10-K

                         SECURITIES AND EXCHANGE COMMISSION
                               Washington, D.C. 20549

                                     Form 10-K
                   Annual Report Pursuant to Section 13 or 15(d)
                       of the Securities Exchange Act of 1934

For the Fiscal Year Ended December 31, 2001
 Commission File Number: 1-12162

                                  BorgWarner Inc.
               (Exact name of registrant as specified in its charter)

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

200 South Michigan Avenue
Chicago, Illinois 60604
(312) 322-8500

(Address and telephone number of principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered

Common Stock, par value $.01 per share       New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

     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 X No

     The aggregate market value of the voting stock of the registrant held by
stockholders (not including voting stock held by directors and executive
officers of the registrant) on March 8, 2002 was approximately $1.82 billion. As
of March 8, 2002, the registrant had 26,453,131 shares of Common Stock
outstanding.

     Indicate by check-mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.

DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the following documents are incorporated herein by reference
into the Part of the Form 10-K indicated.

Part of form 10-K
into which
Document  incorporated

BorgWarner Inc. 2001 Annual Report to Stockholders          Parts I, II and IV
BorgWarner Inc. Proxy Statement for the
2002 Annual Meeting of Stockholders                         Part III


BORGWARNER INC.
FORM 10-K

YEAR ENDED DECEMBER 31, 2001

INDEX

Item
Number    Page

PART I

1.   Business                 3
2.   Properties               10
3.   Legal Proceedings        11
4.   Submission of Matters to a Vote of Security Holders         11

PART II

5.   Market for the Registrant's Common Equity and Related
Stockholder Matters   11
6.   Selected Financial Data  12
7.   Management's Discussion and Analysis of Financial Condition
 and Results of Operations 12
7a.  Market Risk Disclosure   12
8.   Financial Statements and Supplementary Data       12
9.   Changes in and Disagreements with Accountants on Accounting
 and Financial  Disclosure 12

PART III

10.  Directors and Executive Officers of the Registrant          13
11.  Executive Compensation   13
12.  Security Ownership of Certain Beneficial Owners and Management        13
13.  Certain Relationships and Related Transactions         13

PART IV

14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K      13

                                        PART I

Item 1.  Business

     BorgWarner Inc. (the "Company"), a Delaware corporation, was incorporated
in 1987. The Company is a leading, global Tier I supplier of highly engineered
systems and components, primarily for vehicle powertrain applications. These
products are manufactured and sold worldwide, primarily to original equipment
manufacturers ("OEMs") of passenger cars, sport utility vehicles, trucks,
commercial transportation products and industrial equipment. The Company
operates manufacturing and technical facilities in 50 locations in 14 countries
serving customers in North America, South America, Europe and Asia, and is an
original equipment supplier to every major automotive OEM in the world.

Financial Information About Segments

     Incorporated herein by reference is Note 13 of the Notes to the
Consolidated Financial Statements on pages 46 through 48 of the Company's Annual
Report for the year ended December 31, 2001 (the "Company's Annual Report")
filed as an exhibit to this report.

Narrative Description of Operating Segments

     The Company's products fall into five reportable operating segments:
Air/Fluid Systems, Cooling Systems, Morse TEC, TorqTransfer Systems and
Transmission Systems. Net revenues by segment for the three years ended
December 31, 2001, 2000 and 1999, are as follows (in millions of dollars):

Year ended December 31,
2001 2000 1999

Air/Fluid Systems        $    357.8     $    427.8     $    413.9
Cooling Systems               220.5          281.3          142.8
Morse TEC                     869.4          885.8          796.9
TorqTransfer Systems          500.1          526.7          563.3
Transmission Systems          428.8          437.5          413.4
Divested operations and
 businesses held for sale      18.0          132.9          178.0
Interbusiness eliminations    (43.0)         (46.1)         (49.7)
Net sales                $    2,351.6   $    2,645.9   $    2,458.6

     The sales information presented above excludes the sales by the Company's
unconsolidated joint ventures. See "Joint Ventures." Such sales totaled
approximately $300 million in 2001, $348 million in 2000 and $287 million in
1999. Divested operations and businesses held for sale includes the fuel systems
business which was sold in April 2001, the HVAC business which was sold in 2000,
and the forged powdered metal race business sold in 1999.

Air/Fluid Systems

     Air/Fluid Systems designs and manufactures sophisticated
electro-mechanical, mechanical and electronic components and systems used for
automated transmissions, fluid pumps, engine air intake modules, engine emission
controls and actuation systems. Key products for transmission controls include
single function solenoids, complex solenoids and multi-function modules. The
Company also manufactures a wide variety of fluid pumps, including engine
hydraulic pumps for variable cam timing and engine lubrication. Key products for
engine air intake management include throttle bodies, intake manifolds, throttle
position sensors and complete engine induction systems. The Company also designs
and manufactures products to control emissions and improve gas mileage such as
electric air pumps, air control valves and exhaust gas recirculation valves.
These products are provided from facilities in the United States and France.

Cooling Systems

     Cooling Systems, the Company's newest segment, is a combination of the
cooling systems businesses acquired from Eaton Corporation and the Schwitzer
group, which was acquired as part of the Kuhlman Corporation acquisition in
1999. Cooling Systems is a global provider of engine cooling solutions.  The
group manufactures and markets air sensing fan drives that can be mechanically
or electronically controlled, and also manufactures and markets polymer fans for
engine cooling systems.  Product features provide improved vehicle fuel economy
and reduced engine emissions while minimizing parasitic horsepower loss.  These
advanced cooling systems products are manufactured by QS Quality Certified
facilities in the U.S., Germany, U.K., Brazil, Korea and China.  The Company is
a leading global provider of such products, but competes with other large
independent producers as well as divisions of its OEM customers.  This business
serves the global light, medium, and heavy vehicle markets, as well as selected
off-highway applications.

Morse TEC

     Morse TEC manufactures chain and chain systems, including HY-VO(R)
front-wheel drive ("FWD") transmission chain and four-wheel drive ("4WD") chain,
MORSE GEMINI(R) Chain Systems, timing chain and timing chain systems, crankshaft
and camshaft sprockets, chain tensioners and snubbers and turbochargers for
passenger car and commercial vehicle applications. These products are provided
from facilities in North America, South America, Europe and Asia.

     HY-VO(R) chain is used in transmissions and for 4WD transfer case
applications. Transmission chain is used to transfer power from the engine to
the transmission. The Company's MORSE GEMINI(R) Chain System emits significantly
less chain pitch frequency noise than conventional transmission chain systems.
The chain in a transfer case distributes power between the front and rear output
shafts which, in turn, drive the front and rear wheels. The Company believes it
is the world's leading manufacturer of chain for FWD transmissions and 4WD
transfer cases.

     The Company's timing chain system is used on Ford's family of overhead cam
engines, including the Duratech and Triton and new in-line 4 cylinder engines,
as well as Chrysler's 2.7 liter, 3.7 liter and 4.7 liter overhead cam engines.
The Company has been selected to provide timing systems for a number of Japanese
and European applications.  The Company believes that it is the world's leading
manufacturer of timing chain systems.

     Morse TEC also provides turbochargers for passenger car, commercial vehicle
and industrial applications for diesel and gasoline engine manufacturers in
Europe, North America, South America and Asia. A turbocharger is a device
designed to force additional intake air into the engine to create a cleaner and
more powerful ignition. Benefits of turbocharging in both passenger car and
commercial vehicle applications include greater power for a given engine size,
improved fuel economy and significantly reduced emissions. The Company believes
it is a leading manufacturer of turbochargers worldwide.

TorqTransfer Systems

     TorqTransfer Systems' products include 4WD and all-wheel drive transfer
cases and torque management systems to transfer torque within the drivetrain for
rear wheel drive and FWD based vehicles. The main focus is on electronically
controlled torque management devices and systems.  TorqTransfer Systems'
products are manufactured in North America, Asia and Europe.

     Transfer cases are installed primarily on light trucks and sport-utility
vehicles. A transfer case attaches to the transmission and distributes torque to
the front and rear axles for 4WD, improving vehicle control during off-road use
and in a variety of road conditions. The Company has designed and developed an
exclusive 4WD TORQUE-ON-DEMAND(R) ("TOD") transfer case system, which allows
vehicles to automatically shift from two-wheel drive to 4WD when electronic
sensors indicate it is necessary. The TOD(R) transfer case is available on the
Ford Explorer, the best selling sport-utility vehicle in the United States in
2000, 1999 and 1998, and the Ford Expedition, Lincoln Navigator, Isuzu Trooper
and SsangYong Musso.  In 2001, this technology was also adopted by Hyundai for
its Terracan SUV, and will be launched on the Kia Sorento in 2002.

     Sales of 4WD transfer cases represented 20%, 19% and 22% of the Company's
total revenues for 2001, 2000 and 1999, respectively. The Company believes it is
the world's leading independent manufacturer of 4WD transfer cases, producing
approximately one million transfer cases in 2001. The Company's largest customer
of 4WD transfer cases is Ford Motor Company. The Company supplies the majority
of the 4WD transfer cases for Ford, including those installed in the Ford
Explorer, the Ford Expedition, the Ford F-150 and Ranger pick-up trucks, the
Mercury Mountaineer and the Lincoln Navigator.

     Our newest four-wheel drive product is the INTERACTIVE TORQUE
MANAGEMENT(TM) system.  This product was introduced on the Acura MDX in 2000 and
will be launched on the New Honda Pilot in 2002. This product uses
electronically controlled clutches to distribute power to the individual rear
wheels when traction is required. The Company is actively involved in developing
this technology for new applications in both front wheel drive based crossover
vehicles and passenger cars.  A variant of this product, ITM 1,(TM) which
features a single clutch pack in front of the rear axle differential, will be
launched on the Hyundai Santa Fe in 2002.

Transmission Systems

     The Company engineers and manufactures components for automatic
transmissions and the systems that combine such components in North America,
Asia and Europe.  Principal product lines include friction plates, one-way
clutches, transmission bands and torque converter lock-up clutches for automatic
transmissions. The Company is a supplier to virtually every major automatic
transmission manufacturer in the world. The Company's 50%-owned joint venture in
Japan, NSK-Warner Kabushiki Kaisha ("NSK-Warner"), is a leading producer of
friction plates and one-way clutches in Japan.

Joint Ventures

     As of December 31, 2001, the Company had six joint ventures in which it has
a less-than-100% ownership interest. Results from four of these ventures, in
which the Company is the majority owner, are consolidated as part of the
Company's results. The Company's ownership interest in NSK-Warner and Hitachi
Warner is 50% each. This is reported using the equity method of accounting.

     Management of the unconsolidated joint ventures is shared with the
Company's respective joint venture partners. Certain information concerning the
Company's joint ventures is set forth below:



                    Percentage               Fiscal
                    Owned by  Location       2001 Sales
               Year the  of   Joint Venture  ($ in
     Joint Venture  Products  Organized Company   Operation Partner   millions)
                                             
Unconsolidated
NSK-Warner K.K      Friction products   1964 50%  Japan     Nippon Seiko K.K.   $300
Hitachi Warner
Turbo Systems, Ltd.      Turbochargers  2001  50% Japan     Hitachi   $    1
Consolidated
Borg-Warner Automotive
     Korea, Inc.         Friction products   1987 60%(a)    Korea     NSK Warner K.K.     $    57
Divgi-Warner Limited     Transfer cases, manual   1995 60%  India     Divgi Metalwares, Ltd.   $5
                         transmissions and
                         automatic locking hubs

Borg-Warner Shenglong    Fans, fan drives    1999 70%  ChinaNingbo Shenglong    $    5
     (Ningbo) Co. Ltd.                                      Group Co., Ltd.
TTS Beijing         Transfer cases 2000 80%  China     BAIC(b)   $    1


(a)  BorgWarner Inc. owns 50% of NSK-Warner,
giving the Company an effective ownership interest of 80%.
(b)  BAIC is Beijing Automotive Industry Corporation

     See Note 13 of the Notes to Consolidated Financial
Statements on pages 46 through 48 of the Company's Annual
 Report for geographic information.


Customers

     Approximately 77% of the Company's total sales in 2001 were to automotive
OEMs, with the remaining 23% of the Company's sales to a diversified group of
industrial, construction and agricultural vehicle manufacturers, auto part
manufacturers and to distributors of automotive aftermarket and replacement
parts.

     The Company's worldwide sales in 2001 to Ford, DaimlerChrysler Corporation
and General Motors Corporation constituted approximately 30%, 21% and 12%,
respectively, of its 2001 consolidated sales. Approximately 28% of consolidated
sales for 2001 were outside the United States, including exports. However, a
substantial portion of such sales were to foreign OEMs of vehicles that are, in
turn, exported to the United States. See Note 13 of the Notes to Consolidated
Financial Statements on pages 46 through 48 of the Company's Annual Report.

     The Company's automotive products are generally sold directly to OEMs
substantially pursuant to either negotiated long term supply agreements or terms
and conditions as may be modified by the parties. Deliveries are subject to
periodic authorizations based upon the production schedules of the OEMs. The
Company ships its products directly from its plants to the OEMs.

Sales and Marketing

     Each of the Company's operating segments has its own sales function headed
by a vice president of sales. Account executives for each group are assigned to
serve specific OEM customers for one or more of a business group's products.
Such account executives spend the majority of their time in direct contact with
OEM purchasing and engineering employees and are responsible for servicing
existing business and for identifying and obtaining new business. Because of
their close relationship with the OEMs, account executives are able to identify
and meet customers' needs based upon their knowledge of the Company's products
and design and manufacturing capabilities. Upon securing a new order, account
executives participate in product launch team activities as a key interface to
the customers.

Research and Development

     Each of the Company's operating segments has its own research and
development ("R&D") organization.  Four hundred and eighty-seven employees,
including engineers, mechanics and technicians, are engaged in R&D activities at
Company facilities worldwide. The Company also operates testing facilities such
as prototype, measurement and calibration, life testing and dynamometer
laboratories.

     By working closely with the OEMs and anticipating their future product
needs, the Company's R&D personnel conceive, design, develop and manufacture new
proprietary automotive components and systems. R&D personnel also work to
improve current products and production processes. The Company believes its
commitment to R&D will allow it to obtain new orders from its OEM customers.

     Consistent with its strategy of developing technologically innovative
products, the Company spent approximately $104.5 million, $112.0 million and
$91.6 million in 2001, 2000 and 1999, respectively, on R&D activities. Not
included in the reported R&D activities were customer-sponsored R&D activities
that were approximately $20.0 million, $12.5 million and $9.4 million in 2001,
2000 and 1999, respectively.

Patents and Licenses

     The Company has approximately 2,800 active domestic and foreign patents and
patent applications pending or under preparation, and receives royalties from
licensing patent rights to others. While it considers its patents on the whole
to be important, the Company does not consider any single patent, group of
related patents or any single license essential to its operations in the
aggregate or to the operations of any of the Company's business groups
individually. The expiration of the patents individually and in the aggregate is
not expected to have a material effect on the Company's financial position or
future operating results. The Company owns numerous trademarks, some of which
are valuable but none of which are essential to its business in the aggregate.

     The Company owns the "BorgWarner" and "Borg-Warner Automotive" trade names
and housemarks, and variations thereof, which are material to the Company's
business.

Competition

     Each of the Company's operating segments competes worldwide with a number
of other manufacturers and distributors which produce and sell similar products.
Price, quality and technological innovation are the primary elements of
competition. Competitors include vertically integrated units of the Company's
major OEM customers, as well as a large number of independent domestic and
international suppliers (some of which were formerly part of our OEM customers).
Many of these companies are larger and have greater resources than the Company.

     A number of the Company's major OEM customers manufacture, for their own
use and for others, products which compete with the Company's products. Although
these OEM customers have indicated that they will continue to rely on outside
suppliers, the OEMs could elect to manufacture products to meet their own
requirements or to compete with the Company. There can be no assurance that the
Company's business will not be adversely affected by increased competition in
the markets in which it operates.

     The competitive environment has changed dramatically over the past few
years as the Company's traditional United States OEM customers, faced with
intense international competition, have expanded their worldwide sourcing of
components. As a result, the Company has experienced competition from suppliers
in other parts of the world that enjoy economic advantages such as lower labor
costs, lower health care costs and, in some cases, export subsidies and/or raw
materials subsidies.

Employees

     As of December 31, 2001, the Company and its consolidated subsidiaries had
approximately 13,000 salaried and hourly employees (as compared with
approximately 14,000 employees at December 31, 2000), of which approximately
8,100 were U.S. employees. Approximately 40% of the Company's domestic hourly
workers are unionized. The hourly workers at the Company's European facilities
are also unionized. The Company believes its present relations with employees to
be satisfactory.

Raw Materials

     Each of the Company's operating segments believes that its supplies of raw
materials for manufacturing requirements in 2002 are adequate and are available
from multiple sources. It is common, however, for customers to require their
prior approval before certain raw materials or components can be used, thereby
reducing sources of supply that would otherwise be available. Manufacturing
operations for each of the Company's operating segments are dependent upon
natural gas, fuel oil, propane and electricity.

Environmental Regulation and Proceedings

     The Company's operations are subject to federal, state, local and foreign
laws and regulations governing, among other things, emissions to air, discharge
to waters and the generation, handling, storage, transportation, treatment and
disposal of waste and other materials. The Company believes that it has operated
its business and facilities in compliance in all material respects with
applicable environmental and health and safety laws and regulations, many of
which provide for substantial fines and criminal sanctions for violations.
However, the operation of automotive parts manufacturing plants entails risks in
these areas even for a company complying with all laws, and there can be no
assurance that the Company will not incur material costs or liabilities. In
addition, through various acquisitions over the years, the Company has acquired
a number of manufacturing facilities and there can be no assurance that the
Company will not incur material costs and liabilities relating to activities
which predate the Company's ownership. In addition, potentially significant
expenditures could be required in order to comply with evolving environmental
and health and safety laws, regulations or requirements that may be adopted or
imposed in the future.

     The Company believes that the overall impact of compliance with regulations
and legislation protecting the environment will not have a material effect on
its financial position or future operating results, although no assurance can be
given in this regard. Capital expenditures and expenses in 2001 attributable to
compliance with such legislation were not material.

     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 cleanup and other remedial
activities at 43 such sites. Responsibility for cleanup and other remedial
activities at a Superfund site is typically shared among PRPs based on an
allocation formula.

     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 costs apportioned to them; currently available information from PRPs
and/or federal or state environmental agencies concerning the scope of
contamination and estimated remediation costs; remediation alternatives;
estimated legal fees; and other factors, the Company has established a reserve
for indicated environmental liabilities in the aggregate amount of approximately
$25.5 million at December 31, 2001. The Company expects this amount to be
expended over the next three to five years.

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

     In connection with the sale of Kuhlman Electric Corporation, the Company
agreed to indemnify the buyer and Kuhlman Electric for certain environmental
liabilities relating to the past operations of Kuhlman Electric. During 2000,
Kuhlman Electric notified the Company that it discovered potential environmental
contamination at its Crystal Springs, Mississippi plant while undertaking an
expansion of the plant.

     The Company has been working with the Mississippi Department of
Environmental Quality and Kuhlman Electric to investigate the extent of the
contamination. The investigation has revealed the presence of PCBs in portions
of the soil at the plant and neighboring areas.   In mid 2001, Kuhlman Electric
Corporation and others, including the Company, were sued by 26 plaintiffs in
several lawsuits, which claim personal and property damage.  The Company has
moved to be dismissed from theses lawsuits.

     The Company has filed a lawsuit against Kuhlman Electric seeking a
declaration of the scope of the Company's contractual indemnity. The Company
believes that the reserve for environmental liabilities is sufficient to cover
any liability associated with this matter.


Executive Officers

     Set forth below are the names, ages, positions and certain other
information concerning the executive officers of the Company as of March 8,
2002.

     Name Age            Position With Company

     John F. Fiedler          63   Chairman and Chief Executive Officer
     Timothy M. Manganello    52   President and Chief Operating Officer
     George E. Strickler      54   Executive Vice President and Chief Financial
                               Officer
     William C. Cline         52   Vice President
     Kimberly Dickens         40   Vice President
     Gary P. Fukayama         54   Executive Vice President
     Laurene H. Horiszny      46   Vice President
     John A. Kalina           56   Vice President
     John J. McGill           47   Vice President
     Jeffrey L. Obermayer     46   Vice President
     Ronald M. Ruzic          63   Executive Vice President
     Robert D. Welding        53   Executive Vice President
     F. Lee Wilson            47   Vice President
     Roger Wood               39   Vice President

     Mr. Fiedler has been Chairman of the Board of Directors since March 1996
and has been Chief Executive Officer of the Company since January 1995. He was
President from June 1994 to March 1996. Mr. Fiedler is the spouse of Geraldine
Kinsella, who retired as Vice President, Human Resources of the Company
effective February 28, 2002.

     Mr. Manganello was recently named President and Chief Operating Officer of
the Company.  He was Executive Vice President from June 2001 until February,
2002.  He was Vice President of the Company from February 1999 to June 2001 and
President and General Manager of BorgWarner TorqTransfer Systems Inc. from
February 1999 until February 2001. He was Vice President, Operations of
BorgWarner TorqTransfer Systems Inc., Muncie Plant from December 1995 until
January 1999.

     Mr. Strickler has been Executive Vice President and Chief Financial Officer
of the Company since March 2001. He was Executive Vice President and Chief
Financial Officer of Lake West Group, a retail consulting firm, from December
1999 to March 2001. He was Corporate Vice President of Goodyear Tire & Rubber
Co. and Vice President-Finance of the North America Tire Division from 1996 to
September 1999.

     Mr. Cline has been Vice President and Controller of the Company since
May 1993.

     Ms. Dickens was recently named Vice President, Human Resources of the
Company.  She was Vice President, Human Resources, BorgWarner Transmission
Systems Inc. from June 1999 until February 2002.  She was Manager, Human
Resources, of BorgWarner Transmission Systems Inc.'s Bellwood Plant from June
1994 until June 1999.

     Mr. Fukayama has been Executive Vice President of the Company since
November 1992. He has been Group President of BorgWarner Air/Fluid Systems Inc.
since May 1996. He was President and General Manager of BorgWarner Transmission
Systems Inc. from January 1995 to April 1996.

     Ms. Horiszny has been Vice President, Secretary and General Counsel of the
Company since May 1993.

     Mr. Kalina has been Vice President, Chief Information Officer of the
Company since January 1999. He was an Executive IT Consultant for IBM from
August 1997 until January 1999 and was Chief Information Officer for Walbro
Corporation from September 1995 until December 1996.
          Mr. McGill has been Vice President of the Company and President and
General Manager of BorgWarner Cooling Systems Inc. since October 1999. He was
General Manager of Eaton's Fluid Power Division from January 1998 to
October 1999. He was General Manager of Eaton's Torque Control Products from
April 1996 to January 1998 and was Operations Manager of Eaton's Engine
Components Division from April 1994 to April 1996.

     Mr. Obermayer has been Vice President and Treasurer of the Company since
December 1999. He was Acting Treasurer from June 1999 until December 1999 and
Vice President, Finance & Business Development--BorgWarner Transmission Systems
Inc. from April 1999 until December 1999. He was Vice President and Controller
of BorgWarner Transmission Systems Inc. from October 1996 until April 1999 and
was Director, Financial Planning & Investments of the Company from January 1994
until September 1996.

     Mr. Ruzic has been Executive Vice President of the Company and Group
President of BorgWarner Morse TEC Inc. since October 1992, Chairman of 3K-Warner
Turbosystems since September 1998 and Vice Chairman of AG Kuhnle since September
1997.

     Mr. Welding has been Executive Vice President of the Company since
November 1999 and has been President of BorgWarner Transmission Systems Inc.
since May 1996. He was Vice President of the Company from May 1996 until
October 1999 and was Vice President--Operations of BorgWarner Transmission
Systems Inc., Bellwood Plant, from November 1993 to May 1996.

     Mr. Wilson has been Vice President of the Company and President and General
Manager of BorgWarner Turbo Systems Inc. since January 2000. He was a Director
for Allied Signal Aerospace (n/k/a Honeywell) for various product lines from
October 1997 to December 1999. From January 1996 until September 1997, he was
Product Director-Commercial Diesel Turbochargers Worldwide for Allied Signal
Aerospace.

     Mr. Wood has been Vice President of the Company and President of BorgWarner
Morse TEC Inc. since January 2001. He was Vice President of Business Development
of BorgWarner TorqTransfer Systems Inc. from September 1999 to January 2001.
From January 1999 until September 1999, he was Vice President--Operations,
Transmission Components of BorgWarner Morse TEC Inc. and from January 1996 until
December 1998, he was Vice President--Operations, Engine Timing Components of
BorgWarner Morse TEC Inc.

Item 2.  Properties

     As of December 31, 2001, the Company had 43 manufacturing facilities
strategically located throughout the United States and worldwide. In addition to
its domestic manufacturing facilities, the Company has four facilities in
Germany, three facilities in Japan and India, two facilities in each of China,
England, Korea and Brazil and one facility in each of Canada, Hungary, Italy,
Mexico, Wales,  France and Taiwan. The Company also has several sales offices,
warehouses and technical centers. The Company's executive offices, which are
leased, are located in Chicago, Illinois. In general, the Company believes that
its properties are in good condition and are adequate to meet its current and
reasonably anticipated needs.

     The following is additional information concerning the headquarters and the
major manufacturing plants operated by the Company and its consolidated
subsidiaries. Unless otherwise noted, these plants are owned by the Company.




