations, estimates and projections. Words such as "anticipates," "believes," "continues," "could," "designed," "effect," "estimates," "evaluates," "expects," "forecasts," "goal," "initiative," "intends," "outlook," "plans," "potential," "project," "pursue," "seek," "should," "target," "when," "would," variations of such words and similar expressions are intended to identify such forward-looking statements. All statements, other than statements of historical fact contained or incorporated by reference in this Form 10-Q, that we expect or anticipate will or may occur in the future regarding our financial position, business strategy and measures to implement that strategy, including changes to operations, competitive strengths, goals, expansion and growth of our business and operations, plans, references to future success and other such matters, are forward-looking statements. Accounting estimates, such as those described under the heading "Critical Accounting Policies" in Item 7 of our most recent Annual Report on Form 10-K, are inherently forward-looking. These statements are based on assumptions and analysis made by us in light of our experience and our perception of historical trends, current conditions and expected future developments, as well as other factors we believe are appropriate in the circumstances. Forward-looking statements are not guarantees of performance and the Company's actual results may differ materially from those expressed, projected or implied in or by the forward-looking statements.

You should not place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report. Forward-looking statements are subject to risks and uncertainties, many of which are difficult to predict and generally beyond our control. Such risks and uncertainties include: fluctuations in domestic or foreign vehicle production, the continued use by original equipment manufacturers of outside suppliers, fluctuations in demand for vehicles containing our products, changes in general economic conditions, as well as the other risks noted under Item 1A, “Risk Factors,” of our Annual Report on Form 10-K and in other reports that we file with the Securities and Exchange Commission. We do not undertake any obligation to update or announce publicly any updates to or revision to any of the forward-looking statements in this Form 10-Q to reflect any change in our expectations or any change in events, conditions, circumstances, or assumptions underlying the statements.

This section is intended to provide meaningful cautionary statements for purposes of the safe harbor provisions of the Act. This should not be construed as a complete list of all of the economic, competitive, governmental, technological and other factors that could adversely affect our expected consolidated financial position, results of operations or liquidity. Additional risks and uncertainties not currently known to us or that we currently believe are immaterial also may impair our business, operations, liquidity, financial condition and prospects.

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Item 3.Quantitative and Qualitative Disclosure About Market Risk

There have been no material changes to the information concerning our exposures to market risk as stated in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.

Item 4.Controls and Procedures

The Company maintains disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, the Company has evaluated the effectiveness of the design and operation of its disclosure controls and procedures as of the end of the period covered by this report. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that these procedures are effective. There have been no changes in internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION


Item 1.	Legal Proceedings

The Company is subject to a number of claims and judicial and administrative proceedings (some of which involve substantial amounts) arising out of the Company’s business or relating to matters for which the Company may have a contractual indemnity obligation. See Note 14 — Contingencies to the Condensed Consolidated Financial Statements for a discussion of environmental, product liability and other litigation, which is incorporated herein by reference.


Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds

The Company's Board of Directors authorized the purchase of up to 59.6 million shares of the Company's common stock. As of September 30, 2014, the Company had repurchased 50,047,053 shares under the Common Stock Repurchase Program. All shares purchased under this authorization have been and will continue to be repurchased in the open market at prevailing prices and at times and in amounts to be determined by management as market conditions and the Company's capital position warrant. The Company may use Rule 10b5-1 and 10b-18 plans to facilitate share repurchases. Repurchased shares will be deemed common stock held in treasury and may subsequently be reissued for general corporate purposes.

Employee transactions include restricted shares withheld to offset statutory minimum tax withholding that occurs upon vesting of restricted shares. The BorgWarner Inc. Amended and Restated 2004 and 2014 Stock Incentive Plans provide that the withholding obligations be settled by the Company retaining stock that is part of the Award. Withheld shares will be deemed common stock held in treasury and may subsequently be reissued for general corporate purposes.

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The following table provides information about the Company's purchases of its equity securities that are registered pursuant to Section 12 of the Exchange Act during the quarter ended September 30, 2014:



Issuer Purchases of Equity Securities
Period	Total number of shares purchased	Average price per share		Total number of shares purchased as part of publicly announced plans or programs	Maximum number of shares that may yet be purchased under the plans or programs
Month Ended July 31, 2014
Common Stock Repurchase Program	—	$	—	—	10,606,997
Employee transactions	27	$	62.25	—
Month Ended August 31, 2014
Common Stock Repurchase Program	1,054,050	$	61.67	1,054,050	9,552,947
Employee transactions	—	$	—	—
Month Ended September 30, 2014
Common Stock Repurchase Program	—	$	—	—	9,552,947
Employee transactions	316	$	62.69	—


Item 6.	Exhibits



	Exhibit 3.1/4.1		Restated By-laws of the Company, as amended.*

	Exhibit 31.1		Rule 13a-14(a)/15d-14(a) Certification of the Principal Executive Officer.*

	Exhibit 31.2		Rule 13a-14(a)/15d-14(a) Certification of the Principal Financial Officer.*

	Exhibit 32.1		Section 1350 Certifications.*

	Exhibit 101.INS		XBRL Instance Document.

	Exhibit 101.SCH		XBRL Taxonomy Extension Schema Document.

	Exhibit 101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document.

	Exhibit 101.LAB		XBRL Taxonomy Extension Label Linkbase Document.

	Exhibit 101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document.

	Exhibit 101.DEF		XBRL Taxonomy Extension Definition Linkbase Document.

____________________________________

*Filed herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.




			BorgWarner Inc.

			(Registrant)

	By		/s/ Steven G. Carlson
			(Signature)

			Steven G. Carlson

			Vice President and Controller
			(Principal Accounting Officer)

Date: October 30, 2014

Exhibit 3.1/4.1

AMENDED AND RESTATED

BY-LAWS

BORGWARNER INC.

(as amended through July 30, 2014)

___________________________

ARTICLE I

OFFICES

SECTION 1.REGISTERED OFFICE. The registered office of the Corporation shall be established and maintained at the office of The Corporation Trust Company, at 1209 West Orange Street in the City of Wilmington, County of New Castle, State of Delaware, and said corporation shall be the registered agent of this Corporation in charge thereof.

