Notes to Consolidated Financial Statements 50 *Shares are issued in February of the following year. Estimated shares issuable under the plan are included in the compu- tation of diluted earnings per share as earned. Under the terms of  the Executive Stock Performance Plan, the final three-year period for  which awards have been granted was for the three-year period begin- ning January 1, 2004 and ending on December 31, 2006. NOTE 10 OTHER COMPREHENSIVE INCOME NOTE 11 CONTINGENCIES The components of accumulated other comprehensive income/(loss),  net of tax, in the Consolidated Balance Sheets are as follows: The change in the components of other comprehensive income/(loss)  in the Consolidated Statements of Stockholders’ Equity are as follows: In the normal course of business the Company and its subsidiaries  are parties to various legal claims, actions and complaints, including  matters involving 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 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 legal proceedings will have  a material adverse effect on the Company’s results of operations,  financial position or cash flows.  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 (EPA) and certain state environmental agencies and private  parties as potentially responsible parties (PRPs) at various hazard- ous 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 39 such sites. Responsibility for  clean-up and other remedial activities at a Superfund site is typically  shared among PRPs based on an allocation formula. Based on information available to the Company, which in most cases,  includes: an estimate of allocation of liability among PRPs; the prob- ability that other PRPs, many of whom are large, solvent public com- panies, will fully pay the cost apportioned to them; currently available  information from PRPs and/or federal or state environmental agen- cies concerning the scope of contamination and estimated remedia- tion and consulting costs; remediation alternatives; estimated legal  fees; and other factors, the Company has established a reserve for  indicated environmental liabilities with a balance at December 31,  2004 of approximately $25.7 million. The Company expects this  amount to be expended over the next three to five years. The Company believes that none of these matters, individually or in  the aggregate, will have a material adverse effect on its financial con- dition or future operating results, generally either because estimates  of the maximum potential liability at a site are not large or because  liability will be shared with other PRPs, although no assurance can be  given with respect to the ultimate outcome of any such matter. In connection with the sale of Kuhlman Electric Corporation, the  Company agreed to indemnify the buyer and Kuhlman Electric for cer- tain environmental liabilities relating to the past operations of Kuhlman  Electric. The liabilities at issue result from operations of Kuhlman  Electric that pre-date the Company’s acquisition of Kuhlman Electric’s  parent company, Kuhlman Corporation, during 1999. During 2000,  Kuhlman Electric notified the Company that it discovered potential  environmental contamination at its Crystal Springs, Mississippi plant  while undertaking an expansion of the plant. The Company has been working with the Mississippi Department of  Environmental Quality and Kuhlman Electric to investigate the extent of  and remediate the contamination. The investigation revealed the pres- ence of polychlorinated biphenyls (PCBs) in portions of the soil at the  plant and neighboring areas. Clean up began in 2000 and is continuing.  Kuhlman Electric and others, including the Company, have been sued in  numerous related lawsuits, in which multiple claimants allege personal  injury and property damage. The Company has moved to be dismissed  from some of these lawsuits. The first trial in these lawsuits is currently  scheduled to begin in March 2005. The Company believes that the accrual for environmental liabilities and  any insurance recoveries are sufficient to cover any potential liability  associated with this matter. However, due to the nature of environmen- tal liability matters, there can be no assurance that the actual amount  of environmental liabilities will not exceed the amount accrued. Product Liability  Like many other industrial companies who have  historically operated in the United States, the Company (or parties  the Company indemnifies) continues to be named as one of many  defendants in asbestos-related personal injury actions. Management  believes that the Company’s involvement is limited because, in  general, these claims relate to a few types of automotive friction  products, manufactured many years ago that contained encapsulated  asbestos. The nature of the fibers, the encapsulation and the manner  of use lead the Company to believe that these products are highly  unlikely to cause harm. At December 31, 2004, the Company had  approximately 100,000 pending asbestos-related product liability  claims. Of these outstanding claims, approximately 92,000 are pend- ing in just three jurisdictions, where significant tort reform activities  are underway. The Company’s policy is to aggressively defend against  these lawsuits and the Company has been successful in obtaining dis- missal of many claims without any payment. The Company expects  that the vast majority of the pending asbestos-related product liability  claims where it is a defendant (or has an obligation to indemnify a  defendant) will result in no payment being made by the Company or  its insurers. In 2004 of the 4,062 claims settled, only 255 (6.3%)  resulted in any payment being made to a