                                             2001
                                             Percent of
                                             Capacity
                                             Utilization
                                             Locations (1)(2)

     Air/Fluid Systems                       75.0%

     Headquarters: Warren, Michigan
     Dixon, Illinois;  Rothbury, Michigan; Spring Lake, Michigan;
     Sallisaw, Oklahoma; Tulle, France; Water Valley, Mississippi

     Cooling Systems                         69.3%

     Headquarters: Marshall, Michigan
     Bradford, England (leased); Cadillac, Michigan; Markdorf, Germany;
     Changwon, South Korea (leased); Fletcher, North Carolina; Gainesville,
     Georgia (leased); Ningbo,China; Sao Jose dos
     Campos, Brazil (leased); Chennai, India

     Morse TEC                               96.6%

     Headquarters: Ithaca, New York; Kirchheimbolanden, Germany
     Arcore, Italy; Asheville, North Carolina; Bradford, England; Campinas Sao
     Paolo, Brazil;
     Guadalajara, Mexico; Cortland, New York; Ithaca, New York; Nabari City,
    Japan; Oroszlany, Hungary; Simcoe, Ontario, Canada; Tainan Shien, Taiwan

     TorqTransfer Systems                     93.1%

     Headquarters: Sterling Heights, Michigan (leased)
     Livonia, Michigan; Longview, Texas (leased); Margam, Wales; Muncie,
     Indiana; Pune, India (60% JV); Seneca, South Carolina; Sirsi, India (60%
     JV); Beijing, China (80% JV)

     Transmission Systems                    109.9%

     Headquarters: Lombard, Illinois (leased)
     Bellwood, Illinois; Eumsung, Korea (80% JV); Frankfort, Illinois;
     Heidelberg,Germany; Ketsch, Germany; Sterling Heights, Michigan (leased)

(1)  The figure shown in each case is a weighted average of the percentage
     utilization of each major plant within the category, with an individual
     plant weighted in proportion to the number of employees employed when such
     plant runs at 100% capacity. With the exception of the Company's Bellwood,
     Illinois plant, capacity utilization at the 100% level is defined as
     operating five days per week, with two eight-hour shifts per day and normal
     vacation hours. Capacity utilization at the 100% level at the Company's
     Bellwood, Illinois plant is defined as operating five days per week, with
     three eight-hour shifts per day and normal vacation hours.

(2)  The table excludes joint ventures owned 50% or less.

Item 3.  Legal Proceedings

     There have been no significant developments in the legal proceedings
disclosed in the Company's Form 10-Q for the quarter ended March 31, 2001.  The
Company is presently, and is from time to time, subject to other claims and
suits arising in the ordinary course of its business. In certain such actions,
plaintiffs request punitive or other damages that may not be covered by
insurance. The Company believes that it has established adequate provisions for
litigation liabilities in its financial statements in accordance with generally
accepted accounting principles in the U.S. These provisions include both legal
fees and possible outcomes of legal proceedings.

     It is the opinion of the Company that the various asserted claims and
litigation in which the Company is currently involved will not materially affect
its financial position or future operating results, although no assurance can be
given with respect to the ultimate outcome for any such claim or litigation.

Item 4.  Submission of Matters to a Vote of Security Holders

     There were no matters submitted to the security holders of the Company
during the fourth quarter of 2001.

                                       PART II

Item 5.  Market for the Registrant's Common Equity and Related Stockholder
Matters

     The Company's Common Stock is listed for trading on the New York Stock
Exchange. As of March 8, 2002, there were approximately 3,150 holders of record
of Common Stock.

     The Company has paid cash dividends of $0.15 per share on its Common Stock
during each quarter for the last two fiscal years. While the Company currently
expects that comparable quarterly cash dividends will continue to be paid in the
future, the dividend policy is subject to review and change at the discretion of
the Board of Directors.

     High and low sales prices (as reported on the New York Stock Exchange
composite tape) for the Common Stock for each quarter in 2000 and 2001 were:

Quarter ended            High           Low

March 31, 2000           $    39.437    $    30.062
June 30, 2000            $    44.125    $    35.125
September 30, 2000       $    37.000    $    31.562
December 31, 2000        $    40.000    $    33.000
March 31, 2001           $    45.800    $    38.900
June 30, 2001            $    49.620    $    39.600
September 30, 2001       $    54.500    $    36.490
December 31, 2001        $    52.250    $    39.880

Item 6.  Selected Financial Data

     The Selected Financial Data for the five years ended December 31, 2001 with
respect to the following line items set forth on page 50 of the Company's Annual
Report is incorporated herein by reference and made a part of this report: net
sales; net earnings; net earnings per share; total assets; total debt; and cash
dividend declared per share. See the material incorporated herein by reference
in response to Item 7 of this report for a discussion of the factors that
materially affect the comparability of the information contained in such data.

Item 7.  Management's Discussion and Analysis of Financial Condition and Results
of Operations

     The Management's Discussion and Analysis of Financial Condition and Results
of Operations set forth on pages 23 through 30 in the Company's Annual Report
are incorporated herein by reference and made a part of this report.

Item 7a.  Market Risk Disclosure

     Information with respect to interest rate risk and foreign currency
exchange risk is contained on page 30 of the Company's Annual Report and is
incorporated herein by reference. Information with respect to the levels of
indebtedness subject to interest rate fluctuation is contained in Note 6 of the
Notes to Consolidated Financial Statements on page 40 of the Company's Annual
Report and is incorporated herein by reference. Information with respect to the
Company's level of business outside the United States which is subject to
foreign currency exchange rate market risk is contained in Note 13 of the Notes
to Consolidated Financial Statements on page 48 under the caption "Geographic
Information" and is incorporated herein by reference.

Item 8.  Financial Statements and Supplementary Data

     The Consolidated Financial Statements (including the notes thereto, except
as noted below) of the Company and the Independent Auditors' Report as set forth
on pages 31 through 50 in the Company's Annual Report are incorporated herein by
reference and made a part of this report. Supplementary financial information
regarding quarterly results of operations (unaudited) for the years ended
December 31, 2001 and 2000 is set forth on page 49 of the Company's Annual
Report. For a list of financial statements filed as part of this report, see
Item 14, "Exhibits, Financial Statement Schedules, and Reports on Form 8-K"
beginning on page 14.

Footnote 14 - New Accounting Pronouncements (unaudited)

     The Company is finalizing its assessment of the transitional provisions of
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets." Based upon the assessment of the fair values of each if its
reporting units, the Company anticipates that it will record a charge of $250 to
$280 million, net of tax, in the first quarter of 2002, to adjust the carrying
value of goodwill in the Cooling Systems and Air/Fluid Systems businesses.  The
charge will be classified as a cumultive effect of a change in accounting
principle.


Item 9.  Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

     Not applicable.

                                       PART III

Item 10.  Directors and Executive Officers of the Registrant

     Information with respect to directors and nominees for election as
directors of the Company under the caption "Election of Directors" on pages 1
through 4 of the Company's Proxy Statement and information under the caption
"Section 16(a) Beneficial Ownership Reporting Compliance" on page 5 of the
Company's Proxy Statement is incorporated herein by reference and made a part of
this report. Information with respect to executive officers of the Company is
set forth in Part I of this report.

Item 11.  Executive Compensation

     Information with respect to compensation of executive officers and
directors of the Company under the captions "Compensation of Directors" on page
4 of the Company's Proxy Statement and "Executive Compensation," "Stock
Options," "Long-Term Incentive Plans," and "Employment Agreements" on pages 6
through 9 of the Company's Proxy Statement is incorporated herein by reference
and made a part of this report.

Item 12.  Security Ownership of Certain Beneficial Owners and Management

     Information with respect to security ownership by persons known to the
Company to beneficially own more than five percent of the Company's Common
Stock, by directors and nominees for directors of the Company and by all
directors and executive officers of the Company as a group under the caption
"Stock Ownership" on page 5 of the Company's Proxy Statement is incorporated
herein by reference and made a part of this report.

Item 13. Certain Relationships and Related Transactions

     Information with respect to certain relationships and related transactions
under the caption "Certain Relationships and Related Transactions" on page 15 of
the Company's Proxy Statement is incorporated herein by reference and made a
part of this report.



                                       PART IV

Item 14.  Exhibits, Financial Statement Schedules, and Reports On Form 8-K

     (a)  1. The following consolidated financial statements of the Company on
     pages 31 through 50 of the Company's Annual Report are incorporated herein
     by reference:

     Independent Auditors' Report

     Consolidated Statements of Operations--years ended December 31, 2001, 2000
and 1999

     Consolidated Balance Sheets--December 31, 2001 and 2000

     Consolidated Statements of Cash Flows--years ended December 31, 2001, 2000
and 1999

     Consolidated Statements of Stockholders' Equity--years ended December 31,
2001, 2000 and 1999

     Notes to Consolidated Financial Statements

     2.  Certain schedules for which provisions are made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and therefore have
been omitted.

     3.  The exhibits filed in response to Item 601 of Regulation S-K are listed
in the Exhibit Index on page A-1.

     (b)  Reports on Form 8-K.

          None.


SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

     By: /s/   John F. Fiedler
               John F. Fiedler
               Chairman and Chief Executive Officer

     Date: March 25, 2002

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on this 25th day of March, 2002.

Signature Title

/s/ John F. Fiedler      Chairman of the Board of Directors and Chief
John F. Fiedler          Executive Officer (Principal Executive Officer)

/s/ Timothy M. ManganelloPresident and Chief Operating Officer
Timothy M. Manganello

/s/ George E. Strickler  Executive Vice President and Chief Financial Officer
George E. Strickler (Principal Financial Officer)

/s/ William C. Cline     Vice President and Controller
Willim C. Cline          (Principal Accounting Officer)

/s/ Phyllis O. Bonanno   Director
Phyllis O. Bonanno

/s/ Andrew F. Brimmer    Director
Andrew F. Brimmer

/s/ William E. Butler    Director
William E. Butler

/s/ Jere A. Drummond     Director
Jere A. Drummond

/s/ Paul E. Glaske       Director
Paul E. Glaske

/s/ Ivan W. Gorr         Director
Ivan W. Gorr

/s/ Alexis P. Michas     Director
Alexis P. Michas

/s/ John Rau             Director
John Rau

/s/ John F. Fiedler      As attorney-in-fact for the directors marked
John F. Fiedler          by an asterisk.

EXHIBIT INDEX

Exhibit
Number    Document Description

*3.1 Restated Certificate of Incorporation of the Company (incorporated by
     reference to Exhibit No. 3.1 of the Company's Quarterly Report on Form 10-Q
     for the quarter ended September 30, 1993).

*3.2 By-laws of the Company (incorporated by reference to Exhibit No. 3.2 of the
     Company's Quarterly Report on Form 10-Q for the quarter ended September 30,
     1993).

*3.3 Certificate of Designation, Preferences and Rights of Series A Junior
     Participating Preferred Stock (incorporated by reference to Exhibit 3.3 of
     the Company's Annual Report on Form 10-K for the year ended December 31,
     1999).

*3.4 Certificate of Ownership and Merger Merging BorgWarner Inc. into
     Borg-Warner Automotive, Inc. (incorporated by reference to Exhibit 99.1 of
     the Company's Quarterly Report on Form 10-Q for the quarter ended March 31,
     2000).

*4.1 Indenture, dated as of November 1, 1996, between Borg-Warner Automotive,
     Inc. and The First National Bank of Chicago (incorporated by reference to
     Exhibit No. 4.1 to Registration Statement No. 333-14717).

*4.2 Indenture, dated as of February 15, 1999, between Borg-Warner Automotive,
     Inc. and The First National Bank of Chicago (incorporated by reference to
     Exhibit No. 4.1 to Amendment No. 1 to Registration Statement
     No. 333-66879).

*4.3 Rights Agreement, dated as of July 22, 1998, between Borg-Warner
     Automotive, Inc. and ChaseMellon Shareholder Services, L.L.C. (incorporated
     by reference to Exhibit 4.1 to the Registration Statement on Form 8-A filed
     on July 24, 1998).

*10.1     Credit Agreement dated as of July 21, 2000 among BorgWarner Inc., as
          Borrower, the Lenders Party Hereto, The Chase Manhattan Bank, as
          Administrative Agent, Bank America, N.A., as Syndication Agent and
          Bank One, N.A. as Documentation Agent (incorporated by reference to
          Exhibit No. 10.1 to the Company's Quarterly Report on Form 10-Q for
          the quarter ended September 30, 2000).

*10.2     First Amendment, dated as of August 3, 2000 to the Credit Agreement,
          dated as of July 21, 2000 among BorgWarner Inc., as Borrower, the
          Several Lenders From Time to Time Party Thereto, The Chase Manhattan
          Bank, as Administrative Agent for the Lenders, Chase Securities Inc.
          and Banc of America Securities LLC, as Co-Arranger, Bank of America,
          N.A., as Syndication Agent and Bank One, N.A. as Documentation Agent.

*10.3     Distribution and Indemnity Agreement dated January 27, 1993 between
          Borg-Warner Automotive, Inc. and Borg-Warner Security Corporation
          (incorporated by reference to Exhibit No. 10.2 to Registration
          Statement No. 33-64934).
Exhibit
Number    Document Description

*10.4     Tax Sharing Agreement dated January 27, 1993 between Borg-Warner
          Automotive, Inc. and Borg-Warner Security Corporation (incorporated by
          reference to Exhibit No. 10.3 to Registration Statement No. 33-64934).

+*10.5    Borg-Warner Automotive, Inc. Management Stock Option Plan, as amended
          (incorporated by reference to Exhibit No. 10.6 to Registration
          Statement No. 33-64934).
+10.6     BorgWarner Inc. 1993 Stock Incentive Plan as amended.

*10.7     Receivables Transfer Agreement dated as of January 28, 1994 among BWA
          Receivables Corporation, ABN AMRO Bank N.V. as Agent and the Program
          LOC Provider and Windmill Funding Corporation (incorporated by
          reference to Exhibit No. 10.12 to the Company's Annual Report on
          Form 10-K for the year ended December 31, 1993).

*10.8     Amended and Restated Receivables Loan Agreement dated as of
          December 23, 1998 among BWA Receivables Corporation, as Borrower,
          Borg-Warner Automotive, Inc., as Collection Agent, ABN AMRO Bank N.V.,
          as Agent, the Banks from time to time party hereto, ABN AMRO Bank
          N.V., as the Program LOC Provider and the Program LOC Provider and
          Windmill Funding Corporation (incorporated by reference to
          Exhibit No. 10.11 of the Company's Annual Report on Form 10-K for the
          year ended December 31, 1998).

*10.9     First Amendment dated as of March 25, 1999 to Amended and Restated
          Receivables Loan Agreement dated as of December 23, 1998 (incorporated
          by reference to Exhibit No. 10.1 to the Company's Quarterly Report on
          Form 10-Q for the quarter ended September 30, 1999).

*10.10    Second Amendment dated as of December 22, 1999 to Amended and Restated
          Receivables Loan Agreement dated as of December 23, 1998 (incorporated
          by reference to Exhibit No. 10.13 to the Company's Annual Report on
          Form 10-K for the year ended December 31, 1999).

*10.11    Third Amendment dated as of December 20, 2000 to Amended and Restated
          Receivables Loan Agreement dated as of December 23, 1998 (incorporated
          by reference to Exhibit No. 10.11 to the Company's Annual Report on
          Form 10-K for the year ended December 31, 2000).

10.12     Fourth Amendment dated as of April 13, 2001 to Amended and Restated
          Receivables Loan Agreement dated as of December 23, 1998.

10.13     Fifth Amendment dated as of July 25, 2001 to Amended and Restated
          Receivables Loan Agreement dated as of December 23, 1998.

10.14     Sixth Amendment dated as of December 22, 2001 to Amended and Restated
          Receivables Loan Agreement dated as of December 23, 1998.
Exhibit
Number    Document Description

+*10.15   Borg-Warner Automotive, Inc. Transitional Income Guidelines for
          Executive Officers amended as of May 1, 1989 (incorporated by
          reference to Exhibit 10.16 to the Company's Annual Report on Form 10-K
          for the year ended December 31, 1993).

+*10.16   Borg-Warner Automotive, Inc. Management Incentive Bonus Plan dated
          January 1, 1994 (incorporated by reference to Exhibit No. 10.18 to the
          Company's Annual Report on Form 10-K for the year ended December 31,
          1993).

+*10.17   BorgWarner Inc. 1993 Stock Incentive Plan, as amended.

+*10.18   Borg-Warner Automotive, Inc. Retirement Savings Excess Benefit Plan
          dated January 27, 1993 (incorporated by reference to Exhibit No. 10.20
          of the Company's Annual Report on Form 10-K for the year ended
          December 31, 1993).

+*10.19   Borg-Warner Automotive, Inc. Retirement Savings Plan dated January 27,
          1993 as further amended and restated effective as of April 1, 1994
          (incorporated by reference to Exhibit 10.18 to the Company's Annual
          Report on Form 10-K for the year ended December 31, 1995).

+*10.20   Borg-Warner Automotive, Inc. Deferred Compensation Plan dated
          January 1, 1994 (incorporated by reference to Exhibit No. 10.24 of the
          Company's Annual Report on Form 10-K for the year ended December 31,
          1993).

+*10.21   Form of Employment Agreement for John F. Fiedler (incorporated by
          reference to Exhibit No. 10.0 of the Company's Quarterly Report on
          Form 10-Q for the quarter ended June 30, 1994).

+*10.22   Amended Form of Employment Agreement for John F. Fiedler dated
          January 27, 1998 (incorporated by reference to Exhibit 10.21 of the
          Company's Annual Report on Form 10-K for the year ended December 31,
          1997).

+*10.23   Addendum to Employment Agreement between BorgWarner Inc. and John F.
          Fiedler dated November 8, 2000 (incorporated by reference to Exhibit
          No. 10.19 of the Company's Annual Report on Form 10-K for the year
          ended December 31, 2001).

+*10.24   Form of Change of Control Employment Agreement for Executive Officers
          (incorporated by reference to Exhibit No. 10.1 to the Company's
          Quarterly Report on Form 10-Q for the Quarter ended September 30,
          1997).

+*10.25   Amendment to the Change of Control Employment Agreement between the
          Company and John F. Fiedler dated effective January 30, 1998
          (incorporated by reference to Exhibit 10.23 of the Company's Annual
          Report on Form 10-K for the year ended December 31, 1997).

*10.26    Assignment of Trademarks and License Agreement (incorporated by
          reference to Exhibit No. 10.0 of the Company's Quarterly Report on
          Form 10-Q for the quarter ended September 30, 1994).

Exhibit
Number    Document Description

*10.27    Amendment to Assignment of Trademarks and License Agreement
          (incorporated by reference to Exhibit No. 10.23 of the Company's
          Form 10-K for the year ended December 31, 1998).

+*10.28   Borg-Warner Automotive, Inc. Executive Stock Performance Plan, Revised
          and Re-approved February 2, 2000 (incorporated by reference to
          Appendix B of the Company's Proxy Statement dated March 22, 2000).

*10.29    Agreement of Purchase and Sale dated as of May 31, 1996 by and among
          Coltec Industries Inc., Holley Automotive Group, Ltd., Holley
          Automotive Inc., Coltec Automotive Inc., and Holley Automotive Systems
          GmbH and Borg-Warner Automotive, Inc., Borg-Warner Automotive
          Air/Fluid Systems Corporation and Borg-Warner Automotive Air/Fluid
          Systems Corporation of Michigan (incorporated by reference to
          Exhibit 10.1 of the Company's Current Report on Form 8-K dated as of
          June 17, 1996).

*10.30    Agreement and Plan of Merger dated as of December 17, 1998 by and
          between Borg-Warner Automotive, Inc., BWA Merger Corp. and Kuhlman
          Corporation (incorporated by reference to Exhibit 2 of the Company's
          Current Report on Form 8-K dated as of December 21, 1998).

*10.31    Asset Purchase Agreement dated as of August 2, 1999 among Eaton
          Corporation, the Seller Subsidiaries, Borg-Warner Automotive, Inc. and
          the Buyer Subsidiaries (incorporated by reference to Exhibit 10.29 to
          the Company's Annual Report on Form 10-K for the year ended
          December 31, 1999).

13.1 Annual Report to Stockholders for the year ended December 31, 2001 with
     manually signed Independent Auditors' Report. (The Annual Report, except
     for those portions which are expressly incorporated by reference in the
     Form 10-K, is furnished for the information of the Commission and is not
     deemed filed as part of the Form 10-K).

21.1 Subsidiaries of the Company.

23.1 Independent Auditors' Consent.

99.1 Cautionary Statements.


*    Incorporated by reference.
+    Indicates a management contract or compensatory plan or arrangement
     required to be filed pursuant to Item 14(c).

EX-10.6

                                  BORGWARNER INC.



                             1993 STOCK INCENTIVE PLAN



       (Amended Effective November 8, 1995, April 29, 1997, April 28, 1998,
                        and Further Amended February 7, 2002)

SECTION 1.  Purpose; Definitions.

     The purpose of the Plan is to give the Company a significant advantage in
attracting, retaining and motivating officers, employees and directors and to
provide the Company and its subsidiaries with the ability to provide incentives
more directly linked to the profitability of the Company's businesses and
increases in stockholder value.

     For purposes of the Plan, the following terms are defined as set forth
below:

     a.  "Affiliate" means a corporation or other entity controlled by the
Company and designated by the Committee as such.

     b.  "Award" means a Stock Appreciation Right, Stock Option or Restricted
Stock.

     c.  "Board" means the Board of Directors of the Company.

     d.  "Cause" has the meaning set forth in Section 5(i).

     e.  "Change in Control" and "Change in Control Price" have the meanings set
forth in Sections 8(b) and (c), respectively.

     f.  "Code" means the Internal Revenue Code of 1986, as amended from time to
time, and any successor thereto.

     g.  "Commission" means the Securities and Exchange Commission or any
successor agency.

     h.  "Committee" means the Committee referred to in Section 2.

     i.  "Company" means BorgWarner Inc., a Delaware corporation.

     j.  "Disability" means permanent and total disability as determined under
procedures established by the Committee for purposes of the Plan.

     k.  "Disinterested Person" shall mean a member of the Board who qualifies
as a disinterested person as defined in Rule 16b-3(c)(2), as promulgated by the
Commission under the Exchange Act, or any successor definition adopted by the
Commission.

     l.  "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, and any successor thereto.

     m.  "Fair Market Value" means, except as provided in Sections 5(j) and
6(b)(ii)(2), as of any given date, the mean between the highest and lowest
reported sales prices of the Stock on the New York Stock Exchange Composite Tape
or, if not listed on such exchange, on any other national securities exchange on
which the Stock is listed or on NASDAQ. If there is no regular public trading
market for such Stock, the Fair Market Value of the Stock shall be determined by
the Committee in good faith.

     n.  "Incentive Stock Option" means any Stock Option intended to be and
designated as an "incentive stock option" within the meaning of Section 422 of
the Code.

     o.  "Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.

     p.  "Plan" means the BorgWarner Inc. 1993 Stock Incentive Plan, as set
forth herein and as hereinafter amended from time to time.

     q.  "Restricted Stock" means an award granted under Section 7.

     r.  "Retirement" means retirement from active employment under a pension
plan of the Company, any subsidiary or Affiliate, or under an employment
contract with any of them, or termination of employment at or after age 55 under
circumstances which the Committee, in its sole discretion, deems equivalent to
retirement.

     s.  "Rule 16b-3" means Rule 16b-3, as promulgated by the Commission under
Section 16(b) of the Exchange Act, as amended from time to time.

     t.  "Stock" means Common Stock, par value $.01 per share, of the Company.

     u.  "Stock Appreciation Right" means a right granted under Section 6.

     v. "Stock Option" means an option granted under Section 5.

     w.  "Termination of Employment" means the termination of the participant's
employment with the Company and any subsidiary or Affiliate. A participant
employed by a subsidiary or an Affiliate shall also be deemed to incur a
Termination of Employment if the subsidiary or Affiliate ceases to be such a
subsidiary or Affiliate, as the case may be, and the participant does not
immediately thereafter become an employee of the Company or another subsidiary
or Affiliate.

     In addition, certain other terms used herein have definitions given to them
in the first place in which they are used.

SECTION 2.  Administration.

     The Plan shall be administered by the Compensation Committee of the Board
or such other committee of the Board, composed of not less than two
Disinterested Persons, each of whom shall be appointed by and serve at the
pleasure of the Board. If at any time no Committee shall be in office, the
functions of the Committee specified in the Plan shall be exercised by the
Board.

     The Committee shall have plenary authority to grant Awards pursuant to the
terms of the Plan to officers, employees and directors of the Company and its
subsidiaries and Affiliates.

     Among other things, the Committee shall have the authority, subject to the
terms of the Plan:

     (a)  to select the officers, employees and directors to whom Awards may
from time to time be granted; provided that awards to non-employee directors may
be made only in accordance with Section 13;

     (b)  to determine whether and to what extent Incentive Stock Options,
Non-Qualified Stock Options, Stock Appreciation Rights and Restricted Stock or
any combination thereof are to be granted hereunder;

     (c)  to determine the number of shares of Stock to be covered by each Award
granted hereunder;

     (d)  to determine the terms and conditions of any Award granted hereunder
(including, but not limited to, the option price (subject to Section 5(a)), any
vesting restriction or limitation and any vesting acceleration or forfeiture
waiver regarding any Award and the shares of Stock relating thereto, based on
such factors as the Committee shall determine);

     (e)  to modify, amend or adjust the terms and conditions of any Award, at
any time or from time to time, including, but not limited to, with respect to
performance goals and measurements applicable to performance-based Awards
pursuant to the terms of the Plan;

     (f)  to determine to what extent and under what circumstances Stock and
other amounts payable with respect to an Award shall be deferred; and

     (g)  to determine under what circumstances a Stock Option may be settled in
cash or Stock under Section 5(j).

     The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall,
from time to time, deem advisable, to interpret the terms and provisions of the
Plan and any Award issued under the Plan (and any agreement relating thereto)
and to otherwise supervise the administration of the Plan.

     The Committee may act only by a majority of its members then in office,
except that the members thereof may (i) delegate to an officer of the Company
the authority to make decisions pursuant to paragraphs (c), (f), (g), (h) and
(i) of Section 5 (provided that no such delegation may be made that would cause
Awards or other transactions under the Plan to cease to be exempt from
Section 16(b) of the Exchange Act) and (ii) authorize any one or more of their
number or any officer of the Company to execute and deliver documents on behalf
of the Committee.

     Any determination made by the Committee or pursuant to delegated authority
pursuant to the provisions of the Plan with respect to any Award shall be made
in the sole discretion of the Committee or such delegate at the time of the
grant of the Award or, unless in contravention of any express term of the Plan,
at any time thereafter. All decisions made by the Committee or any appropriately
delegated officer pursuant to the provisions of the Plan shall be final and
binding on all persons, including the Company and Plan participants.

