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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, 1996 Commission file number: 1-12162
Borg-Warner Automotive, 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
Title of each class on 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 17, 1997 was approximately $932 million.
As of March 17, 1997, the registrant had 23,611,972 shares of Common Stock and
59,000 shares of Non-Voting 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
Borg-Warner Automotive, Inc. 1996 Annual Report to Stockholders Parts II and IV
Borg-Warner Automotive, Inc. Proxy Statement for the 1997
Annual Meeting of Stockholders Part III
BORG-WARNER AUTOMOTIVE, INC.
FORM 10-K
YEAR ENDED DECEMBER 31, 1996
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . .12
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . .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
/TABLE
PART I
Item 1. Business
Borg-Warner Automotive, Inc. (the "Company") is a leading, global Tier I
supplier of highly engineered systems and components, primarily for automotive
powertrain applications. These products are manufactured and sold worldwide,
primarily to original equipment manufacturers("OEMs") of passenger cars, sport
utility vehicles and light trucks. The Company, which operates 36 manufacturing
facilities in 12 countries serving the North American, European and Asian autom-
otive markets, is an original equipment supplier to every major OEM in the
world.
Company Business Units
The Company's products fall into four categories: Powertrain Systems,
Automatic Transmission Systems, Morse TEC and Air/Fluid Systems (formerly
known as Control Systems). Net revenues by product grouping for the three
years ended December 31, 1996, 1995 and 1994, are as follows (in millions of
dollars):
Year ended December 31,
------------------------
1996 1995 1994
----- ----- -----
Powertrain Systems $ 562.7 $ 544.8 $ 529.9
Automatic Transmission Systems 481.8 454.4 378.5
Morse TEC 276.5 257.6 239.9
Air/Fluid Systems 258.8 107.6 97.3
1,579.8 1,364.4 1,245.6
------- ------- -------
Interbusiness eliminations (39.7) (35.3) (22.2)
------- ------- -------
Net sales $1,540.1 $1,329.1 $1,223.4
======== ======== ========
The sales information presented above excludes the sales by the Company's
unconsolidated joint ventures. See "Joint Ventures." Such sales totaled approxi-
mately $430 million in 1996, approximately $394 million in 1995 and
approximately $316 million in 1994.
The Company conducts business in one industry segment. See Note 9 of the
Notes to Consolidated Financial Statements on pages 29 and 30 of the Company's
Annual Report.
Powertrain Systems
Powertrain Systems products include four-wheel drive ("4WD") and all-wheel
drive transfer cases.
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[TM] ("TOD-TM") transfer case system, which
allows vehicles to automatically shift from two-wheel drive to 4WD when electr-
onic sensors indicate it is necessary. The TOD transfer case is available on
the Ford Explorer, the best selling sport-utility vehicle in the United States
in 1996, and the new Ford Expedition.
Sales of 4WD transfer cases represented 30% of the Company's total revenues
for 1996 and 1995 and 26% of total revenues for 1994. The Company believes that
it is the world's leading independent manufacturer of 4WD transfer cases,
producing approximately 961,000 transfer cases in 1996. The Company's largest
customer of 4WD transfer cases is Ford Motor Company ("Ford"). The Company
supplies substantially all of the 4WD transfer cases for Ford, including
those installed in the Ford Explorer, the Ford Expedition and the Ford F-150
pick-up truck.
On December 31, 1996, the Company completed the sale of Powertrain Systems'
North American manual transmission manufacturing business to Transmisiones y
Equipos Mecanicos S.A. de C.V. Under the terms of the agreement the Company
received $20.3 million in cash at closing for certain assets of the business and
will receive approximately $20 million during the transition period (which is
expected to last 18 months during which the business will be transferred to
its new location) for the value of inventory and certain services to
be provided by the Company to the purchaser. The Company took a one-time
after-tax charge of $35 million, or $1.49 per share, in the fourth quarter as a
result of the sale.
