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 income or loss.

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



2012 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	$	4,884.5	$	28.5		$	4,913.0		$	3,299.2	$	177.8	$	269.9
Drivetrain	2,298.7		—			2,298.7			1,652.2		91.3		125.6
Inter-segment eliminations	—		(28.5		)	(28.5		)	—		—		—
Total	7,183.2		—			7,183.2			4,951.4		269.1		395.5
Corporate (a)	—		—			—			1,449.4		19.5		11.9
Consolidated	$	7,183.2	$	—		$	7,183.2		$	6,400.8	$	288.6	$	407.4



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

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

(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)	2012			2011			2010
Engine	$	786.4		$	774.3		$	537.9
Drivetrain	209.1			161.2			137.0
Adjusted EBIT	995.5			935.5			674.9
Loss from disposal activities	39.7			21.5			—
Restructuring expense	27.4			—			—
Retirement related obligations	17.3			—			—
Patent infringement settlement, net of legal costs incurred	—			(29.1		)	—
Environmental litigation settlement	—			—			28.0
BERU - Eichenauer equity investment gain	—			—			(8.0		)
Corporate, including equity in affiliates' earnings and stock-based compensation	115.4			107.4			111.0
Interest income	(4.7		)	(4.8		)	(2.8		)
Interest expense and finance charges	39.4			74.6			68.8
Earnings before income taxes and noncontrolling interest	761.0			765.9			477.9
Provision for income taxes	238.6			195.3			81.7
Net earnings	522.4			570.6			396.2
Net earnings attributable to the noncontrolling interest, net of tax	21.5			20.5			18.8
Net earnings attributable to BorgWarner Inc.	$	500.9		$	550.1		$	377.4

Geographic Information

Outside the U.S., only China, Germany, Hungary and South Korea exceeded 5% of consolidated net sales during the year ended December 31, 2012, attributing sales to the location of production rather than the location of the customer. Also, the Company's 50% equity investment in NSK-Warner (see Note 5) of $184.4 million, $189.2 million and $180.3 million at December 31, 2012, 2011 and 2010, 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)	2012		2011		2010		2012		2011		2010
United States	$	1,857.2	$	1,674.0	$	1,451.1	$	508.1	$	492.6	$	466.6
Europe:
Germany	1,871.3		2,200.0		1,839.9		432.2		420.4		447.5
Hungary	448.9		503.2		418.3		64.3		56.9		53.0
France	335.2		363.0		318.7		45.9		63.2		63.0
Other Europe	1,015.1		917.8		546.1		225.8		194.6		173.7
Total Europe	3,670.5		3,984.0		3,123.0		768.2		735.1		737.2
South Korea	505.6		471.7		358.0		140.4		124.5		94.8
China	499.1		416.6		330.6		184.3		148.0		104.9
Other foreign	650.8		568.4		390.1		187.0		164.1		139.1
Total	$	7,183.2	$	7,114.7	$	5,652.8	$	1,788.0	$	1,664.3	$	1,542.6

