The combined pre-tax impact of these actions was a net gain of $27.9 million, comprised by a $41.9 million curtailment gain and $14.0 million settlement loss on the Company's Condensed Consolidated Statements of Operations as of March 31, 2009.
First quarter selling, general and administrative ("SG&A") costs decreased $81.6 million to $74.1 million from $155.7 million, and decreased as a percentage of net sales to 9.0% from 10.4%. The first quarter 2009 decrease in SG&A was impacted by a $27.9 million afore mentioned net gain related to the Company's Plant Shutdown Agreement with the UAW and subsequent closure of the Muncie Plant. This gain was partially offset by a $4.8 million expense associated with the adoption of FAS 141(R). Without these non-comparable items, SG&A as a percentage of net sales was 11.9%. R&D costs, which are included in SG&A expenses, decreased $25.0 million to $32.5 million from $57.5 million as compared to the first quarter of 2008. As a percentage of sales, R&D costs increased to 4.0% from 3.8% in the first quarter of 2008. Our continued investment in a number of cross-business R&D programs, as well as other key programs, is necessary for the Company's short and long-term growth. Equity in affiliates' earnings of $0.2 million decreased $8.9 million as compared with the first quarter of 2008 primarily due to lower vehicle production in Asia.
First quarter interest expense and finance charges of $19.1 million increased $12.6 million as compared with first quarter 2008. This increase is primarily due to the termination of $225 million in interest rate swap agreements related to our 2016 and 2019 fixed rate debt, resulting in a noncash charge of $5.7 million, an unfavorable measurement of the noncash ineffectiveness of a cross currency interest rate swap of $5.7 million and costs related to BERU's DPTA perpetual dividend arrangement. The combined noncash impact of the termination of our interest rate swap agreements and the ineffectiveness of a cross currency interest rate swap in the first quarter of 2009 was $11.4 million.
The Company's provision for income taxes is normally based on an estimated tax rate for the year applied to the year-to-date federal, state and foreign income. However, due to unprecedented depressed global economic conditions there is a significant amount of uncertainty regarding industry production volumes for the remainder of the year. This precludes us from making a reliable estimate of the annual effective tax rate for the year. Accordingly, we have made our income tax provision in the first quarter pursuant to Financial Accounting Standards Board ("FASB") Interpretation No. 18, Accounting for Income Taxes in interim Periods, which provides that tax (or benefit) in each foreign jurisdiction that is not subject to a valuation allowance be separately computed as ordinary income/(loss) occurs within the jurisdiction for the quarter. The actual global effective tax rate for the quarter is calculated to be a benefit of (51.3%). This represents an income tax benefit of ($6.6) million on the loss of ($12.9) million for the first quarter of 2009.
The Company's net loss was $7.0 million for the first quarter, or $0.06 loss per diluted share, a decrease of $0.81 per diluted share over the previous year's first quarter. Excluding the $0.15 per diluted share net gain related to retiree obligations resulting from the closure of the Muncie, Indiana, Drivetrain facility, $0.06 per diluted share loss from interest rate derivative agreements and $0.03 per diluted share loss upon adoption of FAS 141(R) for treatment of on-going acquisition-related activity, the net loss was $0.12 per diluted share, a decrease of $0.87 per diluted share over the previous year's first quarter.

                                                                     Three Months Ended
                                                                          March 31,
                                                                     2009             2008
GAAP earnings or (loss) per share - diluted                       $    (0.06 )       $ 0.75

Non-recurring or non-comparable items:
Adoption of FAS 141 R - Acquisition Activity                           (0.03 )            -
Muncie Closure Retiree Obligation Net Gain                              0.15              -
Interest Rate Derivative Agreements                                    (0.06 )            -

Total impact of non-recurring or non-comparable items per
share - diluted                                                   $     0.06         $    -

Reporting Segments
The Company's business is comprised of two reporting segments: Engine and Drivetrain. These reporting 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. The ROIC is comprised of projected earnings before interest and income taxes ("EBIT") adjusted for income taxes compared to the projected average capital investment required.
EBIT is considered a "non-GAAP financial measure." Generally, a non-GAAP financial measure is a numerical measure of a company's financial performance, financial position or cash flows that excludes (or includes) amounts that are included in (or excluded from) the most directly comparable measure calculated and presented in accordance with GAAP. EBIT is defined as earnings before interest, income taxes and noncontrolling interest. "Earnings" is intended to mean net earnings as presented in the Consolidated Statements of Operations under GAAP.
The Company believes that EBIT is useful to demonstrate the operational profitability of our segments by excluding interest and income taxes, which are generally accounted for across the entire Company on a consolidated basis. EBIT is also one of the measures used by the Company to determine resource allocation within the Company. Although the Company believes that EBIT enhances understanding of our business and performance, it should not be considered an alternative to, or more meaningful than, net earnings (loss) or cash flows from operations as determined in accordance with GAAP.
The following tables present net sales and segment EBIT by reporting segment for the three months ended March 31, 2009 and 2008.