The Company has entered into an agreement with Mercedes-Benz Project, Inc.,
a subsidiary of Mercedes-Benz AG, for the Company to supply transfer cases
for a new 4WD vehicle, which will be produced beginning in 1997 at Mercedes-
Benz's new United States passenger-vehicle manufacturing facility. Under the
five-year agreement, which has a three-year extension provision, the Company
will develop the technology and supply Mercedes-Benz with new two-speed,
electronically controlled, all-wheel drive transfer cases that are compatible
with its anti-skid braking system. In 1995, the Company purchased a 211,000
square foot facility in Seneca, South Carolina, to serve as the production
facility for manufacture of the Mercedes-Benz transfer case.
Automatic Transmission Systems
The Company engineers and manufactures components for automatic
transmissions and the systems which combine such components around the world.
Principal product lines include friction plates, one-way clutches, transmission
bands, races and torque converters 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.
Morse TEC
Morse TEC manufactures chain and chain systems, including HY-VO(R), front-
wheel drive transmission chain ("FWD") and 4WD chain, MORSE GEMINI(TM) Chain
Systems, timing chain and timing chain systems, crankshaft and camshaft
sprockets, chain tensioners and snubbers.
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, which is used on
Chrysler's LH models, emits significantly less chain pitch frequency noise than
conventional transmission chain systems. In the 1997 model year, beginning in
the third quarter of 1996, GM began incorporating this system in its FWD
vehicles. 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 is an original equipment supplier to every
major manufacturer who uses chain for such applications.
The Company's timing chain system is used on Ford's new family of overhead
cam engines, including the Duratech and Triton engines. The Company recently
announced that it had been selected to design and produce complete timing chain
systems for Chrysler's new 2.7 liter and 4.7 liter overhead cam engines
beginning in late 1997 and 1998, respectively. The Company believes that it is
the world's leading manufacturer of timing chain.
Air/Fluid Systems
Air/Fluid Systems designs and manufactures sophisticated mechanical,
electro-mechanical and electronic components and systems used for engine air
intake and exhaust management, fuel and vapor management, electronically
controlled automatic transmissions and steering and suspension systems. Key
products for engine air intake management produced by the Company include
throttle bodies, intake manifolds, throttle position sensors, and complete
engine induction systems. The Company's products for emissions control and
improved gas mileage include mechanical and electrical air pumps, air control
valves and pressure feedback exhaust gas re-circulation valves. The fuel
management and vapor recovery products include roll valves,canister purge
solenoids and complete vapor recovery systems. The Company also produces oil
pumps.
On June 17, 1996, the Company acquired the operations and substantially all
of the assets of the Holley Automotive, Coltec Automotive and Performance
Friction Products divisions (collectively, the "Coltec Divisions") of Coltec
Industries Inc., ("Coltec ") for $283 million in cash (the "Coltec
Acquisition"). The Coltec Divisions have a broad base of air and fluid
management products, established OEM relationships, and three technologically
advanced manufacturing facilities.
Joint Ventures
The Company has seven joint ventures in which it has a less-than-100%
ownership interest. Results from three 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 the remaining four joint ventures ranges
from 39% to 50%. The results of NSK-Warner, Warner-Ishi Corporation, Beijing
Warner Gear Co., Ltd. and Warner-Ishi Europe S.p.A. are reported using the
equity method.
In 1995, the Company entered into a joint venture with Divgi-Metalwares
Ltd. ("Divgi") to produce transfer cases, manual transmissions and automatic
locking hubs in India. The venture, named Divgi-Warner Limited, began
operations in 1996 and is 60% owned by the Company and 40% owned by Divgi.
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
Owned Location Joint Final
Year by the of Venture 1996
Joint Venture Products Organized Company Operation Partner Sales
- -------------- ------------ ---------- --------- --------- -------- -----
Unconsolidated
NSK-Warner K.K. Friction products 1964 50% Japan Nippon $335
Seiko K.K.
Warner-Ishi Turbo chargers 1980 50% U.S. Ishikawajima- $17
Corporation Harima Heavy
Industries Co.,
Ltd.
