REPORTING SEGMENTS AND RELATED INFORMATION

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

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

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



2011 Segment information
	Net sales								Year-end assets		Depreciation/ amortization		Long-lived asset expenditures (b)
(millions of dollars)	Customers		Inter-segment			Net			Year-end assets		Depreciation/ amortization		Long-lived asset expenditures (b)
Engine	$	5,030.2	$	20.4		$	5,050.6		$	3,329.0	$	188.6	$	264.3
Drivetrain	2,084.5		—			2,084.5			1,562.8		80.0		115.9
Inter-segment eliminations	—		(20.4		)	(20.4		)	—		—		—
Total	7,114.7		—			7,114.7			4,891.8		268.6		380.2
Corporate (a)	—		—			—			1,066.8		14.4		13.5
Consolidated	$	7,114.7	$	—		$	7,114.7		$	5,958.6	$	283.0	$	393.7



2010 Segment information
	Net sales								Year-end assets		Depreciation/ amortization		Long-lived asset expenditures (b)
(millions of dollars)	Customers		Inter-segment			Net			Year-end assets		Depreciation/ amortization		Long-lived asset expenditures (b)
Engine	$	4,041.4	$	19.4		$	4,060.8		$	3,277.7	$	184.4	$	181.3
Drivetrain	1,611.4		—			1,611.4			1,230.5		63.6		83.5
Inter-segment eliminations	—		(19.4		)	(19.4		)	—		—		—
Total	5,652.8		—			5,652.8			4,508.2		248.0		264.8
Corporate (a)	—		—			—			1,046.8		4.9		11.8
Consolidated	$	5,652.8	$	—		$	5,652.8		$	5,555.0	$	252.9	$	276.6



2009 Segment information
	Net sales								Year-end assets		Depreciation/ amortization		Long-lived asset expenditures (b)
(millions of dollars)	Customers		Inter-segment			Net			Year-end assets		Depreciation/ amortization		Long-lived asset expenditures (b)
Engine	$	2,868.3	$	14.9		$	2,883.2		$	2,812.8	$	188.7	$	115.6
Drivetrain	1,093.5		—			1,093.5			1,104.1		65.9		44.6
Inter-segment eliminations	—		(14.9		)	(14.9		)	—		—		—
Total	3,961.8		—			3,961.8			3,916.9		254.6		160.2
Corporate (a)	—		—			—			894.5		6.3		11.8
Consolidated	$	3,961.8	$	—		$	3,961.8		$	4,811.4	$	260.9	$	172.0

_______________

(a) Corporate assets include equity in affiliates’, investment and advances and deferred income taxes. The December 31, 2009 assets are net of trade receivables securitized and sold to third parties.

(b) Long-lived asset expenditures include capital expenditures and tooling outlays.

Adjusted earnings before interest, income taxes and noncontrolling interest ("Adjusted EBIT")



	Year Ended December 31,
(millions of dollars)	2011			2010			2009
Engine	$	774.3		$	537.9		$	219.8
Drivetrain	161.2			137.0			(13.5		)
Adjusted EBIT	935.5			674.9			206.3
Patent infringement settlement gain, net of legal costs incurred	(29.1		)	—			—
Loss from disposal activities	21.5			—			—
Environmental litigation settlement	—			28.0			—
BERU-Eichenauer equity investment gain	—			(8.0		)	—
Muncie closure retiree obligation net gain	—			—			(27.9		)
Corporate, including equity in affiliates' earnings and stock-based compensation	107.4			111.0			111.3
Restructuring expense	—			—			50.3
Interest income	(4.8		)	(2.8		)	(2.5		)
Interest expense and finance charges	74.6			68.8			57.2
Earnings before income taxes and noncontrolling interest	765.9			477.9			17.9
Provision (benefit) for income taxes	195.3			81.7			(18.5		)
Net earnings	570.6			396.2			36.4
Net earnings attributable to the noncontrolling interest, net of tax	20.5			18.8			9.4
Net earnings attributable to BorgWarner Inc.	$	550.1		$	377.4		$	27.0

Geographic Information

Outside the U.S., only China, Germany, France, Hungary and South Korea exceeded 5% of consolidated net sales during the year ended December 31, 2011, attributing sales to the sources of the product rather than the location of the customer. Also, the Company's 50% equity investment in NSK-Warner (see Note 5) of $189.2 million, $180.3 million and $174.0 million at December 31, 2011, 2010 and 2009, respectively, is excluded from the definition of long-lived assets, as are goodwill and certain other non-current assets.



	Net sales						Long-lived assets
(millions of dollars)	2011		2010		2009		2011		2010		2009
United States	$	1,674.0	$	1,451.1	$	1,090.4	$	492.6	$	466.6	$	469.4
Europe:
Germany	2,200.0		1,839.9		1,419.9		420.4		447.5		500.0
Hungary	503.2		418.3		292.4		56.9		53.0		58.4
France	363.0		318.7		229.5		63.2		63.0		72.9
Other Europe	917.8		546.1		282.9		194.6		173.7		138.1
Total Europe	3,984.0		3,123.0		2,224.7		735.1		737.2		769.4
South Korea	471.7		358.0		212.4		124.5		94.8		69.1
China	416.6		330.6		184.1		148.0		104.9		66.1
Other foreign	568.4		390.1		250.2		164.1		139.1		116.3
Total	$	7,114.7	$	5,652.8	$	3,961.8	$	1,664.3	$	1,542.6	$	1,490.3