SECTION 1. OTHER OFFICES. The Corporation may have other offices, either within or without the State of Delaware, at such place or places as the Board of Directors may from time to time appoint or the business of the Corporation may require.

ARTICLE II

MEETINGS OF STOCKHOLDERS

SECTION 1. ANNUAL MEETINGS. Annual meetings of stockholders for the election of directors, and for such other business as may be stated in the notice of the meeting, shall be held at such place, either within or without the State of Delaware, and at such time and date as the Board of Directors, by resolution, shall determine and as set forth in the notice of the meeting. If the date of the annual meeting shall fall upon a legal holiday, the meeting shall be held on the next succeeding business day. At each annual meeting, the stockholders entitled to vote shall elect a Board of Directors and they may transact such other corporate business as shall be stated in the notice of the meeting.

SECTION 2. OTHER MEETINGS. Meetings of stockholders for any purpose other than the election of directors may be held at such time and place, within or without the State of Delaware, as shall be stated in the notice of the meeting.

SECTION 3. SPECIAL MEETINGS. Subject to the rights of the holders of any series of Preferred Stock, special meetings of the stockholders for any purpose or purposes may be called only by the Chairman of the Board of Directors or the Board of Directors pursuant to a resolution approved by a majority of the total number of directors or by any person or committee expressly so authorized by the Board of Directors pursuant to a resolution approved by a majority of the total number of directors.

SECTION 4. VOTING. Each stockholder shall be entitled to vote in accordance with the terms of the Certificate of Incorporation and in accordance with the provisions of these By-Laws, in person or by proxy, but no proxy shall be voted after three years from its date unless such proxy provides for a longer period.

A complete list of the stockholders entitled to vote at the ensuing election, arranged in alphabetical order, with the address of each, and the number of shares held by each, shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours for a period of at least 10 days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present.

SECTION 5. QUORUM. Except as otherwise required by law, by the Certificate of Incorporation or by these By-Laws, the presence, in person or by proxy, of stockholders holding a majority of the stock of the Corporation entitled to vote shall constitute a quorum at all meetings of the stockholders. In case a quorum shall not be present at any meeting, a majority in interest of the stockholders entitled to vote thereat, present in person or by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until the requisite amount of stock entitled to vote shall be present.

When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place are announced at the meeting at which the adjournment is taken; provided, however, that if the date of any adjourned meeting is more than 30 days after the date for which the meeting was originally noticed, or if a new record date is fixed for the adjourned meeting, notice of the place, if any, date, and time of the adjourned meeting shall be given in conformity herewith. At any adjourned meeting, any business may be transacted that might have been transacted at the original meeting.

SECTION 6. NOTICE OF MEETINGS. Written notice, stating the place, date and time of the meeting, and the nature of the business to be considered, shall be given to each stockholder entitled to vote thereat at his address as it appears on the records of the Corporation, not less than 10 nor more than 60 days before the date of the meeting, except as otherwise provided herein or required by law. Without limiting the manner by which notice otherwise may be given effectively to stockholders, any notice to stockholders may be given by electronic transmission in the manner provided in Section 232 of the General Corporation Law of the State of Delaware. No business other than that stated in the notice shall be transacted at any meeting without the unanimous consent of all the stockholders entitled to vote thereat. Any previously scheduled annual meeting of the stockholders may be postponed, and any previously scheduled special meeting of the stockholders may be postponed or cancelled by resolution of the Board of Directors upon public notice given prior to the time previously scheduled for such meeting of stockholders.

SECTION 7. NOTICE OF STOCKHOLDER BUSINESS AND NOMINATIONS.

(A) Annual Meetings of Stockholders. (1) Nominations of persons for election to the Board of Directors of the Corporation and the proposal of other business to be considered by the stockholders may be made at an annual meeting of stockholders (a) pursuant to the Corporation’s notice of meeting delivered pursuant to Section 6 of this Article II (b) by or at the direction of the Chairman or the Board of Directors or (c) by any stockholder of the Corporation who is entitled to vote at the meeting, who complied with the notice procedures set forth in clauses (2) and (3) of this paragraph (A) and this By-Law and who was a stockholder of record at the time such notice is delivered to the Secretary of the Corporation, this clause (c) shall be the exclusive means for a stockholder to make nominations or submit other business (other than matters brought under Rule 14a-8 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and included in the Corporation’s notice of meeting) before an annual meeting of stockholders.

(1) For nominations or other business to be properly brought before an annual meeting by a stockholder pursuant to clause (c) of paragraph (A)(1) of this By-Law, the stockholder must have given timely notice in writing to the Secretary of the Corporation and such other

