Earnings Per Share

9 Months Ended

Sep. 30, 2011

The Company presents both basic and diluted earnings per share of common stock (“EPS”) amounts. Basic EPS is calculated by dividing net earnings attributable to BorgWarner Inc. by the weighted average shares of common stock outstanding during the reporting period. The Company has 390 million common shares authorized, of which 109,720,466 were outstanding at September 30, 2011. Diluted EPS is calculated by dividing net earnings attributable to BorgWarner Inc. by the weighted average shares of common stock and common equivalent stock outstanding during the reporting period.

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

The potential common shares associated with the Company's 3.50% convertible notes due April 15, 2012 are reflected in diluted EPS using the “if-converted” method. Under this method, if dilutive, the common stock is assumed issued as of the beginning of the reporting period and included in calculating diluted EPS. In addition, if dilutive, interest expense, net of tax, related to the convertible notes is added back to the numerator in calculating diluted EPS.

Separately and concurrently with the issuance of the Company's 3.50% convertible notes, the Company entered into a bond hedge overlay, including warrants and options. If the Company's weighted-average share price exceeds $38.61 per share, the warrants will be dilutive to the Company's earnings. If the Company's weighted average share price exceeds $32.82 per share, the offsetting bond hedge will be anti-dilutive.

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



	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions, except per share amounts)	2011		2010		2011		2010
Basic earnings per share:
Net earnings attributable to BorgWarner Inc.	$	141.6	$	106.7	$	428.1	$	265.7
Weighted average shares of common stock outstanding	108.779		112.757		109.391		114.831
Basic earnings per share of common stock	$	1.30	$	0.95	$	3.91	$	2.31

Diluted earnings per share:
Net earnings attributable to BorgWarner Inc.	$	141.6	$	106.7	$	428.1	$	265.7
Adjustment for net interest expense on convertible notes	5.4		5.0		16.0		15.1
Diluted net earnings attributable to BorgWarner Inc.	$	147.0	$	111.7	$	444.1	$	280.8

Weighted average shares of common stock outstanding	108.779		112.757		109.391		114.831

Effect of 3.50% convertible notes	11.389		11.389		11.389		11.389
Effect of warrant	5.158		1.596		5.332		0.584
Effect of stock-based compensation	2.614		2.062		2.657		1.731
Total dilutive effect on weighted average shares of common stock outstanding	19.161		15.047		19.378		13.704

Weighted average shares of common stock outstanding including dilutive shares	127.940		127.804		128.769		128.535
Diluted earnings per share of common stock	$	1.15	$	0.87	$	3.45	$	2.18

Total anti-dilutive shares:
Bond hedge	6.092		3.064		6.240		2.037