Beijing Warner Manual 1992 39% China Beijing Gear $34
Gear Co., Ltd. transmissions Works
Warner-Ishi
Europe, S.p.A. Turbochargers 1995 50% Italy Ishikawajima- $13
Harima Heavy
Industries Co.,
Ltd.
Consolidated
Borg-Warner
Automotive Friction products 1987 60% Korea Hyundai Motor $31
Korea, Inc. Company, NSK
Warner K.K.
Divgi-Warner
Limited Transfer cases, 1995 60% India Divgi Metalwares, N/A
manual transmissions Ltd.
and automatic
locking hubs
Huazhong
[Automotive] Manual 1995 60% China Shiyan Automotive N/A
Transmission Transmissions Transmission Factory
Company Ltd.
See Note 9 of the Notes to Consolidated Financial Statements on pages 29
and 30 of the Company's Annual Report for geographic information.
Customers
Approximately 84% of the Company's total sales in 1996 were to automotive
OEMs, with the remaining 16% 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 1996 to Ford and General Motors
Corporation ("GM") constituted approximately 42% and 21% respectively, of its
1996 consolidated sales. Approximately 26% of consolidated sales for 1996 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 9 of the Notes to Consolidated Financial Statements on
pages 29 and 30 of the Company's Annual Report.
The Company's automotive products are sold directly to OEMs pursuant to the
terms and conditions of the OEMs' purchase orders, and 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 four business groups has its own sales function
headed by a Vice President of Sales. Account executives for each group are
assigned to service 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 are responsible for negotiating the terms of the
purchase contract.
Research and Development
Each of the Company's business groups has its own research and development
("R&D") organization. Over 400 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 $54.4 million, $36.7 million and
$33.8 million in 1996, 1995 and 1994, respectively, on R&D activities. Not
included in the reported R&D activities were customer-sponsored R&D activities
that were approximately $10 million, $11.3 million and $11.2 million in 1996,
1995 and 1994, respectively.
Patents and Licenses
The Company has approximately 1,900 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. 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 "BorgWarner Automotive" trade name, and the housemark adopted in 1984
are material to the Company's business. The Company and Borg-Warner Security
Corporation ("BW-Security") have entered into an Assignment of Trademarks and
License Agreement (the "Trademark Agreement") whereby BW-Security assigned
certain trademarks and trade names (including the "BorgWarner Automotive" trade
name) to the Company (which trademarks and trade names had been previously
licensed to the Company) for use in the automotive field. Pursuant to the
Trademark Agreement, the Company agreed to pay an additional $7.5 million to
BW-Security upon the occurrence of certain events, including a change of control
of the Company.
Competition
The Company 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. The Company's
competitors include vertically integrated units of the Company's major OEM
customers, as well as number of independent domestic and international
suppliers. 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, 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 with the stated objective of better competing with lower-cost
imports. As a result, the Company has experienced competition from suppliers in
other parts of the world enjoying 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, 1996, the Company and its consolidated subsidiaries had
approximately 9,800 salaried and hourly employees (as compared with 8,600
employees at December 31, 1995), of which approximately 8,200 were
U.S. employees. Approximately 43% of the Company's domestic hourly workers are
unionized. The Company's Muncie, Indiana plant has approximately 1,663
employees represented by the United Auto Workers union. Approximately 816
hourly employees at the Company's Ithaca, New York, plant are represented by the
International Association of Machinists. The collective bargaining agreement
covering the Muncie Plant expires in March 1998 and the collective bargaining
agreement covering the Ithaca plant expires in October 1998. Pursuant to the
requirements of the National Labor Relations Act, a union representation
election involving approximately 630 hourly workers at the Company's Bellwood,
Illinois facility was held on June 14, 1996. A majority of the hourly workers
voting in the election voted against union representation. The labor
organization appearing on the ballot was the UAW. 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
The Company believes that its supplies of raw materials for manufacturing
requirements in 1997 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 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 its business,
operations and facilities have been and are being operated 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, and there can be no assurance that the Company
will not incur material costs or liabilities. 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 1996 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 27
hazardous waste disposal sites under the Comprehensive Environmental Response,
Compensation and Liability Act ("Superfund") and equivalent state laws and, as
such, may be liable for the cost of cleanup and other remedial activities at
these sites. Responsibility for cleanup and other remedial activities at a
Superfund site is typically shared among PRPs based on an allocation formula.