business must otherwise be a proper matter for stockholder action. To be timely, a stockholder’s notice shall be delivered to the Secretary at the principal executive offices of the Corporation not earlier than the close of business on the 120^th day prior to nor later than the close of business on the 90^th day prior to the first anniversary of the preceding year’s annual meeting; provided, however, that in the event that the date of the annual meeting is more than 30 days before, or more than 60 days after such anniversary date, notice by the stockholder to be timely must be so delivered not earlier than the close of business on the 120^th day prior to such annual meeting and not later than the close of business on the 90^th day prior to such annual meeting or, if the first public announcement of the date of such annual meeting is less than 100 days prior to the date of such annual meeting, the 10^th day following the day on which public announcement of the date of such meeting is first made. In no event shall any adjournment or postponement of an annual meeting or the announcement thereof commence a new time period for the giving of a stockholder’s notice as described above. Such stockholder’s notice shall set forth (a) as to each person whom the stockholder proposes to nominate for election or reelection as a director (i) all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder, (ii) such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected, (iii) a description of all direct and indirect compensation and other material monetary agreements, arrangements and understandings during the past three years, and any other material relationships, between or among such stockholder and beneficial owner, if a proposal is being made on the behalf of such an owner, and their respective affiliates and associates, or others acting in concert therewith, on the one hand, and each proposed nominee, and his or her respective affiliates and associates, or others acting in concert therewith, on the other hand, including, without limitation all information that would be required to be disclosed pursuant to Rule 404 promulgated under Regulation S-K if the stockholder making the nomination and any beneficial owner on whose behalf the nomination is made, if any, or any affiliate or associate thereof or person acting in concert therewith, were the “registrant” for purposes of such rule and the nominee were a director or executive officer of such registrant; (iv) a statement whether such person, if elected, intends to tender, promptly following such person’s election or re-election, an irrevocable resignation effective upon such person’s failure to receive the required vote for re-election at the next meeting at which such person would face re-election and upon acceptance of such resignation by the Board of Directors, in accordance with the Corporation’s Corporate Governance Guideline on Director Elections and (v) with respect to each nominee for election or re-election to the Board of Directors, a completed and signed questionnaire; representation and agreement required by Article II, Section 8 of these By-Laws and any other information the Corporation may require to determine the eligibility of such proposed nominee to serve as an independent director of the Corporation or that could be material to a reasonable stockholder’s understanding of the independence, or lack thereof, of such nominee; (b) as to any other business that the stockholder proposes to bring before the meeting, set forth (i) a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting, any material interest in such business of such stockholder, the beneficial owner, if any, on whose behalf the proposal is made and (ii) a description of all agreements, arrangements and understandings between such stockholder and beneficial owner, if any and any other person or persons (including their names) in connection with the proposal of such business by such stockholder; and (c) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (i) the name and address of such stockholder, as they appear on the Corporation’s books, and of such beneficial owner, if any, (ii) (1) the class and number of shares of the Corporation that are directly or indirectly owned beneficially and of record by such stockholder and such beneficial owner, (2) any option, warrant, convertible security, stock appreciation right, or similar right with an exercise or conversion privilege or a settlement payment or mechanism at a price related to any class or series of shares of the Corporation or with a value derived in whole or in part from the value of any class or series of shares of the Corporation, whether or not such instrument or right shall be subject to settlement in the underlying class or series of capital stock of the Corporation or otherwise (a “Derivative Instrument”) directly or indirectly owned beneficially by such stockholder and any other direct or indirect opportunity to profit or share in any profit derived from any increase or decrease in the value of shares of the Corporation, (3) any proxy, contract, arrangement, understanding, or relationship pursuant to which such stockholder has a right to vote any

shares of any security of the Corporation, (4) any short interest in any security of the Corporation (for purposes of this By-Law a person shall be deemed to have a short interest in a security if such person directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has the opportunity to profit or share in any profit derived from any decrease in the value of the subject security), (5) any rights to dividends on the shares of the Corporation owned beneficially by such stockholder that are separated or separable from the underlying shares of the corporation, (6) any proportionate interest in shares of the Corporation or Derivative Instruments held, directly or indirectly, by a general or limited partnership in which such stockholder is a general partner or, directly or indirectly, beneficially owns an interest in a general partner and (7) any performance-related fees (other than an asset-based fee) that such stockholder is entitled to based on any increase or decrease in the value of shares of the Corporation or Derivative Instruments, if any, as of the date of such notice, including without limitation any such interests held by members of such stockholder’s immediate family sharing the same household (which information shall be supplemented by such stockholder and beneficial owner, if any, not later than 10 days after the record date for the meeting to disclose such ownership as of the record date), and (iii) any other information relating to such stockholder and beneficial owner, if any, that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for, as applicable, the proposal and/or for the election of directors pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder; and (iv) whether either such stockholder or beneficial owner intends to deliver a proxy statement and form of proxy to holders of, in the case of a proposal, at least the percentage of the Corporation’s voting shares required under applicable law to carry the proposal or, in the case of a nomination or nominations, a sufficient number of holders of the Corporation’s voting shares to elect such nominee or nominees (an affirmative statement of such intent, a “Solicitation Notice”).

(2) Notwithstanding anything in the second sentence of paragraph (A)(2) of this By-Law to the contrary, in the event that the number of directors to be elected to the Board of Directors of the Corporation is increased and there is no public announcement naming all of the nominees for director or specifying the size of the increased Board of Directors made by the Corporation at least 100 days prior to the first anniversary of the preceding year’s annual meeting, a stockholders notice required by this By-Law shall also be considered timely, but only, with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the 10^th day following the day on which such public announcement is first made by the Corporation.

(B) Special Meetings of Stockholders. Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the Corporation’s notice of meeting pursuant to Section 7 of this Article II. Nominations of persons for election to the Board of Directors may be made at a special meeting of stockholders at which directors are to be elected pursuant to the Corporation’s notice of meeting (a) by or at the direction of the Board of Directors or (b) by any stockholder of the Corporation who is entitled to vote at the meeting, who complies with the notice procedures set forth in this By-Law and who is a stockholder of record at the time such notice is delivered to the Secretary of the Corporation. Nominations by stockholders of persons for election to the Board of Directors may be made at such a special meeting of stockholders if the stockholder’s notice as required by paragraph (A) (2) of this By-Law shall be delivered to the Secretary at the principal executive offices of the Corporation not earlier than the close of business on the 120^th day prior to such special meeting and not later than the close of business on the later of the 90^th day prior to such special meeting or the 10^th day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. In no event shall any adjournment or postponement of a special meeting or the announcement thereof commence a new time period for the giving of a stockholder’s notice as described above.

(C) General. (1) Only persons who are nominated in accordance with the procedures set forth in this By-Law shall be eligible to serve as director and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance

with the procedures set forth in this By-Law. Except as otherwise provided by law, the Certificate of Incorporation or these By-Laws, the chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made in accordance with the procedures set forth in this By-Law and, if any proposed nomination or business is not in compliance with this By-Law, to declare that such defective proposal or nomination shall be disregarded.

(1) For purposes of this By-Law, “public announcement” shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission (the “SEC”) pursuant to Section 13, 14 or 15(d) of the Exchange Act and the rules and regulations promulgated thereunder.

