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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 2001
Commission File Number: 1-12162
BorgWarner Inc.
(Exact name of registrant as specified in its charter)
Delaware 13-3404508
(State of Incorporation) (I.R.S. Employer Identification No.)
200 South Michigan Avenue
Chicago, Illinois 60604
(312) 322-8500
(Address and telephone number of principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Common Stock, par value $.01 per share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check-mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.Yes X No
The aggregate market value of the voting stock of the registrant held by
stockholders (not including voting stock held by directors and executive
officers of the registrant) on March 8, 2002 was approximately $1.82 billion. As
of March 8, 2002, the registrant had 26,453,131 shares of Common Stock
outstanding.
Indicate by check-mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated herein by reference
into the Part of the Form 10-K indicated.
Part of form 10-K
into which
Document incorporated
BorgWarner Inc. 2001 Annual Report to Stockholders Parts I, II and IV
BorgWarner Inc. Proxy Statement for the
2002 Annual Meeting of Stockholders Part III
BORGWARNER INC.
FORM 10-K
YEAR ENDED DECEMBER 31, 2001
INDEX
Item
Number Page
PART I
1. Business 3
2. Properties 10
3. Legal Proceedings 11
4. Submission of Matters to a Vote of Security Holders 11
PART II
5. Market for the Registrant's Common Equity and Related
Stockholder Matters 11
6. Selected Financial Data 12
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
7a. Market Risk Disclosure 12
8. Financial Statements and Supplementary Data 12
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 12
PART III
10. Directors and Executive Officers of the Registrant 13
11. Executive Compensation 13
12. Security Ownership of Certain Beneficial Owners and Management 13
13. Certain Relationships and Related Transactions 13
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 13
PART I
Item 1. Business
BorgWarner Inc. (the "Company"), a Delaware corporation, was incorporated
in 1987. The Company is a leading, global Tier I supplier of highly engineered
systems and components, primarily for vehicle powertrain applications. These
products are manufactured and sold worldwide, primarily to original equipment
manufacturers ("OEMs") of passenger cars, sport utility vehicles, trucks,
commercial transportation products and industrial equipment. The Company
operates manufacturing and technical facilities in 50 locations in 14 countries
serving customers in North America, South America, Europe and Asia, and is an
original equipment supplier to every major automotive OEM in the world.
Financial Information About Segments
Incorporated herein by reference is Note 13 of the Notes to the
Consolidated Financial Statements on pages 46 through 48 of the Company's Annual
Report for the year ended December 31, 2001 (the "Company's Annual Report")
filed as an exhibit to this report.
Narrative Description of Operating Segments
The Company's products fall into five reportable operating segments:
Air/Fluid Systems, Cooling Systems, Morse TEC, TorqTransfer Systems and
Transmission Systems. Net revenues by segment for the three years ended
December 31, 2001, 2000 and 1999, are as follows (in millions of dollars):
Year ended December 31,
2001 2000 1999
Air/Fluid Systems $ 357.8 $ 427.8 $ 413.9
Cooling Systems 220.5 281.3 142.8
Morse TEC 869.4 885.8 796.9
TorqTransfer Systems 500.1 526.7 563.3
Transmission Systems 428.8 437.5 413.4
Divested operations and
businesses held for sale 18.0 132.9 178.0
Interbusiness eliminations (43.0) (46.1) (49.7)
Net sales $ 2,351.6 $ 2,645.9 $ 2,458.6
The sales information presented above excludes the sales by the Company's
unconsolidated joint ventures. See "Joint Ventures." Such sales totaled
approximately $300 million in 2001, $348 million in 2000 and $287 million in
1999. Divested operations and businesses held for sale includes the fuel systems
business which was sold in April 2001, the HVAC business which was sold in 2000,
and the forged powdered metal race business sold in 1999.
Air/Fluid Systems
Air/Fluid Systems designs and manufactures sophisticated
electro-mechanical, mechanical and electronic components and systems used for
automated transmissions, fluid pumps, engine air intake modules, engine emission
controls and actuation systems. Key products for transmission controls include
single function solenoids, complex solenoids and multi-function modules. The
Company also manufactures a wide variety of fluid pumps, including engine
hydraulic pumps for variable cam timing and engine lubrication. Key products for
engine air intake management include throttle bodies, intake manifolds, throttle
position sensors and complete engine induction systems. The Company also designs
and manufactures products to control emissions and improve gas mileage such as
electric air pumps, air control valves and exhaust gas recirculation valves.
These products are provided from facilities in the United States and France.
Cooling Systems
Cooling Systems, the Company's newest segment, is a combination of the
cooling systems businesses acquired from Eaton Corporation and the Schwitzer
group, which was acquired as part of the Kuhlman Corporation acquisition in
1999. Cooling Systems is a global provider of engine cooling solutions. The
group manufactures and markets air sensing fan drives that can be mechanically
or electronically controlled, and also manufactures and markets polymer fans for
engine cooling systems. Product features provide improved vehicle fuel economy
and reduced engine emissions while minimizing parasitic horsepower loss. These
advanced cooling systems products are manufactured by QS Quality Certified
facilities in the U.S., Germany, U.K., Brazil, Korea and China. The Company is
a leading global provider of such products, but competes with other large
independent producers as well as divisions of its OEM customers. This business
serves the global light, medium, and heavy vehicle markets, as well as selected
off-highway applications.
