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.



2015 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	$	5,466.5	$	33.5		$	5,500.0		$	4,018.0	$	200.2	$	332.4
Drivetrain	2,556.7		—			2,556.7			3,685.1		97.0		221.8
Inter-segment eliminations	—		(33.5		)	(33.5		)	—		—		—
Total	8,023.2		—			8,023.2			7,703.1		297.2		554.2
Corporate (a)	—		—			—			1,138.4		23.0		23.1
Consolidated	$	8,023.2	$	—		$	8,023.2		$	8,841.5	$	320.2	$	577.3



2014 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	$	5,673.7	$	32.2		$	5,705.9		$	3,936.2	$	215.3	$	349.8
Drivetrain	2,631.4		—			2,631.4			1,783.5		92.8		189.2
Inter-segment eliminations	—		(32.2		)	(32.2		)	—		—		—
Total	8,305.1		—			8,305.1			5,719.7		308.1		539.0
Corporate (a)	—		—			—			1,508.3		22.3		24.0
Consolidated	$	8,305.1	$	—		$	8,305.1		$	7,228.0	$	330.4	$	563.0



2013 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	$	4,990.1	$	32.0		$	5,022.1		$	3,519.1	$	189.1	$	277.5
Drivetrain	2,446.5		—			2,446.5			1,786.6		90.5		122.9
Inter-segment eliminations	—		(32.0		)	(32.0		)	—		—		—
Total	7,436.6		—			7,436.6			5,305.7		279.6		400.4
Corporate (a)	—		—			—			1,611.3		19.8		17.4
Consolidated	$	7,436.6	$	—		$	7,436.6		$	6,917.0	$	299.4	$	417.8

_______________

(a) Corporate assets include investments and other long-term receivables 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)	2015			2014			2013
Engine	$	900.7		$	924.0		$	826.0
Drivetrain	294.6			303.3			252.2
Adjusted EBIT	1,195.3			1,227.3			1,078.2
Restructuring expense	65.7			90.8			39.8
Pension settlement	25.7			3.1			—
Merger and acquisition expense	21.8			—			—
Gain on previously held equity interest	(10.8		)	—			—
Intangible asset impairment	—			10.3			12.5
Program termination agreement	—			—			11.3
Retirement related obligations	—			—			5.9
Corporate, including equity in affiliates' earnings and stock-based compensation	113.2			112.1			110.0
Interest income	(7.5		)	(5.5		)	(4.8		)
Interest expense and finance charges	60.4			36.4			34.2
Earnings before income taxes and noncontrolling interest	926.8			980.1			869.3
Provision for income taxes	280.4			292.6			218.3
Net earnings	646.4			687.5			651.0
Net earnings attributable to the noncontrolling interest, net of tax	36.7			31.7			26.7
Net earnings attributable to BorgWarner Inc.	$	609.7		$	655.8		$	624.3

Geographic Information

Outside the U.S., only Germany, China, South Korea and Hungary exceeded 5% of consolidated net sales during the year ended December 31, 2015, 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 the Balance Sheet Information footnote to the Consolidated Financial Statements) of $158.7 million, $143.8 million and $168.0 million at December 31, 2015, 2014 and 2013, 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)	2015		2014		2013		2015		2014		2013
United States	$	1,985.1	$	2,008.1	$	1,939.7	$	800.5	$	586.2	$	531.7
Europe:
Germany	1,857.1		2,145.6		1,760.1		380.9		413.6		430.0
Hungary	500.5		518.1		451.5		112.4		73.2		66.9
France	339.2		405.2		327.6		41.4		42.5		44.4
Other Europe	921.8		1,097.3		1,132.5		276.6		258.8		257.6
Total Europe	3,618.6		4,166.2		3,671.7		811.3		788.1		798.9
China	1,009.0		885.1		636.3		355.8		299.9		238.5
South Korea	741.7		623.0		563.5		218.6		185.9		165.2
Other foreign	668.8		622.7		625.4		261.9		233.8		205.1
Total	$	8,023.2	$	8,305.1	$	7,436.6	$	2,448.1	$	2,093.9	$	1,939.4