(2) Notwithstanding the foregoing provisions of this By-Law, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this By-Law. Nothing in this By-Law shall be deemed to affect any rights (i) of stockholders to request inclusion of proposals in the Corporation’s proxy statement pursuant to Rule 14a-8 under the Exchange Act or (ii) of the holders of any series of Preferred Stock if and to the extent provided for under law, the Certificate of Incorporation or this By-Law.

SECTION 8. SUBMISSION OF QUESTIONNAIRE, REPRESENTATION AND AGREEMENT. To be eligible to be a nominee for election or reelection as a director of the Corporation, a person must deliver (in accordance with the time periods prescribed for delivery of notice under Section 7 of this Article II of these By-Laws) to the Secretary at the principal executive offices of the Corporation a written questionnaire with respect to the background and qualification of such person and the background of any other person or entity on whose behalf the nomination is being made (which questionnaire shall be provided by the Secretary upon written request) and a written representation and agreement (in the form provided by the Secretary upon written request) that such person (A) is not and will not become a party to (1) any agreement, arrangement or understanding with, and has not given any commitment or assurance to, any person or entity as to how such person, if elected as a director of the Corporation, will act or vote on any issue or question (a “Voting Commitment”) that has not been disclosed to the Corporation or (2) any Voting Commitment that could limit or interfere with such person’s ability to comply, if elected as a director of the Corporation, with such person’s fiduciary duties under applicable law, (B) is not and will not become a party to any agreement, arrangement or understanding with any person or entity other than the Corporation with respect to any direct or indirect compensation, reimbursement or indemnification in connection with service or action as a director that has not been disclosed therein, (C) beneficially owns, or agrees to acquire within one year if elected as a director of the Corporation, not less than 1,000 common shares of the Corporation (“Qualifying Shares”) (subject to adjustment for any stock splits or stock dividends occurring after date of such representation or agreement), will not dispose of such minimum number of shares so long as such person is a director, and has disclosed therein whether all or any portion of the Qualifying Shares were purchased with any financial assistance provided by any other person and whether any other person has any interest in the Qualifying Shares, and (D) in such person’s individual capacity and on behalf of any person or entity on whose behalf the nomination is being made, would be in compliance, if elected as a director of the Corporation, and will comply with all applicable publicly disclosed corporate governance, conflict of interest, confidentiality and stock ownership and trading policies and guidelines of the Corporation.

SECTION 9. PROCEDURE FOR ELECTION OF DIRECTORS; VOTE REQUIRED. Election of directors at all meetings of the stockholders at which directors are to be elected shall be by written ballot. Except as otherwise set forth in the Certificate of Incorporation with respect to the right of the holders of any series of Preferred Stock or any other series or class of stock to elect directors under specified circumstances, a nominee for director shall be elected to the Board of Directors if the votes cast “for” such nominee’s election exceed the votes cast “against” such nominee’s election; provided, however, that directors shall be elected by a plurality of the votes cast at any meeting of stockholders for which (a)

the Secretary of the Corporation receives a notice that a stockholder has nominated a person for election to the Board of Directors in compliance with the advance notice requirements for stockholder nominees for director set forth in Article II, Section 7(A) of these By-Laws and (b) such nomination has not been withdrawn by such stockholder on or prior to the 10^th day before the date the Corporation first mails its notice of meeting for such meeting to the stockholders. If directors are to be elected by a plurality of the votes cast, stockholders shall not be permitted to vote “against” a nominee. The Corporate Governance Committee has established procedures under which any director who is not elected shall tender his or her resignation to the Board of Directors. The Corporate Governance Committee will make a recommendation to the Board of Directors on whether to accept or reject the resignation, or whether other action should be taken. The Board of Directors will act on the Corporate Governance Committee’s recommendation and publicly disclose its decision and the rationale behind it within 90 days from the date of the certification of the election results.

Except as otherwise provided by law, the Certificate of Incorporation or these By-Laws, all matters other than the election of directors submitted to the stockholders at any meeting shall be decided by a majority of the votes cast affirmatively or negatively with respect thereto.

SECTION 10. INSPECTORS OF ELECTIONS; OPENING AND CLOSING THE POLLS. (A) The Board of Directors by resolution shall appoint one or more inspectors, which inspector or inspectors may include individuals who serve the Corporation in other capacities, including, without limitation, as officers, employees, agents or representatives of the Corporation, to act at the meetings of stockholders and make a written report thereof. One or more persons may be designated as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate has been appointed to act, or if all inspectors or alternates who have been appointed are unable to act, at a meeting of stockholders, the chairman of the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before discharging his or her duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his or her ability. The inspectors shall have the duties prescribed by the General Corporation Law of the State of Delaware.

(A) The chairman of the meeting shall fix and announce at the meeting the date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at a meeting.

SECTION 11. NO STOCKHOLDER ACTION BY WRITTEN CONSENT. Subject to the rights of the holders of any series of Preferred Stock or any other series or class of stock as set forth in the Certificate of Incorporation to elect directors under specific circumstances, any action required or permitted to be taken by the stockholders of the Corporation must be effected at an annual or special meeting of stockholders of the Corporation and may not be effected by any consent in writing by such stockholders.

ARTICLE III

DIRECTORS

SECTION 1. GENERAL POWERS. The business and affairs of the Corporation shall be managed by or under the direction of its Board of Directors. In addition to the powers and authorities by these By-Laws expressly conferred upon them, the Board of Directors may exercise all such powers of the Corporation and do all such lawful acts and things as are not by law or by the Certificate of Incorporation or by these By-Laws required to be exercised or done by the stockholders.

SECTION 2. NUMBER, TENURE AND QUALIFICATIONS. Subject to the rights of the holders of any series of Preferred Stock, or any other series or class of stock as set forth in the Certificate of Incorporation to elect directors under specified circumstances, the number of directors shall be fixed

from time to time exclusively pursuant to a resolution adopted by a majority of the total number of directors that the Corporation would have if there were no vacancies (the “Whole Board”), but shall consist of not more than 17 nor less than three directors. Each director shall hold office until his or her successor shall have been duly elected and qualified. At each annual meeting of stockholders, (i) directors elected to succeed those directors whose terms then expire shall be elected for a term of office to expire at the next annual meeting of stockholders after their election, with each director to hold office until his or her successor shall have been duly elected and qualified, and (ii) if authorized by a resolution of the Board of Directors, directors may be elected to fill any vacancy on the Board of Directors, regardless of how such vacancy shall have been created.