Morse TEC
Morse TEC manufactures chain and chain systems, including HY-VO(R)
front-wheel drive ("FWD") transmission chain and four-wheel drive ("4WD") chain,
MORSE GEMINI(R) Chain Systems, timing chain and timing chain systems, crankshaft
and camshaft sprockets, chain tensioners and snubbers and turbochargers for
passenger car and commercial vehicle applications. These products are provided
from facilities in North America, South America, Europe and Asia.
HY-VO(R) chain is used in transmissions and for 4WD transfer case
applications. Transmission chain is used to transfer power from the engine to
the transmission. The Company's MORSE GEMINI(R) Chain System emits significantly
less chain pitch frequency noise than conventional transmission chain systems.
The chain in a transfer case distributes power between the front and rear output
shafts which, in turn, drive the front and rear wheels. The Company believes it
is the world's leading manufacturer of chain for FWD transmissions and 4WD
transfer cases.
The Company's timing chain system is used on Ford's family of overhead cam
engines, including the Duratech and Triton and new in-line 4 cylinder engines,
as well as Chrysler's 2.7 liter, 3.7 liter and 4.7 liter overhead cam engines.
The Company has been selected to provide timing systems for a number of Japanese
and European applications. The Company believes that it is the world's leading
manufacturer of timing chain systems.
Morse TEC also provides turbochargers for passenger car, commercial vehicle
and industrial applications for diesel and gasoline engine manufacturers in
Europe, North America, South America and Asia. A turbocharger is a device
designed to force additional intake air into the engine to create a cleaner and
more powerful ignition. Benefits of turbocharging in both passenger car and
commercial vehicle applications include greater power for a given engine size,
improved fuel economy and significantly reduced emissions. The Company believes
it is a leading manufacturer of turbochargers worldwide.
TorqTransfer Systems
TorqTransfer Systems' products include 4WD and all-wheel drive transfer
cases and torque management systems to transfer torque within the drivetrain for
rear wheel drive and FWD based vehicles. The main focus is on electronically
controlled torque management devices and systems. TorqTransfer Systems'
products are manufactured in North America, Asia and Europe.
Transfer cases are installed primarily on light trucks and sport-utility
vehicles. A transfer case attaches to the transmission and distributes torque to
the front and rear axles for 4WD, improving vehicle control during off-road use
and in a variety of road conditions. The Company has designed and developed an
exclusive 4WD TORQUE-ON-DEMAND(R) ("TOD") transfer case system, which allows
vehicles to automatically shift from two-wheel drive to 4WD when electronic
sensors indicate it is necessary. The TOD(R) transfer case is available on the
Ford Explorer, the best selling sport-utility vehicle in the United States in
2000, 1999 and 1998, and the Ford Expedition, Lincoln Navigator, Isuzu Trooper
and SsangYong Musso. In 2001, this technology was also adopted by Hyundai for
its Terracan SUV, and will be launched on the Kia Sorento in 2002.
Sales of 4WD transfer cases represented 20%, 19% and 22% of the Company's
total revenues for 2001, 2000 and 1999, respectively. The Company believes it is
the world's leading independent manufacturer of 4WD transfer cases, producing
approximately one million transfer cases in 2001. The Company's largest customer
of 4WD transfer cases is Ford Motor Company. The Company supplies the majority
of the 4WD transfer cases for Ford, including those installed in the Ford
Explorer, the Ford Expedition, the Ford F-150 and Ranger pick-up trucks, the
Mercury Mountaineer and the Lincoln Navigator.
Our newest four-wheel drive product is the INTERACTIVE TORQUE
MANAGEMENT(TM) system. This product was introduced on the Acura MDX in 2000 and
will be launched on the New Honda Pilot in 2002. This product uses
electronically controlled clutches to distribute power to the individual rear
wheels when traction is required. The Company is actively involved in developing
this technology for new applications in both front wheel drive based crossover
vehicles and passenger cars. A variant of this product, ITM 1,(TM) which
features a single clutch pack in front of the rear axle differential, will be
launched on the Hyundai Santa Fe in 2002.
Transmission Systems
The Company engineers and manufactures components for automatic
transmissions and the systems that combine such components in North America,
Asia and Europe. Principal product lines include friction plates, one-way
clutches, transmission bands and torque converter lock-up clutches for automatic
transmissions. The Company is a supplier to virtually every major automatic
transmission manufacturer in the world. The Company's 50%-owned joint venture in
Japan, NSK-Warner Kabushiki Kaisha ("NSK-Warner"), is a leading producer of
friction plates and one-way clutches in Japan.
Joint Ventures
As of December 31, 2001, the Company had six joint ventures in which it has
a less-than-100% ownership interest. Results from four of these ventures, in
which the Company is the majority owner, are consolidated as part of the
Company's results. The Company's ownership interest in NSK-Warner and Hitachi
Warner is 50% each. This is reported using the equity method of accounting.
Management of the unconsolidated joint ventures is shared with the
Company's respective joint venture partners. Certain information concerning the
Company's joint ventures is set forth below:
Percentage Fiscal
Owned by Location 2001 Sales
Year the of Joint Venture ($ in
Joint Venture Products Organized Company Operation Partner millions)
Unconsolidated
NSK-Warner K.K Friction products 1964 50% Japan Nippon Seiko K.K. $300
Hitachi Warner
Turbo Systems, Ltd. Turbochargers 2001 50% Japan Hitachi $ 1
Consolidated
Borg-Warner Automotive
Korea, Inc. Friction products 1987 60%(a) Korea NSK Warner K.K. $ 57
Divgi-Warner Limited Transfer cases, manual 1995 60% India Divgi Metalwares, Ltd. $5
transmissions and
automatic locking hubs
Borg-Warner Shenglong Fans, fan drives 1999 70% ChinaNingbo Shenglong $ 5
(Ningbo) Co. Ltd. Group Co., Ltd.