Net Sales by Reporting Segment
(millions)

                                                Three months ended
                                                     March 31,
                                                2009          2008
                 Engine                       $   624.5     $ 1,098.1
                 Drivetrain                       198.2         409.8
                 Inter-segment eliminations        (3.2 )        (9.0 )

                 Net sales                    $   819.5     $ 1,498.9



Segment Earnings (Loss) Before Interest and Income Taxes
(millions)

                                                                      Three months ended
                                                                          March 31,
                                                                     2009             2008
Engine                                                            $     35.9         $ 137.9
Drivetrain                                                             (32.7 )          18.3

Segment earnings before interest and income taxes ("Segment
EBIT")                                                                   3.2           156.2
Muncie closure retiree obligation net gain                              27.9               -
Corporate, including equity in affiliates' earnings and
stock-based compensation                                               (25.4 )         (22.3 )

Consolidated earnings before interest and taxes ("EBIT")                 5.7           133.9
Interest income                                                         (0.5 )          (1.9 )
Interest expense and finance charges                                    19.1             6.5

Earnings (loss) before income taxes and noncontrolling
interest                                                               (12.9 )         129.3
Provision (benefit) for income taxes                                    (6.6 )          33.6

Net earnings (loss)                                                     (6.3 )          95.7
Net earnings attributable to the noncontrolling interest                 0.7             7.0

Net earnings (loss) attributable to BorgWarner Inc.               $     (7.0 )       $  88.7

Three Months Ended March 31, 2009 vs. Three Months Ended March 31, 2008 The Engine segment net sales decreased $473.6 million, or 43.1%, and segment EBIT decreased $102.0 million, or 74.0%, from first quarter 2008. Excluding the impact of weaker foreign currencies, primarily the Euro, sales decreased 37.2%. The sales and EBIT margin decrease was primarily driven by reduced global vehicle production that depressed demand for engine products, especially in Europe.
The Drivetrain segment net sales decreased $211.6 million, or 51.6%, and segment EBIT decreased $51.0 million, or 278.7%, from first quarter 2008. Excluding the impact of weaker foreign currencies, primarily the Euro, sales decreased 47.5%. The sales decrease was driven by lower global production primarily in North America, Europe and Japan. The Drivetrain segment's EBIT decreased due to continued production declines in North America and very weak demand in Europe. Outlook for the Remainder of 2009
The Company is very cautious about 2009. The crisis in the financial sector and deteriorating global economic conditions have increased uncertainty about automotive vehicle sales in every geographic region of the world. The Company expects the unprecedented current global economic environment to continue to affect near-term results and to create difficult conditions through 2009. The impact of non-U.S. currencies is currently expected to decline in 2009. The Company maintains a positive long-term outlook for its global business and is committed to new product development and strategic capital investments to enhance its product leadership strategy. The trends that are driving our long-term growth are expected to continue, including the growth of direct injection

