Notes to Consolidated Financial Statements 52 NOTE 12 LEASES AND COMMITMENTS NOTE 13 STOCK SPLIT NOTE 14 EARNINGS PER SHARE NOTE 15 SUBSEQUENT EVENT NOTE 16 OPERATING SEGMENTS AND RELATED INFORMATION Operating Segments BorgWarner Inc.  and Consolidated Subsidiaries 53 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: 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. 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. 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. 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. 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. (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. millions of dollars 2005 $29.1 2006 4.7 2007 4.3 2008  3.8 2009 3.3 After 2009  12.8 Total minimum lease payments  $58.0 Earnings Net sales before Long-lived Inter- interest Year end Depr./  asset millions of dollars  Customers  segment  Net  and taxes   assets amort. expenditures (b) 2004 Drivetrain  $1,358.6  $ —  $1,358.6  $106.9  $ 810.0  $ 66.1  $ 75.3 Engine  2,166.7 50.3 2,217.0 281.7 2,208.4 107.3 167.7 Inter-segment eliminations  — (50.3) (50.3) —  — — — Total 3,525.3 — 3,525.3 388.6 3,018.4 173.4 243.0 Corporate  — — —  (50.3) 510.7$^{(a)}$ 3.6 9.4 Consolidated  $3,525.3 $ — $3,525.3  $338.3 $3,529.1 $177.0 $252.4 Interest expense and finance charges  29.7 Earnings before income taxes   $308.6 Earnings Net sales before Long-lived Inter- interest Year end Depr./  asset millions of dollars  Customers  segment  Net  and taxes   assets amort. expenditures (b) 2003 Drivetrain  $1,245.5  $ 0.1  $1,245.6  $ 98.4  $ 778.8  $ 60.1  $ 66.4 Engine  1,823.7 46.0 1,869.7 239.6 1,925.1  93.8 133.3 Inter-segment eliminations  — (46.1) (46.1) — — —  — Total 3,069.2 —  3,069.2 338.0 2,703.9 153.9 199.7 Corporate   —  —  — (48.0)  436.6$^{(a)}$ 7.4 14.7 Consolidated  $3,069.2  $ —  $3,069.2  $290.0  $3,140.5  $161.3  $214.4 Interest expense and finance charges  33.3  Earnings before income taxes  $256.7 Earnings Net sales before Long-lived Inter- interest Year end Depr./  asset millions of dollars  Customers  segment  Net  and taxes   assets amort. expenditures (b) 2002 Drivetrain   $1,122.1  $ —  $1,122.1  $ 99.9  $ 733.8  $ 50.0  $ 54.4 Engine  1,609.0 39.2 1,648.2 215.9 1,712.5 81.3 91.8 Inter-segment eliminations  — (39.2) (39.2) — — —  — Total 2,731.1 — 2,731.1 315.8 2,446.3 131.3 146.2 Corporate  — — —  (44.3) 236.6$^{(a)}$ 6.1 19.9 Consolidated  $2,731.1  $ —  $2,731.1  $271.5  $2,682.9  $137.4  $166.1 Interest expense and finance charges  37.7 Earnings before income taxes  $233.8