TTS Beijing Transfer cases 2000 80% China BAIC(b) $ 1
(a) BorgWarner Inc. owns 50% of NSK-Warner,
giving the Company an effective ownership interest of 80%.
(b) BAIC is Beijing Automotive Industry Corporation
See Note 13 of the Notes to Consolidated Financial
Statements on pages 46 through 48 of the Company's Annual
Report for geographic information.
Customers
Approximately 77% of the Company's total sales in 2001 were to automotive
OEMs, with the remaining 23% of the Company's sales to a diversified group of
industrial, construction and agricultural vehicle manufacturers, auto part
manufacturers and to distributors of automotive aftermarket and replacement
parts.
The Company's worldwide sales in 2001 to Ford, DaimlerChrysler Corporation
and General Motors Corporation constituted approximately 30%, 21% and 12%,
respectively, of its 2001 consolidated sales. Approximately 28% of consolidated
sales for 2001 were outside the United States, including exports. However, a
substantial portion of such sales were to foreign OEMs of vehicles that are, in
turn, exported to the United States. See Note 13 of the Notes to Consolidated
Financial Statements on pages 46 through 48 of the Company's Annual Report.
The Company's automotive products are generally sold directly to OEMs
substantially pursuant to either negotiated long term supply agreements or terms
and conditions as may be modified by the parties. Deliveries are subject to
periodic authorizations based upon the production schedules of the OEMs. The
Company ships its products directly from its plants to the OEMs.
Sales and Marketing
Each of the Company's operating segments has its own sales function headed
by a vice president of sales. Account executives for each group are assigned to
serve specific OEM customers for one or more of a business group's products.
Such account executives spend the majority of their time in direct contact with
OEM purchasing and engineering employees and are responsible for servicing
existing business and for identifying and obtaining new business. Because of
their close relationship with the OEMs, account executives are able to identify
and meet customers' needs based upon their knowledge of the Company's products
and design and manufacturing capabilities. Upon securing a new order, account
executives participate in product launch team activities as a key interface to
the customers.
Research and Development
Each of the Company's operating segments has its own research and
development ("R&D") organization. Four hundred and eighty-seven employees,
including engineers, mechanics and technicians, are engaged in R&D activities at
Company facilities worldwide. The Company also operates testing facilities such
as prototype, measurement and calibration, life testing and dynamometer
laboratories.
By working closely with the OEMs and anticipating their future product
needs, the Company's R&D personnel conceive, design, develop and manufacture new
proprietary automotive components and systems. R&D personnel also work to
improve current products and production processes. The Company believes its
commitment to R&D will allow it to obtain new orders from its OEM customers.
Consistent with its strategy of developing technologically innovative
products, the Company spent approximately $104.5 million, $112.0 million and
$91.6 million in 2001, 2000 and 1999, respectively, on R&D activities. Not
included in the reported R&D activities were customer-sponsored R&D activities
that were approximately $20.0 million, $12.5 million and $9.4 million in 2001,
2000 and 1999, respectively.
Patents and Licenses
The Company has approximately 2,800 active domestic and foreign patents and
patent applications pending or under preparation, and receives royalties from
licensing patent rights to others. While it considers its patents on the whole
to be important, the Company does not consider any single patent, group of
related patents or any single license essential to its operations in the
aggregate or to the operations of any of the Company's business groups
individually. The expiration of the patents individually and in the aggregate is
not expected to have a material effect on the Company's financial position or
future operating results. The Company owns numerous trademarks, some of which
are valuable but none of which are essential to its business in the aggregate.
The Company owns the "BorgWarner" and "Borg-Warner Automotive" trade names
and housemarks, and variations thereof, which are material to the Company's
business.
Competition
Each of the Company's operating segments competes worldwide with a number
of other manufacturers and distributors which produce and sell similar products.
Price, quality and technological innovation are the primary elements of
competition. Competitors include vertically integrated units of the Company's
major OEM customers, as well as a large number of independent domestic and
international suppliers (some of which were formerly part of our OEM customers).
Many of these companies are larger and have greater resources than the Company.
A number of the Company's major OEM customers manufacture, for their own
use and for others, products which compete with the Company's products. Although
these OEM customers have indicated that they will continue to rely on outside
suppliers, the OEMs could elect to manufacture products to meet their own
requirements or to compete with the Company. There can be no assurance that the
Company's business will not be adversely affected by increased competition in
the markets in which it operates.
The competitive environment has changed dramatically over the past few
years as the Company's traditional United States OEM customers, faced with
intense international competition, have expanded their worldwide sourcing of
components. As a result, the Company has experienced competition from suppliers
in other parts of the world that enjoy economic advantages such as lower labor
costs, lower health care costs and, in some cases, export subsidies and/or raw
materials subsidies.
Employees
As of December 31, 2001, the Company and its consolidated subsidiaries had
approximately 13,000 salaried and hourly employees (as compared with
approximately 14,000 employees at December 31, 2000), of which approximately
8,100 were U.S. employees. Approximately 40% of the Company's domestic hourly
workers are unionized. The hourly workers at the Company's European facilities
are also unionized. The Company believes its present relations with employees to
be satisfactory.
Raw Materials
Each of the Company's operating segments believes that its supplies of raw
materials for manufacturing requirements in 2002 are adequate and are available
from multiple sources. It is common, however, for customers to require their
prior approval before certain raw materials or components can be used, thereby
reducing sources of supply that would otherwise be available. Manufacturing
operations for each of the Company's operating segments are dependent upon
natural gas, fuel oil, propane and electricity.