SECTION 3.  Stock Subject to Plan.

     Subject to adjustment as provided herein, the total number of shares of
Stock of the Company available for grant under the Plan shall be 1,500,000;
provided that no "covered employee", as such term is defined in Section 162(m)
of the Code, shall be granted more than 100,000 shares of Stock in any taxable
year. Shares subject to an Award under the Plan may be authorized and unissued
shares or may be treasury shares.

     If any shares of Restricted Stock are forfeited for which the participant
did not receive any benefits of ownership (as such phrase is construed by the
Commission or its Staff), or if any Stock Option (and related Stock Appreciation
Right, if any) terminates without being exercised, or if any Stock Appreciation
Right is exercised for cash, shares subject to such Awards shall again be
available for distribution in connection with Awards under the Plan.

     In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, stock split, extraordinary distribution with
respect to the Stock or other change in corporate structure affecting the Stock,
the Committee or Board may make such substitution or adjustments in the
aggregate number and kind of shares reserved for issuance under the Plan, in the
number, kind and option price of shares subject to outstanding Stock Options and
Stock Appreciation Rights, in the number and kind of shares subject to other
outstanding Awards granted under the Plan and/or such other substitution or
adjustments in the consideration receivable upon exercise as it may determine to
be appropriate in its sole discretion; provided, however, that the number of
shares subject to any Award shall always be a whole number. Such adjusted option
price shall also be used to determine the amount payable by the Company upon the
exercise of any Stock Appreciation Right associated with any Stock Option.

SECTION 4.  Eligibility.

     Officers, employees and directors of the Company, its subsidiaries and
Affiliates who are responsible for or contribute to the management, growth and
profitability of the business of the Company, its subsidiaries and Affiliates
are eligible to be granted Awards under the Plan. Except as expressly authorized
by Section 13 of the Plan, however, no grant shall be made to a director who is
not an officer or a salaried employee.

SECTION 5.  Stock Options.

     Stock Options may be granted alone or in addition to other Awards granted
under the Plan and may be of two types: Incentive Stock Options and
Non-Qualified Stock Options. Any Stock Option granted under the Plan shall be in
such form as the Committee may from time to time approve.

     The Committee shall have the authority to grant any optionee Incentive
Stock Options, Non-Qualified Stock Options or both types of Stock Options (in
each case with or without Stock Appreciation Rights). Incentive Stock Options
may be granted only to employees of the Company and its subsidiaries (within the
meaning of Section 424(f) of the Code). To the extent that any Stock Option is
not designated as an Incentive Stock Option or even if so designated does not
qualify as an Incentive Stock Option, it shall constitute a Non-Qualified Stock
Option.

     The Committee may authorize the Chief Executive Officer of the Corporation,
who need not be a Disinterested Person, to grant in any calendar year a
Non-Qualified Stock Option (with or without Stock Appreciation Rights) for up to
3,000 shares of Stock to any employee of the Company who is not an executive
officer of the Company subject to Section 16 of the Exchange Act. The Committee
may limit or qualify such authorization in any manner it deems appropriate.
Stock Options granted by the Chief Executive Officer shall have the terms and
conditions determined by the Committee and the Committee shall periodically
review such grants.

     Stock Options shall be evidenced by option agreements, the terms and
provisions of which may differ. An option agreement shall indicate on its face
whether it is intended to be an agreement for an Incentive Stock Option or a
NonQualified Stock Option. The grant of a Stock Option shall occur on the date
the Committee by resolution selects an individual to be a participant in any
grant of a Stock Option, determines the number of shares of Stock to be subject
to such Stock Option to be granted to such individual and specifies the terms
and provisions of the Stock Option. The Company shall notify a participant of
any grant of a Stock Option, and a written option agreement or agreements shall
be duly executed and delivered by the Company to the participant. Such agreement
or agreements shall become effective upon execution by the participant.

     Anything in the Plan to the contrary notwithstanding, no term of the Plan
relating to Incentive Stock Options shall be interpreted, amended or altered nor
shall any discretion or authority granted under the Plan be exercised so as to
disqualify the Plan under Section 422 of the Code or, without the consent of the
optionee affected, to disqualify any Incentive Stock Option under such
Section 422.

     Stock Options granted under the Plan shall be subject to the following
terms and conditions and shall contain such additional terms and conditions as
the Committee shall deem desirable:

     (a)  Option Price.  The option price per share of Stock purchasable under a
Stock Option shall be determined by the Committee and set forth in the option
agreement, and shall not be less than the Fair Market Value of the Stock subject
to the Stock Option on the date of grant, except that any Stock Options granted
on the effective date of the Company's initial public offering of Common Stock
shall have an option price per share equal to the price per share paid by the
public in such offering.

     (b)  Option Term.  The term of each Stock Option shall be fixed by the
Committee, but no Stock Option shall be exercisable more than 10 years after the
date the Stock Option is granted.

     (c)  Exercisability.  Except as otherwise provided herein, Stock Options
shall be exercisable at such time or times and subject to such terms and
conditions as shall be determined by the Committee. If the Committee provides
that any Stock Option is exercisable only in installments, the Committee may at
any time waive such installment exercise provisions, in whole or in part, based
on such factors as the Committee may determine. In addition, the Committee may
at any time, in whole or in part, accelerate the exercisability of any Stock
Option.

     (d)  Method of Exercise.  Subject to the provisions of this Section 5,
Stock Options may be exercised, in whole or in part, at any time during the
option term by giving written notice of exercise to the Company specifying the
number of shares of Stock subject to the Stock Option to be purchased.

     The option price of Stock to be purchased upon exercise of any Option shall
be paid in full in cash (by certified or bank check or such other instrument as
the Company may accept) or, if and to the extent set forth in the option
agreement, may also be paid by one or more of the following: (i) in the form of
unrestricted Stock already owned by the optionee (and, in the case of the
exercise of a Non-Qualified Stock Option, Restricted Stock subject to an Award
hereunder) based in any such instance on the Fair Market Value of the Stock on
the date the Stock Option is exercised; provided, however, that, in the case of
an Incentive Stock Option, the right to make a payment in the form of already
owned shares of Stock may be authorized only at the time the Stock Option is
granted; (ii) by requesting the Company to withhold from the number of shares of
Stock otherwise issuable upon exercise of the Stock Option that number of shares
having an aggregate fair market value on the date of exercise equal to the
exercise price for all of the shares of Stock subject to such exercise; or
(iii) by a combination thereof, in each case in the manner provided in the
option agreement.

     In the discretion of the Committee, payment for any shares subject to a
Stock Option may also be made by delivering a properly executed exercise notice
to the Company, together with a copy of irrevocable instructions to a broker to
deliver promptly to the Company the amount of sale or loan proceeds to pay the
purchase price. To facilitate the foregoing, the Company may enter into
agreements for coordinated procedures with one or more brokerage firms.

     If payment of the option exercise price of a Non-Qualified Stock Option is
made in whole or in part in the form of Restricted Stock, the number of shares
of Stock to be received upon such exercise equal to the number of shares of
Restricted Stock used for payment of the option exercise price shall be subject
to the same forfeiture restrictions to which such Restricted Stock was subject,
unless otherwise determined by the Committee.

     No shares of Stock shall be issued until full payment therefor has been
made. Subject to any forfeiture restrictions that may apply if a Stock Option is
exercised using Restricted Stock, an optionee shall have all of the rights of a
stockholder of the Company holding the Stock that is subject to such Stock
Option (including, if applicable, the right to vote the shares and the right to
receive dividends), when the optionee has given written notice of exercise, has
paid in full for such shares and, if requested, has given the representation
described in Section 11(a).

     (e)  Non-transferability of Stock Options.  No Stock Option shall be
transferable by the optionee other than (i) by will or by the laws of descent
and distribution or (ii) in the case of a Non-Qualified Stock Option, pursuant
to a qualified domestic relations order (as defined in the Code or Title I of
the Employee Retirement Income Security Act of 1974, as amended, or the rules
thereunder). All Stock Options shall be exercisable, during the optionee's
lifetime, only by the optionee or by the guardian or legal representative of the
optionee or, in the case of a Non-Qualified Stock Option, its alternate payee
pursuant to such qualified domestic relations order, it being understood that
the terms "holder" and "optionee" include the guardian and legal representative
of the optionee named in the option agreement and any person to whom an option
is transferred by will or the laws of descent and distribution or, in the case
of a Non-Qualified Stock Option, pursuant to a qualified domestic relations
order.

     (f)  Termination by Death.  If an optionee's employment terminates by
reason of death, any Stock Option held by such optionee may thereafter be
exercised, to the extent then exercisable, or on such accelerated basis as the
Committee may determine, for a period of one year (or such other period as the
Committee may specify in the option agreement) from the date of such death or
until the expiration of the stated term of such Stock Option, whichever period
is the shorter. In the event of termination of employment due to death, if an
Incentive Stock Option is exercised after the expiration of the exercise periods
that apply for purposes of Section 422 of the Code, such Stock Option will
thereafter be treated as a Non-Qualified Stock Option.

     (g)  Termination by Reason of Disability.  If an optionee's employment
terminates by reason of Disability, any Stock Option held by such optionee may
thereafter be exercised by the optionee, to the extent it was exercisable at the
time of termination, or on such accelerated basis as the Committee may
determine, for a period of three years (or such shorter period as the Committee
may specify in the option agreement) from the date of such termination of
employment or until the expiration of the stated term of such Stock Option,
whichever period is the shorter; provided, however, that if the optionee dies
within such three-year period (or such shorter period), any unexercised Stock
Option held by such optionee shall, notwithstanding the expiration of such
three-year (or such shorter) period, continue to be exercisable to the extent to
which it was exercisable at the time of death for a period of 12 months from the
date of such death or until the expiration of the stated term of such Stock
Option, whichever period is the shorter. In the event of termination of
employment by reason of Disability, if an Incentive Stock Option is exercised
after the expiration of the exercise periods that apply for purposes of
Section 422 of the Code, such Stock Option will thereafter be treated as a
Non-Qualified Stock Option.

     (h)  Termination by Reason of Retirement.  If an optionee's employment
terminates by reason of Retirement, any Stock Option held by such optionee may
thereafter be exercised by the optionee, to the extent it was exercisable at the
time of such Retirement or on such accelerated basis as the Committee may
determine, for a period of three years (or such shorter period as the Committee
may specify in the option agreement) from the date of such termination of
employment or until the expiration of the stated term of such Stock Option,
whichever period is the shorter; provided, however, that if the optionee dies
within such three-year (or such shorter) period, any unexercised Stock Option
held by such optionee shall, notwithstanding the expiration of such three-year
(or such shorter) period, continue to be exercisable to the extent to which it
was exercisable at the time of death for a period of 12 months from the date of
such death or until the expiration of the stated term of such Stock Option,
whichever period is the shorter. In the event of termination of employment by
reason of Retirement, if an Incentive Stock Option is exercised after the
expiration of the exercise periods that apply for purposes of Section 422 of the
Code, such Stock Option will thereafter be treated as a NonQualified Stock
Option.

     (i)  Other Termination.  Unless otherwise determined by the Committee, if
an optionee incurs a Termination of Employment for any reason other than death,
Disability or Retirement, any Stock Option held by such Optionee shall thereupon
terminate, except that such Stock Option, to the extent then exercisable, or on
such accelerated basis as the Committee may determine, may be exercised for the
lesser of one year from the date of such Termination of Employment or the
balance of such Stock Option's term if such Termination of Employment of the
optionee is involuntary and without Cause; provided, however, that if the
optionee dies within such one-year period, any unexercised Stock Option held by
such optionee shall notwithstanding the expiration of such one-year period,
continue to be exercisable to the extent to which it was exercisable at the time
of death for a period of 12 months from the date of such death or until the
expiration of the stated term of such Stock Option, whichever period is the
shorter. In the event of Termination of Employment for any reason other than
death, Disability or Retirement, if an Incentive Stock Option is exercised after
the expiration of the exercise periods that apply for purposes of Section 422 of
the Code, such Stock Option will thereafter be treated as a Non-Qualified Stock
Option. Unless otherwise determined by the Committee, for the purposes of the
Plan "Cause" shall mean (i) the conviction of the optionee for committing a
felony under Federal law or the law of the state in which such action occurred,
(ii) dishonesty in the course of fulfilling the optionee's employment duties or
(iii) willful and deliberate failure on the part of the optionee to perform his
employment duties in any material respect.

     (j)  Cashing Out of Stock Option.  On receipt of written notice of
exercise, the Committee may elect to cash out all or part of the portion of the
shares of Stock for which a Stock Option is being exercised by paying the
optionee an amount, in cash or Stock, equal to the excess of the Fair Market
Value of the Stock over the option price times the number of shares of Stock for
which to the Option is being exercised on the effective date of such cash out.

     Cash outs pursuant to this Section 5(j) relating to options held by
optionees who are actually or potentially subject to Section 16(b) of the
Exchange Act shall comply with the "window period" provisions of Rule 16b-3(e),
to the extent applicable, and, in the case of cash outs of Non-Qualified Stock
Options held by such optionees, the Committee may determine Fair Market Value
under the pricing rule set forth in Section 6(b)(ii)(2).

     (k)  Change in Control Cash Out.  Notwithstanding any other provision of
the Plan, during the 60-day period from and after a Change in Control (the
"Exercise Period"), unless the Committee shall determine otherwise at the time
of grant, an optionee shall have the right, whether or not the Stock Option is
fully exercisable and in lieu of the payment of the exercise price for the
shares of Stock being purchased under the Stock Option and by giving notice to
the Company, to elect (within the Exercise Period) to surrender all or part of
the Stock Option to the Company and to receive cash, within 30 days of such
notice, in an amount equal to the amount by which the Change in Control Price
per share of Stock on the date of such election shall exceed the exercise price
per share of Stock under the Stock Option (the "Spread") multiplied by the
number of shares of Stock granted under the Stock Option as to which the right
granted under this Section 5(k) shall have been exercised; provided, however,
that if the Change in Control is within six months of the date of grant of a
particular Stock Option held by an optionee who is an officer or director of the
Company and is subject to Section 16(b) of the Exchange Act no such election
shall be made by such optionee with respect to such Stock Option prior to six
months from the date of grant. Notwithstanding any other provision hereof, if
the end of such 60-day period from and after a Change in Control is within six
months of the date of grant of a Stock Option held by an optionee who is an
officer or director of the Company and is subject to Section 16(b) of the
Exchange Act, such Stock Option shall be cancelled in exchange for a cash
payment to the optionee, effected on the day which is six months and one day
after the date of grant of such Option, equal to the Spread multiplied by the
number of shares of Stock granted under the Stock Option.

SECTION 6.  Stock Appreciation Rights.

     (a)  Grant and Exercise.  Stock Appreciation Rights may be granted in
conjunction with all or part of any Stock Option granted under the Plan. In the
case of a Non-Qualified Stock Option, such rights may be granted either at or
after the time of grant of such Stock Option. In the case of an Incentive Stock
Option, such rights may be granted only at the time of grant of such Stock
Option. A Stock Appreciation Right shall terminate and no longer be exercisable
upon the termination or exercise of the related Stock Option.

     A Stock Appreciation Right may be exercised by an optionee in accordance
with Section 6(b) by surrendering the applicable portion of the related Stock
Option in accordance with procedures established by the Committee. Upon such
exercise and surrender, the optionee shall be entitled to receive an amount
determined in the manner prescribed in Section 6(b). Stock Options which have
been so surrendered shall no longer be exercisable to the extent the related
Stock Appreciation Rights have been exercised.

     (b)  Terms and Conditions.  Stock Appreciation Rights shall be subject to
such terms and conditions as shall be determined by the Committee, including the
following:

          (i)  Stock Appreciation Rights shall be exercisable only at such time
     or times and to the extent that the Stock Options to which they relate are
     exercisable in accordance with the provisions of Section 5 and this
     Section 6.

          (ii)  Upon the exercise of a Stock Appreciation Right, an optionee
     shall be entitled to receive an amount in cash, shares of Stock or both
     equal in value to the excess of the Fair Market Value of one share of Stock
     over the option price per share specified in the related Stock Option
     multiplied by the number of shares in respect of which the Stock
     Appreciation Right shall have been exercised, with the Committee having the
     right to determine the form of payment.

          In the case of Stock Appreciation Rights relating to Stock Options
     held by optionees who are actually or potentially subject to Section 16(b)
     of the Exchange Act, the Committee:

               (1)  may require that such Stock Appreciation Rights be exercised
          for cash only in accordance with the applicable "window period"
          provisions of Rule 16b-3; and

               (2)  in the case of Stock Appreciation Rights relating to
          Non-Qualified Stock Options, may provide that any amount to be paid in
          cash upon exercise of such Stock Appreciation Rights during a
          Rule 16b-3 "window period" shall be based on the highest of the daily
          means between the highest and lowest reported sales prices of the
          Stock on the New York Stock Exchange or other national securities
          exchange on which the shares are listed or on NASDAQ, as applicable,
          occurring during such "window period".

          (iii)  Stock Appreciation Rights shall be transferable only to
     permitted transferees of the underlying Stock Option in accordance with
     Section 5(e).

SECTION 7.  Restricted Stock.

     (a)  Administration.  Shares of Restricted Stock may be awarded either
alone or in addition to other Awards granted under the Plan. The Committee shall
determine the officers and employees to whom and the time or times at which
grants of Restricted Stock will be awarded, the number of shares to be awarded
to any participant, the time or times within which such Awards may be subject to
forfeiture and any other terms and conditions of the Awards, in addition to
those contained in Section 7(c).

     The Committee may condition the grant of Restricted Stock upon the
attainment of specified performance goals of the participant or of the Company
or subsidiary, division or department of the Company for or within which the
participant is primarily employed or upon such other factors or criteria as the
Committee shall determine. The provisions of Restricted Stock Awards need not be
the same with respect to each recipient.

     (b)  Awards and Certificates.  Shares of Restricted Stock shall be
evidenced in such manner as the Committee may deem appropriate, including
book-entry registration or issuance of one or more stock certificates. Any
certificate issued in respect of shares of Restricted Stock shall be registered
in the name of such participant and shall bear an appropriate legend referring
to the terms, conditions, and restrictions applicable to such Award,
substantially in the following form:

          "The transferability of this certificate and the shares of stock
          represented hereby are subject to the terms and conditions (including
          forfeiture) of the 1993 Stock Incentive Plan and a Restricted Stock
          Agreement. Copies of such Plan and Agreement are on file at the
          offices of Borg-Warner Automotive, Inc., 200 South Michigan Avenue,
          Chicago, Illinois 60604."

The Committee may require that the certificates evidencing such shares be held
in custody by the Company until the restrictions thereon shall have lapsed and
that, as a condition of any Award of Restricted Stock, the participant shall
have delivered a stock power, endorsed in blank, relating to the Stock covered
by such Award.

     (c)  Terms and Conditions.  Shares of Restricted Stock shall be subject to
the following terms and conditions:

          (i)  Subject to the provisions of the Plan and the Restricted Stock
     Agreement referred to in Section 7(c)(vi), during a period set by the
     Committee, commencing with the date of such Award (the "Restriction
     Period"), the participant shall not be permitted to sell, assign, transfer,
     pledge or otherwise encumber shares of Restricted Stock. The Committee may
     provide for the lapse of such restrictions in installments or otherwise and
     may accelerate or waive such restrictions, in whole or in part, in each
     case based on period of service, performance of the participant or of the
     Company or the subsidiary, division or department for which the participant
     is employed or such other factors or criteria as the Committee may
     determine.

          (ii)  Except as provided in this paragraph (ii) and Section 7(c)(i)
     and the Restricted Stock Agreement, the participant shall have, with
     respect to the shares of Restricted Stock, all of the rights of a
     stockholder of the Company holding the class or series of Stock that is the
     subject of the Restricted Stock, including, if applicable, the right to
     vote the shares and the right to receive any cash dividends. If so
     determined by the Committee in the applicable Restricted Stock Agreement
     and subject to Section 11(f) of the Plan, (1) cash dividends on the shares
     of Stock that are the subject of the Restricted Stock Award shall be
     automatically deferred and reinvested in additional Restricted Stock, and
     (2) dividends payable in Stock shall be paid in the form of Restricted
     Stock.

          (iii)  Except to the extent otherwise provided in the applicable
     Restricted Stock Agreement and Sections 7(c)(i), 7(c)(iv) and 8(a)(ii),
     upon a participant's Termination of Employment for any reason during the
     Restriction Period, all shares still subject to restriction shall be
     forfeited by the participant.

          (iv)  Except to the extent otherwise provided in Section 8(a)(ii), in
     the event of an involuntary Termination of Employment of a participant for
     any reason (other than for Cause), the Committee shall have the discretion
     to waive in whole or in part any or all remaining restrictions with respect
     to any or all of such participant's shares of Restricted Stock.

          (v)  If and when the Restriction Period expires without a prior
     forfeiture of the Restricted Stock subject to such Restriction Period,
     unlegended certificates for such shares shall be delivered to the
     participant.

          (vi)  Each Award shall be confirmed by, and be subject to the terms
     of, a Restricted Stock Agreement.

SECTION 8.  Change In Control Provisions.

     (a)  Impact of Event.  Notwithstanding any other provision of the Plan to
the contrary, in the event of a Change in Control:

          (i)  Any Stock Options and Stock Appreciation Rights outstanding as of
     the date such Change in Control is determined to have occurred and not then
     exercisable and vested shall become fully exercisable and vested to the
     full extent of the original grant.

          (ii)  The restrictions applicable to any Restricted Stock shall lapse,
     and such Restricted Stock shall become free of all restrictions and become
     fully vested and transferable to the full extent of the original grant.

     (b)  Definition of Change in Control.  For purposes of the Plan, a "Change
in Control" shall mean the happening of any of the following events:

          (i)  The acquisition by any individual, entity or group (within
     the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act )(a
     "Person ") of beneficial ownership (within the meaning of Rule 13d-3
     promulgated under the Exchange Act) of 20% or more of either (A) the
     then outstanding shares of common stock of the Company (the
     "Outstanding Company Common Stock") or (B) the combined voting power
     of the then outstanding voting securities of the Company entitled to
     vote generally in the election of directors (the "Outstanding Company
     Voting Securities"); provided, however, that for purposes of this
     subsection (b), the following acquisitions shall not constitute a
     Change in Control: (W) any acquisition directly from the Company, (X)
     any acquisition by the Company, (Y) any acquisition by any employee
     benefit plan (or related trust) sponsored or maintained by the Company
     or any corporation controlled by the Company, or (Z) any acquisition
     by any corporation pursuant to a transaction which complies with
     clauses (A), (B) and (C) of subsection (iii) of this Section 8(b); or

          (ii) Individuals who, as of the date hereof, constitute the Board
     (the "Incumbent Board") cease for any reason to constitute at least a
     majority of the Board; provided, however, that any individual becoming
     a director subsequent to the date hereof whose election, or nomination
     for election by the Company's shareholders, was approved by a vote of
     at least a majority of the directors then comprising the Incumbent
     Board shall be considered as though such individual were a member of
     the Incumbent Board, but excluding, for this purpose, any such
     individual whose initial assumption of office occurs as a result of an
     actual or threatened election contest with respect to the election or
     removal of directors or other actual or threatened solicitation of
     proxies or consents by or on behalf of a Person other than the Board;
     or

          (iii)     Consummation by the Company of a reorganization, merger
     or consolidation or sale or other disposition of all or substantially
     all of the assets of the Company or the acquisition of assets of
     another corporation (each of the foregoing, a "Business Combination"),
     in each case, unless, following such Business Combination, (A) all or
     substantially all of the individuals and entities who were the
     beneficial owners, respectively, of the Outstanding Company Common
     Stock and Outstanding Company Voting Securities immediately prior to
     such Business Combination beneficially own, directly or indirectly,
     more than 60% of, respectively, the then outstanding shares of common
     stock and the combined voting power of the then outstanding voting
     securities entitled to vote generally in the election of directors, as
     the case may be, of the corporation resulting from such Business
     Combination (including, without limitation, a corporation which as a
     result of such transaction owns the Company or all or substantially
     all of the Company's assets either directly or through one or more
     subsidiaries) in substantially the same proportions as their
     ownership, immediately prior to such Business Combination of the
     Outstanding Company Common Stock and Outstanding Company Voting
     Securities, as the case may be, (B) no Person (excluding any employee
     benefit plan (or related trust) of the Company or such corporation
     resulting from such Business Combination) beneficially owns, directly
     or indirectly, 20% or more of, respectively, the then outstanding
     shares of common stock of the corporation resulting from such Business
     Combination or the combined voting power of the then outstanding
     voting securities of such corporation except to the extent that such
     ownership existed prior to the Business Combination and (C) at least a
     majority of the members of the board of directors of the corporation
     resulting from such Business Combination were members of the Incumbent
     Board at the time of the execution of the initial agreement, or of the
     action of the Board, providing for such Business Combination; or

          (iv)      Approval by the shareholders of the Company of a complete
     liquidation or dissolution of the Company.

     (c)  Change in Control Price. For purposes of the Plan, "Change in Control
Price" means the higher of (i) the highest reported sales price, regular way, of
a share of Common Stock in any transaction reported on the New York Stock
Exchange Composite Tape or other national exchange on which such shares are
listed or on NASDAQ during the 60-day period prior to and including the date of
a Change in Control or (ii) if the Change in Control is the result of a tender
or exchange offer or a Business Combination, the highest price per share of
Common Stock paid in such tender or exchange offer or Business Combination;
provided, however, that (X) in the case of a Stock Option which (I) is held by
an optionee who is an officer or director of the Company and is subject to
Section 16(b) of the Exchange Act and (II) was granted within 240 days of the
Change in Control, then the Change in Control Price for such Stock Option shall
be the Fair Market Value of the Stock on the date such Stock Option is exercised
or cancelled and (Y) in the case of Incentive Stock Options and Stock
Appreciation Rights relating to Incentive Stock Options, the Change in Control
Price shall be in all cases the Fair Market Value of the Stock on the date such
Incentive Stock Option or Stock Appreciation Right is exercised. To the extent
that the consideration paid in any such transaction described above consists all
or in part of securities or other non-cash consideration, the value of such
securities or other non-cash consideration shall be determined in the sole
discretion of the Board.

