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## NOTE 12 LEASES AND COMMITMENTS 

Certain assets are leased under long-term operating leases. These include production equipment at one plant, rent for the corporate headquarters, and an airplane. Most leases contain renewal options for various periods. Leases generally require the Company to pay for insurance, taxes and maintenance of the leased property. The Company leases other equipment such as vehicles and certain office equipment under short-term leases. Total rent expense was $18.0 million in 2004, $13.4 million in 2003, and $11.4 million in 2002. The Company does not have any material capital leases. 

The Company has guaranteed the residual values of certain leased production equipment at one of its facilities. The guarantees extend through the maturity of the underlying lease, which is in 2005. In the event the Company exercised its option not to purchase the produc- tion equipment, the Company has guaranteed a residual value of $16.3 million. We do not believe we have any loss exposure due to this guarantee. 

Future minimum operating lease payments at December 31, 2004 were as follows: 

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The Company entered into two separate royalty agreements with Honeywell International for certain variable turbine geometry (VTG) turbochargers in order to continue shipping to its OEM customers after a German court ruled in favor of Honeywell in a patent infringe- ment action. The two separate royalty agreements were signed in July 2002 and June 2003, respectively. The July 2002 agreement was effective immediately and expired in June 2003. The June 2003 agree- ment was effective July 2003 and covers the period through 2006 with a minimum royalty for shipments up to certain volume levels and a per unit royalty for any units sold above these stated amounts. 

The royalty costs recognized under the agreements were $14.2 mil- lion in 2004, $23.2 million in 2003 and $13.5 million in 2002. These costs were all recognized as part of cost of goods sold. These costs will be at minimal levels in 2005 and 2006 as the Company’s primary customers have converted most of their requirements to the next generation VTG turbocharger. 

## NOTE 13 STOCK SPLIT 

On April 21, 2004 the Company’s stockholders approved an amend- ment to the Company’s Restated Certificate of Incorporation to increase the number of authorized shares of common stock from 50,000,000 to 150,000,000. The approval of the amendment allowed the Company to proceed with its two-for-one stock split on May 17, 2004 to stockholders of record on May 3, 2004. All prior year share and per share amounts disclosed in this document have been restated to reflect the two-for-one stock split. 

## NOTE 14 EARNINGS PER SHARE 

In calculating earnings per share, earnings are the same for the basic and diluted calculations. Shares increased for diluted earnings per share by 665,000, 488,000, and 458,000 for 2004, 2003 and 2002, respectively, due to the effects of stock options and shares issuable under the executive stock performance plan. 

## NOTE 15 SUBSEQUENT EVENT 

On January 4, 2005, the Company acquired 62.2% of the outstand- ing shares of Beru Aktiengesellschaft (Beru), headquartered in Ludwigsburg, Germany, from the Carlyle Group and certain family shareholders. In conjunction with the acquisition, the Company launched a tender offer for the remaining outstanding shares of Beru. The tender offer period officially ended on January 24, 2005. Presently the Company holds 69.42% of the shares of Beru at a cost of approximately € 415 million. Beru is a leading global automotive supplier of diesel cold starting technology (glow plugs and instant starting systems); gasoline ignition technology (spark plugs and ignition coils); and electronic and sensor technology (tire pressure sensors, diesel cabin heaters and selected sensors). Beginning in 2005, the Company will report Beru within the Engine segment. The Company has not included a separate discussion of the Beru operations in the outlook for 2005, although many of the same fac- tors that impact the Company’s other operations can be expected to impact the business of Beru. In addition, the impact of Beru on the Company’s future results will be affected by the allocation of the excess purchase price over the net book value of assets acquired between intangible assets and goodwill. 

## NOTE 16 OPERATING SEGMENTS AND RELATED INFORMATION 

The Company’s business is comprised of two operating segments: Drivetrain and Engine. These reportable segments are strategic busi- ness units, which are managed separately because each represents a specific grouping of automotive components and systems. The Company evaluates the operating segments’ performance based upon return on invested capital. The return on invested capital is com- prised of earnings before income and taxes and the average capital invested in each operating segment. Inter-segment sales, which are not significant, are recorded at market prices. This footnote presents summary segment information. 

## Operating Segments 

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(a) Corporate assets, including equity in affiliates, are net of trade receivables securitized and sold to third parties, and include cash, marketable securities, deferred income taxes and investments and advances. 

(b) Long-lived asset expenditures includes capital expenditures and tooling outlays, net of customer reimbursements. 