Environmental Regulation and Proceedings
The Company's operations are subject to federal, state, local and foreign
laws and regulations governing, among other things, emissions to air, discharge
to waters and the generation, handling, storage, transportation, treatment and
disposal of waste and other materials. The Company believes that it has operated
its business and facilities in compliance in all material respects with
applicable environmental and health and safety laws and regulations, many of
which provide for substantial fines and criminal sanctions for violations.
However, the operation of automotive parts manufacturing plants entails risks in
these areas even for a company complying with all laws, and there can be no
assurance that the Company will not incur material costs or liabilities. In
addition, through various acquisitions over the years, the Company has acquired
a number of manufacturing facilities and there can be no assurance that the
Company will not incur material costs and liabilities relating to activities
which predate the Company's ownership. In addition, potentially significant
expenditures could be required in order to comply with evolving environmental
and health and safety laws, regulations or requirements that may be adopted or
imposed in the future.
The Company believes that the overall impact of compliance with regulations
and legislation protecting the environment will not have a material effect on
its financial position or future operating results, although no assurance can be
given in this regard. Capital expenditures and expenses in 2001 attributable to
compliance with such legislation were not material.
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 cleanup and other remedial
activities at 43 such sites. Responsibility for cleanup 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 probability
that other PRPs, many of whom are large, solvent public companies, will fully
pay the costs apportioned to them; currently available information from PRPs
and/or federal or state environmental agencies concerning the scope of
contamination and estimated remediation costs; remediation alternatives;
estimated legal fees; and other factors, the Company has established a reserve
for indicated environmental liabilities in the aggregate amount of approximately
$25.5 million at December 31, 2001. 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 position 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 certain environmental
liabilities relating to the past operations of Kuhlman Electric. 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 the
contamination. The investigation has revealed the presence of PCBs in portions
of the soil at the plant and neighboring areas. In mid 2001, Kuhlman Electric
Corporation and others, including the Company, were sued by 26 plaintiffs in
several lawsuits, which claim personal and property damage. The Company has
moved to be dismissed from theses lawsuits.
The Company has filed a lawsuit against Kuhlman Electric seeking a
declaration of the scope of the Company's contractual indemnity. The Company
believes that the reserve for environmental liabilities is sufficient to cover
any liability associated with this matter.
Executive Officers
Set forth below are the names, ages, positions and certain other
information concerning the executive officers of the Company as of March 8,
2002.
Name Age Position With Company
John F. Fiedler 63 Chairman and Chief Executive Officer
Timothy M. Manganello 52 President and Chief Operating Officer
George E. Strickler 54 Executive Vice President and Chief Financial
Officer
William C. Cline 52 Vice President
Kimberly Dickens 40 Vice President
Gary P. Fukayama 54 Executive Vice President
Laurene H. Horiszny 46 Vice President
John A. Kalina 56 Vice President
John J. McGill 47 Vice President
Jeffrey L. Obermayer 46 Vice President
Ronald M. Ruzic 63 Executive Vice President
Robert D. Welding 53 Executive Vice President
F. Lee Wilson 47 Vice President
Roger Wood 39 Vice President
Mr. Fiedler has been Chairman of the Board of Directors since March 1996
and has been Chief Executive Officer of the Company since January 1995. He was
President from June 1994 to March 1996. Mr. Fiedler is the spouse of Geraldine
Kinsella, who retired as Vice President, Human Resources of the Company
effective February 28, 2002.
Mr. Manganello was recently named President and Chief Operating Officer of
the Company. He was Executive Vice President from June 2001 until February,
2002. He was Vice President of the Company from February 1999 to June 2001 and
President and General Manager of BorgWarner TorqTransfer Systems Inc. from
February 1999 until February 2001. He was Vice President, Operations of
BorgWarner TorqTransfer Systems Inc., Muncie Plant from December 1995 until
January 1999.
Mr. Strickler has been Executive Vice President and Chief Financial Officer
of the Company since March 2001. He was Executive Vice President and Chief
Financial Officer of Lake West Group, a retail consulting firm, from December
1999 to March 2001. He was Corporate Vice President of Goodyear Tire & Rubber
Co. and Vice President-Finance of the North America Tire Division from 1996 to
September 1999.
Mr. Cline has been Vice President and Controller of the Company since
May 1993.
Ms. Dickens was recently named Vice President, Human Resources of the
Company. She was Vice President, Human Resources, BorgWarner Transmission
Systems Inc. from June 1999 until February 2002. She was Manager, Human
Resources, of BorgWarner Transmission Systems Inc.'s Bellwood Plant from June
1994 until June 1999.
Mr. Fukayama has been Executive Vice President of the Company since
November 1992. He has been Group President of BorgWarner Air/Fluid Systems Inc.
since May 1996. He was President and General Manager of BorgWarner Transmission
Systems Inc. from January 1995 to April 1996.
Ms. Horiszny has been Vice President, Secretary and General Counsel of the
Company since May 1993.
Mr. Kalina has been Vice President, Chief Information Officer of the
Company since January 1999. He was an Executive IT Consultant for IBM from
August 1997 until January 1999 and was Chief Information Officer for Walbro
Corporation from September 1995 until December 1996.
Mr. McGill has been Vice President of the Company and President and
General Manager of BorgWarner Cooling Systems Inc. since October 1999. He was
General Manager of Eaton's Fluid Power Division from January 1998 to
October 1999. He was General Manager of Eaton's Torque Control Products from
April 1996 to January 1998 and was Operations Manager of Eaton's Engine
Components Division from April 1994 to April 1996.