SECTION 9.  Term, Amendment and Termination.

     The Plan will terminate on December 31, 2003. Under the Plan, Awards
outstanding as of December 31, 2003 shall not be affected or impaired by the
termination of the Plan.

     The Board may amend, alter, or discontinue the Plan, but no amendment,
alteration or discontinuation shall be made which would (i) impair the rights of
an optionee under a Stock Option or a recipient of a Stock Appreciation Right or
Restricted Stock Award theretofore granted without the optionee's or recipient's
consent, except such an amendment made to cause the Plan to qualify for the
exemption provided by Rule 16b-3, or (ii) disqualify the Plan from the exemption
provided by Rule 16b-3. In addition, no such amendment shall be made without the
approval of the Company's stockholders to the extent such approval is required
by law or agreement.

     The Committee may amend the terms of any Stock Option or other Award
theretofore granted, prospectively or retroactively, but no such amendment shall
impair the rights of any holder without the holder's consent except such an
amendment made to cause the Plan or Award to qualify for the exemption provided
by Rule 16b-3. The Committee may also substitute new Stock Options for
previously granted Stock Options, including previously granted Stock Options
having higher option prices.

     Subject to the above provisions, the Board shall have authority to amend
the Plan to take into account changes in law and tax and accounting rules, as
well as other developments and to grant Awards which qualify for beneficial
treatment under such rules without stockholder approval.

SECTION 10.  Unfunded Status of Plan.

     It is presently intended that the Plan constitute an "unfunded" plan for
incentive and deferred compensation. The Committee may authorize the creation of
trusts or other arrangements to meet the obligations created under the Plan to
deliver Stock or make payments; provided, however, that, unless the Committee
otherwise determines, the existence of such trusts or other arrangements is
consistent with the "unfunded" status of the Plan.

SECTION 11.  General Provisions.

     (a)  The Committee may require each person purchasing or receiving shares
pursuant to an Award to represent to and agree with the Company in writing that
such person is acquiring the shares without a view to the distribution thereof.
The certificates for such shares may include any legend which the Committee
deems appropriate to reflect any restrictions on transfer.

     All certificates for shares of Stock or other securities delivered under
the Plan shall be subject to such stock transfer orders and other restrictions
as the Committee may deem advisable under the rules, regulations and other
requirements of the Commission, any stock exchange upon which the Stock is then
listed and any applicable Federal or state securities law, and the Committee may
cause a legend or legends to be put on any such certificates to make appropriate
reference to such restrictions.

     (b)  Nothing contained in the Plan shall prevent the Company or any
subsidiary or Affiliate from adopting other or additional compensation
arrangements for its employees.

     (c)  The adoption of the Plan shall not confer upon any employee any right
to continued employment nor shall it interfere in any way with the right of the
Company or any subsidiary or Affiliate to terminate the employment of any
employee at any time.

     (d)  No later than the date as of which an amount first becomes includible
in the gross income of the participant for Federal income tax purposes with
respect to any Award under the Plan, the participant shall pay to the Company,
or make arrangements satisfactory to the Company regarding the payment of, any
Federal, state, local or foreign taxes of any kind required by law to be
withheld with respect to such amount. Unless otherwise determined by the
Committee, withholding obligations may be settled with Stock, including Stock
that is part of the Award that gives rise to the withholding requirement. The
obligations of the Company under the Plan shall be conditional on such payment
or arrangements, and the Company, its Subsidiaries and its Affiliates shall, to
the extent permitted by law, have the right to deduct any such taxes from any
payment otherwise due to the participant. The Committee may establish such
procedures as it deems appropriate, including the making of irrevocable
elections, for the settlement of withholding obligations with Stock.

     (e)  At the time of grant, the Committee may provide in connection with any
grant made under the Plan that the shares of Stock received as a result of such
grant shall be subject to a right of first refusal pursuant to which the
participant shall be required to offer to the Company any shares that the
participant wishes to sell at the then Fair Market Value of the Stock, subject
to such other terms and conditions as the Committee may specify at the time of
grant.

     (f)  The reinvestment of dividends in additional Restricted Stock at the
time of any dividend payment shall only be permissible if sufficient shares of
Stock are available under Section 3 for such reinvestment (taking into account
then outstanding Stock Options and other Awards).

     (g)  The Committee shall establish such procedures as it deems appropriate
for a participant to designate a beneficiary to whom any amounts payable in the
event of the participant's death are to be paid.

     (h)  The Plan and all Awards made and actions taken thereunder shall be
governed by and construed in accordance with the laws of the State of Delaware.

SECTION 12.  Effective Date of Plan.

     The Plan shall be effective on the date it is approved by the shareholders
of the Company.

SECTION 13.  Director Stock Options.

     (a)  Each director of the Company who is not otherwise an employee of the
Company or any Affiliate from and after August 1, 1993 shall, on the third
Tuesday of each year during such director's term, automatically be granted
Non-Qualified Stock Options to purchase 2,000 shares of Stock having an exercise
price per share equal to 100% of the Fair Market Value of the Stock at the date
of grant of such Non-Qualified Stock Option. Each such director, upon joining
the Board, shall also be awarded an initial grant of Non-Qualified Stock Options
to purchase 2,000 shares of Stock having an exercise price equal to 100% of the
Fair Market Value of the Stock as of such date.

     (b)  An automatic director Stock Option shall be granted hereunder only if
as of each date of grant (or, in the case of any initial grant, from and after
the effective date of the Plan) the director (i) is not otherwise an employee of
the Company, any Affiliate or Merrill Lynch Capital Partners, Inc., (ii) has not
been an employee of the Company or any subsidiary for any part of the preceding
fiscal year, and (iii) has served on the Board continuously since the
commencement of his term.

     (c)  Each holder of a Stock Option granted pursuant to this Section 13
shall also have the rights specified in Section 5(k).

     (d)  In the event that the number of shares of Stock available for future
grant under the Plan is insufficient to make all automatic grants required to be
made on such date, then all non-employee directors entitled to a grant on such
date shall share ratably in the number of options on shares available for grant
under the Plan.

     (e)  The provisions of paragraph (a) of this Section 13 may not be amended
more often than once every six months. Except as expressly provided in this
Section 13, any Stock Option granted hereunder shall be subject to the terms and
conditions of the Plan as if the grant were made pursuant to Section 5 hereof.

EX-10.12

                                  FOURTH AMENDMENT
                             Dated as of April 13, 2001
                                         to
                  Amended and Restated Receivables Loan Agreement
                Amended and Restated Receivables Purchase Agreement
                    Amended and Restated Subordination Agreement
                       Amended and Restated Limited Guaranty
                         each Dated as of December 23, 1998

THIS AMENDMENT (the "Amendment"), dated as of April 13, 2001, is entered into
among BWA Receivables Corporation (the "Borrower"), BorgWarner Inc. ( "BWI" and
in its capacity as Collection Agent, the "Collection Agent"), BorgWarner
Diversified Transmission Products Inc. ("DTP"), BorgWarner Air/Fluid Systems
Inc. ("AFS"), BorgWarner Morse TEC Inc. ("TEC"), BorgWarner Transmission Systems
Inc. ("TS"), BorgWarner TorqTransfer Systems Inc. ("TTS"), BorgWarner Turbo
Systems Inc. ("Turbo"), BorgWarner Fuel Systems Inc. ("Fuel"), and BorgWarner
Cooling Systems Inc. ("CSC"), Windmill Funding Corporation, a Delaware
corporation ("Windmill"), ABN AMRO Bank N.V., as Windmill's program letter of
credit provider (the "Program LOC Provider"), the Bank listed on the signature
page hereof (the "Bank") and ABN AMRO Bank N.V., as agent for Windmill, the
Program LOC Provider and the Banks (the "Agent").

Reference is hereby made to (i) that certain Amended and Restated Receivables
Loan Agreement, dated as of December 23, 1998 (as amended, supplemented or
otherwise modified through the date hereof, the  "Loan Agreement"), among the
Borrower, the Collection Agent, Windmill, the Program LOC Provider, the Bank and
the Agent, (ii) that certain Amended and Restated Receivables Purchase
Agreement, dated as of December 23, 1998 (as amended, supplemented or otherwise
modified through the date hereof, the  "Purchase Agreement"), among DTP, AFS,
TEC, TS, TTS, Turbo, Fuel, Cooling and the Borrower, (iii) that certain Amended
and Restated Limited Guaranty, dated as of December 23, 1998 (as amended,
supplemented or otherwise modified through the date hereof, the  "guaranty"), by
BWI, DTP, AFS, TEC, TS, TTS, Turbo, Fuel and Cooling in favor of the Borrower
and (iv) that certain Amended and Restated Subordination Agreement, dated as of
December 23, 1998 (as amended, supplemented or otherwise modified through the
date hereof, the "Subordination Agreement"), among DTP, AFS, TEC, TS, TTS,
Turbo, Fuel Cooling, the Borrower and Agent (each of the Loan Agreement,
Purchase Agreement, Guaranty and Subordination Agreement being referred to
herein individually as an  "Amended Agreement" and collectively as the "Amended
Agreements").  Terms used herein and not otherwise defined herein which are
defined in each Amended Agreement or the other Transaction Documents (as defined
in the Loan Agreement) shall have the same meaning herein as defined therein.

     For good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties hereto hereby agree as follows:

     SECTION 1. AMENDMENTS TO LOAN AGREEMENT.  Subject to the following terms
and conditions, including without limitation the conditions precedent set forth
in Section 5, upon execution by the parties hereto in the space provided for
that purpose below, the Loan Agreement shall be, and it hereby is, amended as
follows:

     (a) The defined term  ""Originator "" appearing in Section 1.1 of the Loan
Agreement is amended in its entirety to be and to read as follows:

     " "Originator "" shall mean each of the following Delaware corporations:
BorgWarner Diversified Transmission Products Inc.; BorgWarner Air/Fluid Systems
Inc.; BorgWarner Morse TEC Inc.; BorgWarner Transmission Systems Inc.;
BorgWarner TorqTransfer Systems Inc.; BorgWarner Turbo Systems Inc. And
BorgWarner Cooling Systems Inc.

     (b) Exhibit C, Exhibit G and Exhibit H to the Loan Agreement are each
amended in their entirety to be and to read as set forth on Annex I hereto.

     SECTION 2. AMENDMENTS TO PURCHASE AGREEMENT. Subject to the following terms
and conditions, including without limitation the conditions precedent set forth
in Section 5, upon execution by the parties hereto in the space provided for
that purpose below, the Purchase Agreement shall be, and it hereby is, amended
as follows:

     (a)  The first paragraph of the Purchase Agreement is amended in its
entirety to be and to read as follows:

          " "Amended and Restated Receivables Purchase Agreement (this "
"Agreement ""), dated as of December 23, 1998, by and among BorgWarner
Diversified Transmission Products Inc. (" "DTP ""), BorgWarner Air/Fluid Systems
Inc. (" "AFS ""), BorgWarner Morse TEC Inc. (" "TEC ""), BorgWarner Transmission
Systems Inc. (" "TS ""), BorgWarner TorqTransfer Systems Inc. (" "TTS ""),
BorgWarner Turbo Systems Inc. (" "Turbo "") and BorgWarner Cooling Systems Inc.
(" "CSC "" and collectively with DTP, AFS, TEC,
TTS, TS and Turbo, the " "Sellers
"") and BWA Receivables Corporation (the " "Purchaser "")."

     (b)  Exhibit D and Exhibit E to the Purchase Agreement are each amended in
their entirety to be and to read as set forth on Annex II hereto.

     SECTION 3. AMENDMENT TO GUARANTY. Subject to the following terms and
conditions, including without limitation the conditions precedent set forth in
Section 5, upon execution of the parties hereto in the space provided for that
purpose below, the Guaranty shall be, and it hereby is, amended by amending in
its entirety the first paragraph of the Guaranty to be and to read as follows:

      "Amended and Restated Limited Guaranty (this  "Guaranty), dated as of
December 23, 1998, made by BorgWarner Inc. ("BWI"), BorgWarner Diversified
Transmission Products Inc. ("DTP"), BorgWarner Air/Fluid Systems Inc. ("AFS"),
BorgWarner Morse TEC Inc. ("TEC"), BorgWarner Transmission Systems Inc. ("TS"),
BorgWarner TorqTransfer Systems Inc. ("TTS"), BorgWarner Turbo Systems Inc. (
"Turbo") and BorgWarner Cooling Systems Inc. ("CSC" and collectively with DTP,
AFS, TEC, TS, Turbo, and Fuel the "Originators" and collectively with BWI, DTP,
AFS, TEC, TTS, TS and Turbo the "Guarantors"), in favor of BWA Receivables
Corporation (the "Beneficiary")."

     SECTION 4.  AMENDMENT TO SUBORDINATION AGREEMENT.  Subject to the following
terms and conditions, including without limitation the conditions precedent set
forth in Section 5, upon execution by the parties hereto in the space provided
for that purpose below, the Subordination Agreement shall be, and it hereby is,
amended by amending in its entirety the first paragraph of the Subordination
Agreement to be and to read as follows:

     "Amended and Restated Subordination Agreement (this "Subordination
Agreement"), dated as of December 23, 1998, by and among BorgWarner Inc.
("BWC"), BorgWarner Diversified Transmission Products Inc. ("DTP"), BorgWarner
Air/Fluid Systems Inc. ("AFS"), BorgWarner Morse TEC Inc. ("TEC "), BorgWarner
Transmission Systems Inc. ("TS"), BorgWarner TorqTransfer Systems Inc. ("TTS"),
BorgWarner Turbo Systems Inc. ("Turbo") and BorgWarner Cooling Systems Inc.
("CSC" and collectively with DTP, AFS, TEC, TS, TTS and Turbo the  "Subordinated
Creditors "), BWA Receivables Corporation (the "Borrower"), and ABN AMRO Bank
N.V., as agent for the Lenders (as defined below) (in such capacity, the  "Agent
"), for the benefit of the Agent and the Lenders (the Agent and the Lenders
being collectively referred to herein as the  "Senior Creditors "). "

     SECTION 5.     The effectiveness of this Amendment is subject to the
satisfaction of all of the following conditions precedent:

     (a)  Each of the parties hereto shall have accepted this Amendment in the
spaces provided for that purpose below.

     (b)  All other legal matters incident to the execution and delivery hereof
and to the transactions contemplated hereby shall be satisfactory to the Agent.

     SECTION 6.     Each Amended Agreement, as amended and supplemented hereby
or as contemplated herein, and all rights and powers created thereby and
thereunder or under the other Transaction Documents and all other documents
executed in connection therewith, are in all respects ratified and confirmed.
From and after the date hereof, each Amended Agreement shall be amended and
supplemented as herein provided, and, except as so amended and supplemented,
each Amended Agreement, each of the other Transaction Documents and all other
documents executed in connection therewith shall remain in full force and
effect.

     SECTION 7.     This Amendment may be executed in two or more counterparts,
each of which shall constitute an original but both or all of which, when taken
together, shall constitute but one instrument.

     SECTION 8.     This Amendment shall be governed and construed in accordance
with the internal laws of the State of Illinois.

IN WITNESS WHEREOF, the parties have caused this Amendment to be executed and
delivered by their duly authorized officers as of the date first above written.

                         ABN AMRO BANK N.V. as the Agent, as a
                         Bank and as the Program LOC Provider

                         By:
                         Title:

                         WINDMILL FUNDING CORPORATION

                         BWA RECEIVABLES CORPORATION

                         BORGWARNER INC.

                         BORGWARNER DIVERSIFIED TRANSMISSION PRODUCTS INC.

                         BORGWARNER AIR/FLUID SYSTEMS INC.

                         BORGWARNER MORSE TEC INC.

                         BORGWARNER TRANSMISSION SYSTEMS INC.

                         BORGWARNER TORQTRANSFER SYSTEMS INC.

                         BORGWARNER TURBO SYSTEMS INC.

                         BORGWARNER FUEL SYSTEMS INC.
                         BORGWARNER COOLING SYSTEMS INC.

EX-10.13

                                  FIFTH AMENDMENT
                             Dated as of July 25, 2001
                                         to
                  Amended and Restated Receivables Loan Agreement

THIS AMENDMENT (the  "Amendment"), dated as of July 25, 2001, is entered into
among BWA Receivables Corporation (the  "Borrower "), BorgWarner Inc. ("BWI" and
in its capacity as Collection Agent, the  "Collection Agent"), Windmill Funding
Corporation, a Delaware corporation ("Windmill"), ABN AMRO Bank N.V., as
Windmill's program letter of credit provider (the "Program LOC Provider"), the
Bank listed on the signature page hereof (the "Bank") and ABN AMRO Bank N.V., as
agent for Windmill, the Program LOC Provider and the Banks (the "Agent").

Reference is hereby made to (i) that certain Amended and Restated Receivables
Loan Agreement, dated as of December 23, 1998 (as amended, supplemented or
otherwise modified through the date hereof, the "Loan Agreement"), among the
Borrower, the Collection Agent, Windmill, the Program LOC Provider, the Bank and
the Agent.

     For good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties hereto hereby agree as follows:

     SECTION 1. AMENDMENTS TO LOAN AGREEMENT.  Subject to the following terms
and conditions, including without limitation the conditions precedent set forth
in Section 2, upon execution by the parties hereto in the space provided for
that purpose below, the Loan Agreement shall be, and it hereby is, amended as
follows:

     (a) The defined term  "Approved Obligor Limit" appearing in Section 1.1 of
the Loan Agreement is amended in its entirety to be and to read as follows:

      "Approved Obligor Limit" shall mean, (a) with respect to Ford Motor
Company, $72,000,000, (b) with respect to General Motors Corporation,
$40,000,000, (c) with respect to DaimlerChrysler AG, $42,000,000, (d) with
respect to New Venture Gear, $12,000,000 and (e) with respect to Caterpillar
Corporation, $10,000,000; provided, however, that the Agent may designate a
lesser amount as the Approved Obligor Limit for any Approved Obligor, upon the
request of any Bank or the Program LOC Provider following the occurrence of a
Downgrading Event with respect to such Approved Obligor or any Subsidiary of
such Approved Obligor.

     (b)  The defined term  "D&P" is hereby deleted.

     (c)  The defined term  "Downgrading Event" appearing in Section 1.1 of the
Loan Agreement is amended in its entirety to be and to read as follows:

     "Downgrading Event" shall mean, (a) with respect to any Person (other than
New Venture Gear), that any one of the following has occurred with respect to
such Person: (i) any long-term unsecured indebtedness of such Person (that is
not subordinated to the general indebtedness of such Person) is rated less than
BBB by S&P or Baa2 by Moody's or BBB by Fitch, (ii) any short-term indebtedness
of such Person is rated less than A-2 by S&P or P-2 by Moody's or (iii) for the
long-term unsecured indebtedness of such Person (that is not subordinated to the
general indebtedness of such Person) that is not rated by Moody's, S&P or Fitch,
notice by the Agent that a "Downgrading Event" has occurred with respect to such
Person and (b) with respect to New Venture Gear, that any one of the following
has occurred with respect to DaimlerChrysler AG: (i) any long-term unsecured
indebtedness of DaimlerChrysler AG (that is not subordinated to the general
indebtedness of DaimlerChrysler AG) is rated less than BBB by S&P or Baa2 by
Moody's or BBB By Fitch, (ii) any short-term indebtedness of DaimlerChrysler AG
is rated less than A-2 by S&P or P-2 by Moody's, (iii) for the long-term
unsecured indebtedness of DaimlerChrysler AG (that is not subordinated to the
general indebtedness of DaimlerChrysler AG) that is not rated by Moody's, S&P or
Fitch, notice by the Agent that a  "Downgrading Event" has occurred with respect
to DaimlerChrysler AG or (iv) at any time DaimlerChrysler AG does not own a
majority of the issued and outstanding shares of the voting capital stock of New
Venture Gear.

(d)  A new defined term  "Fitch" is hereby added to Section 1.1 of the Loan
Agreement in alphabetical order as follows:

      "Fitch" shall mean Fitch, Inc.

(e)  The defined term "D&P" is hereby replaced with the defined term  "Fitch" in
each place that it appears in the Loan Agreement.

     SECTION 2.     The effectiveness of this Amendment is subject to the
satisfaction of all of the following conditions precedent:

     (a)  Each of the parties hereto shall have accepted this Amendment in the
spaces provided for that purpose below.

     (b)  All other legal matters incident to the execution and delivery hereof
and to the transactions contemplated hereby shall be satisfactory to the Agent.

     SECTION 3. The Loan Agreement, as amended and supplemented hereby or as
contemplated herein, and all rights and power created thereby and thereunder or
under the other Transaction Documents (as defined in the Loan Agreement) and all
other documents executed in connection therewith, is in all respects ratified
and confirmed.  From and after the date hereof, the Loan Agreement shall be
amended and supplemented as herein provided, and, except as so amended and
supplemented, the Loan Agreement, each of the other Transaction Documents and
all other documents executed in connection therewith shall remain in full force
and effect.

     SECTION 4. This Amendment may be executed in two or more counterpart, each
shall constitute an original but both or all of which, when taken together,
shall constitute but one instrument.

     SECTION 5.     This Amendment shall be governed and construed in accordance
with the internal laws of the State of Illinois.

IN WITNESS WHEREOF, the parties have caused this Amendment to be executed and
delivered by their duly authorized officers as of the date first above written.

                         ABN AMRO BANK N.V. as the Agent, as a
                         Bank and as the Program LOC Provider

                         By:
                         Title:

                         WINDMILL FUNDING CORPORATION

                         By:
                         Title:

                         BWA RECEIVABLES CORPORATION

                         By:
                         Title:

                         BORGWARNER INC.

                         By:
                         Title:

EX-10.14

                                  SIXTH AMENDMENT
                           Dated as of December 12, 2001
                                         to
                  Amended and Restated Receivables Loan Agreement
                         each Dated as of December 23, 1998


THIS AMENDMENT (the  "Amendment"), dated as of December 12, 2001, is entered
into among BWA Receivables Corporation (the "Borrower"), BorgWarner Inc. ("BWI"
and in its capacity as Collection Agent, the "Collection Agent"), Windmill
Funding Corporation, a Delaware corporation ("Windmill"), ABN AMRO Bank N.V., as
Windmill's program letter of credit provider (the "Program LOC Provider"), the
Bank listed on the signature page hereof (the "Bank") and ABN AMRO Bank N.V., as
agent for Windmill, the Program LOC Provider and the Banks (the "Agent").

Reference is hereby made to that certain Amended and Restated Receivables Loan
Agreement, dated as of December 23, 1998 (as amended, supplemented or otherwise
modified through the date hereof, the "Loan Agreement"), among the Borrower, the
Collection Agent, Windmill, the Program LOC Provider, the Bank and the Agent.

     For good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties hereto hereby agree as follows:

     SECTION 1. AMENDMENTS TO LOAN AGREEMENT.  Subject to the following terms
and conditions, including without limitation the conditions precedent set forth
in Section 2, upon execution by the parties hereto in the space provided for
that purpose below, the Loan Agreement shall be, and it hereby is, amended as
follows:

     (a) The date "December 19, 2001" appearing in clause (iv) of the defined
term  "Bank Termination Date" apearing in Section 1.1 of the Loan Agreement is
deleted and replaced with the date "February 19, 2002."

     (b) The date "December 23, 2001" appearing in clause (i) of the defined
term  "Loan Amortization Date" apearing in Section 1.1 of the Loan Agreement is
deleted and replaced with the date "February 19, 2002."

     (c)  The date "December 19, 2001" appearing
in clause   of the defined term
"Program LOC Provider Termination Date" appearing in Section 1.1 of the Loan
Agreement is deleted and replaced with the daate "February 19, 2002."

     SECTION 2. The effectiveness of this Amendment is subject to the
satisfaction of all of the following conditions precedent:

     (a)  Each of the parties hereto shall have accepted this Amendment in the
spaces provided for that purpose below.

     (b)  All other legal matters incident to the execution and delivery hereof
and to the transactions contemplated hereby shall be satisfactory to the Agent.

     SECTION 3. The Loan Agreement, as amended and supplemented hereby or as
contemplated herein, and all rights and power created thereby and thereunder or
under the other Transaction Documents (as defined in the Loan Agreement) and all
other documents executed in connection therewith, is in all respects ratified
and confirmed.  From and after the date hereof, the Loan Agreement shall be
amended and supplemented as herein provided, and, except as so amended and
supplemented, the Loan Agreement, each of the other Transaction Documents and
all other documents executed in connection therewith shall remain in full force
and effect.

     SECTION 4. This Amendment may be executed in two or more counterpart, each
shall constitute an original but both or all of which, when taken together,
shall constitute but one instrument.

     SECTION 5.     This Amendment shall be governed and construed in accordance
with the internal laws of the State of Illinois.

IN WITNESS WHEREOF, the parties have caused this Amendment to be executed and
delivered by their duly authorized officers as of the date first above written.

                         ABN AMRO BANK N.V. as the Agent, as a
                         Bank and as the Program LOC Provider

                         By:
                         Title:

                         WINDMILL FUNDING CORPORATION

                         By:
                         Title:

                         BWA RECEIVABLES CORPORATION

                         By:
                         Title:

                         BORGWARNER INC.