Sales to Major Customers

Consolidated net sales to a single customer (including their subsidiaries), which exceeded 10% of our total net sales, were to Volkswagen of approximately 19% for the years ended December 31, 2011 and 2010 and 22% for the year ended December 31, 2009; and to Ford of approximately 12%, 11%, and 12% for the years ended December 31, 2011, 2010 and 2009, respectively. Both of the Company's reporting segments had significant sales to Volkswagen and Ford in 2011, 2010 and 2009. Accounts receivable from these customers at December 31, 2011 comprised approximately 20% ($237.6 million) of total accounts receivable. Such sales consisted of a variety of products to a variety of customer locations and regions. No other single customer accounted for more than 10% of consolidated net sales in any of the years presented.

Sales by Product Line

Sales of turbochargers for light-vehicles represented approximately 26% of total net sales for the years ended December 31, 2011 and 2010, respectively, and 27% of total net sales for the year ended December 31, 2009. The Company currently supplies light-vehicle turbochargers to many OEMs including Volkswagen, Renault, PSA, Daimler, Hyundai, Fiat, BMW, Ford and General Motors. No other single product line accounted for more than 10% of consolidated net sales in any of the years presented.

Interim Financial Information (Unaudited)



(millions of dollars, except per share amounts)	2011															2010
Quarter ended	Mar-31			Jun-30			Sep-30			Dec-31			Year			Mar-31			Jun-30			Sep-30			Dec-31			Year
Net sales	$	1,730.4		$	1,818.8		$	1,791.8		$	1,773.7		$	7,114.7		$	1,286.8		$	1,421.7		$	1,410.9		$	1,533.4		$	5,652.8
Cost of sales	1,387.6			1,461.7			1,441.0			1,414.0			5,704.3			1,048.3			1,146.3			1,137.6			1,227.3			4,559.5
Gross profit	342.8			357.1			350.8			359.7			1,410.4			238.5			275.4			273.3			306.1			1,093.3
Selling, general and administrative expenses	165.1			157.7			151.4			146.8			621.0			130.3			137.8			150.2			148.3			566.6
Other (income) expense	(1.6		)	(28.9		)	0.6			21.8			(8.1		)	1.6			20.3			0.1			0.4			22.4
Operating income	179.3			228.3			198.8			191.1			797.5			106.6			117.3			123.0			157.4			504.3
Equity in affiliates’ earnings, net of tax	(8.4		)	(8.1		)	(11.5		)	(10.2		)	(38.2		)	(9.3		)	(10.0		)	(10.5		)	(9.8		)	(39.6		)
Interest income	(1.0		)	(1.2		)	(1.3		)	(1.3		)	(4.8		)	(0.6		)	(0.6		)	(0.6		)	(1.0		)	(2.8		)
Interest expense and finance charges	18.4			20.5			18.5			17.2			74.6			14.2			14.2			18.4			22.0			68.8
Earnings before income taxes and noncontrolling interest	170.3			217.1			193.1			185.4			765.9			102.3			113.7			115.7			146.2			477.9
Provision for income taxes	40.9			49.8			46.4			58.2			195.3			20.9			26.0			4.2			30.6			81.7
Net earnings	129.4			167.3			146.7			127.2			570.6			81.4			87.7			111.5			115.6			396.2
Net earnings attributable to the noncontrolling interest, net of tax	4.9			5.3			5.1			5.2			20.5			5.2			4.9			4.8			3.9			18.8
Net earnings attributable of BorgWarner Inc. (a)	$	124.5		$	162.0		$	141.6		$	122.0		$	550.1		$	76.2		$	82.8		$	106.7		$	111.7		$	377.4

Earnings per share — basic	$	1.13		$	1.49		$	1.30		$	1.12		$	5.04		$	0.65		$	0.72		$	0.95		$	1.00		$	3.31
Earnings per share — diluted	$	1.00		$	1.31		$	1.15		$	1.00		$	4.45		$	0.63		$	0.68		$	0.87		$	0.89		$	3.07

_______________

(a) The Company's results were impacted by the following:

•

Quarter ended December 31, 2011: The Company incurred $21.5 million in expense associated with the loss on sale of the tire pressure monitoring business, including costs related to the divestiture, and a write-down of a portion of the ignitor and electronic business. The Company recorded $1.4 million of tax benefit associated with the disposals and $4.1 million of tax expense related to an intercompany disposal transaction.

•

Quarter ended June 30, 2011: The Company recorded a $29.1 million patent infringement settlement gain, net of legal costs incurred, which was partially offset by $11.0 million of additional tax expense. Additionally, the Company recorded a $6.2 million related to tax adjustments resulting from a change in state corporate income tax legislation as well as an adjustment of the Company's tax accounts as a result of the closure of certain tax audits.


•	Quarter ended September 30, 2010: The Company recorded a $21.2 million foreign tax credit valuation allowance reversal.


•	Quarter ended June 30, 2010: The Company recorded an $8.0 million BERU-Eichenauer Equity investment gain and $28.0 million environmental litigation settlement.


•	Quarter ended March 31, 2010: The Company recorded a $2.5 million Medicare Part D tax adjustment.