The means of determining allocation among PRPs is generally set forth in a
written agreement entered into by the PRPs at a particular site. An allocated
share assigned to a PRP is often based on the PRP's volumetric contribution of
waste to a site and the characteristics of the waste material.
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; estimated legal fees; and other
factors, the Company has established a reserve for indicated environmental
liabilities in the aggregate amount of approximately $8.9 million at
December 31, 1996. The Company expects this amount to be expended over the next
three to five years.
In connection with the Spin-Off, the Company and BW-Security entered into a
Distribution and Indemnity Agreement which provided for, among other matters,
certain cross-indemnities designed principally to place financial responsibility
for the liabilities of businesses conducted by BW-Security and its subsidiaries
with BW-Security and financial responsibility for liabilities of the Company or
related to its automotive businesses with the Company. The Company has been
advised that BW-Security believes that the Company is responsible for certain
liabilities relating to environmental matters retained by BW-Security at the
time of the Spin-Off. BW-Security has requested indemnification from the
Company for past costs of approximately $1.6 million and for future costs
related to these environmental matters. At the time of the Spin-Off, BW-
Security maintained a letter of credit for approximately $9 million with respect
to the principal portion of such environmental matters. Although there can be
no assurance, based upon information currently available to the Company, the
Company does not believe that it is required to indemnify BW-Security under the
Distribution and Indemnity Agreement with respect to such liabilities. The
parties have agreed to submit this matter to binding arbitration which is
expected to be completed during 1997. The Company does not currently have
information sufficient to determine what its liability would be if it is
ultimately determined that it is required to indemnify BW-Security with respect
to such liabilities.
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.
Executive Officers
Set forth below are the names, ages, positions and certain other
information concerning the executive officers of the Company as of March 17,
1997.
Name Age Position with Company
- ----- ---- ----------------------
John F. Fiedler 58 Chairman and Chief Executive Officer
Robin J. Adams 43 Vice President and Treasurer
William C. Cline 47 Vice President and Controller
Gary P. Fukayama 49 Executive Vice President
Christopher A. Gebelein 50 Vice President--Business Development
Laurene H. Horiszny 41 Vice President, Secretary and General Counsel
Geraldine Kinsella 49 Vice President--Human Resources
Fred M. Kovalik 59 Executive Vice President
Ronald M. Ruzic 58 Executive Vice President
Robert D. Welding 48 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. He was Chief Operating Officer
from June 1994 to December 1994. Mr. Fiedler was Executive Vice President of
Goodyear Tire & Rubber Company in charge of the North American Tire division,
from 1991 to 1994. He is a director of Navistar International Corporation.
Mr. Adams has been Vice President and Treasurer of the Company since May
1993. He was Assistant Treasurer of the Company from 1991 to 1993.
Mr. Cline has been Vice President and Controller of the Company since May
1993. He was Assistant Controller of BW-Security from 1987 to 1993.
Mr. Fukayama has been Executive Vice President of the Company since
November 1992. He has been Group President of Borg-Warner Automotive Air/Fluid
Systems Corporation since May 1996. He was President and General Manager of
Borg-Warner Automotive Automatic Transmission Systems Corporation from January
1995 to April 1996. He was President and General Manager of Borg-Warner Automo-
tive Transmission & Engine Components Corporation, Automatic Transmission
Systems from November 1992 to December 1994. He was President and General
Manager of the Friction Products Business Group of Borg-Warner Automotive
Transmission & Engine Components Corporation from February 1991 to October
1992.
Mr. Gebelein has been Vice President-Business Development of the Company
since January 1995. He was General Manager of Corporate Development of Inland
Steel Industries from 1987 to 1994.