Mr. Obermayer has been Vice President and Treasurer of the Company since
December 1999. He was Acting Treasurer from June 1999 until December 1999 and
Vice President, Finance & Business Development--BorgWarner Transmission Systems
Inc. from April 1999 until December 1999. He was Vice President and Controller
of BorgWarner Transmission Systems Inc. from October 1996 until April 1999 and
was Director, Financial Planning & Investments of the Company from January 1994
until September 1996.
Mr. Ruzic has been Executive Vice President of the Company and Group
President of BorgWarner Morse TEC Inc. since October 1992, Chairman of 3K-Warner
Turbosystems since September 1998 and Vice Chairman of AG Kuhnle since September
1997.
Mr. Welding has been Executive Vice President of the Company since
November 1999 and has been President of BorgWarner Transmission Systems Inc.
since May 1996. He was Vice President of the Company from May 1996 until
October 1999 and was Vice President--Operations of BorgWarner Transmission
Systems Inc., Bellwood Plant, from November 1993 to May 1996.
Mr. Wilson has been Vice President of the Company and President and General
Manager of BorgWarner Turbo Systems Inc. since January 2000. He was a Director
for Allied Signal Aerospace (n/k/a Honeywell) for various product lines from
October 1997 to December 1999. From January 1996 until September 1997, he was
Product Director-Commercial Diesel Turbochargers Worldwide for Allied Signal
Aerospace.
Mr. Wood has been Vice President of the Company and President of BorgWarner
Morse TEC Inc. since January 2001. He was Vice President of Business Development
of BorgWarner TorqTransfer Systems Inc. from September 1999 to January 2001.
From January 1999 until September 1999, he was Vice President--Operations,
Transmission Components of BorgWarner Morse TEC Inc. and from January 1996 until
December 1998, he was Vice President--Operations, Engine Timing Components of
BorgWarner Morse TEC Inc.
Item 2. Properties
As of December 31, 2001, the Company had 43 manufacturing facilities
strategically located throughout the United States and worldwide. In addition to
its domestic manufacturing facilities, the Company has four facilities in
Germany, three facilities in Japan and India, two facilities in each of China,
England, Korea and Brazil and one facility in each of Canada, Hungary, Italy,
Mexico, Wales, France and Taiwan. The Company also has several sales offices,
warehouses and technical centers. The Company's executive offices, which are
leased, are located in Chicago, Illinois. In general, the Company believes that
its properties are in good condition and are adequate to meet its current and
reasonably anticipated needs.
The following is additional information concerning the headquarters and the
major manufacturing plants operated by the Company and its consolidated
subsidiaries. Unless otherwise noted, these plants are owned by the Company.
2001
Percent of
Capacity
Utilization
Locations (1)(2)
Air/Fluid Systems 75.0%
Headquarters: Warren, Michigan
Dixon, Illinois; Rothbury, Michigan; Spring Lake, Michigan;
Sallisaw, Oklahoma; Tulle, France; Water Valley, Mississippi
Cooling Systems 69.3%
Headquarters: Marshall, Michigan
Bradford, England (leased); Cadillac, Michigan; Markdorf, Germany;
Changwon, South Korea (leased); Fletcher, North Carolina; Gainesville,
Georgia (leased); Ningbo,China; Sao Jose dos
Campos, Brazil (leased); Chennai, India
Morse TEC 96.6%
Headquarters: Ithaca, New York; Kirchheimbolanden, Germany
Arcore, Italy; Asheville, North Carolina; Bradford, England; Campinas Sao
Paolo, Brazil;
Guadalajara, Mexico; Cortland, New York; Ithaca, New York; Nabari City,
Japan; Oroszlany, Hungary; Simcoe, Ontario, Canada; Tainan Shien, Taiwan
TorqTransfer Systems 93.1%
Headquarters: Sterling Heights, Michigan (leased)
Livonia, Michigan; Longview, Texas (leased); Margam, Wales; Muncie,
Indiana; Pune, India (60% JV); Seneca, South Carolina; Sirsi, India (60%
JV); Beijing, China (80% JV)
Transmission Systems 109.9%
Headquarters: Lombard, Illinois (leased)
Bellwood, Illinois; Eumsung, Korea (80% JV); Frankfort, Illinois;
Heidelberg,Germany; Ketsch, Germany; Sterling Heights, Michigan (leased)
(1) The figure shown in each case is a weighted average of the percentage
utilization of each major plant within the category, with an individual
plant weighted in proportion to the number of employees employed when such
plant runs at 100% capacity. With the exception of the Company's Bellwood,
Illinois plant, capacity utilization at the 100% level is defined as
operating five days per week, with two eight-hour shifts per day and normal
vacation hours. Capacity utilization at the 100% level at the Company's
Bellwood, Illinois plant is defined as operating five days per week, with
three eight-hour shifts per day and normal vacation hours.
(2) The table excludes joint ventures owned 50% or less.
Item 3. Legal Proceedings
There have been no significant developments in the legal proceedings
disclosed in the Company's Form 10-Q for the quarter ended March 31, 2001. The
Company is presently, and is from time to time, subject to other claims and
suits arising in the ordinary course of its business. In certain such actions,
plaintiffs request punitive or other damages that may not be covered by
insurance. The Company believes that it has established adequate provisions for
litigation liabilities in its financial statements in accordance with generally
accepted accounting principles in the U.S. These provisions include both legal
fees and possible outcomes of legal proceedings.