                         By:
                         Title:

EX-21

BORGWARNER INC.
NAME OF SUBSIDIARY*

BorgWarner TorqTransfer Systems Inc.
     BorgWarner Powdered Metals Inc.
     BorgWarner South Asia Inc.
          Divgi-Warner PVT Limited
          Huazhong (Automotive) Transmission Company, Ltd.
          Borg-Warner Shenglong (Ningbo) Co. Ltd.
          BorgWarner TorqueTransfer Systems Korea Inc.
     BorgWarner Diversified Transmission Products Inc.
BorgWarner Air/Fluid Systems Inc.
     BorgWarner Air/Fluid Systems of Michigan Inc.
     BorgWarner Air/Fluid Systems Holding Inc.
          Borg-Warner Automotive Air/Fluid Systems Europe SAS
            Borg-Warner Automotive Air/Fluid Systems,Tulle SA
BorgWarner Cooling Systems Inc.
     BorgWarner Cooling Systems of Michigan Inc.
BorgWarner Morse TEC Inc.
     BorgWarner Canada Inc.
     BorgWarner Japan Inc.
          Borg-Warner Automotive K.K.
     Borg-Warner Automotive Taiwan Co., Ltd.
     BorgWarner Morse TEC Mexico S.A. de C.V.
     Morse TEC Europe Sp.A
Borg-Warner Automotive Foreign Sales Corporation
BorgWarner Transmission Systems Inc.
     BorgWarner NW Inc.
          BorgWarner Transmission Systems Korea, Inc.
          NSK-Warner KK
     Lapeer Warner, LLC
     BorgWarner Europe Inc.
          BorgWarner Holding Inc.
           BW Holding Ltd.
           BorgWarner Air/Fluid Systems Europe S.A.S.
            BorgWarner Europe GmbH
             BWA Turbo Systems Holding Ltd.
               BorgWarner Turbo Systems Ltd.
                    Schwitzer Pension Trust Limited
                    Kysor Industries S.A.
                    Kysor Europe Limited
                         Dynair Limited
             Morse TEC Europe S.r.l.
             BorgWarner Germany GmbH
               BorgWarner Transmission Systems Arnstadt GmbH
               BorgWarner Transmission Systems GmbH
                 BorgWarner Vertriebs und Verwaltungs GmbH
                     BorgWarner Turbo Systems Worldwide Headquarters
GmbH
                       3K Warner Turbosystems GmbH
                       BorgWarner Turbo Systems Kft
                       Hitachi Warner K.K.
                       Turbo Energy Ltd.
                     BorgWarner Cooling Systems GmbH
          AG Kuhnle, Kopp & Kausch
Creon Insurance Agency, Ltd.
      Creon Trustees, Ltd.
Kuhlman Corporation
      BWA Turbo Systems Holding Corporation
           BorgWarner Turbo Systems Inc.
             BorgWarner Cooling Systems Korea, Inc.
             Borg-Warner Automotive Brazil, Ltda.
             Kysor DO BRASIL LTDA.
      Kuhlman Plastics of Canada, Ltd.
      Kuhlman Industrial Products, Inc.
      Bronson Specialties, Inc.
      Borse Plastic Products Corp.
      Associated Engineering Company
      Spring Products Corporation

*as of February 1, 2002

EX-23

INDEPENDENT AUDITORS' CONSENT

We consent to the incorporation by reference in Registration Statement Nos.
33-75564, 33-75566, 33-75568, 33-75572, 33-75574, 33-67822, and 33-67824 dated
February 1, 1995; 33-92430, 33-92428, 33-92432, and 33-92426 dated May 17, 1995;
33-92862 and 33-92860 dated May 30, 1995;
33-92858 dated June 1, 1995; 333-12941,
333-12875, and 333-12939 dated September 27, 1996; 333-17179 dated
December 3, 1996; 333-45423 dated February 2, 1998; 333-45491, 333-45493,
333-45495, 333-45507, and 333-45499, dated
February 3, 1998; 333-51647 dated May 1,
1998; 333-67131, 333-67133 and 333-67135 dated November 12, 1998; 333-85299,
333-85297, 333-85295, 333-85293, 333-85291, 333-85289, 333-85301 and 333-85303
dated August 16, 1999; 333-95207 dated January 24, 2000; 333-35722, 333-35729,
333-35720, 333-35736, 333-35732, 333-35718 and 333-35716 dated April 27, 2000,
all on Form S-8, and 333-73840-01 dated November 21, 2001 on Form S-3 of
BorgWarner Inc., of our report dated February 7, 2002, incorporated by reference
in the Annual Report on Form 10-K of BorgWarner Inc. for the year ended December
31, 2001.


DELOITTE & TOUCHE LLP
Chicago, Illinois
March 25, 2002

EX-99

CAUTIONARY STATEMENTS


Information provided by the Company from time to time may contain "forward-
looking statements" as defined by the Private Securities Litigation Reform Act
of 1995.  Forward-looking statements are typically identified by words or
phrases such as "expects," "anticipates," "intends," "plans," "believes,"
"estimates" and similar expressions.  The Company does not intend or assume any
obligation to update any of these forward-looking statements.
Such forward-looking
 statements are subject to risks and uncertainties including, but not
limited to, those discussed below, which could cause actual results to differ
materially from those expressed, projected or implied in the forward-looking
statement.

     1. The Company's principal operations are cyclical, because they are
directly related to domestic and foreign vehicle production, which is itself
cyclical and dependent on general economic conditions and other factors. Any
significant reduction in such production would have an adverse effect on the
level of the Company's sales to vehicle original equipment manufacturers
("OEMs") and on the Company's financial position and operating results.

     2.  Certain of the Company's products are currently used exclusively in
sport-utility vehicles and light trucks.  Any significant reduction in the
production of such vehicles and trucks would have an adverse effect on the level
of the Company's sales to OEMs and the Company's financial position and
operating results.

     3.   A number of the Company's major OEM customers manufacture products for
their own use that compete with the Company's products.  Although these OEM
customers have indicated that they will continue to rely on outside suppliers,
the OEMs could elect to manufacture products for their own use and in place of
the products now supplied by the Company.

     4.   The Company has a stated goal of increasing its revenues through the
expansion of existing business and select acquisitions. Failure to grow existing
business in sufficient volume because of changes in the vehicle market and/or
the unavailability of suitable acquisition candidates could result in
nonattainment of this goal.

     5.   Annual price reductions to OEM customers have become a permanent
feature of the Company's business environment. To maintain its profit margins,
the Company, among other things, seeks price reductions from its own suppliers,
adopts improved production processes to increase manufacturing efficiency,
updates product designs to reduce costs and develops new products whose benefits
support increased pricing. The Company's ability to pass through increased raw
material costs to its OEM customers is also limited, with cost recovery less
than 100% and often on a delayed basis.  There can be no assurance that the
Company will be able to reduce costs in an amount equal to the annual price
reductions and the increase in raw material costs.

     6.   The Company makes a significant annual investment in research and
development activities to develop new and improved products and manufacturing
processes.  There can be no assurance that research and development activities
will yield new or improved products or products which will be purchased by the
OEMs, or new and improved manufacturing processes.

     7.   The Company has a stated goal to expand its operations in all
significant global markets to balance the cyclical nature of the vehicle
business.  There can be no assurance that the Company will be able to expand its
existing business or obtain new business outside of North America to balance its
sales.  In addition, there can be no assurance that vehicle production in North
America, South America, Europe and Asia will not decline simultaneously.

     8.   The Company has a stated goal of continuing to increase revenues and
operating earnings at a rate greater than overall world vehicle production by
increasing its content per vehicle with innovative new components and systems.
Any of the following factors could cause the Company to fail to outperform world
automotive production:  (a) a significant drop in production of sport utility
vehicles and light trucks, high content vehicles for the Company's products; (b)
a failure of research and development spending to result in new components and
systems which will be purchased by the OEMs; (c) technology changes which could
render the Company's components and systems obsolete; and (d) a reversal of the
trend of supplying systems (which allows the Company to increase content per
vehicle) instead of components.

     9.   With operations and sales in countries outside the United States, the
Company could be affected by changes in trade, monetary and fiscal policies
(both in the United States and elsewhere), trade restrictions or prohibitions,
import and other charges or taxes, and fluctuations in foreign currency and
foreign exchange rates, and political instability and disputes.

     10.  Certain of our OEM customers are exploring the use of the Internet to
modify their existing business model for dealing with suppliers.  The Company
has a strategy to be responsive to these initiatives through a combination of
increasing cost efficiency and product development.  If such efforts are
unsuccessful, the Company would be subject to a greater risk of lower sales and
reduced profitability.

     11.  The Company bases its growth projections, in part, on long-term
commitments made by our customers.  These commitments generally range anywhere
from one year to seven years into the future.  If the actual production orders
from our customers do not aproximate such commitments, it could have a material
adverse effect on the Company's growth and financial performance.

     12.  The Company competes worldwide with a number of other manufactures and
distributors that produce and sell similar products.  Price, quality and
technological innovation are the primary elements of competition.  Competitors
include vertically integrated units of major customers, as well as, a large
number of independent domestic and international suppliers.  Increased pressure
to lower the selling price of the Company's products could effect the Company's
profitability.

EX-13

Introduction

BorgWarner Inc. and Consolidated Subsidiaries (the
"Company") is a leading global supplier of highly engineered
systems and components for powertrain applications. Our
products help improve vehicle performance, fuel efficiency,
handling and air quality. Our products are manufactured and
sold worldwide, primarily to original equipment
manufacturers (OEM) of passenger cars, sport utility
vehicles, trucks, and commercial transportation products.
The Company operates manufacturing facilities serving
customers in the Americas, Europe and Asia, and is an
original equipment supplier to every major OEM in the world.

The Company made some key acquisitions in 1999. Kuhlman
Corporation (Kuhlman) was acquired in March of 1999 and the
Eaton Fluid Power Division (Eaton) in October 1999. Both of
these acquisitions were accounted for under the purchase
method of accounting, and the results are reflected in the
accompanying information from the date of acquisition. The
turbocharger business from Kuhlman, combined with our German
turbocharger business, adds to the Morse TEC business
segment's variety of engine-related products to improve
performance, fuel economy and air quality. The Eaton and
Kuhlman powertrain cooling businesses were combined to form
the Cooling Systems business. Substantially all of the
remaining Kuhlman businesses have been sold.

Results of Operations
2001 vs. 2000 vs. 1999

BorgWarner reported net earnings for 2001 of $66.4 million,
or $2.51 per diluted share, compared to 2000 earnings of
$94.0 million, or $3.54 per diluted share. Excluding
restructuring and other non-recurring charges, 2001 earnings
were $85.4 million, or $3.23 per diluted share, compared to
2000 earnings of $132.7 million, or $5.01 per diluted share.
Net earnings in 1999 were $132.3 million or $5.07 per
diluted share.

Overall, our sales declined 11.1% from 2000 and grew 7.6%
between 2000 and 1999. Excluding sold businesses, sales were
7.1% lower in 2001 and 10.2% higher in 2000, than the
previous year. The main cause of the sales decline was the
overall sales decline in the auto industry. As a comparison,
worldwide vehicle production decreased by 3.8% in 2001 and
increased 2.8% in 2000. North American production decreased
by 9.7% in 2001 and increased by 1.3% in 2000, Japanese
production decreased by 2.3% in 2001 and increased by 2.2%
in 2000 and Western European production increased 1.4% and
1.3% in 2001 and 2000, respectively.

Our 2001 results reflected ongoing weak production demand,
the weak Euro and Yen, production slowdowns and shutdowns
across all of our operating segments, and further
deterioration in the heavy truck market. If currencies
remained at their average 2000 rates in 2001, our 2001
revenues would have been approximately $47 million higher
and our 2001 pre-tax income would have been approximately $7
million higher. The primary growth drivers in 2000 over 1999
were relatively strong global automotive markets, growth in
engine timing systems applications, strong demand for
turbochargers, especially in European passenger cars,
increased content on new generations of transmissions,
improvements in four-wheel drive installation rates on light
trucks and results from acquisitions.

Our outlook as we head into 2002 is one of cautious optimism
as the North American automotive market continues to
experience a downturn. We anticipate the first half of 2002
will continue to be weak, but we intend to use our financial
strength to manage through the weakness by controlling costs
and other spending so that we are poised to take advantage
of opportunities as the cycle turns up again. We are
cautiously optimistic that light vehicle production will
recover somewhat in the second half of 2002 and we will see
growth from our new applications. We also saw the beginnings
of a decline in Europe in the fourth quarter of 2001 and
expect this to continue throughout 2002.
Results By Operating Segment

Our products fall into five reportable operating segments:
Air/Fluid Systems, Cooling Systems, Morse TEC, TorqTransfer
Systems, and Transmission Systems. The segments are profiled
on pages 5 through 7. The following tables detail sales and
earnings before interest and taxes (EBIT) by segment for
each of the last three years.

Net Sales


          (millions of dollars)
Year Ended December 31,  2001 2000 1999
                          
Air/Fluid Systems        $357.8    $427.8         $413.9
Cooling Systems          220.5     281.3          142.8
Morse TEC                869.4     885.8          796.9
TorqTransfer Systems     500.1     526.7          563.3
Transmission Systems     428.8     437.5          413.4
Divested operations and businesses held for sale                                18.0      132.9          178.0
Inter-segment eliminations(43.0)    (46.1)         (49.7)
                         --------  ---------      --------
Net sales      $    2,351.6   $    2,645.9   $    2,458.6
                    ========       ==========     =========
Earnings Before Interest and Taxes

(millions of dollars)
Year Ended December 31,  2001      2000      1999

Air/Fluid Systems        $    12.9 $    35.7 $    36.5
Cooling Systems               7.5       32.1      17.9
Morse TEC                     119.8     127.4     109.7
TorqTransfer Systems          24.1      37.2      41.2
Transmission Systems          48.5      46.0      54.1
Divested operations and businesses held for sale                                          (0.2)      3.2      6.9
                              -------   -------   ------
Earnings before interest and
     taxes               $    212.6     $281.6    $266.3
                              ======== ======== =========

Air/Fluid Systems experienced a 16.4% decrease in sales and
a 63.9% decrease in EBIT compared to the prior year. The
decline in sales was primarily due to pricing and volume
weakness at DaimlerChrysler, a major Air/Fluid Systems
customer. Volume decreases, product mix issues and
production issues related to facility rationalizations
contributed to the EBIT margin decline.

Sales increased by 3.4% and EBIT decreased 2.2%,
respectively, from 1999 to 2000. The increase in sales was
largely attributable to increased demand for pump products
for emission control. The decline in EBIT was due to product
mix issues and costs related to facility rationalizations.

Despite a tempered outlook for 2002 due to industry
conditions, we believe that Air/Fluid Systems continues to
provide opportunities for growth. We expect the business to
benefit from the trend in automatic transmissions to convert
individual solenoids to modules and "smart" modules with
integrated transmission control units. The business should
also benefit from the trend toward non-conventional
automated transmissions. Other opportunities in the coming
years include products designated to improve fuel efficiency
and reduce emissions as well as fluid pumps for engine
hydraulics supporting variable cam timing and engine
lubrication.

Cooling Systems' sales decreased 21.6% and EBIT decreased
76.6% from the prior year. Cooling Systems was heavily
impacted by the deteriorating North American market
conditions since approximately 80% of the business' sales
are to customers in North America, mainly in the sport
utility (SUV), light, medium and heavy truck markets. This
performance was in line with our expectations due to
weakness in the North American heavy truck market, along
with an application lost in 2001.

The increases in sales and EBIT in 2000 relative to 1999
primarily reflect full year results for this business, which
was formed in 1999.

We expect our leadership position to favorably impact
results once new business is launched and the truck markets
recover, which we currently expect to happen in 2003.
Increasing fuel economy and environmental legislation in
North America and Europe are expected to drive demand for
electronically controlled cooling systems to accommodate
increasingly higher operating engine temperatures. These
same requirements are driving developing countries to
embrace mechanically controlled drives and, because of our
full product range and manufacturing locations in every
major vehicle producing region, we expect to be well
positioned to benefit from the product life cycle in these
markets.

Morse TEC sales decreased by 1.9% and EBIT declined by 6.0%.
The North American automotive downturn affected this
business, but was partially offset by expanded applications,
particularly for engine timing systems. The European portion
of the business continued to be strong, particularly
turbochargers and engine timing systems. However, the
weakness in European currencies mitigated that strength.
Results for the business were also adversely impacted by the
weakness throughout the year in the Yen. The EBIT decline
was due to the previously mentioned lower volumes and a
change in mix between chain products and turbocharger
products.

Morse TEC sales increased 11.2% and EBIT increased 16.1%
from 1999 to 2000, despite being negatively affected by the
weak Euro, both for the turbocharger portion and the timing
chain portion of the business. The growth was due to the
strength of the European turbocharger market for gasoline
and diesel passenger cars and commercial vehicles, as well
as new and expanded engine timing programs in each
geographical region.

Morse TEC revenue is expected to grow in the coming years as
turbocharger capacity is increased to meet demand on
direct-injected diesel passenger cars and as new generations of
turbochargers for commercial diesel applications are
introduced. The introduction of additional new products,
including timing systems for Chrysler overhead cam engines,
increased North American transplant business, Ford's global
four cylinder engine program, and drive chain for the new
Toyota hybrid engine and other Japanese and Korean
applications, are expected in the coming years. This
business expects to benefit from the continued conversion of
engine timing systems from belts to chains in both Europe
and Japan. Such growth may be tempered by the current
downturn.

TorqTransfer Systems' sales decreased 5.1% and EBIT
decreased 35.2% from the prior year. This business suffered
particularly in the early part of the year from the effects
of erratic scheduling, with OEMs cutting volumes at short
notice in response to the market downturn and the continued
effects of the Ford Explorer/ Firestone tire issue.

The EBIT decline caused primarily by the effects of the
downturn was com- pounded by the need to support the launch
of new programs, discussed below, which involved substantial
engineering effort and the installation of new manufacturing
capacity.

Sales were down 6.5% and EBIT was down 9.7% in 2000 versus
1999. The declines were not surprising given the weak second
half of 2000 and the problems with Ford Explorer/Firestone
tires, as the Explorer is a major application for this
segment. Production volume of this vehicle was lower by 4%
compared with 1999, with our sales declining as a result.
Sales of other vehicles that use TorqTransfer Systems'
products were also down in 2000, particularly other Ford
light trucks and SUVs.

August 2000 saw the launch of TorqTransfer's first
InterActive Torque Management (ITM) system application in
the Acura MDX. While the system has great promise going
forward, it did not contribute significantly in 2000 due to
the impact of startup costs and its launch late in the year.
Considering the sales decline, the group did a solid job of
limiting EBIT losses. This was done by recognizing early
that the year would be one of limited growth potential and
this business took a number of actions to control costs,
including restrictions on hiring, controls on non-essential
spending and shifting production to maximize capacity
utilization.

For 2002, this group expects to benefit from a new contract
to supply transfer cases to General Motors, as well as new
business with Kia and Hyundai. In addition, Honda has
requested a significant uplift in volumes for the ITM torque
management device to be used in the Honda Pilot, a new SUV.
We expect moderate growth from this business next year
because of these new product introductions. Shipments
against these new contracts should begin ramping up in the
second quarter, with more significant increases in the third
quarter coinciding with the 2003 model year.

Transmission Systems' sales decreased 2.0%, but EBIT
increased 5.4% in 2001. The sales reduction was linked to
volume decreases experienced by major North American OEMs,
driven by the general North American automotive industry
downturn as well as market share losses by the North
American automakers to European and Asian automakers in
North America. Strong sales to European and Asian customers
partially offset the North American OEM sales decline, due
to their aforementioned export gains as well as solid
domestic volume levels in their respective regions.
Increased installation rates for automated transmissions
continued to grow in Europe and Asia, nearly offsetting the
decline in volume in North America. Because of significant
cost cutting efforts taken in late 2000 and early 2001, this
business was able to increase EBIT, even while sales
decreased. This business was quick to respond to the
softening North American marketplace and took costs out of
its overhead structure to be more in line with current
industry levels.

Compared to 1999, 2000 sales increased 5.8%. The sales
growth came principally from Korea, where this business
benefited from both strong local build rates and an
increasing installation rate for automatic transmissions. In
Europe, sales were strong in local currency, but translated
to fewer dollars because of the weakness of the Euro. In
North America sales were up for the year due to strong
customer build rates in the first half of 2000. Sales
declined in the latter part of the year, particularly in the
fourth quarter. EBIT in 2000 was 15.0% below 1999 levels.
Volume related improvements in Korea were more than offset
by operating problems incurred in North America. The
restructuring charges recognized in the third and fourth
quarters of 2000 were taken in part to restructure
operations at the Transmission Systems group.

Transmission Systems expects to achieve moderate sales
growth in 2002, linked to volume ramp-ups in recently
launched applications as well as continued global market
share increases by key customers in Europe and Asia. This
sales increase is expected in spite of current concerns
about North American automotive market demand levels, which
are likely to remain soft during the first half of the year.
The business should continue to benefit from restructuring
actions taken in 2000 and 2001 to better align the
businesses to the anticipated level of activity and from
significant cost reduction projects initiated in 2001 which
will carry over into the new year.

Divested operations and businesses held for sale includes
the results of Fuel Systems, sold in 2001; the HVAC
business, which was sold during 2000; and the forged powder
metal race business sold in 1999. These businesses did not
fit our strategic goals, and we believe our resources are
better spent on our core technologies in highly engineered
components and systems. The sale of the Fuel Systems
business did not result in a significant gain or loss.
However, we adjusted our carrying value of this business in
2000 as part of the restructuring charge discussed below.
The $5.4 million gain on the sale of the HVAC business in
2000 is included in equity in affiliates and other income.
The sale of the forged powder metal race business did not
result in a significant gain or loss. Divested operations
and businesses held for sale contributed to sales of $18.0
million, $132.9 million, and $178.0 million and EBIT of
$(0.2) million, $3.2 million, and $6.9 million in 2001,
2000, and 1999, respectively.

Corporate, including equity in affiliates was a $30.3
million charge in 2001, compared to a $7.3 million charge in
2000, and a $10.1 million charge in 1999. This amount
represents headquarters expenses, equity in affiliates, and
expenses not assigned to individual segments. The main
reasons for the increase in the charge were a decrease of
$10.5 million in the excess of earnings from pension assets
over the costs of the U.S. pension plans and the $5.4
million gain on the sale of the HVAC business in 2000.
Corporate headquarters expense was relatively unchanged at
$20.5 million in 2001 compared to $19.2 million in 2000.

Our top ten customers accounted for approximately 78% of
consolidated sales compared to 77% in 2000 and 75% in 1999.
Ford continues to be our largest customer with 30% of
consolidated sales in 2001, compared to 30% and 31% in 2000
and 1999, respectively. DaimlerChrysler, our second largest
customer, rep- resented 21% of consolidated sales in 2001
and 19% of consolidated sales in both 2000 and 1999; and
General Motors accounted for 12%, 13%, and 13%, in 2001,
2000, and 1999, respectively. No other customer accounted
for more than 10% of consolidated sales in any of the
periods presented.

Other Factors Affecting Results of Operations

The following table details our results of operations as a
percentage of sales:



Year Ended December 31,  2001*     2000*     1999
- -----------------------  -------   -------   ---------
                                    
Net sales                100.0%    100.0%    100.0%
Cost of sales            76.6      75.7      76.8
Gross margin             23.4      24.3      23.2
Depreciation and
     amortization        6.2       5.5       5.0
Selling, general and
 administrative expenses 10.0      9.2       8.3
Minority interest, affiliate earnings, net of tax and other
income                   (0.6)     (0.8)    (0.5)
                         -------- ------- ----------
Earnings before interest
     and taxes           7.8%      10.4%     10.4%
                         ======== ========= ========

(*)  To make the table comparable across years, 2001
excludes $28.4 million, or 1.2% of sales, of non-recurring
charges, and 2000 excludes $62.9 million, or 2.4% of sales,
of restructuring and  other non-recurring charges.

Gross margin for 2001 was 23.4%, a decrease from the 2000
margin of 24.3%, but a slight increase from the 1999 margin
of 23.2%. The decrease in margin in 2001 is mainly due to
the drop in volume, as we had fewer sales dollars to cover
our fixed plant costs. The margin increase in 2000, compared
to 1999 is partly attributable to the acquisition of higher
margin operations and the divestiture of lower margin
operations in 1999. In addition, many of our core businesses
also showed gross margin improvement. In 2001, the
combination of price reductions to customers and cost
increases for material, labor and overhead totaled
approximately $37 million, as compared to $16 million and
$63 million in 2000 and 1999, respectively. We were able to
partially offset these impacts by actively pursuing
reductions from our suppliers and making changes in product
design and using process technology to remove cost and/or
improve manufacturing capabilities.

Depreciation and amortization as a percentage of sales was
6.2% in 2001 versus 5.5% in 2000 and 5.0% in 1999. The 2001
and 2000 amounts were a result of a full year's amortization
of the goodwill associated with the additional businesses
acquired in 1999 as well as the relatively higher levels of
capital spending in recent years. The 2001 dollar amount was
about the same as 2000; the higher percentage of sales was
due to a lower sales volume.

Selling, general and administrative expenses (SG&A) as a
percentage of sales increased to 10.0% from 9.2% and 8.3% in
2000 and 1999, respectively. Lower sales volumes, as well as
our continued commitment to research and development (R&D)
in order to capitalize on growth opportunities have caused
the increases. R&D spending was $104.5 million, or 4.4% of
sales, as compared with $112.0 million, or 4.2% of sales,
and $91.6 million, or 3.7% of sales in 2001, 2000 and 1999,
respectively. We continue to invest in a number of cross-segment
R&D programs, as well as a number of other key
programs, all of which are necessary for short and long-term
growth. We intend to maintain our commitment to R&D
investment in the coming years while continuing to focus on
controlling other SG&A costs.

Restructuring and other non-recurring charges included $28.4
million of non-recurring charges which were incurred in the
fourth quarter of 2001. These charges primarily include
adjustments to the carrying value of certain assets and
liabilities related to businesses acquired and disposed of
over the past three years. Of the $28.4 million of pretax
charges, $5.0 million represents non-cash charges.
Approximately $3.3 million was spent in 2001, $8.4 million
was transferred to environmental reserves and the remaining
$11.7 million is expected to be spent over the next two
years. The Company expects to fund the total cash outlay of
these actions with cash flow from operations.

Restructuring and other non-recurring charges totaling $62.9
million were incurred in the second half of 2000 in response
to deteriorating market conditions. The charges included the
rationalization and integration of certain businesses and
actions taken to bring costs in line with vehicle production
slowdowns in major customer product lines. Of the $62.9
million in pretax charges, $47.3 million represented non-cash
 charges. Approximately $4.4 million was spent in 2000
and the remaining $11.2 million was spent in 2001. The
actions taken as part of the 2000 restructuring charges are
expected to generate approximately $19 million in annualized
savings, primarily from lower salaries and benefit costs and
reduced depreciation charges. These savings were more than
offset by lower revenue from the deterioration in the
automotive and heavy truck markets.