Sales to Major Customers

Consolidated net sales to Volkswagen (including its subsidiaries) were approximately 15%, 17% and 16% for the years ended December 31, 2015, 2014 and 2013, respectively; and to Ford (including its subsidiaries) were approximately 15%, 13%, and 14% for the years ended December 31, 2015, 2014 and 2013, respectively. Both of the Company's reporting segments had significant sales to Volkswagen and Ford in 2015, 2014 and 2013. 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 31%, 28% and 26% of total net sales for the years ended December 31, 2015, 2014 and 2013, respectively. The Company currently supplies light vehicle turbochargers to many OEMs including BMW, Daimler, Fiat Chrysler Automobiles, Ford, General Motors, Great Wall, Hyundai, Renault, Volkswagen and Volvo. 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)	2015															2014
Quarter ended	Mar-31			Jun-30			Sep-30			Dec-31			Year			Mar-31			Jun-30			Sep-30			Dec-31			Year
Net sales	$	1,984.2		$	2,031.9		$	1,884.0		$	2,123.1		$	8,023.2		$	2,084.1		$	2,197.0		$	2,032.1		$	1,991.9		$	8,305.1
Cost of sales	1,555.2			1,602.9			1,485.8			1,676.2			6,320.1			1,638.3			1,724.2			1,607.6			1,578.6			6,548.7
Gross profit	429.0			429.0			398.2			446.9			1,703.1			445.8			472.8			424.5			413.3			1,756.4
Selling, general and administrative expenses	168.2			167.4			148.0			178.4			662.0			173.8			181.2			174.5			169.4			698.9
Other expense, net	1.2			19.1			13.1			68.0			101.4			38.8			11.0			12.3			31.7			93.8
Operating income	259.6			242.5			237.1			200.5			939.7			233.2			280.6			237.7			212.2			963.7
Equity in affiliates’ earnings, net of tax	(8.5		)	(11.1		)	(8.7		)	(11.7		)	(40.0		)	(8.8		)	(12.2		)	(14.8		)	(11.5		)	(47.3		)
Interest income	(1.7		)	(1.6		)	(2.0		)	(2.2		)	(7.5		)	(1.5		)	(1.4		)	(1.4		)	(1.2		)	(5.5		)
Interest expense and finance charges	10.0			17.6			15.0			17.8			60.4			8.2			9.0			9.0			10.2			36.4
Earnings before income taxes and noncontrolling interest	259.8			237.6			232.8			196.6			926.8			235.3			285.2			244.9			214.7			980.1
Provision for income taxes	72.1			80.2			66.9			61.2			280.4			68.1			85.3			71.9			67.3			292.6
Net earnings	187.7			157.4			165.9			135.4			646.4			167.2			199.9			173.0			147.4			687.5
Net earnings attributable to the noncontrolling interest, net of tax	8.8			9.3			8.5			10.1			36.7			8.1			9.7			6.4			7.5			31.7
Net earnings attributable to BorgWarner Inc. (a)	$	178.9		$	148.1		$	157.4		$	125.3		$	609.7		$	159.1		$	190.2		$	166.6		$	139.9		$	655.8

Earnings per share — basic	$	0.79		$	0.66		$	0.70		$	0.57		$	2.72		$	0.70		$	0.84		$	0.73		$	0.62		$	2.89
Earnings per share — diluted	$	0.79		$	0.65		$	0.70		$	0.56		$	2.70		$	0.69		$	0.83		$	0.73		$	0.61		$	2.86

_______________

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

•

Quarter ended December 31, 2015: The Company recorded restructuring expense of $24.4 million related to Drivetrain and Engine segment actions designed to improve future profitability and competitiveness. The Company also incurred a non-cash settlement loss $25.7 million related to a lump-sum pension de-risking disbursement made to an insurance company to unconditionally and irrevocably guarantee all future payments to certain participants that were receiving payments from the U.S. pension plan. Furthermore, the Company recorded merger and acquisition expense of $17.9 million primarily related to the Remy transaction. The Company recorded tax benefits of $9.0 million related to the pension settlement loss, $7.7 million primarily related to foreign tax incentives and tax settlements, $3.8 million related to merger and acquisition expense, partially offset by a tax expense of $0.4 million related to restructuring expense.

