Consolidated Statements of Cash Flows Consolidated Statements of Stockholders’ Equity and Comprehensive Income BorgWarner Inc.  and Consolidated Subsidiaries 38 millions of dollars For the Year Ended December 31,  2004 2003 2002 OPERATING Net earnings/(loss)  $ 218.3 $ 174.9 $(119.1) Adjustments to reconcile net earnings/(loss) to net cash flows from operations:  Non-cash charges (credits) to operations:  Depreciation 138.8 124.5 108.1  Amortization of tooling 38.2 36.8 29.3  Cumulative effect of change in accounting principle, net of tax  — — 269.0 Employee retirement benefits funded with common stock  25.8  12.9  20.8 Deferred income tax provision  13.8 40.0 30.4  Equity in affiliate earnings, net of dividends received, minority interest and other  5.8  (3.7) (4.1) Net earnings adjusted for non-cash charges  440.7  385.4  334.4 Changes in assets and liabilities, net of effects of divestitures:  (Increase) in receivables  (60.4) (90.4) (67.4) (Increase) in inventories  (12.7) (9.1) (29.3) (Increase) decrease in prepayments  (7.0) 7.3  (3.4) Increase (decrease) in accounts payable and accrued expenses 113.1  (0.3) (14.7) Increase (decrease) in income taxes payable  36.0 (0.2)  14.1  Net change in other long-term assets and liabilities  (83.1) 14.2  27.7 Net cash provided by operating activities  426.6  306.9  261.4 INVESTING Capital expenditures  (204.9) (172.0) (138.4) Tooling outlays, net of customer reimbursements  (47.5) (42.4) (27.7) Net proceeds from asset disposals  4.2  8.0  12.3 Proceeds from sale of businesses  — 5.4  3.3 Tax refunds related to businesses sold  — — 20.5 Contingent valuation payment on acquired business — (12.8)  — Investment in unconsolidated subsidiary  (9.0) (14.4) — Net cash used in investing activities  (257.2) (228.2) (130.0) FINANCING Net increase (decrease) in notes payable  5.3 (5.5)  (22.8) Additions to long-term debt  0.6 0.3 2.3  Repayments of long-term debt  (61.8) (16.1) (85.3) Payments for purchase of treasury stock  — (2.5) (18.1) Proceeds from stock options exercised  14.4  39.3  9.8 Dividends paid  (27.9) (19.4) (16.0) Net cash used in financing activities  (69.4) (3.9) (130.1) Effect of exchange rate changes on cash and cash equivalents  16.6  1.7  2.4 Net increase in cash and cash equivalents  116.6 76.5 3.7  Cash and cash equivalents at beginning of year  113.1  36.6  32.9 Cash and cash equivalents at end of year  $ 229.7  $ 113.1 $ 36.6  SUPPLEMENTAL CASH FLOW INFORMATION Net cash paid/(refunded) during the year for:  Interest $ 29.3 $ 34.5 $ 39.5  Income taxes 35.0  24.4  (11.0) Non-cash financing transactions:  Issuance of common stock for Executive Stock Performance Plan  $ 1.7 $ 3.3 $ 1.2  Issuance of restricted common stock for non-employee directors  0.3 — —  See Accompanying Notes to Consolidated Financial Statements. millions of dollars Comprehensive  Number of shares  Stockholders’ equity  income/(loss) Accumulated Issued Common Issued Capital in Management other common stock in common excess of Treasury shareholder Retained comprehensive stock  treasury stock  par value stock  notes  earnings  income/(loss) Balance, January 1, 2002  54,079,936  (1,349,598)  $0.3  $715.7  $(27.6)  $(2.0)  $470.9  $(53.1)  Purchase of treasury stock  —  (770,000)  —  —  (18.1)  —  —  — Dividends declared  —  —  —  —   —  —  (16.0)  —  — Shares issued under stock incentive plans —  435,264 —  0.9  8.9  —  —  —  — Shares issued under executive stock plan — 46,560 — 0.3 0.9 — — — — Shares issued under  retirement savings plans 717,846 — — 20.8 — — — — — Net loss  —  —  —  —  — —  (119.1)  —  $(119.1) Adjustment for minimum pension liability — — — — — — — (42.3) (42.3) Currency translation and hedge instruments adjustment — — — — — — — 40.9 40.9 Balance, December 31, 2002  54,797,782  (1,637,774)  $0.3  $737.7  $(35.9)  $(2.0)  $335.8  $(54.5)  $(120.5) Purchase of treasury stock  —  (83,860)  —  —  (2.5)  —  —  — Dividends declared  —  —  —  —   —  —  (19.4)  —  — Management shareholder notes  —  —  —   —  —  2.0  —  —  — Shares issued under stock incentive plans  — 1,517,208 — 5.3 34.0 — — — — Shares issued under executive stock plan — 131,762 — 0.4 2.9 — — — — Shares issued under  retirement savings plans 432,072 — — 12.9 — — — — — Net income — — — — — — 174.9 — $ 174.9 Adjustment for minimum pension liability — — — — — — — 0.7 0.7 Currency translation and hedge instruments adjustment — — — — — — — 67.8 67.8 Balance, December 31, 2003  55,229,854  (72,664)  $0.3  $756.3  $ (1.5)  $ —  $491.3  $ 14.0  $ 243.4 Dividends declared — — — —  — — (27.9) — — Stock split  — — 0.3 — — — (0.3) — — Shares issued under stock incentive plans  523,994 68,680 — 13.0 1.4 — — — — Shares issued under executive stock plan 41,252 — — 1.7 — — — — — Restricted shares issued under stock incentive plan 6,400 — — 0.3 — — — — — Shares issued under  retirement savings plans 559,667 — — 25.8 — — — — — Net income — — — — —  — 218.3 — $ 218.3 Adjustment for minimum pension liability — — — — — — — 12.8 12.8 Currency translation and hedge instruments adjustment — — — — — — — 28.4 28.4 BALANCE, DECEMBER 31, 2004 56,361,167  (3,984)  $0.6  $797.1  $ (0.1)  $ —  $681.4  $ 55.2 $ 259.5 39 See Accompanying Notes to Consolidated Financial Statements.