It is the opinion of the Company that the various asserted claims and
litigation in which the Company is currently involved will not materially affect
its financial position or future operating results, although no assurance can be
given with respect to the ultimate outcome for any such claim or litigation.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to the security holders of the Company
during the fourth quarter of 2001.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The Company's Common Stock is listed for trading on the New York Stock
Exchange. As of March 8, 2002, there were approximately 3,150 holders of record
of Common Stock.
The Company has paid cash dividends of $0.15 per share on its Common Stock
during each quarter for the last two fiscal years. While the Company currently
expects that comparable quarterly cash dividends will continue to be paid in the
future, the dividend policy is subject to review and change at the discretion of
the Board of Directors.
High and low sales prices (as reported on the New York Stock Exchange
composite tape) for the Common Stock for each quarter in 2000 and 2001 were:
Quarter ended High Low
March 31, 2000 $ 39.437 $ 30.062
June 30, 2000 $ 44.125 $ 35.125
September 30, 2000 $ 37.000 $ 31.562
December 31, 2000 $ 40.000 $ 33.000
March 31, 2001 $ 45.800 $ 38.900
June 30, 2001 $ 49.620 $ 39.600
September 30, 2001 $ 54.500 $ 36.490
December 31, 2001 $ 52.250 $ 39.880
Item 6. Selected Financial Data
The Selected Financial Data for the five years ended December 31, 2001 with
respect to the following line items set forth on page 50 of the Company's Annual
Report is incorporated herein by reference and made a part of this report: net
sales; net earnings; net earnings per share; total assets; total debt; and cash
dividend declared per share. See the material incorporated herein by reference
in response to Item 7 of this report for a discussion of the factors that
materially affect the comparability of the information contained in such data.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The Management's Discussion and Analysis of Financial Condition and Results
of Operations set forth on pages 23 through 30 in the Company's Annual Report
are incorporated herein by reference and made a part of this report.
Item 7a. Market Risk Disclosure
Information with respect to interest rate risk and foreign currency
exchange risk is contained on page 30 of the Company's Annual Report and is
incorporated herein by reference. Information with respect to the levels of
indebtedness subject to interest rate fluctuation is contained in Note 6 of the
Notes to Consolidated Financial Statements on page 40 of the Company's Annual
Report and is incorporated herein by reference. Information with respect to the
Company's level of business outside the United States which is subject to
foreign currency exchange rate market risk is contained in Note 13 of the Notes
to Consolidated Financial Statements on page 48 under the caption "Geographic
Information" and is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The Consolidated Financial Statements (including the notes thereto, except
as noted below) of the Company and the Independent Auditors' Report as set forth
on pages 31 through 50 in the Company's Annual Report are incorporated herein by
reference and made a part of this report. Supplementary financial information
regarding quarterly results of operations (unaudited) for the years ended
December 31, 2001 and 2000 is set forth on page 49 of the Company's Annual
Report. For a list of financial statements filed as part of this report, see
Item 14, "Exhibits, Financial Statement Schedules, and Reports on Form 8-K"
beginning on page 14.
Footnote 14 - New Accounting Pronouncements (unaudited)
The Company is finalizing its assessment of the transitional provisions of
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets." Based upon the assessment of the fair values of each if its
reporting units, the Company anticipates that it will record a charge of $250 to
$280 million, net of tax, in the first quarter of 2002, to adjust the carrying
value of goodwill in the Cooling Systems and Air/Fluid Systems businesses. The
charge will be classified as a cumultive effect of a change in accounting
principle.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
Information with respect to directors and nominees for election as
directors of the Company under the caption "Election of Directors" on pages 1
through 4 of the Company's Proxy Statement and information under the caption
"Section 16(a) Beneficial Ownership Reporting Compliance" on page 5 of the
Company's Proxy Statement is incorporated herein by reference and made a part of
this report. Information with respect to executive officers of the Company is
set forth in Part I of this report.
Item 11. Executive Compensation
Information with respect to compensation of executive officers and
directors of the Company under the captions "Compensation of Directors" on page
4 of the Company's Proxy Statement and "Executive Compensation," "Stock
Options," "Long-Term Incentive Plans," and "Employment Agreements" on pages 6
through 9 of the Company's Proxy Statement is incorporated herein by reference
and made a part of this report.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information with respect to security ownership by persons known to the
Company to beneficially own more than five percent of the Company's Common
Stock, by directors and nominees for directors of the Company and by all
directors and executive officers of the Company as a group under the caption
"Stock Ownership" on page 5 of the Company's Proxy Statement is incorporated
herein by reference and made a part of this report.
Item 13. Certain Relationships and Related Transactions
Information with respect to certain relationships and related transactions
under the caption "Certain Relationships and Related Transactions" on page 15 of
the Company's Proxy Statement is incorporated herein by reference and made a
part of this report.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports On Form 8-K
(a) 1. The following consolidated financial statements of the Company on
pages 31 through 50 of the Company's Annual Report are incorporated herein
by reference:
Independent Auditors' Report
Consolidated Statements of Operations--years ended December 31, 2001, 2000
and 1999
Consolidated Balance Sheets--December 31, 2001 and 2000
Consolidated Statements of Cash Flows--years ended December 31, 2001, 2000
and 1999
Consolidated Statements of Stockholders' Equity--years ended December 31,
2001, 2000 and 1999
Notes to Consolidated Financial Statements
2. Certain schedules for which provisions are made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and therefore have
been omitted.