SECTION 3. REGULAR MEETINGS. A regular meeting of the Board of Directors shall be held without other notice than this By-Law as soon as practicable after each annual meeting of stockholders at such location as is convenient and established by the Board of Directors. The Board of Directors may, by resolution, provide the time and place for the holding of additional regular meetings without other notice than such resolution.

Unless otherwise restricted by the Certificate of Incorporation of the Corporation or these By-Laws, members of the Board of Directors, or any committee designated by the Board of Directors, may participate in any meeting of the Board of Directors or any committee thereof by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting.

SECTION 4. SPECIAL MEETINGS. Special meetings of the Board of Directors shall be called at the request of the Chairman of the Board, the President or any three members of the Board of Directors. The person or persons authorized to call special meetings of the Board of Directors may fix the place and time of the meetings.

SECTION 5. NOTICE. Notice of any special meeting shall be given to each director at his business or residence in writing or by telegram, facsimile or similar means of electronic communication or by telephone. If mailed, such notice shall be deemed adequately delivered when deposited in the United States mails so addressed, with postage thereon prepaid, at least five days before such meeting. If by telegram, such notice shall be deemed adequately delivered when the telegram is delivered to the telegraph company at least 24 hours before such meeting. If by facsimile transmission or similar means of electronic communication, such notice shall be transmitted at least 24 hours before such meeting. If by telephone, the notice shall be given at least 12 hours prior to the time set for the meeting. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board of Directors need be specified in the notice of such meeting, except for amendments to these By-Laws as provided under Article VII hereof. A meeting may be held at any time without notice if all the directors are present or if those not present waive notice of the meeting in writing, either before or after such meeting.

SECTION 6. QUORUM. A majority of the directors shall constitute a quorum for the transaction of business. If at any meeting of the Board of Directors there shall be less than a quorum present, a majority of the directors present may adjourn the meeting from time to time until a quorum is obtained, and no further notice thereof need be given other than by announcement at the meeting which shall be so adjourned. The act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors, unless the Certificate of Incorporation or these By-Laws require the vote of a greater number.

SECTION 7. VACANCIES. Subject to the rights of the holders of any series of Preferred Stock, or any other series or class of stock as set forth in the Certificate of Incorporation, to elect directors under specified circumstances, and unless the Board of Directors otherwise determines, vacancies resulting from death, resignation, retirement, disqualification, removal from office or other

cause, and newly created directorships resulting from any increase in the authorized number of directors, shall be filled only by the affirmative vote of a majority of the remaining directors, though less than a quorum of the Board of Directors, and any director so chosen shall hold office for a term expiring at the next annual meeting of stockholders and until such director’s successor shall have been duly elected and qualified. No decrease in the number of authorized directors constituting the Whole Board shall shorten the term of any incumbent director.

SECTION 8. REMOVAL. Subject to the rights of the holders of any series of Preferred Stock, or any other series or class of stock as set forth in the Certificate of Incorporation, to elect directors under specified circumstances, any director, or the entire Board of Directors, may be removed from office at any time, but only for cause and only by the affirmative vote of the holders of at least 80 percent of the voting power of the then outstanding Voting Stock, voting together as a single class, at an annual meeting or a special meeting called expressly for this purpose. For purposes of these By-Laws, “Voting Stock” shall mean the shares of capital stock of the Corporation entitled to vote generally in the election of directors.

SECTION 9. RESIGNATIONS. Any director, member of a committee or other officer may resign at any time. Such resignation shall be made in writing, and shall take effect at the time specified therein, and if no time be specified, at the time of its receipt by the President or Secretary. The acceptance of a resignation shall not be necessary to make it effective.

SECTION 10. COMMITTEES. The Board of Directors may, by resolution or resolutions passed by a majority of the Whole Board, designate one or more committees, each committee to consist of two or more of the directors of the Corporation. The board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of any member of such committee or committees, the member or members thereof present at any meeting and not disqualified from voting, whether or not he, she or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member.

Any such committee, to the extent provided in the resolution of the Board of Directors, or in these By-Laws, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers that may require it; but no such committee shall have the power or authority in reference to amending the Certificate of Incorporation (except that a committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the Board of Directors as provided in subsection (a) of Section 151 of the General Corporation Law of the State of Delaware, fix the designation and any of the preferences and any of the rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the Corporation or fix the number of shares of any series of stock or authorize the increase or decrease of any shares of any series), adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the Corporation’s property and assets, recommending to the stockholders a dissolution of the Corporation or a revocation of a dissolution, or amending the By-Laws of the Corporation; and, unless the resolution, these By-Laws or the Certificate of Incorporation expressly so provides, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock.

Each committee may determine the procedural rules for meeting and conducting its business and shall act in accordance therewith, except as otherwise provided herein or required by law. Adequate provision shall be made for notice to members of all meetings; one third of the members shall constitute a quorum unless the committee shall consist of one or two members, in which event one member shall constitute a quorum; and all matters shall be determined by a majority vote of the members present. Action may be taken by any committee without a meeting if all members thereof consent thereto

in writing or by electronic transmission, and the writing or writings or electronic transmission or transmissions are filed with the minutes of the proceedings of such committee.

If as a result of a catastrophe or other emergency condition a quorum of any committee of the Board of Directors having power to act in the premises cannot readily be convened and a quorum of the Board of Directors cannot readily be convened, then all the powers and duties of the Board of Directors shall automatically vest and continue, until a quorum of the Board of Directors can be convened, in an Emergency Management Committee, which shall consist of all readily available members of the Board of Directors and two of whose members shall constitute a quorum. The Emergency Management Committee shall call a meeting of the Board of Directors as soon as circumstances permit for the purpose of filling any vacancies on the Board of Directors and its committees and taking such other action as may be appropriate.

