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.



2017 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	$	6,009.0	$	52.5		$	6,061.5		$	4,732.9	$	218.8	$	305.5
Drivetrain	3,790.3		—			3,790.3			3,903.8		160.9		241.6
Inter-segment eliminations	—		(52.5		)	(52.5		)	—		—		—
Total	9,799.3		—			9,799.3			8,636.7		379.7		547.1
Corporate (a)	—		—			—			1,150.9		28.1		12.9
Consolidated	$	9,799.3	$	—		$	9,799.3		$	9,787.6	$	407.8	$	560.0



2016 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	$	5,547.3	$	42.8		$	5,590.1		$	4,134.6	$	211.9	$	298.7
Drivetrain	3,523.7		—			3,523.7			3,212.4		154.5		182.8
Inter-segment eliminations	—		(42.8		)	(42.8		)	—		—		—
Total	9,071.0		—			9,071.0			7,347.0		366.4		481.5
Corporate (a)	—		—			—			1,487.7		25.0		19.1
Consolidated	$	9,071.0	$	—		$	9,071.0		$	8,834.7	$	391.4	$	500.6



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		$	4,017.8	$	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			7,702.9		297.2		554.2
Corporate (a)	—		—			—			1,122.8		23.0		23.1
Consolidated	$	8,023.2	$	—		$	8,023.2		$	8,825.7	$	320.2	$	577.3

_______________

(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)	2017			2016			2015
Engine	$	995.7		$	947.3		$	913.9
Drivetrain	449.8			364.5			304.6
Adjusted EBIT	1,445.5			1,311.8			1,218.5
Asset impairment and loss on divestiture	71.0			127.1			—
Restructuring expense	58.5			26.9			65.7
Merger and acquisition expense	10.0			23.7			21.8
Lease termination settlement	5.3			—			—
Other expense, net	2.1			—			—
Asbestos-related charge	—			703.6			—
Intangible asset impairment	—			12.6			—
Contract expiration gain	—			(6.2		)	—
Pension settlement loss	—			—			25.7
Gain on previously held equity interest	—			—			(10.8		)
Corporate, including equity in affiliates' earnings and stock-based compensation	170.3			155.3			136.4
Interest income	(5.8		)	(6.3		)	(7.5		)
Interest expense and finance charges	70.5			84.6			60.4
Earnings before income taxes and noncontrolling interest	1,063.6			190.5			926.8
Provision for income taxes	580.3			30.3			280.4
Net earnings	483.3			160.2			646.4
Net earnings attributable to the noncontrolling interest, net of tax	43.4			41.7			36.7
Net earnings attributable to BorgWarner Inc.	$	439.9		$	118.5		$	609.7

Geographic Information

Outside the U.S., only Germany, China, South Korea, Mexico and Hungary exceeded 5% of consolidated net sales during the year ended December 31, 2017, 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 $185.1 million, $172.9 million and $158.7 million at December 31, 2017, 2016 and 2015, 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)	2017		2016		2015		2017		2016		2015
United States	$	2,280.0	$	2,236.0	$	1,985.1	$	719.3	$	799.3	$	800.5
Europe:
Germany	1,652.6		1,735.1		1,857.1		413.4		370.3		380.9
Hungary	655.7		541.1		500.5		147.5		122.2		112.4
Other Europe	1,427.2		1,193.9		1,261.0		426.1		337.7		318.0
Total Europe	3,735.5		3,470.1		3,618.6		987.0		830.2		811.3
China	1,560.1		1,218.0		1,009.0		554.8		384.6		355.8
South Korea	877.6		948.2		741.7		244.2		208.0		218.6
Mexico	920.2		805.6		312.7		201.2		136.2		132.8
Other foreign	425.9		393.1		356.1		157.3		143.5		129.1
Total	$	9,799.3	$	9,071.0	$	8,023.2	$	2,863.8	$	2,501.8	$	2,448.1

Sales to Major Customers

Consolidated net sales to Ford (including its subsidiaries) were approximately 15%, 15%, and 15% for the years ended December 31, 2017, 2016 and 2015, respectively; and to Volkswagen (including its subsidiaries) were approximately 13%, 13% and 15% for the years ended December 31, 2017, 2016 and 2015, respectively. Both of the Company's reporting segments had significant sales to Volkswagen and Ford in 2017, 2016 and 2015. 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 28%, 28% and 31% of total net sales for the years ended December 31, 2017, 2016 and 2015, 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.