•

Quarter ended September 30, 2015: The Company recorded restructuring expense of $6.3 million related to Drivetrain and Engine segment actions designed to improve future profitability and competitiveness. Additionally, the Company recorded $3.0 million of restructuring expense related to a global realignment plan intended to enhance treasury management flexibility by creating a legal entity structure that better aligns with the Company's business strategy. The Company also recorded merger and acquisition expense of $3.9 million primarily related to the Remy transaction. The Company recorded tax benefits of $4.5 million related to a global realignment plan, $0.7 million related to restructuring expense and $0.4 million primarily related to foreign tax incentives.

•

Quarter ended June 30, 2015: The Company recorded restructuring expense of $10.5 million related to Drivetrain and Engine segment actions designed to improve future profitability and competitiveness. Additionally, the Company recorded $9.4 million of restructuring expense related to a global realignment plan intended to enhance treasury management flexibility by creating a legal entity structure that better aligns with the Company's business strategy. The Company recorded tax expense of $10.3 million related to a global realignment plan, partially offset by tax benefits of $3.9 million related to tax settlements, $2.2 million related to restructuring expense and $1.3 million primarily related to foreign tax incentives.

•

Quarter ended March 31, 2015: The Company recorded restructuring expense of $9.4 million related to Drivetrain and Engine segment actions designed to improve future profitability and competitiveness. Additionally, the Company recorded $2.7 million of restructuring expense related to a global realignment plan intended to enhance treasury management flexibility by creating a legal entity structure that better aligns with the Company's business strategy. The Company also recorded a $10.8 million gain on the previously held equity interest in BERU Diesel as a result of purchasing the remaining 51% of this joint venture. The Company recorded tax benefits of $2.4 million primarily related to foreign tax incentives and $1.2 million related to restructuring expense.

•

Quarter ended December 31, 2014: The Company recorded restructuring expense of $17.8 million related to Drivetrain and Engine segment actions designed to improve future profitability and competitiveness. Additionally, the Company recorded $5.4 million of restructuring expense related to a global realignment plan intended to enhance treasury management flexibility by creating a legal entity structure that better aligns with the Company's business strategy. The Company also recorded intangible asset impairment losses of $10.3 million related to Engine segment unamortized trade names. Further, the Company discharged certain U.S. pension plan obligations by making lump-sum payments to former employees of the Company. As a result of this action, the Company recorded a settlement loss of $0.4 million in the U.S. pension plan. The Company recorded tax benefits of $3.4 million, $0.4 million and $0.2 million related to the restructuring expense, intangible asset impairment losses and pension settlement loss.

•

Quarter ended September 30, 2014: The Company recorded restructuring expense of $9.6 million related to Drivetrain and Engine segment actions designed to improve future profitability and competitiveness. Additionally, the Company recorded $3.5 million of restructuring expense related to a global realignment plan intended to enhance treasury management flexibility by creating a legal entity structure that better aligns with the Company's business strategy. Further, Company discharged certain U.S. pension plan obligations by making lump-sum payments to former employees of the Company. As a result of this action, the Company recorded a settlement loss of $2.7 million in the U.S. pension plan. The Company recorded tax benefits of $1.4 million and $0.9 million related to the restructuring expenses and pension settlement loss.

•

Quarter ended June 30, 2014: The Company recorded restructuring expense of $13.0 million related to Drivetrain and Engine segment actions designed to improve future profitability and competitiveness. Additionally, the Company recorded $2.0 million of restructuring expense related to a global realignment plan intended to enhance treasury management flexibility by creating a legal entity structure that better aligns with the Company's business strategy. The Company recorded a tax benefit of $1.7 million related to these restructuring expenses.

•

Quarter ended March 31, 2014: The Company recorded restructuring expense of $38.4 million primarily related to continued Drivetrain segment actions designed to improve future profitability and competitiveness. Additionally, the Company recorded $1.1 million of restructuring expense related to a global realignment plan intended to enhance treasury management flexibility by creating a legal entity structure that better aligns with the Company's business strategy. The Company recorded a tax benefit of $8.8 million related to these restructuring expenses.