SECTION 11. COMPENSATION. Directors shall not receive any stated salary for their services as directors or as members of committees, but by resolution of the board an annual retainer and a fixed fee and expenses of attendance may be allowed for attendance at each meeting. Nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity as an officer, agent or otherwise, and receiving compensation therefor.

SECTION 12. ACTION WITHOUT MEETING. Any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting, if prior to such action a written consent thereto is signed by all members of the board or of such committee, as the case may be, and such written consent is filed with the minutes of proceedings of the board or committee.

ARTICLE IV

OFFICERS

SECTION 1. OFFICERS. The officers of the Corporation shall be a Chief Executive Officer, a Chairman of the Board of Directors, a President, a Treasurer, and a Secretary, all of whom shall be elected by the Board of Directors and who shall hold office until their successors are elected and qualified. In addition, the Board of Directors may elect one or more Vice-Presidents and such Assistant Secretaries and Assistant Treasurers as they may deem proper. None of the officers of the Corporation need be directors. More than two offices may be held by the same person.

SECTION 2. OTHER OFFICERS AND AGENTS. The Board of Directors may appoint such other officers and agents as it may deem advisable, who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors.

SECTION 3. CHAIRMAN. The Chairman of the Board of Directors shall preside at all meetings of the Board of Directors and shall have and perform such other duties as from time to time may be assigned to him or her by the Board of Directors.

SECTION 4. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall be the head of the Corporation and shall have the general powers and duties of supervision and management usually vested in the office of Chief Executive Officer of a corporation. He or she shall preside at all meetings of the stockholders if present thereat, and in the absence or non-election of the Chairman of the Board of Directors, at all meetings of the Board of Directors, and shall have general supervision, direction and control of the business of the Corporation. Except as the Board of Directors shall authorize the execution thereof in some other manner, he or she shall execute bonds, mortgages and other contracts in behalf of the Corporation, and shall cause the seal to be affixed to any instrument requiring it and when

so affixed the seal shall be attested by the signature of the Secretary or the Treasurer or an Assistant Secretary or an Assistant Treasurer.

SECTION 5. PRESIDENT. The President shall have such powers and shall perform such duties as shall be assigned to him or her by the Board of Directors and the Chief Executive Officer.

SECTION 6. VICE-PRESIDENT. Each Vice-President shall have such powers and shall perform such duties as shall be assigned to him or her by the Board of Directors.

SECTION 7. TREASURER. The Treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate account of receipts and disbursements in books belonging to the Corporation. He or she shall deposit all moneys and other valuables in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors.

The Treasurer shall disburse the funds of the Corporation as may be ordered by the Board of Directors, the Chief Executive Officer or the President, taking proper vouchers for such disbursements. He or she shall render to the Chief Executive Officer, the President and Board of Directors at the regular meetings of the Board of Directors, or whenever they may request it, an account of all his transactions as Treasurer and of the financial condition of the Corporation. If required by the Board of Directors, he or she shall give the Corporation a bond for the faithful discharge of his duties in such amount and with such surety as the Board shall prescribe.

SECTION 8. SECRETARY. The Secretary shall give, or cause to be given, notice of all meetings of stockholders and directors, and all other notices required by law or by these By-Laws, and in case of his absence or refusal or neglect so to do, any such notice may be given by any person thereunto directed by the Chief Executive Officer, the President, or by the directors, or stockholders, upon whose requisition the meeting is called as provided in these By-Laws. He or she shall record all the proceedings of the meetings of the Corporation and of the Board of Directors in a book to be kept for that purpose, and shall perform such other duties as may be assigned to him or her by the Board of Directors or the President. He or she shall have custody of the seal of the Corporation and shall affix the same to all instruments requiring it, when authorized by the Board of Directors, the Chief Executive Officer or the President, and attest the same.

SECTION 9. ASSISTANT TREASURERS AND ASSISTANT SECRETARIES. Assistant Treasurers and Assistant Secretaries, if any, shall be elected and shall have such powers and shall perform such duties as shall be assigned to them, respectively, by the Board of Directors.

SECTION 10. REMOVAL. Any officer of the Corporation may be removed at any time, with or without cause, by the Board of Directors.

ARTICLE V

MISCELLANEOUS

SECTION 1. CERTIFICATES OF STOCK. A certificate of stock, signed by the Chief Executive Officer, or the President or a Vice-President, and the Secretary or an Assistant Secretary, shall be issued to each stockholder certifying the number and class or series of shares owned by him or her in the Corporation. Any or all of the signatures may be facsimiles. Certificates of stock of the Corporation shall be of such form and device as the Board of Directors may from time to time determine.

SECTION 2. LOST CERTIFICATES. A new certificate of stock may be issued in the place of any certificate theretofore issued by the Corporation, alleged to have been lost or destroyed, and the Board of Directors may, in its discretion, require the owner of the lost or destroyed certificate, or such owner’s legal representatives, to give the Corporation a bond, in such sum as they may direct, not

exceeding double the value of the stock, to indemnify the Corporation against any claim that may be made against it on account of the alleged loss of any such certificate, or the issuance of any such new certificate.

SECTION 3. TRANSFER OF SHARES. The shares of Stock of the Corporation shall be transferable only upon its books by the holders thereof in person or by their duly authorized attorneys or legal representatives, and upon such transfer the old certificates shall be surrendered to the Corporation by the delivery thereof to the person in charge of the stock and transfer books and ledgers, or to such other person as the directors may designate, by whom they shall be cancelled, and new certificates shall thereupon be issued. A record shall be made of each transfer and whenever a transfer shall be made for collateral security, and not absolutely, it shall be so expressed in the entry of the transfer.

SECTION 4. STOCKHOLDERS RECORD DATE. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than 60 nor less than 10 days before the date of such meeting, nor more than 60 days prior to any other action. If no record date is fixed, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held, and the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment or postponement of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned or postponed meeting.