Components of the restructuring and other non-recurring
charges are detailed in the following table and discussed
further below.




(millions of dollars)
                                             Other Exit
          Severance                          Costs and
          and Other Asset      Loss on Sale  Non-Recurring
          Benefits Write-downs of Business   Charges   Total                                                       Provisions
                                        
          $    8.9$ 11.6      $35.2          $7.2      $62.9
Incurred       (4.3) -.       -.             (0.1)     (4.4)
Non-cash write-
 offs             -. (11.6) (35.2)           (0.5)     (47.3)
Balance, December 31, 2000
               4.6     -.          -.        6.6       11.2
Provisions          -.    5.0      -.        23.4      28.4
Incurred         (4.6)    -.       -.    (18.3)   (22.9)
Non-cash write-offs -.  (5.0)       -.       -.    (5.0)
Balance,
 December 31, 2001 $-.   $-.       $-.  $11.7     $11.7


Severance and other benefit costs relate to the reduction of
approximately 220 employees from the workforce. The
reductions affect each of our operating seg- ments, apart
from TorqTransfer Systems, across each of our geographical
areas, and across each major functional area, including
production and selling and administrative positions. As of
December 31, 2001, approximately $8.9 million had been paid
for severance and other benefits for the terminated
employees.

Asset write-downs primarily consist of the write-off of
impaired assets that will no longer be used in production as
a result of the industry downturn and the consolidation of
certain operations. Such assets have been taken or are in
process of being taken out of productive use and are being
disposed.

Loss on anticipated sale of business is related to the Fuel
Systems business, which was sold in April 2001. Fuel Systems
produced metal tanks for the heavy truck market in North
America and did not fit our strategic focus on powertrain
technology. In April 2000, we announced our intention to
sell this non-core business, which was acquired as part of
the vehicle products business of Kuhlman Corporation in
March 1999. With the deterioration of the North American
heavy truck market in the second half of 2000, the value of
this business had significantly decreased, creating the
$35.2 million pre-tax loss. In April 2001, the Company
completed the sale of its fuel systems business to an
investor group led by TMB Industries, a private equity
group. Terms of the transaction did not have a significant
impact on the Company's results of operations, financial
condition or cash flows.

Other exit costs and non-recurring charges are primarily
non-employee related exit costs incurred to close certain
non-production facilities the Company has previously sold or
no longer needs and non-recurring product quality related
charges.

The 2001 non-recurring charges include $8.4 million of
environmental remediation costs related to sold businesses
and $12.0 million of product quality costs for issues with
products that were sold by acquired businesses prior to
acquisition, all of which have been fixed in the currently
produced products.

Equity in affiliate earnings, net of tax and other income
decreased by $6.8 million from 2000 and increased by $9.7
million between 2000 and 1999. The 2000 number included a
gain on the sale of the HVAC business of $5.4 million. The
other part of the difference is a slight decrease in the
results of our 50% owned Japanese joint venture, NSK-Warner.
Our equity in NSK-Warner's earnings of $15.7 million was
$1.2 million lower than the prior year, which was $4.0
million higher than 1999. NSK-Warner has continued to
perform well since the 1998 economic downturn in the Asian
economy.

Interest expense and finance charges decreased by $14.8
million in 2001 and increased by $13.4 million between 2000
and 1999. The decrease in 2001 was due to lower interest
rates as well as lower debt levels, as the Company used cash
generated in 2000 and 2001 to pay off debt. In 2001 the
Company paid down $57.8 million of debt and reduced the
amount of securitized accounts receivable sold by $30.0
million. The Company took advantage of lower interest rates
through the use of an interest rate swap arrangement
described more fully in Note Six to the Consolidated
Financial Statements. At the end of 2001, the amount of debt
with fixed interest rates was 63% of total debt, including
the impact of the interest rate swap. The increase in 2000
is consistent with higher debt levels required to finance
the two major acquisitions in 1999 and rising interest rates
in the U.S. during 2000. The rising interest rates in early
2000 did not have as significant an impact on interest
expense as might have been expected because in 2000, 73% of
our debt had fixed rates and only 27% had floating rates.
Strong cash flows from operations and proceeds from
divestitures have been used to lower debt levels and
partially offset the impact of acquisitions on interest
expense in 2000.

The provision for income taxes results in an effective tax
rate for 2001 of 37.4% compared with rates of 36.8% for 2000
and 36.1% for 1999. Our effective tax rates have been lower
than the standard federal and state tax rates due to the
realization of certain R&D and foreign tax credits; foreign
rates, which differ from those in the U.S.; and offset
somewhat by non-deductible expenses, such as goodwill. The
increase in rates over the three years is due to the non-
deductibility of a portion of the goodwill associated with
the Kuhlman acquisition, as well as increased income from
higher tax jurisdictions. The tax rates on the restructuring
and non-recurring charges also reflected a difference in the
book and tax carrying values of certain assets that were
written down. For 2002, as a result of certain changes in
the Company's legal structure, the Company anticipates
realizing a 3% to 4% improvement in its effective tax rate.

Financial Condition and Liquidity
Our cash and cash equivalents increased $11.5 million at
December 31, 2001 compared with December 31, 2000. Net cash
provided by operating activities of $195.8 million, along
with proceeds from businesses sold of $14.4 million were
primarily used to fund $140.9 million of capital
expenditures, repay $57.8 million of long-term debt, and
distribute $15.8 million of dividends to our shareholders.

Operating cash flow of $195.8 million is $95.7 million less
than in 2000. The $195.8 million consists of $66.4 million
of net earnings, non-cash charges of $111.5 million and a
$17.9 million decrease in net operating assets and
liabilities, net of the effects of divestitures. Non-cash
charges are primarily comprised of $104.2 million in
depreciation, $42.0 million of goodwill amortization, and
the $5.0 million non-cash portion of the restructuring and
other non-recurring charges recorded in 2001. Accounts
Receivable increased $48.6 million, net of receivables
related to divested businesses, in 2001. However, $30.0
million of the increase was due to the reduction in
securitized accounts receivable sold.

Net cash used in investing activities totaled $123.3
million, compared with $62.0 million in the prior year.
Capital spending totaling $140.9 million in 2001 was $26.2
million lower than in 2000, although at a similar level in
terms of spending as a percentage of sales. Approximately
60% of the 2001 spending was related to expansion, with the
remainder for cost reduction and other purposes. The prior
year included $88.9 million in net proceeds from the sales
of businesses, mainly non-strategic portions of our 1999
acquisitions. There were $14.4 million in sale proceeds in
2001. Heading into 2002, we plan to manage through the
continuing industry downturn using a program of controlled
capital spending, although full year spending should still
be approximately 4.5% to 5.5% of sales.

Stockholders' equity increased by $17.1 million in 2001. Net
income of $66.4 million was partially offset by adjustments
for minimum pension liability of $18.7 million, currency
translation adjustments of $18.4 million, dividends of $15.8
million, and $0.7 million to repurchase shares of treasury
stock. In relation to the dollar, the currencies in foreign
countries where we conduct business, particularly the Euro
and Yen, weakened, causing the currency translation
component of other comprehensive income to decrease in 2001.

Our total capitalization as of December 31, 2001 of $1,841.2
million is comprised of short-term debt of $35.6 million,
long-term debt of $701.4 million and shareholders' equity of
$1,104.2 million. Capitalization at December 31, 2000 was
$1,881.9 million. During the year, we reduced our balance
sheet debt to capital ratio to 40.0% from 42.2% in 2000 and
48.1% in 1999. We have also been able to maintain our
investment grade credit ratings from Moody's (Baa2) and
Standard and Poor's (BBB+).

We have a $350 million revolving credit facility that
extends until July 21, 2005. We also have $300 million
available under a shelf registration statement on file with
the Securities and Exchange Commission through which a
variety of debt and/or equity instruments may be issued.

We believe that the combination of cash from operations and
available credit facilities 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, debt
reduction and share repurchase.

Other Matters

Acquisition of Kuhlman Corporation

On March 1, 1999, we acquired all the outstanding shares of
common stock of Kuhlman Corporation (Kuhlman), for a
purchase price of $693.0 million. We also assumed $131.6
million of Kuhlman's existing indebtedness, which we
subsequently refinanced. We funded the transaction by
issuing 3,287,127 shares of BorgWarner Inc. common stock
with a value of $149.8 million, and by borrowing
approximately $543.2 million.

Kuhlman was a diversified industrial manufacturing company
that operated in two product segments: vehicle and
electrical products. In vehicle products, Kuhlman's
Schwitzer and Kysor units were leading worldwide
manufacturers of proprietary engine components, including
turbochargers, fans and fan drives and other products. Their
results since the date of the acquisition are included in
the Consolidated Financial Statements.

The electrical products businesses acquired from Kuhlman
consisted of Kuhlman Electric and Coleman Cable. These
products did not fit our strategic direction and, at the
time of the Kuhlman acquisition, we announced our intention
to sell the businesses.

In 1999, we completed the sales of both Kuhlman Electric and
Coleman Cable. Kuhlman Electric was sold to Carlyle Group,
L.L.C. for $120.1 million, including debt securities with a
face value of $15.0 million. The $137.3 million sale of
Coleman Cable to a group of equity investors included debt
securities with a face value of $15.3 million. Proceeds from
the sales were used to repay indebtedness. In 2001, the sale
agreement with Coleman Cable was finalized resulting in the
exchange of the debt securities, along with a purchase price
adjustment receivable, for $3.0 million in cash and a $2.0
million note due in 2002.

Acquisition of Eaton Corp.'s Fluid Power Division

Effective October 1, 1999, we acquired Eaton Corp.'s Fluid
Power Division, one of the world's leading manufacturers of
powertrain cooling solutions for the global automotive
industry, for $321.7 million. To partially finance the
acquisition, we issued $150 million of 8.0% senior unsecured
notes maturing September 2019. Cash from operations funded
the remainder of the acquisition price. The Fluid Power
Division designed and produced a variety of fans and viscous
fan drive cooling systems primarily for passenger vehicles
such as light trucks, sport-utility vehicles and vans. Along
with the commercial cooling systems business acquired from
Kuhlman in March 1999, this acquisition positions us to
globalize modular cooling systems integration opportunities
across a full range of vehicle types.

Environmental/Other Commitments and Contingencies

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 environ- mental 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 43
such sites. Responsibility for clean-up and other remedial
activities at a Superfund site is typically shared among
PRPs based on an allocation formula.

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 costs; remediation alternatives; estimated legal
fees; and other factors, the Company has established a
reserve for indicated environmental liabilities with a
balance at December 31, 2001 of approximately $25.5 million.
The Company expects this amount to be expended over the next
three to five years.

BorgWarner believes that none of these matters, individually
or in the aggregate, will have a material adverse effect on
its financial condition or future operating results,
generally either because estimates of the maximum potential
liability at a site are not large or because liability will
be shared with other PRPs, although no assurance can be
given with respect to the ultimate outcome of any such
matter.

In connection with the sale of Kuhlman Electric Corporation,
the Company agreed to indemnify the buyer and Kuhlman
Electric for certain environmental liabilities relating to
the past operations of Kuhlman Electric. During 2000,
Kuhlman Electric notified the Company that it discovered
potential environmental contamination at its Crystals
Springs, Mississippi plant while undertaking an expansion of
the plant.

The Company has been working with the Mississippi Department
of Environmental Quality and Kuhlman Electric to investigate
the extent of the contamination. The investigation has
revealed the presence of PCBs in portions of the soil at the
plant and neighboring areas. In mid-2001, Kuhlman Electric
and others, including the Company, were sued by twenty-six
plaintiffs in several lawsuits, which claim personal and
property damage. The Company has moved to be dismissed from
these lawsuits.

The Company has filed a lawsuit against Kuhlman Electric
seeking a declaration of the scope of the Company's
contractual indemnity. The Company believes that the reserve
for environmental liabilities is sufficient to cover any
potential liability associated with this matter.

Other Commitments and Contingencies In support of a new
product that will be launched in 2002, a third party has
purchased $22.7 million of fixed assets. Upon launch of the
new product, the Company intends to lease these assets under
an operating lease.

New Accounting Pronouncements

On January 1, 2001, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting
for Derivative Instruments and Hedging Activities," as
amended. This statement standardizes the accounting for
derivative instruments by requiring that an entity recognize
all derivatives as assets or liabilities in the statement of
financial position and measure them at fair value. When
certain criteria are met, it also provides for matching the
timing of gain or loss recognition on the derivative hedging
instrument with the recognition of (a) the changes in the
fair value or cash flows of the hedged asset or liability
attributable to the hedged risk or (b) the earnings effect
of the hedged forecasted transaction. The Company has a
small number of derivative instruments. Application of SFAS
No. 133 had an immaterial impact on the Company's results of
operations and financial condition.

On April 1, 2001, the Company adopted Statement of Financial
Accounting Standards No. 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of
Liabilities." The adoption of this statement has not had and
is not expected to have a material effect on the Company's
results of operations, financial condition or cash flows.
Further disclosure may be found in the Accounts Receivable
section of Note One to the Consolidated Financial
Statements.

In July 2001, the Financial Accounting Standards Board
issued SFAS No. 141 "Business Combinations" and SFAS No. 142
"Goodwill and Other Intangible Assets." SFAS No. 141
requires that all business combinations completed after June
30, 2001 be accounted for under the purchase method only and
that certain acquired intangible assets in a business
combination be recognized as assets apart from goodwill.
There are also transition provisions that apply to business
combinations completed before July 1, 2001, that were
accounted for by the purchase method. SFAS No. 142,
effective January 1, 2002, specifies that goodwill and
certain intangible assets will no longer be amortized but
instead will be subject to periodic impairment testing.

The Company is currently assessing the impact that adoption
of SFAS No. 142 will have on its financial position and
results of operations. As of December 31, 2001, the Company
had goodwill, net of accumulated amortization, of
approximately $1,160.6 million, which will be subject to the
transitional assessment provisions of SFAS No. 142.
Amortization expense related to goodwill was $42.0 million
and $43.3 million for 2001 and 2000, respectively.

Qualitative and Quantitative Disclosure About Market Risk

BorgWarner's primary market risks include fluctuations in
interest rates and foreign currency exchange rates. We are
also affected by changes in the prices of commodities used
in our manufacturing operations. Some of our commodity
purchase price risk is covered by supply agreements with
customers and suppliers. Other commodity purchase price risk
is not considered to be material. We do not enter into any
derivative instruments for purposes other than hedging a
specific risk.

We have established policies and procedures to manage
sensitivity to interest rate and foreign currency exchange
rate market risk, which include monitoring the level of
exposure to each market risk.

Interest rate risk is the risk that we will incur economic
losses due to adverse changes in interest rates. Our
earnings exposure related to adverse movements in interest
rates is primarily derived from outstanding floating rate
debt instruments that are indexed to floating money market
rates. A ten percent increase or decrease in the average
cost of our variable rate debt would result in a change in
pre-tax interest expense of approximately $0.8 million.

We also measure interest rate risk by estimating the net
amount by which the fair value of all of our interest rate
sensitive assets and liabilities would be impacted by
selected hypothetical changes in market interest rates. Fair
value is estimated using a discount cash flow analysis.
Assuming a hypothetical instantaneous 10% change in interest
rates as of December 31, 2001, the net fair value of these
instruments would increase by approximately $35.3 million if
interest rates decreased and would decrease by approximately
$31.6 million if interest rates increased. Our interest rate
sensitivity analysis assumes a parallel shift in interest
rate yield curves. The model, therefore, does not reflect
the potential impact of changes in the relationship between
short-term and long-term interest rates. Interest rate
sensitivity at December 31, 2000, measured in a similar
manner, was slightly greater than at December 31, 2001.

Foreign currency risk is the risk that we will incur
economic losses due to adverse changes in foreign currency
exchange rates. We mitigate our foreign currency exchange
rate risk principally by establishing local production
facilities in markets we serve, by invoicing customers in
the same currency as the source of the products and by
funding some of our investments in foreign markets through
local currency loans. Such non-U.S. dollar debt was $116.3
million as of December 31, 2001 and $122.4 million as of
December 31, 2000. We also monitor our foreign currency
exposure in each country and implement strategies to respond
to changing economic and political environments. In
addition, the Company periodically enters into forward
contracts in order to reduce exposure to exchange rate risk
related to transactions denominated in currencies other than
the functional currency. In the aggregate, our exposure
related to such transactions is not material to our
financial position, results of operations or cash flows in
both 2001 and 2000.

Disclosure Regarding Forward-Looking Statements

Statements contained in this 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 that are
based on management's current expectations, estimates and
projections. Words such as "expects," "anticipates,"
"intends," "plans," "believes," "estimates," variations of
such words and similar expressions are intended to identify
such forward-looking statements. Forward-looking statements
are subject to risks and uncertainties, which could cause
actual results to differ materially from those projected or
implied in the forward-looking statements. Such risks and
uncertainties include: fluctuations in domestic or foreign
automotive production, the continued use of outside
suppliers, fluctuations in demand for vehicles containing
BorgWarner products, general economic conditions, as well as
other risks detailed in the Company's filings with the
Securities and Exchange Commission, including the Cautionary
Statements filed as Exhibit 99.1 to the Form 10-K for the
fiscal year ended December 31, 2001.


Management's Responsibility
for Consolidated Financial Statements

The information in this report is the responsibility of
management. BorgWarner Inc. and Consolidated Subsidiaries
(the "Company") has in place reporting guidelines and
policies designed to ensure that the statements and other
information contained in this report present a fair and
accurate financial picture of the Company. In fulfilling
this management responsibility, we make informed judgments
and estimates conforming with accounting principles
generally accepted in the United States of America.

The accompanying consolidated financial statements have been
audited by Deloitte & Touche LLP, independent auditors.
Management has made available all the Company's financial
records and related information deemed necessary by Deloitte
& Touche LLP. Furthermore, management believes that all
representations made by it to Deloitte & Touche LLP during
its audit were valid and appropriate.

Management is responsible for maintaining a comprehensive
system of internal control through its operations that
provides reasonable assurance that assets are protected from
improper use, that material errors are prevented or detected
within a timely period and that records are sufficient to
produce reliable financial reports. The system of internal
control is supported by written policies and procedures that
are updated by management as necessary. The system is
reviewed and evaluated regularly by the Company's internal
auditors as well as by the independent auditors in
connection with their annual audit of the financial
statements. The independent auditors conduct their
evaluation in accordance with auditing standards generally
accepted in the United States of America and perform such
tests of transactions and balances as they deem necessary.
Management considers the recommendations of its internal
auditors and independent auditors concerning the Company's
system of internal control and takes the necessary actions
that are cost-effective in the circumstances. Management
believes that, as of December 31, 2001, the Company's system
of internal control was adequate to accomplish the
objectives set forth in the first sentence of this
paragraph.

The Company's Finance and Audit Committee, composed entirely
of directors of the Company who are not employees, meets
periodically with the Company's management and independent
auditors to review financial results and procedures,
internal financial controls and internal and external audit
plans and recommendations. In carrying out these
responsibilities, the Finance and Audit Committee and the
independent auditors have unrestricted access to each other
with or without the presence of management representatives.

John F. Fiedler          George E. Strickler
Chairman and             Executive Vice President
Chief Executive Officer  and Chief Financial Officer

February 7, 2002


Independent Auditors' Report



To The Board of Directors and Stockholders of BorgWarner
Inc.:

We have audited the consolidated balance sheets of
BorgWarner Inc. and Consolidated Subsidiaries (the
"Company") as of December 31, 2001 and 2000, and the related
consolidated statements of operations, cash flows, and
stock- holders' equity for each of the three years in the
period ended December 31, 2001. These financial statements
are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with auditing
standards generally accepted in the United States of
America. Those standards require that we plan and per- form
the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, such consolidated financial statements
present fairly, in all material respects, the financial
position of BorgWarner Inc. and Consolidated Subsidiaries at
December 31, 2001 and 2000, and the results of their
operations and their cash flows for each of the three years
in the period ended December 31, 2001 in conformity with
accounting principles generally accepted in the United
States of America.

DELOITTE & TOUCHE LLP

Chicago, Illinois
February 7, 2002

Consolidated Statements of Operations


millions of dollars,
except per share amounts))
For the Year Ended
December 31,        2001      2000      1999
- ----------------    -------   ------    ------------
                               
Net sales           2,351.6 $2,645.9    $2,458.6
Cost of sales       1,802.0  2,003.1    1,888.5
Depreciation        104.2     102.2     91.3
Selling, general and administrative expenses
                    234.3     244.1     203.3
Minority interest   3.8       2.7       1.3
Goodwill amortization42.0     43.3      32.1
Restructuring and other non-recurring charges                              28.4      62.9      -
Equity in affiliate earnings, net of tax and other income                  (17.0)     (23.8)   (14.1)
                    ------    ------    --------
Earnings before interest expense, finance charges and
 income taxes       153.9     211.4     256.2
Interest expense and finance charges
                    47.8      62.6      49.2
                    ------    --------  ------
 Earnings before income
     taxes          106.1     148.8     207.0
Provision for income
     taxes          39.7      54.8      74.7
                    -------   ------    -------
     Net earnings   $66.4     $94.0     $132.3
                    =======   =======   ========

Net earnings per share
     Basic          $    2.52 $    3.56 $    5.10
     Diluted        $    2.51 $    3.54 $    5.07

Average shares outstanding (thousands)
     Basic          26,315    26,391    25,948
     Diluted        26,463    26,487    26,078


See accompanying Notes to Consolidated Financial Statements.




(millions of dollars)
December 31,                  2001      2000
                              -------   --------
                                  
Assets
Cash and cash equivalents     $32.9     $21.4
Receivables                   203.7     168.9
Inventories                   143.8     161.6
Deferred income taxes         23.6      1.7
Prepayments and other current
     assets                   37.3      57.0
                              -------   ------
Total current assets          441.3     410.6
Land                          29.6      30.0
Buildings                     246.1     239.1
Machinery and equipment       940.9     906.9
Capital leases                2.7       5.1
Construction in progress      128.4     98.2
                              -------   ------
                              1,347.7   1,279.3
Less accumulated depreciation 509.5     472.1
                              -------   -------
     Net property, plant
      and equipment           838.2     807.2
Investments and advances      137.4     142.7
Goodwill                      1,160.6   1,203.1
Deferred income taxes         5.7       23.1
Other noncurrent assets       187.7     152.9
     Total other assets       1,491.4   1,521.8
     Total assets             $2,770.9  $2,739.6
                              ========= =========
Liabilities and Stockholders' Equity
Notes payable                 $35.6     $54.4
Accounts payable and accrued
     expenses                 410.6     408.2
Income taxes payable          8.8       21.8
                              --------  ---------
Total current liabilities     455.0     484.4
Long-term debt                701.4     740.4
Long-term liabilities:
Retirement-related liabilities393.0     345.2
Other                         105.9     72.2
                              --------  -------
Total long-term liabilities   498.9     417.4
Minority interest in consolidated subsidiaries                                       11.4      10.3
Commitments and contingencies
Capital stock:
Preferred stock, $.01 par value; authorized shares:
5,000,000; none
issued              -         -
Common stock, $.01 par value; authorized shares: 50,000,000;
issued
shares: 2001, 27,039,968 and 2000, 27,040,492; outstanding
shares: 2001, 26,365,169; 2000, 26,225,283             0.30.3
Non-voting common stock, $.01 par value; authorized shares:
25,000,000; none issued and outstanding           -         -
Capital in excess of par value715.7          715.7
Retained earnings             470.9          422.9
Management shareholder notes  (2.0)           (2.5)
Accumulated other compre-
     hensive income            (53.1)         (16.0)
Common stock held in treasury,
at cost: 2001, 674,799 shares; 2000,
815,209 shares                (27.6)          (33.3)
                              --------       -------
Total stockholders' equity    1,104.2        1,087.1
                              --------       -------
Total liabilities and
 stockholders' equity         $2,770.9  $    2,739.6
                              =========      =========

See accompanying Notes to Consolidated Financial Statements.
Consolidated Statements of Cash Flows


(millions of dollars)
For the Year Ended December 31,2001     2000 1999
                                    
Operating
Net earnings                  $66.4     $94.0   $132.3
Adjustments to reconcile net earnings to net cash flows
from operations:
Non-cash charges (credits) to operations:
Depreciation                  104.2     102.2     91.3
Goodwill amortization         42.0      43.3      32.1
Non-cash restructuring and other
 non-recurring charges        5.0       47.3      -.
Deferred income tax provision 3.1      (8.5)    (4.0)
Other, principally equity in
 affiliate earnings, net of tax (42.8) (21.3) (14.1)
Net earnings adjusted for
 non-cash charges             177.9     257.0     237.6
Changes in assets and liabilities, net of effects of
acquisitions and divestitures:
(Increase) decrease in
  receivables               (48.6)      18.6      41.1
(Increase) decrease in
  inventories            10.1       (14.7)        (19.0)
Decrease in prepayments and deferred income taxes                                    0.1       11.6      0.2
Increase in accounts payable and accrued expenses                                    23.0      7.0       57.9
Increase (decrease) in income taxes payable                                          (12.7) (25.9)        18.9
Net change in other long-term assets and liabilities                                 46.0      37.9      7.8
                         -------   -------  -------
Net cash provided by operating
  activities             195.8     291.5     344.5
Investing
Capital expenditures     (140.9) (167.1) (143.4)
Net proceeds from asset
 disposals               6.5       16.2      10.3
Proceeds from sale of
 businesses              14.4      131.9     177.9
Payments for taxes on
 businesses sold          -.       (43.0)     -.
Payments for businesses
 acquired, net of cash acquired (3.3)    -.    (855.5)
Net cash used in investing
 activities              (123.3) (62.0)  (810.7)
Financing
Net decrease in notes payable  (16.5) (74.5)  (10.3)
Additions to long-term debt     34.0    86.9   621.8
Reductions in long-term debt   (64.3) (192.3) (150.0)
Payments for purchase of
 treasury stock                (0.7) (22.1)        -.
Proceeds from stock options
  exercised              2.8       1.1       0.7
Dividends paid           (15.8)     (15.9)    (15.5)
Net cash provided by
 (used in) financing
  activities             (60.5)     (216.8)   446.7
Effect of exchange rate changes on cash and cash equivalents                          (0.5)     (13.0)    (2.8)
Net increase (decrease) in cash and cash equivalents                                 11.5       (0.3)     (22.3)
Cash and cash equivalents at beginning of year                                       21.4      21.7      44.0
                         -------   ------    -------
Cash and cash equivalents
 at end of year          $32.9     $21.4     $21.7
                         ========  =======   =======
Supplemental Cash Flow Information
Net cash paid during the year for:
Interest                 $50.2     $65.4     $51.1
Income taxes             28.1      107.7     59.1
Non-cash financing transactions:
Issuance of common stock
 for acquisition         $ -       $ -       $ 149.8
Issuance of common stock for management notes                                        -.        0.5       -.
Issuance of common stock for Executive Stock
Performance Plan         1.0       0.8       1.1


See accompanying Notes to Consolidated Financial Statements.