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 17% for the year ended December 31, 2012 and 19% for the years ended December 31, 2011 and 2010, respectively; and to Ford of approximately 13%, 12%, and 11% for the years ended December 31, 2012, 2011 and 2010, respectively. Both of the Company's reporting segments had significant sales to Volkswagen and Ford in 2012, 2011 and 2010. Accounts receivable from these customers at December 31, 2012 comprised approximately 18% ($218.8 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, 2012, 2011 and 2010, respectively. The Company currently supplies light vehicle turbochargers to many OEMs including BMW, Daimler, Fiat, Ford, General Motors, Hyundai, PSA, Renault and Volkswagen. 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)	2012															2011
Quarter ended	Mar-31			Jun-30			Sep-30			Dec-31			Year			Mar-31			Jun-30			Sep-30			Dec-31			Year
Net sales	$	1,912.5		$	1,856.4		$	1,695.2		$	1,719.1		$	7,183.2		$	1,730.4		$	1,818.8		$	1,791.8		$	1,773.7		$	7,114.7
Cost of sales	1,516.7			1,473.2			1,351.5			1,374.9			5,716.3			1,387.6			1,461.7			1,441.0			1,414.0			5,704.3
Gross profit	395.8			383.2			343.7			344.2			1,466.9			342.8			357.1			350.8			359.7			1,410.4
Selling, general and administrative expenses	169.0			153.1			151.0			156.2			629.3			165.1			157.7			151.4			146.8			621.0
Other (income) expense	1.1			36.6			29.7			17.3			84.7			(1.6		)	(28.9		)	0.6			21.8			(8.1		)
Operating income	225.7			193.5			163.0			170.7			752.9			179.3			228.3			198.8			191.1			797.5
Equity in affiliates’ earnings, net of tax	(9.2		)	(12.5		)	(11.1		)	(10.0		)	(42.8		)	(8.4		)	(8.1		)	(11.5		)	(10.2		)	(38.2		)
Interest income	(1.4		)	(1.3		)	(1.0		)	(1.0		)	(4.7		)	(1.0		)	(1.2		)	(1.3		)	(1.3		)	(4.8		)
Interest expense and finance charges	15.1			12.6			5.0			6.7			39.4			18.4			20.5			18.5			17.2			74.6
Earnings before income taxes and noncontrolling interest	221.2			194.7			170.1			175.0			761.0			170.3			217.1			193.1			185.4			765.9
Provision for income taxes	57.5			68.5			64.2			48.4			238.6			40.9			49.8			46.4			58.2			195.3
Net earnings	163.7			126.2			105.9			126.6			522.4			129.4			167.3			146.7			127.2			570.6
Net earnings attributable to the noncontrolling interest, net of tax	5.7			5.6			4.8			5.4			21.5			4.9			5.3			5.1			5.2			20.5
Net earnings attributable to BorgWarner Inc. (a)	$	158.0		$	120.6		$	101.1		$	121.2		$	500.9		$	124.5		$	162.0		$	141.6		$	122.0		$	550.1

Earnings per share — basic	$	1.46		$	1.08		$	0.88		$	1.05		$	4.45		$	1.13		$	1.49		$	1.30		$	1.12		$	5.04
Earnings per share — diluted	$	1.28		$	1.00		$	0.85		$	1.03		$	4.17		$	1.00		$	1.31		$	1.15		$	1.00		$	4.45

_______________

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

•

Quarter ended December 31, 2012: Retirement related obligations of $17.3 million are comprised of a $5.7 million loss resulting from the settlement of a portion of the Muncie Plant's pension obligation and an $11.6 million expense associated with the retirement of certain Named Executive Officers. These obligations were partially offset by a $6.1 million tax benefit. The Company incurred tax expense of $3.9 million which included $11.1 million of U.S. tax expense to correct the income taxes payable balance, partially offset by tax benefits resulting from changes to the statutory income tax rate in certain countries and the settlement of certain tax audits.

•

Quarter ended September 30, 2012: The Company incurred $1.8 million of expense and $11.2 million of tax expense associated with the completion of the sale of its spark plug business. The Company also recorded restructuring expense of $27.4 million primarily associated with the disposal and future requirements of BERU's on-going business, which was partially offset by a tax benefit of $7.7 million. Additionally, the Company incurred tax expense of $6.9 million primarily resulting from the settlement of certain tax audits.

•

Quarter ended June 30, 2012: The Company recorded expense of $37.9 million primarily due to the write-down of prior purchase price accounting adjustments included within the disposal group as a result of signing a Master Purchase Agreement to sell the spark plug business to Federal-Mogul Corporation, which was partially offset by a tax benefit of $5.5 million resulting from the write-down. Additionally, the Company recorded tax expense of $9.0 million related to its decision to change its cash repatriation assertion for some of its foreign subsidiaries.

•

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 $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.