claimant by or on behalf of  the Company. In 2003 of the 4,664 claims settled, only 273 (5.9%)  resulted in any payment being made to claimants. The settlement  costs of these claims were paid by the insurance carriers, except for  the $1.0 million in 2004 as described in the paragraph below. Based  upon the encapsulated nature of the products, our experiences in  aggressively defending and resolving claims in the past, and our  significant insurance coverage with solvent carriers as of the date of  this filing, management does not believe that asbestos-related prod- uct liability claims are likely to have a material adverse effect on the  Company’s results of operations, cash flows or financial condition. Prior to June 2004, all claims were covered by the Company’s pri- mary layer insurance coverage, and these carriers administered,  defended, settled and paid all claims under a funding agreement.  In June 2004, the Company was notified by primary layer insurance  carriers of the exhaustion of their policy limits. This led the Company  to access the next available layer of insurance coverage. Since June  2004, secondary layer insurers have paid asbestos-related litigation  defense and settlement expenses pursuant to a funding agreement.  Two secondary layer insurers are currently not participating in this  arrangement, until they are satisfied through an audit process, that  the primary level of insurance is exhausted. The Company therefore  paid $1.0 million in defense and settlement costs in late 2004 and  expects to recover those amounts from either these insurers, or the  primary layer insurers if the exhaustion audit shows that primary layer  insurance is still available. The Company’s contractual relationship with the secondary layer car- riers provides a change in circumstances and allows the Company to  take a more direct role in defending and settling claims than with the  primary carriers. Previously, the Company’s arrangement utilized the  primary layer insurance carriers’ positions to defend and negotiate  the settlements with periodic input from the Company.  At December 31, 2004, the Company recorded a liability of $40.8 mil- lion; with a related asset of $40.8 million to recognize the insurance  proceeds receivable to the Company for estimated claim losses. For  2003, the comparable value of the insurance receivable and accrued  liability is $41.6 million. The amounts recorded in the Consolidated Balance Sheets are  as follows: The insurance receivable and accrued liability of $41.6 million in 2003  have been reclassified as outlined above and the reclassification is  not material to the Company’s Consolidated Financial Statements.  We cannot reasonably estimate possible losses, if any, in excess of  those for which we have accrued, because we cannot predict how  many additional claims may be brought against the Company (or  parties the Company has an obligation to indemnify) in the future,  the allegations in such claims, the possible outcomes, or the impact  of tort reform legislation currently being considered at the State and  Federal level. A declaratory judgment action was filed in January 2004 in the Circuit  Court of Cook County, Illinois by Continental Casualty Company and  related companies (CNA) against the Company and certain of its other  historical general liability insurers. CNA provided the Company with  both primary and additional layer insurance, and, in conjunction with  other insurers, is currently defending and indemnifying the Company  in all of its pending asbestos-related product liability claims. The  lawsuit seeks to determine the extent of insurance coverage available  to the Company including whether the available limits exhaust on a  “per occurrence” or an “aggregate” basis, and to determine how the  applicable coverage responsibilities should be apportioned. In addition  to the primary insurance available for asbestos-related claims, the  Company has substantial additional layers of insurance available for  potential future asbestos-related product claims. Although it is impossible to predict the outcome of pending or future  claims; due to the encapsulated nature of the products, our experi- ences in aggressively defending and resolving claims in the past, and  our significant insurance coverage with solvent carriers as of the date  of this filing, management does not believe that asbestos-related prod- uct liability claims are likely to have a material adverse effect on the  Company’s results of operations, cash flows or financial condition. 51 millions of dollars 2004 2003 Assets: Prepayments and other current assets  $13.5 $13.7  Other non-current assets  27.3 27.9  Total insurance receivable $40.8 $41.6  Liabilities: Accounts payable and accrued expenses  $13.5 $13.7  Long-term liabilities – other  27.3 27.9  Total accrued liability $40.8 $41.6  millions of dollars 2004 2003 Foreign currency translation adjustments, net  $ 99.7 $ 74.3 Market value of hedge instruments, net  3.2 0.2 Minimum pension liability adjustment, net  (47.7) (60.5) Accumulated other comprehensive income  $ 55.2 $ 14.0  millions of dollars  2004 2003 2002 Foreign currency translation adjustments  $10.7 $67.6 $ 55.9 Market value of hedge instruments  4.7 0.4 — Income taxes  13.0 (0.2) (15.0) Net foreign currency translation and hedge instruments adjustment  28.4 67.8 40.9 Minimum pension liability adjustment  17.2 1.1 (65.4) Income taxes  (4.4) (0.4) 23.1 Net minimum pension liability adjustment  12.8 0.7 (42.3) Other comprehensive income/(loss)  $41.2 $68.5 $ (1.4) 2004 2003 2002 Expense ($ millions)  $2.0 $2.7 $ 4.5 Number of shares*  48,569 41,252 131,762 BorgWarner Inc.  and Consolidated Subsidiaries