diesel and gasoline engines worldwide, the increased adoption of automated transmissions in Europe and Asia-Pacific, and the move to variable cam and chain engine timing systems in both Europe and Asia-Pacific. When the recovery from current global economic conditions occur, we expect long-term sales and net earnings growth to resume to historical rates.
FINANCIAL CONDITION AND LIQUIDITY
The Company had $90.8 million of cash on hand at March 31, 2009. The Company has a multi-currency revolving credit facility, which provides for borrowings up to $600 million through July 22, 2009. Subsequent to the end of the first quarter of 2009, we extended our existing multi-currency credit facility for eighteen months, maturing January 22, 2011. The facility will be reduced to $250 million beginning July 23, 2009. At March 31, 2009 and December 31, 2008 there were no outstanding borrowings under the facility. The credit agreement is subject to the usual terms and conditions applied by banks to an investment grade company. The three key covenants of the credit agreement are a net worth test, a debt compared to EBITDA ("Earnings Before Interest, Taxes, Depreciation and Amortization") test, and an interest coverage test. The Company was in compliance with all covenants at March 31, 2009 and expects to be compliant in future periods. In addition to the credit facility, as of March 31, 2009, the Company had $750 million available under a universal shelf registration statement on file with the Securities and Exchange Commission under which a variety of debt and equity instruments could be issued. The Company had access to the commercial paper market through a $50 million accounts receivable securitization facility, which matured on April 24, 2009. From a credit quality perspective, the Company has a credit rating of BBB from Standard & Poor's and Ba1 from Moody's. On March 18, 2009, Moody's downgraded the Company's credit rating from Baa3 to Ba1. The current outlook from Standard & Poor's and Moody's is negative. None of the Company's debt agreements require accelerated repayment in the event of a decrease in credit ratings.
At both March 31, 2009 and December 31, 2008, the Company had sold $50 million of receivables under a Receivables Transfer Agreement for face value without recourse. During both of the three-month periods ended March 31, 2009 and 2008, total cash proceeds from sales of accounts receivable were $150 million. The Company paid servicing fees related to these receivables for the three months ended March 31, 2009 and 2008 of $0.3 million and $0.6 million, respectively. These amounts are recorded in interest expense and finance charges in the Condensed Consolidated Statements of Operations. On April 24, 2009 the $50 million receivables securitization matured and was not renewed. The impact of this maturity will be an increase in receivables of $50 million and a decrease in cash of $50 million in the second quarter of 2009.
In 2006, the Company entered into a series of interest rate swap agreements to effectively convert a portion of its senior notes from fixed to variable interest rates and were designated as fair value hedges for the senior notes. In the first quarter of 2009, $100 million of interest rate swap agreements relating to the 2009 fixed-rate debt matured. Also, in the first quarter of 2009, the Company terminated $150 million of interest rate swap agreements relating to the 2016 fixed rate debt and $75 million of interest rate swap agreements relating to the 2019 fixed rate debt. The early termination of the 2016 and 2019 interest rate swap agreements resulted in a gain of $34.5 million that will be amortized as a reduction of interest expense over the remaining life of the respective 2016 and 2019 debt. The Company recognized $5.7 million in interest expense in the first quarter of 2009 as a result of the early termination. This early termination also resulted in the Company receiving net cash proceeds of $30.0 million. As of March 31, 2009, there were no outstanding interest rate swap agreements.
Net cash provided by operating activities decreased $6.5 million to $68.0 million for the first three months of 2009 from $74.5 million in the first three months of 2008. The decrease reflects lower earnings, offset by lower working capital needs in the first three months of 2009 as compared to the first three months of 2008. Capital spending, including tooling outlays, was $38.6 million in the first three months of 2009, compared with $75.4 million in 2008. Selective capital spending remains an area of focus for the Company, both in order to support our book of new business and for cost reductions and productivity improvements.

The Company expects to continue to spend capital to support the launch of our new applications and for cost reductions and productivity improvement projects, but at levels considerably lower than 2008. The Company expects that net cash provided by operating activities, and after capital expenditures, including tooling outlays to be positive in 2009.
As of March 31, 2009, debt decreased from year-end 2008 by $63.4 million and cash decreased by $12.6. Our debt to capital ratio was 26.5% at the end of the first quarter versus 27.7% at the end of 2008. The debt and debt to capital ratio decrease between March 31, 2009 and December 31, 2008 is primarily due to the February 16, 2009 maturity and settlement of the Company's $136.7 million 6.5% Senior Notes partially funded by cash from operations. The Company paid dividends to BorgWarner stockholders of $13.8 million and $12.8 million in the first three months of 2009 and 2008, respectively. The Company repurchased 316,800 shares of its common stock for $13.5 million in the first three months of 2008, while no common shares were repurchased in the first three months of 2009.
On March 5, 2009, the Company announced the temporary suspension of the Company's quarterly dividend of $0.12 per share until global economic conditions improve. This action is expected to save the Company approximately $42 million in 2009.
On April 9, 2009, the Company issued $373.8 million in convertible senior notes due April 15, 2012. The notes will pay interest semi-annually at a coupon rate of 3.50% per year. Holders of the notes may convert their notes at their option at any time prior to the close of business on the second scheduled trading day immediately preceding the maturity date of the notes, in multiples of $1,000 principal amount. The initial conversion rate for the notes is 30.4706 shares of the Company's common stock per $1,000 principal amount of notes (representing an initial conversion price of approximately $32.82 per share of common stock). The conversion price represents a conversion premium of 27.5% over the last reported sale price of the Company's common stock on the New York Stock Exchange on April 6, 2009, of $25.74 per share. In conjunction with the note offering, the Company entered into a bond hedge overlay at a net pre-tax cost of $25.2 million, effectively raising the conversion premium to 50%. Upon conversion, the Company will pay or deliver, cash, shares of our common stock or a combination thereof at our election. The convertible senior notes were issued under the Company's $750 million universal shelf registration filed with the Securities and Exchange Commission, leaving $376 million available as April 10, 2009. We believe that the combination of cash from operations, cash balances, available credit facilities, the April issuance of the convertible senior notes described above, and the remaining shelf registration capacity will be sufficient to satisfy our cash needs for our current level of operations and our planned operations for the foreseeable future. We will continue to balance our needs for internal growth, external growth, debt reduction and cash conservation.
OTHER MATTERS
In the normal course of business the Company and its subsidiaries are parties to various commercial and legal claims, actions and complaints, including matters involving warranty claims, intellectual property claims, general liability and various other risks. It is not possible to predict with certainty whether or not the Company and its subsidiaries will ultimately be successful in any of these commercial and legal matters or, if not, what the impact might be. The Company's environmental and product liability contingencies are discussed separately below. The Company's management does not expect that the results in any of these commercial and legal claims, actions and complaints will have a material adverse effect on the Company's results of operations, financial position or cash flows.