BorgWarner Inc. and Consolidated Subsidiaries
Consolidated Statements of Stockholders' Equity


(millions of dollars)
Comprehensive
Number of Shares    Stockholders' EquityIncome
                                                                  Accumulated
     Issued    Common    Issued    Capital in          Management other
     common    stock in common     excess of  Treasury shareholderRetained comprehensive
     stock     treasury  stock     par value  stock    notes      earnings income
     --------  --------- --------  ------- ---------   -------   --------  ----------
                                              
Balance, January 1, 1999
     23,753,365 (366,192)$0.2      $566.0    $(17.6)   $(2.0)    $230.2    $0.5
Dividends declared  -    -    -.        -.        -.   -.   (15.5)    -.   -.
Shares issued for Kuhlman
 Acquisition
     3,287,127      -    0.1       149.7     -.        -.        -.   -.   -.
Shares issued under
stock option plans
     -         28,000    -.        -.        1.3       -.        (0.6)-.   -.
Shares issued under
executive stock
 plan     -    21,892    -.        -.        1.1       -.        -.        -.        -.
Net income
     -         -         -.        -.        -.        -.   132.3-.   $132.3
Adjustment for minimum
pension liability
     -    -         -.        -.        -.        -.        -.        (0.1)(0.1)
Currency translation
adjustment-    -         -.        -.        -.        -.        -.   11.9 11.9
               ----------------------------------------------------------------
Balance, December 31, 1999
  27,040,492   (316,300) $0.3 $715.7    $(15.2)   $(2.0)    $346.4    $12.3 $144.1
                                                                           ========
Purchase of treasury stock
  -  (589,700)      -.   -.   (22.1)    -.        -.        -.   -.
Dividends declared  -    -    -.        -.        -.        -. (15.9) -.   -.
Shares issued for
management
shareholder note
  -  15,223    -.   -.   0.7  (0.5)     (0.2)     -.        -.
Shares issued under
stock option plans  -    53,750    -.   -.   2.2  -.   (1.1)  -.      -.
Shares issued under
executive stock plan-    21,818    -.   -.   1.1  -.   (0.3) -.       -.
Net income     -    -    -.        -.        -.   -.   94.0 -.   $94.0
Adjustment for minimum
pension liability   -    -    -.   -.   -.   -.   -.   (0.1)  (0.1)
Currency translation
adjustment          -    -    -.   -.   -.   -.   -.   (28.2) (28.2)
                    ----------------------------------------------------
Balance, December 31, 2000
  27,040,492  (815,209)  $0.3 $715.7    $(33.3)   $(2.5)    $422.9 $(16.0) $65.7
                                                                           =====
Purchase of treasury
stock -  (15,000)   -.   -.   (0.7)     -.        -.        -.        -.
Dividends declared  -    -    -.        -.        -.        -.   (15.8)    -. -.
Management
shareholder notes - -    -.   -.    -.  0.5       -.        -.        -.
Shares issued under
stock option plans  - 129,550  -.  -.   5.3       -.   (2.5)-.        -.
Shares issued under
executive stock plan
  -       25,860    -.   -.   1.1  -.   (0.1)     -.   -.
Kuhlman shares retired
  (524)        -    -.   -.   -.   -.        -.   -.   -.
Net income     -    -    -.   -.   -.   -. 66.4        -.             66.4
Adjustment for minimum
pension liability
     -    -    -.   -.        -.   -.   -.   (18.7)    (18.7)
Currency translation
adjustment -   -    -.   -.  -.    -.   -.   (18.4)    (18.4)
Balance, December 31, 2001
27,039,968 (674,799)     $0.3 $715.7  $(27.6)$(2.0)$470.9   $(53.1) $ 29.3
                                                                      ======

See accompanying Notes to Consolidated Financial Statements.
Notes to Consolidated Financial Statements
Introduction

BorgWarner Inc. and Consolidated Subsidiaries (the
"Company") is a leading global supplier of highly engineered
systems and components primarily for automotive powertrain
applications. These products are manufactured and sold
worldwide, primarily to original equipment manufacturers of
passenger cars, sport utility vehicles, trucks, commercial
transportation products and industrial equipment. Its
products fall into five operating segments: Air/Fluid
Systems, Cooling Systems, Morse TEC, TorqTransfer Systems
and Transmission Systems.

1Summary of Significant Accounting Policies

The following paragraphs briefly describe significant
accounting policies.

Use of estimates  The preparation of financial statements in
conformity with accounting principles generally accepted in
the United States of America requires management to make
estimates and assumptions. These estimates and assumptions
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual
results could differ from those estimates.

Principles of consolidation  The consolidated financial
statements include all significant majority-owned
subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation. Certain
prior amounts have been reclassified to conform to the
current year presentation.

Cash and cash equivalents Cash and cash equivalents are
valued at cost, which approximates market. It is the
Company's policy to classify investments with original
maturities of three months or less as cash and cash
equivalents.

Accounts receivable  The Company securitizes and sells
certain receivables through third-party financial
institutions without recourse. The amount sold can vary each
month based on the amount of underlying receivables, up to a
maximum of $150 million. During the year ended December 31,
2001, total cash proceeds from sales of accounts receivable
were $1,706.8 million, and the amount of receivables sold
each month ranged from $120 to $150 million. While there are
no gains or losses booked as a result of these transactions,
the Company is charged fees which are recorded at the time
receivables are sold. At December 31, 2001, the Company had
sold $120 million of receivables under a $153 million
Receivables Transfer Agreement for face value without
recourse. At December 31, 2000, the amount sold was $150
million.

On April 1,2001, the Company adopted Statement of Financial
Accounting Standards No. 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of
Liabilities." The adoption of this statement has not had a
material effect on the Company's results of operations,
financial condition, or cash flows.

Inventories Inventories are valued at the lower of cost or
market. Cost of U.S. inventories is determined by the
 last-in, first-out (LIFO) method, while the foreign operations
use the first-in, first-out (FIFO) method. Inventories held
by U.S. operations was $81.1 million in 2001 and $92.4
million in 2000. Such inventories, if valued at current cost
instead of LIFO, would have been greater by $3.9 million and
$5.1 million, respectively.

Property, plant and equipment and depreciation Property,
plant and equipment are valued at cost less accumulated
depreciation. Expenditures for maintenance, repairs and
renewals of relatively minor items are generally charged to
expense as incurred. Renewals of significant items are
capitalized. Depreciation is computed generally on a
straight-line basis over the estimated useful lives of
related assets ranging from 3 to 30 years. For income tax
purposes, accelerated methods of depreciation are generally
used.

Goodwill Goodwill is being amortized on a straight-line
basis over periods not exceeding 40 years. The Company
periodically evaluates the carrying value of goodwill to
determine if adjustment to the amortization period or to the
unamortized balance is warranted.

Revenue recognition  The Company recognizes revenue upon
shipment of product.Although the Company may enter into
long-term supply agreements with its major customers, each
shipment of goods is treated as a separate sale and the
price is not fixed over the life of the agreements.

Financial instruments Financial instruments consist
primarily of investments in cash and cash equivalents,
receivables and debt securities and obligations under
accounts payable, accrued expenses and debt instruments. The
Company believes that the fair value of the financial
instruments approximates the carrying value, except as noted
in Note Six.

The Company received corporate bonds with a face value of
$30.3 million as partial consideration for the sales of
Kuhlman Electric and Coleman Cable in 1999. These bonds were
recorded at their fair market value of $12.9 million using
valuation techniques that considered cash flows discounted
at current market rates and management's best estimates of
credit quality. In 2001, the sale agreement with Coleman
Cable was finalized, resulting in the exchange of the
corporate bonds along with a purchase price receivable, for
$3 million in cash and a $2 million note due in 2002. The
fair value of these instruments was estimated to be $10.9
million at December 31, 2001 and $12.9 million at December
31, 2000. They have been classified as investments
available-for-sale in the other current assets section of
the December 31, 2001 and 2000 Consolidated Balance Sheets.
The contractual maturity of the Kuhlman Electric related
bond is beyond five years.

Foreign currency The financial statements of foreign
subsidiaries are translated to U.S. dollars using the
period-end exchange rate for assets and liabilities and an
average exchange rate for each period for revenues and
expenses. The local currency is the functional currency for
substantially all the Company's foreign subsidiaries.
Translation adjustments for foreign subsidiaries are
recorded as a component of accumulated other comprehensive
income in stockholders' equity.

Derivative financial instruments The Company recognizes that
certain normal business transactions generate risk. Examples
of risks include exposure to exchange rate risk related to
transactions denominated in currencies other than the
functional currency, changes in cost of major raw materials,
and changes in interest rates. It is the objective and
responsibility of the Company to assess the impact of these
transaction risks, and offer protection from selected risks
through various methods including financial derivatives. All
derivative instruments held by the Company are designated as
hedges, have high correlation with the under- lying exposure
and are highly effective in offsetting underlying price
movements. Accordingly, gains and losses from changes in
derivative fair values are deferred until the underlying
transaction occurs. The Company does not enter into any
derivative instruments for purposes other than hedging
specific risk.

On January 1, 2001, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting
for Derivative Instruments and Hedging Activities," as
amended. This statement standardizes the accounting for
derivative instruments by requiring that an entity recognize
all derivatives as assets or liabilities in the statement of
financial position and measure them at fair value. When
certain criteria are met, it also provides for matching the
timing of gain or loss recognition on the derivative hedging
instrument with the recognition of (a) the changes in the
fair value or cash flows of the hedged asset or liability
attributable to the hedged risk or (b) the earnings effect
of the hedged forecasted transaction. Application of SFAS
133 had an immaterial impact on the Company's results of
operations and financial condition.

New accounting pronouncements  In July 2001, the Financial
Accounting Standards Board issued SFAS No. 141 "Business
Combinations" and SFAS No. 142, "Goodwill and Other
Intangible Assets." SFAS 141 requires that all business
combinations completed after June 30, 2001 be accounted for
under the purchase method only and that certain acquired
intangible assets in a business combination be recognized as
assets apart from goodwill. There are also transition
provisions that apply to business combinations completed
before July 1, 2001, that were accounted for by the purchase
method. SFAS No. 142, effective January 1, 2002, specifies
that goodwill and certain intangible assets will no longer
be amortized but instead will be subject to periodic
impairment testing.

The Company is currently assessing the impact that adoption
of SFAS No. 142 will have on its financial position and
results of operations. As of December 31, 2001, the Company
had goodwill, net of accumulated amortization, of
approximately $1,160.6 million, which will be subject to the
transitional assessment provisions of SFAS No. 142.
Amortization expense related to goodwill was $42.0 million
and $43.3 million in 2001 and 2000, respectively.

2Research and Development Costs

The Company spent approximately $104.5 million, $112.0
million and $91.6 million in 2001, 2000 and 1999,
respectively, on research and development (R&D) activities.
Not included in these amounts were customer-sponsored R&D
activities of approximately $20.0 million, $12.5 million and
$9.4 million in 2001, 2000 and 1999, respectively.

3Equity in Affiliate Earnings, Net of Tax and Other Income

Items included in equity in affiliate earnings, net of tax
and other income consist of:

(millions of dollars)
Year Ended December 31,  2001      2000      1999
                         -------   ------    ---------
Equity in affiliate earnings,
  net of tax        $    14.9 $    15.7 $    11.7
Gain on sale of business      -    5.4       -
Interest income          1.4       0.8       1.1
Gain (loss) on asset
     disposals, net      (0.2)     (0.4)     0.3
Other                    0.9       2.3       1.0
Total equity in affiliate earnings, net of tax
and other income         $17.0     $23.8     $14.1
                         ======   ========    ======


4Income Taxes
Income before taxes and provision for taxes consist of:
(millions of dollars)
2001                2000                1999
U.S. Non-U.S.  TotalU.S. Non-U.S.  TotalU.S. Non-U.S.  Total
                          
Income before taxes
$19.5 $86.6 $106.1  $72.1 $76.7 $148.8 $121.6 $85.4 $207.0
Income taxes:
Current :
Federal/foreign
$9.8 $24.7  $34.5  $26.8 $24.9 $51.7 $50.0 $21.2  $71.2
State
2.1  - 2.1     11.6 -    11.6 7.5  -    7.5
11.9 24.7 36.6  38.4     24.9 63.3 57.5 21.2 78.7
Deferred
2.0  1.1  3.1  (13.7)    5.2  (8.5)(9.5)5.5  (4.0)
Total income taxes
$13.9 $25.8 $39.7   $24.7 $30.1 $54.8 $48.0  $26.7 $74.7

The analysis of the variance of income taxes as reported
from income taxes computed at the U.S. statutory rate for
consolidated operations is as follows:

(millions of dollars)
                         2001 2000      1999
                         ----- -----   ------
Income taxes at U.S.
 statutory rate of 35%   $37.1 $52.0    $72.5
Increases (decreases) resulting from:
Income from non-U.S.
 sources                 (0.1) (0.3)    (5.4)
State taxes, net of
 federal benefit          1.4   7.5     4.9
Business tax credits, net(7.2) (10.3)    (8.4)
Affiliate earnings       (5.2) (5.5)     (4.1)
Nontemporary differences
 and other               13.7  11.4     15.2
                         ----- ------- --------
Income taxes as reported $39.7 $54.8    $74.7
                         ====== ======= =======


Following are the gross components of deferred tax assets
and liabilities as of December 31, 2001 and 2000:

(millions of dollars)
                                   2001      2000
Deferred tax assets - current:
Capital loss carryover        $    22.2      $    -
Accrued costs related to
 divested operations               1.4          1.7
Net deferred tax asset - current$  23.6      $  1.7
Deferred tax assets - noncurrent:
Postretirement benefits       $    116.2     $  126.7
Pension                            18.6          2.9
Other long-term liabilities and
 reserves                          29.6         29.5
Foreign tax credits                -            2.5
Valuation allowance                -          (2.5)
Other                              20.6        44.8
                                   --------  ---------
                                   185.0     203.9
Deferred tax liabilities - noncurrent:
Fixed assets                       98.0      83.7
Pension                            32.3      25.2
Goodwill                           15.7      10.6
Other                              33.3      61.3
                                   ------   -------
                                   179.3     180.8
                                   -------  -------
Net deferred tax asset - noncurrent$5.7     $23.1
                                   ======= =========
No deferred income taxes have been provided on undistributed
earnings of foreign subsidiaries totalling $47.8 million, as
the amounts are essentially permanent in nature. Any such
potential liability would be substantially offset by foreign
tax credits with respect to such undistributed foreign
earnings. The capital loss carryover relates to the sales of
businesses acquired in the Kuhlman acquisition.
5Balance Sheet Information

Detailed balance sheet data are as follows:


(millions of dollars)
December 31,             2001      2000
                         -----     ------
                             
Receivables:
Customers                $170.5    $136.6
Other                    37.1      37.5
                         207.6     174.1
Less allowance for losses  3.9     5.2
                         ------ -----------
Net receivables          $203.7    $168.9
                         ======= ==========
Inventories:
Raw material             $69.7     $73.1
Work in progress          41.5     42.0
Finished goods           32.6      46.5
Total inventories        $143.8    $ 161.6
                         ======= ===========
Prepayments and other current assets:
Investment in businesses held for sale
                         $12.2     $31.7
Other                    25.1      25.3
Total prepayments and other current assets
                         $37.3     $57.0
                         ======= ========
Investments and advances:
NSK-Warner               $128.8    $140.9
Other                    8.6       1.8
                         ------- --------
Total investments and
 advances                $137.4    $142.7
                         ========= =========
Other noncurrent assets:
Deferred pension assets  $83.4     $66.5
                         ========= =========
Deferred tooling         84.1      65.1
Other                    20.2      21.3
                         -------- ----------
Total other noncurrent
 assets                  $187.7    $52.9
                         ======= ===========
Accounts payable and accrued expenses:
Trade payables           $236.7    $230.1
Payroll and related       42.1     53.9
Insurance                20.7      22.7
Warranties and claims    17.1      16.1
Restructuring and other non-recurring charges                                   11.7      11.2
Other                    82.3      74.2
Total accounts payable
 and accrued expenses    $410.6 $408.2
                         ======= ========
Other long-term liabilities:
Environmental reserves   $25.5  $  20.7
Other                    80.4      51.5
                         -------   -------
Total other long-term
 liabilities             $105.9    $72.2
                         ======== ========

Dividends and other payments received from affiliates
accounted for under the equity method totaled $8.9 million
in 2001, $25.5 million in 2000 and $5.5 million in 1999.

Accumulated amortization of goodwill amounted to $228.4
million in 2001 and $187.6 million in 2000.

The Company has a 50% interest in NSK-Warner, a joint
venture based in Japan that manufactures automatic
transmission components. The Company's share of the earnings
or losses reported by NSK-Warner is accounted for using the
equity method of accounting. NSK-Warner has a fiscal year-end
of March 31. The Company's equity in the earnings of
NSK-Warner consists of the 12 months ended November 30 so as
to reflect earnings on as current a basis as is reasonably
feasible.

Following are summarized financial data for NSK-Warner,
translated using the ending or periodic rates as of and for
the fiscal years ended March 31, 2001, 2000 and 1999:

(millions of dollars)
                         2001      2000      1999
                         -------   -------   -------
Balance sheets:
Current assets      $    147.6     $196.0    $143.8
Noncurrent assets        151.7     157.8     137.4
Current liabilities      94.3      96.2      69.9
Noncurrent liabilities   5.5       8.5       6.9
Statements of operations:
Net sales           $    333.6     $303.8    $235.9
Gross profit             72.8      64.7      52.6
Net income               29.6      27.7      16.9
The debt as of March 31, 2001, was $8.3 million and the
equity was $196.7 million.

6    Notes Payable and Long-Term Debt

Following is a summary of notes payable and long-term debt.
The weighted average interest rate on all borrowings for
2001 and 2000 was 5.8% and 6.5%, respectively.




(millions of dollars)
2001 2000
December 31,                  Current   Long-Term      Current   Long-Term
                                      

Bank borrowings               $30.6     $    69.4 $    48.7 $    57.7
Term loans due through 2011 (at an average rate of 3.3% in
2001 and 4.2% in 2000; and 3.0% at December 31, 2001)
                               5.0           31.2      4.7       23.1
7% Senior Notes due 2006,  net of unamortized discount
                                   -         141.8     -         142.8
6.5% Senior Notes due 2009, net of unamortized discount
                                   -         164.7     -         188.4
8% Senior Notes due 2019, net of unamortized discount
                                   -         134.2     -         139.9
7.125% Senior Notes due 2029, net of unamortized discount
                                   -         159.9     -         187.3
Capital lease liabilities (at an average rate of 7.9%
     in 2001 and 7.6% in 2000)     -         0.2       1.0       1.2
                              ------------ ---------- ---------- --------
               Total notes payable and long-term debt
                              $35.6     $701.4    $54.4     $740.4
                              ======== ========= ========== =========

Annual principal payments required as of
December 31, 2001 are as follows (in millions of
dollars):

2002           $    35.6
2003                4.9
2004                4.6
2005                74.0
2006                146.3
after 2006          475.3
Less: Unamortized
  discounts         (3.7)
                    -------
Total          $    737.0
                    ========



The Company has a revolving credit facility which provides
for borrowings up to $350 million through July, 2005. At
December 31, 2001, $20.0 million of borrowings under the
facility were outstanding in addition to $6.5 million of
obligations under standby letters of credit. At December 31,
2000, the facility was unused. The credit agreement contains
numerous financial and operating covenants including, among
others, covenants requiring the Company to maintain certain
financial ratios and restricting its ability to incur
additional indebtedness.

In July 2001, the Company entered into an interest rate swap
agreement with a financial institution to swap interest on
$100 million of 7% fixed rate Senior Notes for variable
interest at LIBOR plus 0.98% (approximately 3.0% at December
31, 2001). The agreement terminates when the underlying
Notes mature on November 1, 2006. This interest rate swap
has been recorded as a fair value hedge. There was no
ineffectiveness related to the derivative in 2001. As of
December 31, 2001, the interest rate swap has a notional
amount of $100 million and a fair value of $2.5 million.

As of December 31, 2001 and 2000, the estimated fair values
of the Company's senior unsecured notes totaled $579.6
million and $516.6 million, respectively. The estimated fair
values were $21.0 million lower in 2001, and $141.8 million
lower in 2000, than their respective carrying values. The
fair value of all other debt instruments is estimated to
approximate their recorded value, as their applicable
interest rates approximate current market rates for
borrowings with similar terms and maturities. Fair market
values are developed by the use of estimates obtained from
brokers and other appropriate valuation techniques based on
information available as of year-end. The fair value
estimates do not necessarily reflect the values the Company
could realize in the current markets.

7Restructuring and Other Non-Recurring Charges

Other non-recurring charges of $28.4 million were incurred
in the fourth quarter of 2001. These charges primarily
include adjustments to the carrying value of certain assets
and liabilities related to businesses acquired and disposed
of over the past three years. Of the $28.4 million of pretax
charges, $5.0 million represents non-cash charges.
Approximately $3.3 million was spent in 2001, $8.4 million
was transferred to environmental reserves, and the remaining
$11.7 million is expected to be spent over the next two
years. The Company expects to fund the total cash outlay of
these actions with cash flow from operations.

Restructuring and other non-recurring charges totaling $62.9
million were incurred in the second half of 2000 in response
to deteriorating market conditions. The charges included the
rationalization and integration of certain businesses and
actions taken to bring costs in line with vehicle production
slow- downs in major customer product lines. Of the $62.9
million pretax charges in 2000, $47.3 million represented
non-cash charges. Approximately $4.4 million was spent in
2000 and $11.2 million was spent in 2001.

Components of the restructuring and other non-recurring
charges are detailed in the following table and discussed
further below.

                                        Other Exit
     Severance                Loss on   Costs and
     and Other Asset          Sale of   Non-Recurring
     Benefits  Write-downs    Business  Charges        Total
     --------- -------------  --------  --------- ----------
Provisions $8.9 $11.6         $35.2     $7.2      $62.9
Incurred   (4.3)     -        -         (0.1       (4.4)
Non-cash write-
  offs    -.   (11.6)          (35.2)    (0.5)     (47.3)
          ------ -------      ------- -------- ----------
Balance, December 31, 2000
          4.6       -.        -.   6.6       11.2
Provisions -.       5.0       -.   23.4      28.4
Incurred  (4.6       -.       -.   (18.3)     (22.9)
Non-cash write-
 offs     -.    (5.0)     -.  -.    (5.0)
Balance, December 31, 2001
          $-.       $-.       $-.  $11.7     $11.7

Severance and other benefit costs relate to the reduction of
approximately 220 employees from the workforce. The
reductions affect each of the Company's operating segments,
apart from TorqTransfer Systems, across each of the
Company's geographical areas, and across each major
functional area, including production and selling and
administrative positions. As of December 31, 2001,
approximately $8.9 million had been paid for severance and
other benefits for the terminated employees.

Asset write-downs primarily consist of the write-off of
impaired assets that will no longer be used in production as
a result of the industry downturn and the consolidation of
certain operations. Such assets have been taken or are in
the process of being taken out of productive use and are
being disposed.

Loss on anticipated sale of business is related to the Fuel
Systems business, which was sold in April 2001. Fuel Systems
produced metal tanks for the heavy truck market in North
America and did not fit the Company's strategic focus on
powertrain technology. In April 2000, the Company announced
its intention to sell this non-core business, which was
acquired as part of the vehicle products business of Kuhlman
Corporation in March 1999. With the deterioration of the
North American heavy truck market in the second half of
2000, the value of this business had significantly
decreased, creating the $35.2 million pre-tax loss. In April
2001, the Company completed the sale of its Fuel Systems
business to an investor group led by TMB Industries, a
private equity group. Terms of the trans- action did not
have a significant impact on the Company's results of
operations, financial condition or cash flows.

Other exit costs and non-recurring charges are primarily
non-employee related exit costs for certain non-production
facilities the Company has previously sold or no longer
needs and non-recurring product quality related charges. The
2001 non- recurring charges include $8.4 million of
environmental remediation costs related to sold businesses
and $12 million of product quality costs for issues with
products that were sold by acquired businesses prior to
acquisition, all of which have been fixed in the currently
produced products.
8    Retirement Benefit Plans

The Company has a number of defined benefit pension plans
and other postretirement benefit plans covering eligible
salaried and hourly employees. The other postretirement
benefit plans, which provide medical and life insurance
benefits, are unfunded plans. The following provides a
reconciliation of the plans' benefit obligations, plan
assets, funded status and recognition in the Consolidated
Balance Sheets.