3. The exhibits filed in response to Item 601 of Regulation S-K are listed
in the Exhibit Index on page A-1.
(b) Reports on Form 8-K.
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
BORGWARNER INC.
By: /s/ John F. Fiedler
John F. Fiedler
Chairman and Chief Executive Officer
Date: March 25, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on this 25th day of March, 2002.
Signature Title
/s/ John F. Fiedler Chairman of the Board of Directors and Chief
John F. Fiedler Executive Officer (Principal Executive Officer)
/s/ Timothy M. ManganelloPresident and Chief Operating Officer
Timothy M. Manganello
/s/ George E. Strickler Executive Vice President and Chief Financial Officer
George E. Strickler (Principal Financial Officer)
/s/ William C. Cline Vice President and Controller
Willim C. Cline (Principal Accounting Officer)
/s/ Phyllis O. Bonanno Director
Phyllis O. Bonanno
/s/ Andrew F. Brimmer Director
Andrew F. Brimmer
/s/ William E. Butler Director
William E. Butler
/s/ Jere A. Drummond Director
Jere A. Drummond
/s/ Paul E. Glaske Director
Paul E. Glaske
/s/ Ivan W. Gorr Director
Ivan W. Gorr
/s/ Alexis P. Michas Director
Alexis P. Michas
/s/ John Rau Director
John Rau
/s/ John F. Fiedler As attorney-in-fact for the directors marked
John F. Fiedler by an asterisk.
EXHIBIT INDEX
Exhibit
Number Document Description
*3.1 Restated Certificate of Incorporation of the Company (incorporated by
reference to Exhibit No. 3.1 of the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1993).
*3.2 By-laws of the Company (incorporated by reference to Exhibit No. 3.2 of the
Company's Quarterly Report on Form 10-Q for the quarter ended September 30,
1993).
*3.3 Certificate of Designation, Preferences and Rights of Series A Junior
Participating Preferred Stock (incorporated by reference to Exhibit 3.3 of
the Company's Annual Report on Form 10-K for the year ended December 31,
1999).
*3.4 Certificate of Ownership and Merger Merging BorgWarner Inc. into
Borg-Warner Automotive, Inc. (incorporated by reference to Exhibit 99.1 of
the Company's Quarterly Report on Form 10-Q for the quarter ended March 31,
2000).
*4.1 Indenture, dated as of November 1, 1996, between Borg-Warner Automotive,
Inc. and The First National Bank of Chicago (incorporated by reference to
Exhibit No. 4.1 to Registration Statement No. 333-14717).
*4.2 Indenture, dated as of February 15, 1999, between Borg-Warner Automotive,
Inc. and The First National Bank of Chicago (incorporated by reference to
Exhibit No. 4.1 to Amendment No. 1 to Registration Statement
No. 333-66879).
*4.3 Rights Agreement, dated as of July 22, 1998, between Borg-Warner
Automotive, Inc. and ChaseMellon Shareholder Services, L.L.C. (incorporated
by reference to Exhibit 4.1 to the Registration Statement on Form 8-A filed
on July 24, 1998).
*10.1 Credit Agreement dated as of July 21, 2000 among BorgWarner Inc., as
Borrower, the Lenders Party Hereto, The Chase Manhattan Bank, as
Administrative Agent, Bank America, N.A., as Syndication Agent and
Bank One, N.A. as Documentation Agent (incorporated by reference to
Exhibit No. 10.1 to the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 2000).
*10.2 First Amendment, dated as of August 3, 2000 to the Credit Agreement,
dated as of July 21, 2000 among BorgWarner Inc., as Borrower, the
Several Lenders From Time to Time Party Thereto, The Chase Manhattan
Bank, as Administrative Agent for the Lenders, Chase Securities Inc.
and Banc of America Securities LLC, as Co-Arranger, Bank of America,
N.A., as Syndication Agent and Bank One, N.A. as Documentation Agent.
*10.3 Distribution and Indemnity Agreement dated January 27, 1993 between
Borg-Warner Automotive, Inc. and Borg-Warner Security Corporation
(incorporated by reference to Exhibit No. 10.2 to Registration
Statement No. 33-64934).
Exhibit
Number Document Description
*10.4 Tax Sharing Agreement dated January 27, 1993 between Borg-Warner
Automotive, Inc. and Borg-Warner Security Corporation (incorporated by
reference to Exhibit No. 10.3 to Registration Statement No. 33-64934).
+*10.5 Borg-Warner Automotive, Inc. Management Stock Option Plan, as amended
(incorporated by reference to Exhibit No. 10.6 to Registration
Statement No. 33-64934).
+10.6 BorgWarner Inc. 1993 Stock Incentive Plan as amended.
*10.7 Receivables Transfer Agreement dated as of January 28, 1994 among BWA
Receivables Corporation, ABN AMRO Bank N.V. as Agent and the Program
LOC Provider and Windmill Funding Corporation (incorporated by
reference to Exhibit No. 10.12 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1993).
*10.8 Amended and Restated Receivables Loan Agreement dated as of
December 23, 1998 among BWA Receivables Corporation, as Borrower,
Borg-Warner Automotive, Inc., as Collection Agent, ABN AMRO Bank N.V.,
as Agent, the Banks from time to time party hereto, ABN AMRO Bank
N.V., as the Program LOC Provider and the Program LOC Provider and
Windmill Funding Corporation (incorporated by reference to
Exhibit No. 10.11 of the Company's Annual Report on Form 10-K for the
year ended December 31, 1998).
*10.9 First Amendment dated as of March 25, 1999 to Amended and Restated
Receivables Loan Agreement dated as of December 23, 1998 (incorporated
by reference to Exhibit No. 10.1 to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1999).