Ms. Horiszny has been Vice President, Secretary and General Counsel of the
Company since May 1993. She was Assistant General Counsel of the Company from
December 1991 to 1993, and Senior Attorney from 1988 to December 1991.
Ms. Kinsella has been Vice President-Human Resources of the Company since
May 1993. She was Vice President-Human Resources of Borg-Warner Automotive
Transmission & Engine Components Corporation, Automatic Transmission Systems
from November 1990 to 1993.
Mr. Kovalik has been Executive Vice President of the Company and President
and General Manager of Borg-Warner Automotive Powertrain Systems Corporation
since March 1994. He was General Manager-Heavy and Medium Duty Transmissions
for Eaton Corporation from April 1992 to February 1994; Marketing Manager-
Transmissions from February 1991 to April 1992 and Manager-Manufacturing and
Quality from February 1989 to 1991.
Mr. Ruzic has been Executive Vice President of the Company and President
and General Manager of Borg-Warner Automotive Morse TEC Corporation since
October 1992. He was President and General Manager of Borg-Warner Automotive
Transmission & Engine Components Corporation, Morse Chain Systems from December
1989 to 1992.
Mr. Welding has been Vice President of the Company and President of Borg-
Warner Automotive Automatic Transmission Systems Corporation since May 1996.
He was Vice President - Operations of Borg-Warner Automotive Automatic
Transmission Systems Corporation, Bellwood Plant, from November 1993 to May1996.
He was Vice President - Operations of Borg-Warner Automotive Automatic Transmi-
ssion Systems Corporation, Frankfort Plant, from November 1990 to October 1993.
Item 2. Properties
The Company's 36 manufacturing facilities are strategically located in the
United States, two facilities in Germany, Japan, India, China and Italy, and one
facility in each of Canada, France, Korea, Taiwan and Wales. The Company
also has numerous 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 Coltec Acquisition increased by three the number of manufacturing
facilities the Company operates by adding new facilities in Mississippi,
Oklahoma and Texas.
The following is additional information concerning the major manufacturing
plants operated by the Company and its consolidated subsidiaries. Unless
otherwise noted, these plants are owned by the Company.
1996
Percent of
Capacity
Locations Utilization
--------------------------------------------------------- (1)(2)
U.S.: Blytheville, Arkansas (leased); Bellwood, Dixon and
Frankfort, Illinois; Muncie, Indiana; Sterling Heights,
Coldwater, Livonia and Romulus, Michigan; Water Valley,
Mississippi, Ithaca, New York; Gallipolis, Ohio;
Cary, North Carolina; Seneca, South Carolina and
Longview, Texas (leased). 97%
Non-U.S.: Canada, China, France, Germany, Italy (leased),
India, Japan, Korea, Taiwan and Wales 76%
(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. Capacity utilization at the 100% level is defined as
operating five days per week, with two eight-hour shifts per day and normal
vacation schedules.
(2) The table excludes joint ventures owned 50% or less.
Item 3. Legal Proceedings
The Company is presently, and is from time to time, subject to 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 inaccordance with generally
accepted accounting principles. These provisions include both legal fees and
possible outcomes of legal proceedings.
Centaur Insurance Company ("Centaur"), a discontinued property and casualty
insurance subsidiary and a wholly owned subsidiary of BW-Security, ceased
writing insurance in 1984 and has been operating under rehabilitation since
September 1987. Rehabilitation is a process supervised by the Illinois Director
of Insurance to attempt to compromise liabilities at an aggregate level that is
not in excess of Centaur's assets. In rehabilitation, Centaur's assets are
currently being used to satisfy claim liabilities under direct insurance
policies written by Centaur. Any remaining assets will be applied to Centaur's
obligations to other insurance companies under reinsurance contracts. The
foregoing has resulted in several lawsuits seeking substantial dollar amounts
being filed against BW-Security, and in some cases the Company, for recovery of
alleged damages from the failure of Centaur to satisfy its reinsurance
obligations. All of these lawsuits, except one to which the Company is not
currently a party, have been settled. The defense of this litigation is being
managed by BW-Security and the Company is indemnified by BW-Security for any
losses or expenses arising out of the litigation.