(millions of dollars)
                         Pension             Postretirement
                         Benefits            Benefits
December 31,             2001      2000      2001      2000


Change in benefit obligation:
Benefit obligation at beginning of year
                                      
                         $350.3    $349.7    $341.6 $300.1
Service cost             7.1       6.8       4.4      3.8
Interest cost            25.0      23.4      25.0    23.4
Plan participants' con-
 tributions              0.2       0.2       -.        -.
Amendments               7.5       2.2       -.        -.
Net actuarial loss       23.6      8.8       64.2   39.2
Currency translation
 adjustment               (1.4)    (11.5      -.      -.
Settlements               (0.2)     (2.1)    (1.4)  (0.5)
Special termination benefits-.     0.4       -.        -.
Benefits paid             (26.4)   (27.6)    (26.7) (24.4)
                         -------- -------- -------- ------
Benefit obligation at
 end of year             $385.7    $350.3    $407.1 $341.6

Change in plan assets:
Fair value of plan assets at
 beginning of year       $385.1    $447.0
Actual return on plan
 assets                  (2.3)     (16.1)
Employer and other
 contributions           3.1        (7.5)
Plan participants'
 contributions           0.2        0.2
Currency translation
 adjustment               (1.2)     (8.0)
Settlements               (0.3)     (2.9)
Benefits paid             (26.4)    (27.6)
Fair value of plan assets
 at end of year          $358.2    $385.1
                         ========= =======
Reconciliation of funded status:
Funded status       $    (27.5)  $34.8 $(407.1)   $(341.6)
Unrecognized net actuarial
 (gain) loss             50.8      (7.4)      98.2     35.5
Unrecognized transition
 asset                   (0.3)     (0.4)      -.       -.
Unrecognized prior
 service cost            12.7      7.4        (0.6)    (0.7)
                         -------- --------- ------- --------
Net amount recognized    $35.7  $34.4  $(309.5)$(306.8)
                         ====== ====== ======== ========
Amounts recognized in the
consolidated balance sheets:
Prepaid benefit cost     $71.1     $66.5     $-.       $-.
Accrued benefit liability(35.4)   (32.1) (309.5)   (306.8)
Additional minimum liability(42.2) (0.2)      -.       -.
Intangible asset         12.3   -.      -.        -.
Accumulated other
 comprehensive income    29.9      0.2    -.      -.
                         -------- ------- ------ ---------
Net amount recognized    $35.7     $34.4 $(309.5) $(306.8)
                        ========= ========== =========

The funded status of pension plans included
above with accumulated benefit obligations in
excess of plan assets at December 31 is as follows:

(millions of dollars)
2001 2000

Accumulated benefit obligation          $295.2    $120.6
Plan assets                             238.1     90.7
                                        --------- --------
     Deficiency                         $57.1     $29.9
                                        ======== =========


(millions of dollars)
                                                  Other Postretirement
For the Year Ended       Pension Benefits         Benefits
December 31,             2001 2000 1999           2001 2000 1999
                                                    
Components of net periodic benefit cost:
Service cost        $    7.1  $    6.8  $    6.2  $    4.4  $    3.8  $    4.8
Interest cost            25.0      23.4      22.6      25.0      23.4      21.1
Expected return on plan assets
                          (32.1)  (36.8)    (34.7)      -.       -.        -.
Amortization of unrecognized
 transition asset         (0.1)  (0.1)    (0.2)         -.       -.        -.
Amortization of unrecognized
 prior service cost        2.2     1.5    1.2        (0.1)   (0.1)          -.
Amortization of unrecognized
 (gain)/loss                  -.  (2.7)    -.          -.        -.        -.
Settlement loss             0.1    1.8    0.8          -.        -.        -.
Curtailment gain              -.   -.    (0.3)        -.         -.        -.
Net periodic benefit cost
 (income)                 $ 2.2    $(6.1)    $(4.4)    $29.3     $27.1     $25.9
                         ======= ========== ======== ========= ========= =========

The Company's weighted-average assumptions
 used as of December 31, in determining the
pension costs and pension liabilities shown above were as follows:

(percent)
               Other                         Postretirement
               Pension Benefits              Benefits
               2001 2000 1999                2001 2000 1999
U.S. plans:
Discount rate       7.25      7.5       8.0       7.25      7.5       8.0
Rate of salary
 progression        4.5       4.5       4.5
Expected return on
 plan assets        9.5       9.5       9.5
Foreign plans:
Discount rate       5.5-6.0   5.5-6.0   5.5-6.0
Rate of compensation
 increase           2.5-4.0   2.5-4.0   2.5-4.5
Expected return on
 plan assets        6.5       6.0       6.0

The weighted-average rate of increase in
the per capita cost of covered health care
benefits is projected to be 10% in 2002
grading down annually until the ultimate rate of
4.5% is reached in 2007. A one-percentage
point change in the assumed health care cost
trend would have the following effects:

(millions of dollars)
One Percentage Point
                                                  Increase  Decrease

Effect on postretirement benefit obligation       $46.5     $(39.9)
Effect on total service and interest cost components$4.7    $ (3.9)

9    Stock Incentive Plans

Stock option plans Under the Company's 1993 Stock Incentive
Plan, the Company may grant options to purchase shares of
the Company's common stock at the fair market value on the
date of grant. In 2000, the Company increased the number of
shares available for grant by 1,200,000 to 2,700,000 shares.
The options vest over periods up to three years and have a
term of ten years from date of grant. As of December 31,
2001, there are 1,493,220 outstanding options on the 1993
Stock Incentive Plan.

The Company accounts for stock options in accordance with
Accounting Principles Board Opinion No. 25. Accordingly, no
compensation cost has been recognized for fixed stock
options because the exercise price of the stock options
exceeded or equaled the market value of the Company's common
stock at the date of grant.

A summary of the plan's shares under
option at December 31, 2001, 2000 and 1999 follows:


2001                     2000                     1999
Weighted-                Weighted-                Weighted-
Average                  Average                  Average
Shares         Exercise  Shares         Exercise  Shares         Exercise
(thousands)    Price     (thousands)    Price     (thousands)    Price
                                        
Outstanding at beginning of year
          1,248     $41.22         861  $    43.37          654  $    38.85
Granted   442       47.99          506       36.11          266       53.25
Exercised(129)       22.51         (54)      19.59          (28)       22.35
Forfeited (68)       45.18         (65)      47.77          (31)       52.03
Outstanding at end
 of year  1,493     $44.67         1,248     $41.22         861  $    43.37
Options exercisable
 at year-end 423    $46.81         431       $38.12         328  $    28.32
Options available for future grants 895

The following table summarizes information
 about stock options outstanding at December 31,
2001:

Options Outstanding      Options Exercisable
                    Weighted-
                    Average        Weighted-      Weighted-
             Number         Remaining      Average   Number   Average
Range of   Outstanding    Contractual    Exercise  Exercisable    Exercise
Exercise Prices  (thousands)    Life Price     (thousands)              Price

$22.50 - 44.19           584       7.5  $    34.95          107  $    28.63
$48.28 - 53.44           638       8.5       49.50          138       51.06
$53.88 - 57.31           271       7.0       54.24          178       54.44
$22.50 - 57.31           1,493     7.9       $44.67         423       $46.81

Pro forma information regarding net income
and earnings per share is required by Statement
of Financial Accounting Standards No. 123,
and has been determined as if the Company had
accounted for its employee stock options
 under the fair value method of that Statement.
The fair value for these options was
estimated at the date of grant using a Black-Scholes
options pricing model with the following weighted-average assumptions:

                              2001      2000      1999

Risk-free interest rate       5.02%     6.50%     5.43%
Dividend yield                1.49%     1.52%     1.49%
Volatility factor             32.73%    32.54%    31.88%
Weighted-average expected life 6.5 years 6.5 years 6.5 years
For purposes of pro forma disclosures, the
estimated fair value of the options is
amortized to expense over the options'
vesting period. The Company's pro forma net
earnings and earnings per share,
adjusted to include pro forma expense related to stock
options, are as follows:

(millions of dollars,
except per share
and option amounts)
                                   2001      2000      1999

Net earnings - as reported         $    66.4 $    94.0 $132.3
Net earnings - pro forma                64.8      92.5 130.7
Earnings per share - as reported (basic) 2.52     3.56 5.10
Earnings per share - as reported (diluted)2.51    3.54 5.07
Earnings per share - pro forma (basic)   2.46     3.50 5.04
Earnings per share - pro forma (diluted) 2.45     3.48 5.01
Weighted-average fair value of options granted during
     the year                           17.28     13.63 19.45


Executive stock performance plan
The Company has an executive stock performance plan which
provides payouts at the end of successive three-year periods
based on the Company's performance in terms of total
stockholder return relative to a peer group of automotive
companies. Payouts earned are payable 40% in cash and 60% in
the Company's common stock. For the three-year measurement
periods ended December 31, 2001, 2000 and 1999, the amounts
earned under the plan and accrued over the three-year
periods were $5.2 million, $3.4 million and $2.0 million,
respectively. Under this plan, 25,860 shares, 21,818 shares
and 21,892 shares were issued in 2001, 2000 and 1999,
respectively. Estimated shares issuable under the plan are
included in the computation of diluted earnings per share as
earned.

Earnings per share In calculating earnings per share,
earnings are the same for the basic and diluted
calculations. Shares increased for diluted earnings per
share by 148,000, 96,000 and 130,000 for 2001, 2000 and
1999, respectively, due to the effects of stock options and
shares issuable under the executive stock performance plan.



10   Other Comprehensive Income

The components of other comprehensive income in the Consolidated Statements of
Stockholders' Equity, net of tax effects, are as follows:


(millions of dollars)
For the Year Ended December 31,              2001 2000 1999
                                    
Foreign currency translation adjustment $(14.6)   $(28.0)   $11.9
Income taxes                             (3.8)     (0.2)     -.
     Net foreign currency translation
      adjustment                         (18.4)    (28.2)    11.9
                                        --------- -------- ---------
Minimum pension liability adjustment     (29.7)  (0.1)       (0.1)
Income taxes                              11.0    -.        -.
Net minimum pension liability
  adjustment                             (18.7)   (0.1)     (0.1)
Other comprehensive income (loss)       $(37.1)   $(28.3)   $11.8
                                        ======= ========== =========

The components of accumulated other comprehensive income
(net of tax) in the Consolidated Balance Sheets are as
follows:

     (millions of dollars)
December 31,   2001 2000

Foreign currency translation adjustment $(34.2)   $(15.8)
Minimum pension liability adjustment     (18.9)    (0.2)
Accumulated other comprehensive income  $(53.1)   $(16.0)
                                         =======  =========

11   Contingent Liabilities

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 43 such sites. Responsibility
for clean-up and other remedial activities at a Superfund
site is typically shared among PRPs based on an allocation
formula.

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 costs; remediation alternatives; estimated legal
fees; and other factors, the Company has established a
reserve for indicated environmental liabilities with a
balance at December 31, 2001 of approximately $25.5 million.
The Company expects this amount to be expended over the next
three to five years.

BorgWarner believes that none of these matters, individually
or in the aggregate, will have a material adverse effect on
its financial condition or future operating results,
generally either because estimates of the maximum potential
liability at a site are not large or because liability will
be shared with other PRPs, although no assurance can be
given with respect to the ultimate outcome of any such
matter.

In connection with the sale of Kuhlman Electric Corporation,
the Company agreed to indemnify the buyer and Kuhlman
Electric for certain environmental liabilities relating to
the past operations of Kuhlman Electric. During 2000,
Kuhlman Electric notified the Company that it discovered
potential environmental contamination at its Crystals
Springs, Mississippi plant while undertaking an expansion of
the plant.

The Company has been working with the Mississippi Department
of Environmental Quality and Kuhlman Electric to investigate
the extent of the contamination. The investigation has
revealed the presence of PCBs in portions of the soil at the
plant and neighboring areas. In mid 2001, Kuhlman Electric
and others, including the Company, were sued by twenty-six
plaintiffs in several lawsuits, which claim personal and
property damage. The Company has moved to be dismissed from
these lawsuits.

The Company has filed a lawsuit against Kuhlman Electric
seeking a declaration of the scope of the Company's
contractual indemnity. The Company believes that the reserve
for environmental liabilities is sufficient to cover any
potential liability associated with this matter.

12Acquisitions and Divestitures

Acquisitions

Kuhlman Corporation

On March 1, 1999, the Company acquired all the outstanding
shares of common stock of Kuhlman Corporation, a
manufacturer of vehicle and electrical products, for a
purchase price of $693.0 million. The Company funded the
transaction by issuing 3,287,127 shares of the Company's
common stock valued at $149.8 million and by borrowing
$543.2 million in cash. The Company also assumed additional
indebted- ness for the settlement of certain long-term
incentive programs and severance programs, which amounted to
approximately $14 million, net of tax benefits, and
refinanced Kuhlman's other existing indebtedness assumed of
$131.6 million.

The vehicle products businesses were accounted for as a
purchase and the Company began consolidating their results
since the date of acquisition. These businesses have been
integrated into the Air/Fluid Systems, Cooling Systems and
Morse TEC segments.

The electrical products businesses acquired from Kuhlman
consisted of Kuhlman Electric and Coleman Cable. These
businesses manufactured transformers for the utility
industry and wire and cable for utilities and other
industries. These products did not fit the Company's
strategic direction and, at the time of the Kuhlman
Acquisition, the Company announced that it intended to sell
the businesses. These businesses were accounted for as
businesses held for sale during 1999, and as such, no sales
or income between the date of acquisition and their dates of
sale was included in the consolidated results of the
Company.

In 1999, Kuhlman Electric was sold to Carlyle Group, L.L.C.
for $120.1 million, including debt securities with a face
value of $15.0 million. The $137.3 million sale of Coleman
Cable to a group of equity investors included debt
securities with a face value of $15.3 million. See Note One
for the carrying value of debt securities related to the
sales. Proceeds from the sales were used to repay
indebtedness.

Eaton Corporation's Fluid Power Division

On October 1, 1999, the Company acquired Eaton Corporation's
Fluid Power Division, one of the world's leading
manufacturers of powertrain cooling solutions for the global
automotive industry for $321.7 million in cash. The Company
accounted for the acquisition as a purchase and began
consolidating it in October 1999.

The following unaudited pro forma information has been
prepared assuming that both the Kuhlman merger and the Eaton
Corporation's Fluid Power Division acquisition had occurred
at the beginning of 1999, and includes adjustments for
estimated amounts of goodwill amortization, increased
interest expense on borrowings incurred to finance the
transactions, elimination of expenses related to Kuhlman's
corporate headquarters which has been closed, exclusion of
revenues, costs and expenses for Kuhlman's electrical
products businesses, including an allocation of goodwill
amortization and interest expense, and the tax effects of
all preceding adjustments. Sales from divested operations of
$41.3 million in 1999 are included in the pro forma sales
amounts.

(millions of dollars,
except per share amounts)
Year Ended December 31,1999

Net sales           $2,684.4
Net earnings        134.8
Net earnings per share
     Basic          5.04
     Diluted        5.03

13 Operating Segments and Related Information

The Company's business is comprised of five operating
segments: Air/Fluid Systems, Cooling Systems, Morse TEC,
TorqTransfer Systems and Transmission Systems. These
reportable segments are strategic business units which are
managed separately because each represents a specific
grouping of automotive components and systems. The Company
evaluates performance based on earnings before interest and
taxes, which emphasizes realization of a satisfactory return
on the total capital invested in each operating unit.
Intersegment sales, which are not significant, are recorded
at market prices.
BorgWarner Inc. and Consolidated Subsidiaries


Operating Segments
(millions of dollars)
Sales                                   Earnings
                                        Before              Long-Lived
                         Inter-         Interest  Year End  Depreciation/  Assets
               Customers segment   Net  and Taxes Assets    Amortization   Expenditures(d)
                                            
2001
Air/Fluid Systems$350.2  $7.6   $357.8 $12.9      $382.1    $21.6     $17.6
Cooling Systems(a) 220.5   -.    220.5   7.5      510.1     27.7      14.6
Morse TEC           846.7 22.7  869.4   119.8     1,066.4   53.5      75.7
TorqTransfer Systems498.7 1.4  500.1    24.1      266.6     18.7      38.0
Transmission Systems 417.5 11.3 428.8   48.5      359.6     22.3      26.6
Divested operations and businesses
 held for sale(b)   18.0  -.   18.0     (0.2)      -.       0.2       -.
Intersegment eliminations -.   (43.0)   (43.0)     -.       -.        -.   -.
Total          2,351.6   -.   2,351.6   212.6     2,584.8   144.0     172.5
Corporate, including equity in
 affiliates    -.        -.        -. (30.3)       186.1(c) 2.2       10.4
Restructuring and other non-.  recurring
     charges   -.        -.        -.   (28.4)          -.  -.        -.
               -------   ------    ---- --------  --------  ---------
Consolidated $2,351.6  $ -.   $2,351.6 $153.9     $2,770.9  $146.2    $182.9
               ====== ======= ========= ========= ========= ======= ==========
2000
Air/Fluid Systems$419.0  $8.8 $427.8 $35.7   $403.2    $20.7     $27.0
Cooling Systems(a) 280.8 0.5  281.3  32.1    536.8     27.9      16.7
Morse TEC          860.0  25.8 885.8 127.4   1,017.7   50.3      82.8
TorqTransfer Systems524.9 1.8 526.7  37.2    250.3     18.0      19.2
Transmission Systems428.5 9.0  437.5  46.0   353.1     22.6      32.6
Divested operations and businesses
 held for sale(b)   132.7 0.2  132.9  3.2    73.6      2.9       4.6
Intersegment eli-
 minations          -.   (46.1)(46.1)   -.    -.       -.        -.
     Total     2,645.9   -.   2,645.9   281.6 2,634.7  142.4 182.9
Corporate, including equity in affiliates
               -.        -.        -.   (7.3) 104.9(c) 3.1  13.9
Restructuring and other non-recurring
     charges        -.   -.   -.   (62.9)-.       -.   -.
Consolidated        $2,645.9  $-.  $2,645.9 $211.4     $2,739.6 $145.5 $196.8
                    ======= ======= ======== ========= ======== ======== ======
1999
Air/Fluid Systems   $406.3    $7.6 $ 413.9 $36.5  $407.9    $19.4     $14.4
Cooling Systems(a)   140.2    2.6  142.8   17.9   560.8     11.4      7.7
Morse TEC           771.4     25.5 796.9  109.7   1,007.4   43.7      88.4
TorqTransfer Systems 560.9    2.4  563.3  41.2    261.3     18.5      31.0
Transmission Systems 405.2    8.2  413.4  54.1    356.0     22.7      21.1
Divested operations
 and businesses
 held for sale(b)   174.6     3.4  178.0  6.9     123.4     6.1       6.2
Intersegment
 eliminations       -.        (49.7)(49.7)   -.   -.        -.        -.
Total               2,458.6   -.   2,458.6   266.3 2,716.8 121.8      168.8
Corporate, including equity in affiliates
               -.        -.        -.   (10.1)    253.9(c)  1.6       -.
Consolidated   $2,458.6  $-.       $2,458.6 $256.2     $2,970.7  $123.4    $168.8
               ======== ======== ========== ========= ========== ========= =======

(a)Cooling Systems was added in 1999.
(b)Fuel Systems was sold in 2001. The HVAC business was sold
in 2000. The forged powdered metal race business was sold in
1999.
(c)Corporate assets, including equity in affiliates, are net
of trade receivables sold to third parties, and include
cash, marketable securities, deferred taxes and investments
and advances.
(d)Long-lived asset expenditures includes capital spending
and additions to non-perishable tooling, net of customer
reimbursements.


The following table reconciles segments' earnings before
interest and income taxes to consolidated earnings before
income taxes.

(millions of dollars)
                                   2001      2000      1999
Earnings before interest and
 income taxes                 $153.9    $211.4    $256.2
Interest expense and finance
 charges                      (47.8)     (62.6)    (49.2)
Earnings before income taxes  $106.1    $148.8    $207.0

Geographic information No country outside the U.S., other
than Germany, accounts for as much as 5% of consolidated net
sales, attributing sales to the sources of the product
rather than the location of the customer. For this purpose,
the Company's 50% equity investment in NSK-Warner (Note
Five) amounting to $128.8 million at December 31, 2001 is
excluded from the definition of long-lived assets, as are
goodwill and certain other noncurrent assets.




(millions of dollars)
Net SalesLong-Lived Assets
                    2001      2000      1999      2001      2000      1999
                                                    
United States       $1,687.4  $1,960.2  $1,848.4  $638.5    $591.9    $574.1
Europe:Germany      347.5      350.0     325.6    148.5     132.3     128.9
Other Europe        162.2     183.2     165.6     64.4      60.6      67.1
Total Europe        509.7     533.2     491.2     212.9     192.9     196.0
Other Foreign       154.5     152.5     119.0     75.5      88.6      89.2
Total               $2,351.6  $2,645.9  $2,458.6  $926.9    $873.4    $859.3
                    ======== ========= ========= ========= ========= =======



Sales to major customers Consolidated sales included sales
to Ford Motor Company of approximately 30%, 30% and 31%; to
DaimlerChrysler of approximately 21%, 19% and 19%; and to
General Motors Corporation of approximately 12%, 13% and 13%
for the years ended December 31, 2001, 2000 and 1999,
respectively. No other single customer accounted for more
than 10% of consolidated sales in any year between 1999 and
2001. Such sales consisted of a variety of products to a
variety of customer locations worldwide. Each of the five
operating segments had significant sales to all three of the
customers listed above.

Interim Financial Information (Unaudited)

The following information includes all adjustments, as well
as normal recurring items, that the Company considers
necessary for a fair presentation of 2001 and 2000 interim
results of operations. Certain 2001 and 2000 quarterly
amounts have been reclassified to conform to the annual
presentation.

 (millions of dollars, except per share amounts)

(millions of dollars, except per share amounts)
2001                                       2000
Quarter Ended,
2454: March 31June 30 Sept.30 Dec.31Year2001
March31June30 Sept.30 Dec.31 Year 2000

2456:------ ----------  ------ ------- --------
 -------- ------- ------- ------- --------

Net sales
2436: $606.8$602.0 $559.9 $582.9$2,351.6$730.2$700.9 $618.5 $596.3 $2,645.9

Cost of sales
2438: 471.1 458.4 429.7 442.8  1,802.0 550.3  531.3 473.0 448.5 2,003.1

Depreciation
27.0   25.7    25.5     26.0  104.2     26.2     25.9  25.2      24.9      102.2
Selling, general and
administrative expenses
55.6  59.3     55.5     63.9  234.3     63.5      57.8 57.5      65.3      244.1
Minority interest
0.7  0.7       1.1       1.3  3.8       0.7       0.4  0.8       0.8       2.7
Goodwill amortization
10.6 10.3      10.4      10.7 42.0      11.0      10.7 10.8      10.8      43.3
Restructuring and other non-recurring charges
- -    -         -         28.4 28.4      -         -    32.6      30.3      62.9
Equity in affiliate earnings, net of tax and other income
(4.5) (4.6) (3.9)    (4.0)     (17.0)   (3.5)    (4.7) (4.2)     (11.4) (23.8)
Earnings before interest
expense, finance
charges and income
taxes     46.3 52.2 41.6      13.8      153.9     82.0 79.5      22.8 27.1 211.4
Interest expense and
finance charges
  12.8   12.4  12.3      10.3      47.8      15.9 15.9      15.9 14.9 62.6
Earnings before income
 taxes 33.5 39.8 29.3    3.5       106.1     66.1 63.6      6.9  12.2 148.8
Provision for income taxes
     12.4 15.1 10.9      1.3       39.7      25.1  23.5     1.7  4.5  54.8
Net earnings
 $21.1    $24.7 $18.4    $2.2      $66.4     $41.0 $40.1    $5.2 $7.7 $94.0
Net earnings per share -
basic     $0.80 $0.94    $0.70 $0.08 $2.52 $1.54  $1.52  $0.20 $0.30  $3.56
Net earnings per share -
2496: diluted $0.80 $0.93 $0.70$0.08(a)$2.51
(a)$1.53$1.51$0.20(b)$0.30(b)$3.54(b)



(a)Diluted earnings per share excluding the
 fourth quarter non-recurring charges were
$0.80 for the quarter ended December 31, 2001
 and $3.23 for the year ended December 31,
2001.

(b)Diluted earnings per share excluding the
 restructuring and other non-recurring charges
for the quarters ended September 30, 2000
 and December 31, 2000 and for the year ended
December 31, 2000 were $0.95, $1.02 and $5.01, respectively.

(millions of dollars, except per share data)
For the Year Ended December 31,
                              2001 2000 1999 1998 1997
Statement of Operations Data
Net sales                     $2,351.6  $2,645.9  $2,458.6  $1,836.8  $1,767.0
Cost of sales                 1,802.0   2,003.1   1,888.5   1,450.7   1,375.4
Depreciation                  104.2     102.2     91.3      74.8      70.4
Selling, general and ad-
 ministrative expenses        234.3     244.1     203.3     135.1     132.0
Minority interest             3.8       2.7       1.3       2.1       3.2
Goodwill amortization         42.0      43.3      32.1      16.8      16.7
Restructuring and other non-
 recurring charges            28.4(a)   62.9(b)    -        -         -
Equity in affiliate earnings, net of tax
     and other income         (17.0)     (23.8) (14.1)  (10.3)    (13.2)
Interest expense and finance
 charges                      47.8      62.6      49.2   26.9    24.6
Provision for income taxes    39.7      54.8      74.7   46.0    54.7
Net earnings                  $66.4     $94.0     $132.3 $ 94.7  $103.2

Net earnings per share - basic $2.52(a) $3.56(b)  $5.10  $4.03   $4.35
                              ====      =======   =====  ======  ======
Average shares outstanding (thousands) - basic
                              26,315    26,391    25,948 23,479  23,683
Net earnings per share - diluted
                              $2.51(a) $3.54(b)   $    5.07 $4.00 $4.31
Average shares outstanding (thousands) - diluted
                              26,463    26,487    26,078    23,676 23,934
Cash dividend declared per share
                         $    0.60 $    0.60 $    0.60 $    0.60 $    0.60

Balance Sheet Data (at end of period)
Total assets             $2,770.9  $2,739.6  $2,970.7  $1,846.1  $1,736.3
Total debt               737.0     794.8     980.3     393.5     338.1


(a)In 2001, the Company recorded $28.4 million
 in non-recurring charges. Net of tax, this
totaled $19.0 million or $0.72 per diluted share.
Earnings before non-recurring charges
were $85.4 million or $3.23 per diluted share.

(b)In 2000, the Company recorded $62.9 million
 in restructuring and other non-recurring
charges. Net of tax, this totaled $38.7 million
 or $1.47 per diluted share. Earnings
before restructuring and other non-recurring
charges were $132.7 million, or $5.01 per
diluted share.