*10.10 Second Amendment dated as of December 22, 1999 to Amended and Restated
Receivables Loan Agreement dated as of December 23, 1998 (incorporated
by reference to Exhibit No. 10.13 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1999).
*10.11 Third Amendment dated as of December 20, 2000 to Amended and Restated
Receivables Loan Agreement dated as of December 23, 1998 (incorporated
by reference to Exhibit No. 10.11 to the Company's Annual Report on
Form 10-K for the year ended December 31, 2000).
10.12 Fourth Amendment dated as of April 13, 2001 to Amended and Restated
Receivables Loan Agreement dated as of December 23, 1998.
10.13 Fifth Amendment dated as of July 25, 2001 to Amended and Restated
Receivables Loan Agreement dated as of December 23, 1998.
10.14 Sixth Amendment dated as of December 22, 2001 to Amended and Restated
Receivables Loan Agreement dated as of December 23, 1998.
Exhibit
Number Document Description
+*10.15 Borg-Warner Automotive, Inc. Transitional Income Guidelines for
Executive Officers amended as of May 1, 1989 (incorporated by
reference to Exhibit 10.16 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1993).
+*10.16 Borg-Warner Automotive, Inc. Management Incentive Bonus Plan dated
January 1, 1994 (incorporated by reference to Exhibit No. 10.18 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1993).
+*10.17 BorgWarner Inc. 1993 Stock Incentive Plan, as amended.
+*10.18 Borg-Warner Automotive, Inc. Retirement Savings Excess Benefit Plan
dated January 27, 1993 (incorporated by reference to Exhibit No. 10.20
of the Company's Annual Report on Form 10-K for the year ended
December 31, 1993).
+*10.19 Borg-Warner Automotive, Inc. Retirement Savings Plan dated January 27,
1993 as further amended and restated effective as of April 1, 1994
(incorporated by reference to Exhibit 10.18 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995).
+*10.20 Borg-Warner Automotive, Inc. Deferred Compensation Plan dated
January 1, 1994 (incorporated by reference to Exhibit No. 10.24 of the
Company's Annual Report on Form 10-K for the year ended December 31,
1993).
+*10.21 Form of Employment Agreement for John F. Fiedler (incorporated by
reference to Exhibit No. 10.0 of the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1994).
+*10.22 Amended Form of Employment Agreement for John F. Fiedler dated
January 27, 1998 (incorporated by reference to Exhibit 10.21 of the
Company's Annual Report on Form 10-K for the year ended December 31,
1997).
+*10.23 Addendum to Employment Agreement between BorgWarner Inc. and John F.
Fiedler dated November 8, 2000 (incorporated by reference to Exhibit
No. 10.19 of the Company's Annual Report on Form 10-K for the year
ended December 31, 2001).
+*10.24 Form of Change of Control Employment Agreement for Executive Officers
(incorporated by reference to Exhibit No. 10.1 to the Company's
Quarterly Report on Form 10-Q for the Quarter ended September 30,
1997).
+*10.25 Amendment to the Change of Control Employment Agreement between the
Company and John F. Fiedler dated effective January 30, 1998
(incorporated by reference to Exhibit 10.23 of the Company's Annual
Report on Form 10-K for the year ended December 31, 1997).
*10.26 Assignment of Trademarks and License Agreement (incorporated by
reference to Exhibit No. 10.0 of the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1994).
Exhibit
Number Document Description
*10.27 Amendment to Assignment of Trademarks and License Agreement
(incorporated by reference to Exhibit No. 10.23 of the Company's
Form 10-K for the year ended December 31, 1998).
+*10.28 Borg-Warner Automotive, Inc. Executive Stock Performance Plan, Revised
and Re-approved February 2, 2000 (incorporated by reference to
Appendix B of the Company's Proxy Statement dated March 22, 2000).
*10.29 Agreement of Purchase and Sale dated as of May 31, 1996 by and among
Coltec Industries Inc., Holley Automotive Group, Ltd., Holley
Automotive Inc., Coltec Automotive Inc., and Holley Automotive Systems
GmbH and Borg-Warner Automotive, Inc., Borg-Warner Automotive
Air/Fluid Systems Corporation and Borg-Warner Automotive Air/Fluid
Systems Corporation of Michigan (incorporated by reference to
Exhibit 10.1 of the Company's Current Report on Form 8-K dated as of
June 17, 1996).
*10.30 Agreement and Plan of Merger dated as of December 17, 1998 by and
between Borg-Warner Automotive, Inc., BWA Merger Corp. and Kuhlman
Corporation (incorporated by reference to Exhibit 2 of the Company's
Current Report on Form 8-K dated as of December 21, 1998).
*10.31 Asset Purchase Agreement dated as of August 2, 1999 among Eaton
Corporation, the Seller Subsidiaries, Borg-Warner Automotive, Inc. and
the Buyer Subsidiaries (incorporated by reference to Exhibit 10.29 to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1999).
13.1 Annual Report to Stockholders for the year ended December 31, 2001 with
manually signed Independent Auditors' Report. (The Annual Report, except
for those portions which are expressly incorporated by reference in the
Form 10-K, is furnished for the information of the Commission and is not
deemed filed as part of the Form 10-K).
21.1 Subsidiaries of the Company.
23.1 Independent Auditors' Consent.
99.1 Cautionary Statements.
* Incorporated by reference.
+ Indicates a management contract or compensatory plan or arrangement
required to be filed pursuant to Item 14(c).