SECTION 5. DIVIDENDS. Subject to the provisions of the Certificate of Incorporation, the Board of Directors may, out of funds legally available therefor at any regular or special meeting, declare dividends upon the capital stock of the Corporation as and when they deem expedient. Before declaring any dividend there may be set apart, out of any funds of the Corporation available for dividends, such sum or sums as the directors from time to time in their discretion deem proper for working capital or as a reserve fund to meet contingencies or for such other purposes as the directors shall deem conducive to the interests of the Corporation.

SECTION 6. SEAL. The corporate seal shall be circular in form and shall contain the name of the Corporation, the year of its creation and the words “CORPORATE SEAL DELAWARE.” Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise.

SECTION 7. FISCAL YEAR. The fiscal year of the Corporation shall be determined by resolution of the Board of Directors.

SECTION 8. CHECKS. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Corporation shall be signed by such officer or officers, agent or agents of the Corporation, and in such manner as shall be determined from time to time by resolution of the Board of Directors.

SECTION 9. NOTICE AND WAIVER OF NOTICE. Whenever any notice is required by these By-Laws to be given to the stockholders of the Corporation, personal notice is not meant unless expressly so stated, and any notice so required shall be deemed to be sufficient if given by depositing the same in the United States mail, postage prepaid, addressed to the person entitled thereto at his address

as it appears on the records of the Corporation, and such notice shall be deemed to have been given on the day of such mailing. Stockholders not entitled to vote shall not be entitled to receive notice of any meetings except as otherwise provided by law.

Whenever any notice whatever is required to be given under the provisions of any law, or under the provisions of the Certificate of Incorporation of the Corporation or these By-Laws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto.

SECTION 10. VOTING OF SHARES IN OTHER CORPORATION. Shares in other corporations that are held by the Corporation may be represented and voted by the Chairman, the Chief Executive Officer, the President, a Vice President or the Treasurer, or by proxy or proxies appointed by one of them. The Board of Directors may, however, appoint some other person to vote the shares.

ARTICLE VI

INDEMNIFICATION AND INSURANCE

SECTION 1. Each person who was or is made a party or is threatened to be made a party to or is involved in any action, suit, claim or proceeding, whether civil, criminal, administrative or investigative (hereinafter a “proceeding”), by reason of the fact that he or she or a person of whom he or she is the legal representative is or was, at any time during which these By-Laws are in effect (whether or not such person continues to serve in such capacity at the time any indemnification or payment of expenses pursuant hereto is sought or at the time any proceeding relating thereto exists or is brought), a director or officer of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans maintained or sponsored by the Corporation, whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer, employee or agent, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the General Corporation Law of the State of Delaware as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to such amendment), against all expense, liability and loss (including attorneys’ fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith and such indemnification shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of his or her heirs, executors and administrators; provided, however, that except as provided in Section 3 of this Article VI, the Corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the Board of Directors. The right to indemnification conferred in this Article VI shall be a contract right that vests at the time of such person’s service to or at the request of the Corporation and such rights shall continue as to an indemnitee who has ceased to be a director, officer, trustee, employee or agent and shall inure to the benefit of the indemnitee's heirs, executors and administrators. The right to indemnification shall include the right to be paid by the Corporation the expenses incurred in defending any such proceeding in advance of its final disposition, such advances to be paid by the Corporation within 20 days after the receipt by the Corporation of a statement or statements from the claimant requesting such advance or advances from time to time; provided, however, that if the General Corporation Law of the State of Delaware requires, the payment of such expenses incurred by a director or officer in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such person while a director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of a proceeding, shall be made only upon delivery to the Corporation of an undertaking by or on behalf of such director or officer, to repay all

amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified under this Article VI or otherwise.

SECTION 2. To obtain indemnification under this Article VI, a claimant shall submit to the Corporation a written request, including therein or therewith such documentation and information as is reasonably available to the claimant and is reasonably necessary to determine whether and to what extent the claimant is entitled to indemnification. Upon written request by a claimant for indemnification pursuant to the first sentence of this Section 2, a determination, if required by applicable law, with respect to the claimant’s entitlement thereto shall be made as follows: (1) if requested by the claimant, by Independent Counsel (as hereinafter defined), or (2) if no request is made by the claimant for a determination by Independent Counsel, (i) by the Board of Directors by a majority vote of a quorum consisting of Disinterested Directors (as hereinafter defined), or (ii) if a quorum of the Board of Directors consisting of Disinterested Directors is not obtainable or, even if obtainable, such quorum of Disinterested Directors so directs, by Independent Counsel in a written opinion to the Board of Directors, a copy of which shall be delivered to the claimant, or (iii) if a quorum of Disinterested Directors so directs, by the stockholders of the Corporation. In the event the determination of entitlement to indemnification is to be made by Independent Counsel at the request of the claimant, the Independent Counsel shall be selected by the Board of Directors unless there shall have occurred within two years prior to the date of the commencement of the action, suit or proceeding for which indemnification is claimed a “Change of Control” as defined in the BorgWarner Inc. Amended and Restated 2004 Stock Incentive Plan, as amended (as such plan shall exist as of the date of adoption of these Amended and Restated By-Laws), in which case the Independent Counsel shall be selected by the claimant unless the claimant shall request that such selection be made by the Board of Directors. If it is so determined that the claimant is entitled to indemnification, payment to the claimant shall be made within 10 days after such determination.

SECTION 3. If a claim under Section 1 of this Article VI is not paid in full by the Corporation within 30 days after a written claim pursuant to Section 2 of this Article VI has been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the Corporation) that the claimant has not met the standard of conduct that makes it permissible under the General Corporation Law of the State of Delaware for the Corporation to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors, Independent Counsel or stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the General Corporation Law of the State of Delaware, nor an actual determination by the Corporation (including its Board of Directors, Independent Counsel or stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct.

SECTION 4. If a determination shall have been made pursuant to Section 2 of this Article VI that the claimant is entitled to indemnification, the Corporation shall be bound by such determination in any judicial proceeding commenced pursuant to Section 3 of this Article VI.