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 1996.
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 17, 1997, there were approximately 139 holders of record
of Common Stock.
Eight times during the last two fiscal years, the Company has paid cash
dividends on its Common Stock and Non-Voting Common Stock. A quarterly dividend
of $.15 per share was paid on February 15, May 15, August 15 and November 15,
1995, and February 15, May 15, August 15 and November 15, 1996. 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 1995 and 1996 were:
Quarter ended High Low
March 31, 1995 $26.125 $22.375
June 30, 1995 $29.375 $23.500
September 30, 1995 $33.875 $28.500
December 31, 1995 $32.250 $27.625
March 31, 1996 $33.625 $28.375
June 30, 1996 $43.000 $33.625
September 30, 1996 $40.375 $34.000
December 31, 1996 $40.875 $33.250
/TABLE
Item 6. Selected Financial Data
The Selected Financial Data for the five years ended December 31, 1996 with
respect to the following line items set forth on page 35 of the Company's Annual
Report is incorporated herein by reference and made a part of this report: Net
sales; earnings (loss) before cumulative effect of accounting change; earnings
(loss) per share before cumulative effect of accounting change; 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 14 through 19 in the Company's Annual Report
are incorporated herein by reference and made a part of this report.
Item 8. Financial Statements and Supplementary Data
The consolidated financial statements (including the notes thereto) of the
Company and the Independent Auditors' Report as set forth on pages 20 through 34
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, 1996 and 1995
is set forth in Note 11 of the Notes to Consolidated Financial Statements on
page 32 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 13.
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 3 of the Company's Proxy Statement and information under the caption
"Section 16(a) Beneficial Ownership Reporting Compliance" on page 6 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 pages
4 and 5 of the Company's Proxy Statement and "Executive Compensation," "Stock
Options," "Long-Term Incentive Plans," "Employment Agreements" and "Compensation
Committee Interlocks and Insider Participation" on pages 6 through 10 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 captions "Compensation Committee Interlocks and Insider Participation"
on page 10 of the Company's Proxy Statement and "Certain Relationships and
Related Transactions" on pages 14 through 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 20 through 34 of the Company's Annual Report are incorporated herein
by reference:
Independent Auditors' Report
Consolidated Statements of Operations--years ended December 31, 1996,
1995 and 1994
Consolidated Balance Sheets--December 31, 1996 and 1995
Consolidated Statements of Cash Flows--years ended December 31, 1996,
1995 and 1994
Consolidated Statements of Stockholders' Equity--years ended
December 31, 1996, 1995 and 1994
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 there
fore 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.
No reports on Form 8-K were filed by the Company during the three-month
period ended December 31, 1996.
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.
BORG-WARNER AUTOMOTIVE, INC.
By: /s/ John F. Fiedler
----------------------------
JOHN F. FIEDLER
Chairman and Chief Executive Officer
Date: March 21, 1997
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 21st day of March, 1997.
Signature Title
/s/ John F. Fiedler Chairman of the Board of
- ---------------------- Directors and Chief Executive
JOHN F. FIEDLER Officer
(Principal Executive Officer)
/s/ Robin J. Adams Vice President and Treasurer
- ---------------------- (Principal Financial Officer)
ROBIN J. ADAMS
/s/ William C. Cline Vice President and Controller
- ------------------------ (Principal Accounting Officer)
WILLIAM C. CLINE
/s/ *
- ------------------------ Director
Albert J. Fitzgibbons, III
/s/ * Director
- -----------------------
Paul E. Glaske
/s/ *
- ----------------------- Director
Ivan W. Gorr
/s/ *
- ----------------------- Director
James J. Kerley
/s/ *
- ----------------------- Director
Alexis P. Michas
/s/ * Director
- -----------------------
Donald C. Trauscht
/s/ * Director
- -----------------------
Jere A. Drummond
/s/ John F. Fiedler As attorney-in-fact for the
- ----------------------- Directors marked by an
JOHN F. FIEDLER Asterisk.