Litigation
In January 2006, DTP, a subsidiary of the Company, filed a declaratory judgment action in United States District Court, Southern District of Indiana (Indianapolis Division) against the United Automobile, Aerospace, and Agricultural Implements Workers of America ("UAW") Local No. 287 and Gerald Poor, individually and as the representative of a defendant class. DTP sought the Court's affirmation that DTP did not violate the Labor-Management Relations Act or the Employee Retirement Income Security Act by unilaterally amending certain medical plans effective April 1, 2006 and October 1, 2006, prior to the expiration of the current collective bargaining agreements. On September 10, 2008, the Court found that DTP's reservation of the right to make such amendments reducing the level of benefits provided to retirees was limited by its collectively bargained health insurance agreement with the UAW, which does not expire until April 24, 2009. Thus, the amendments were untimely. In 2008 the Company recorded a charge of $4.0 million as a result of the Court's decision. DTP filed a declaratory judgment action in the United States District Court, Southern District of Indiana (Indianapolis Division) against the UAW Local No. 287 and Jim Barrett and others individually, and as representatives of a defendant class, on February 26, 2009 again seeking the Court's affirmation that DTP will not violate the Labor - Management Relations Act or the Employment Retirement Income Security Act (ERISA) by modifying the level of benefits provided retirees to make them comparable to other Company retiree benefit plans after April 24, 2009.
The Company has communicated its plan to modify the level of benefits provided to the retirees to make them comparable to other Company retiree benefit plans. The change will be effective following expiration of the current health insurance agreement on April 24, 2009.
Environmental
The Company and certain of its current and former direct and indirect corporate predecessors, subsidiaries and divisions have been identified by the United States Environmental Protection Agency and certain state environmental agencies and private parties as potentially responsible parties ("PRPs") at various hazardous waste disposal sites under the Comprehensive Environmental Response, Compensation and Liability Act ("Superfund") and equivalent state laws and, as such, may presently be liable for the cost of clean-up and other remedial activities at 36 such sites. Responsibility for clean-up and other remedial activities at a Superfund site is typically shared among PRPs based on an allocation formula.
The Company believes that none of these matters, individually or in the aggregate, will have a material adverse effect on its results of operations, financial position, or cash flows. Generally, this is because either the estimates of the maximum potential liability at a site are not large or the liability will be shared with other PRPs, although no assurance can be given with respect to the ultimate outcome of any such matter.
Based on information available to the Company (which in most cases includes: an estimate of allocation of liability among PRPs; the probability that other PRPs, many of whom are large, solvent public companies, will fully pay the cost apportioned to them; currently available information from PRPs and/or federal or state environmental agencies concerning the scope of contamination and estimated remediation and consulting costs; remediation alternatives; and estimated legal fees), the Company has established an accrual for indicated environmental liabilities with a balance at March 31, 2009 of $11.8 million. The Company has accrued amounts that do not exceed $3.5 million related to any individual site and we do not believe that the costs related to any of these sites will have a material adverse effect on the Company's results of operations, cash flows or financial condition. The Company expects to pay out substantially all of the amounts accrued for environmental liability over the next three to five years. In connection with the sale of Kuhlman Electric Corporation, the Company agreed to indemnify the buyer and Kuhlman Electric for certain environmental liabilities, then unknown to the Company, relating to certain operations of Kuhlman Electric that pre-date the Company's 1999 acquisition of Kuhlman Electric.

During 2000, Kuhlman Electric notified the Company that it discovered potential . . .