SECTION 5. The Corporation shall be precluded from asserting in any judicial proceeding commenced pursuant to Section 3 of this Article VI that the procedures and presumptions of this Article VI are not valid, binding and enforceable and shall stipulate in such proceeding that the Corporation is bound by all the provisions of this Article VI.

SECTION 6. The right to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this Article VI shall not be exclusive of any other right that any person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, By-Laws, agreement, vote of stockholders or Disinterested Directors or otherwise. No repeal or modification of this Article VI shall in any way diminish or adversely affect the rights of any director, officer, employee or agent of the Corporation hereunder in respect of any occurrence or matter arising prior to any such repeal or modification and cannot be terminated by the Corporation, the Board of Directors or the stockholders of the Corporation with respect to a person’s service prior to the date of such termination. Any amendment, modification, alteration or repeal of this By-Law that in any way diminishes, limits, restricts, adversely affects or eliminates any right of an indemnitee or his or her successors to indemnification, advancement of expenses or otherwise shall be prospective only and shall not in any way diminish, limit, restrict, adversely affect or eliminate any such right with respect to any actual or alleged state of facts, occurrence, action or omission then or previously existing, or any action, suit or proceeding previously or thereafter brought or threatened based in whole or in part upon any such actual or alleged state of facts, occurrence, action or omission.

SECTION 7. The Corporation may maintain insurance, at its expense, to protect itself and any current or former director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the General Corporation Law of the State of Delaware. To the extent that the Corporation maintains any policy or policies providing such insurance, each such current or former director or officer, and each such agent or employee to which rights to indemnification have been granted as provided in Section 8 of this Article VI, shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage there under for any such director, officer, employee or agent.

SECTION 8. The Corporation may, to the extent authorized from time to time by the Board of Directors, grant rights to indemnification, and rights to be paid by the Corporation the expenses incurred in defending any proceeding in advance of its final disposition, to any current or former employee or agent or class of employees or agents of the Corporation (including the heirs, executors, administrators or estate of each such person) to the fullest extent of the provisions of this Article VI with respect to the indemnification and advancement of expenses of current or former directors and officers of the Corporation.

SECTION 9. If any provision or provisions of this Article VI shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (1) the validity, legality and enforceability of the remaining provisions of this Article VI (including, without limitation, each portion of any paragraph of this Article VI containing any such provision held to be invalid, illegal or unenforceable, that is not itself held to be invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby; and (2) to the fullest extent possible, the provisions of this Article VI (including, without limitation, each such portion of any paragraph of this Article VI containing any such provision held to be invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable.

SECTION 10. For purposes of this Article VI:

(a) “Disinterested Director” means a director of the Corporation who is not and was not a party to the matter in respect of which indemnification is sought by the claimant.

(b) “Independent Counsel” means a law firm, a member of a law firm, or an independent practitioner, that is experienced in matters of corporation law and shall include any person who, under the applicable standards of professional conduct then prevailing, would not have a conflict of interest in representing either the Corporation or the claimant in an action to determine the claimant’s rights under this Article VI.

SECTION 11. Any notice, request or other communication required or permitted to be given to the Corporation under this Article VI shall be in writing and either delivered in person or sent by telecopy, telex, telegram, overnight mail or courier service, or certified or registered mail, postage prepaid, return receipt requested, to the Secretary of the Corporation and shall be effective only upon receipt by the Secretary.

ARTICLE VII

AMENDMENTS

These By-Laws may be altered, amended or repealed, and any By-Laws may be made, at any annual meeting of the stockholders or at any special meeting thereof if notice of the proposed alteration or repeal of the By-Laws, or of the By-Laws to be made, is contained in the notice of such meeting, by the affirmative vote of the holders of at least 80 percent of the voting power of the then outstanding Voting Stock, or by the affirmative vote of a majority of the total number of directors, at any regular meeting of the Board of Directors, or at any special meeting of the Board of Directors, if notice of the proposed alteration or repeal, or of the By-Laws to be made, is contained in the notice of such special meeting.

ARTICLE VIII

ELECTRONIC TRANSMISSIONS

When used in these By-Laws, the terms “written” and “in writing” shall include any “electronic transmission” (as defined in Section 232(c) of the Delaware General Corporation Law, as amended), including, without limitation, any telegram, cablegram, datagram, facsimile transmission and communication by electronic mail.

EXHIBIT 31.1

Certification of the Principal Executive Officer

Pursuant to 15 U.S.C. 78m(a) or 78o(d)

(Section 302 of the Sarbanes-Oxley Act of 2002)

I, James R. Verrier, certify that:


1.	I have reviewed this quarterly report on Form10-Q of BorgWarner Inc.;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


(c)	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


(d)	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting;


5.	The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):


(a)	All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and


(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting.



Date: October 30, 2014

/s/ James R. Verrier
James R. Verrier
President and Chief Executive Officer

EXHIBIT 31.2

Certification of the Principal Financial Officer

Pursuant to 15 U.S.C. 78m(a) or 78o(d)

(Section 302 of the Sarbanes-Oxley Act of 2002)

I, Ronald T. Hundzinski, certify that:


1.	I have reviewed this quarterly report on Form10-Q of BorgWarner Inc.;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c)	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d)	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting;


5.	The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):


a)	All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and


b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting



Date: October 30, 2014

/s/ Ronald T. Hundzinski
Ronald T. Hundzinski
Vice President and Chief Financial Officer

EXHIBIT 32.1

CERTIFICATIONS OF CHIEF EXECUTIVE OFFICER

AND CHIEF FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350

In connection with the Quarterly Report of BorgWarner Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2014 (the “Report”), each of the undersigned officers of the Company certifies, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that to the best of such officer's knowledge:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



Dated: October 30, 2014

/s/ James R. Verrier
James R. Verrier
President and Chief Executive Officer

/s/ Ronald T. Hundzinski
Ronald T. Hundzinski
Vice President and Chief Financial Officer

A signed original of this written statement required by Section 906 has been provided to BorgWarner Inc. and will be retained by BorgWarner Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

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