Earnings Per Share

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. 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 assumed 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.

Prior to the April 2012 settlement of the Company's 3.50% convertible senior notes, the potential common shares associated with these notes were reflected in diluted EPS using the “if-converted” method. Under this method, if dilutive, the common shares were 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 senior notes was added back to the numerator in calculating diluted EPS.

In conjunction with the convertible senior note offering, the Company entered into a bond hedge overlay, including both call options and warrants. Prior to the April 2012 settlement of the call option portion of the bond hedge overlay, the call options were anti-dilutive if the Company's weighted average share price exceeded $32.82 per share. Prior to third and fourth quarter 2012 settlements of the warrant portion of the bond hedge overlay, the warrants were dilutive to the Company's earnings if the Company's weighted-average share price exceeded $38.61 per share.

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)	2013		2012		2013		2012
Basic earnings per share:
Net earnings attributable to BorgWarner Inc.	$	166.8	$	101.1	$	482.9	$	379.7
Weighted average shares of common stock outstanding	113.819		114.299		114.584		111.619
Basic earnings per share of common stock	$	1.47	$	0.88	$	4.21	$	3.40

Diluted earnings per share:
Net earnings attributable to BorgWarner Inc.	$	166.8	$	101.1	$	482.9	$	379.7
Adjustment for net interest expense on convertible notes	—		—		—		5.8
Diluted net earnings attributable to BorgWarner Inc.	$	166.8	$	101.1	$	482.9	$	385.5

Weighted average shares of common stock outstanding	113.819		114.299		114.584		111.619

Effect of 3.50% convertible senior notes	—		—		—		4.429
Effect of warrant	—		2.208		—		4.507
Effect of stock-based compensation	1.419		1.992		1.384		2.016
Total dilutive effect on weighted average shares of common stock outstanding	1.419		4.200		1.384		10.952

Weighted average shares of common stock outstanding including dilutive shares	115.238		118.499		115.968		122.571
Diluted earnings per share of common stock	$	1.45	$	0.85	$	4.16	$	3.15

Total anti-dilutive shares:
Call options	—		—		—		2.586