EXHIBIT INDEX
Sequential
Exhibit DOCUMENT DESCRIPTION Page
Number --------------------- Number
*3.1 Restated Certificate of Incorporation of the Company (incorpor
ated 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).
*4.1 Indenture, dated as of November 1, 1996, between Borg-Warner Automo-
tive, Inc. and The First National Bank of Chicago (incorporated by
reference to Exhibit No.4.1 to Registration Statement No. 333-14717).
*10.1 Credit Agreement dated as of December 7, 1994 among Borg-Warner
Automotive, Inc., as Borrower, the Lenders listed therein, as Lenders,
Chemical Bank and the Bank of Nova Scotia, as Co-Arrangers, Chemical
Bank, as Administrative Agent and The Bank of Nova Scotia as Document-
ation Agent (incorporated by reference to Exhibit No. 10.1 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1994).
*10.2 First Amendment of Credit Agreement dated as of December 15, 1995
(incorporated by reference to Exhibit 10.2 of the Company's Annual
Report on Form 10-K for the year ended December 31, 1995).
10.3 Second Amendment of Credit Agreement dated as of January 16, 1996.
*10.4 Replacement and Restatement Agreement dated as of October 10, 1996
to the Credit Agreement dated as of December 7, 1994 (incorporated by
reference to Exhibit 10.1 on Form 10-Q for the quarter ended September
30,1996).
*10.5 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 State-
ment No.33-64934).
*10.6 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).
+*10.7 Borg-Warner Automotive, Inc. Management Stock Option Plan, as amended
(incorporated by reference to Exhibit No. 10.6 to Registration
Statement No. 33-64934).
+*10.8 Borg-Warner Automotive, Inc. 1993 Stock Incentive Plan as amended
effective November 8, 1995 (incorporated by reference to Exhibit 10.7
of the Company's Annual Report on Form 10-K for the year ended
December 31, 1995).
*10.9 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).
*10.10 First Amendment of Receivables Transfer Agreement dated as of December
21, 1994 (incorporated by reference to Exhibit No. 10.11 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1994).
*10.11 Second Amendment of Receivables Transfer Agreement dated as of
January 1, 1995 (incorporated by reference to Exhibit No. 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended March
31, 1995).
*10.12 Third Amendment of Receivables Transfer Agreement dated as of
October 23, 1995 (incorporated by reference to Exhibit No. 10.11 to
the Company's Annual Report on Form 10-K for the year ended December
31, 1995).
*10.13 Fourth Amemdment of Receivables Transfer Agreement dated as of June
21, 1996 (incorporated by reference to the Company's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1996).
*10.14 Service Agreement, dated as of December 31, 1992, by and between Borg-
Warner Security Corporation and Borg-Warner Automotive, Inc. (incor-
porated by reference to Exhibit No.10.10 to Registration Statement
No. 33-64934).
Sequential
Exhibit Page
Number Number
+*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 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).
+*10.18 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).
+*10.19 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).
+*10.20 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).
+*10.21 Form of Change of Control Employment Agreement for Executive Officers
(incorporated by reference to Exhibit No. 10.0 to the Company's
Quarterly Report on Form 10-Q for the Quarter ended September 30,
1995).
*10.22 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).
+*10.23 Borg-Warner Automotive, Inc. Executive Stock Performance Plan
(incorporated by reference to Exhibit No. 10.23 of the Company's
Annual Report on Form 10-K for the year ended December 31, 1995).
*10.24 Agreement of Purchase and Sale dated as of May 31, 1996 by and among
Coltec Industries Inc., Holley Automotive Group, Ltd., Holley Automo-
tive 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).
13.1 Annual Report to Stockholders for the year ended December 31, 1996
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.
24.1 Power of Attorney.
27.1 Financial Data Schedule.
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).