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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 1995 COMMISSION FILE NUMBER: 1-12162
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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)
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Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, par value $.01 per share................... New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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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 and affiliates of Merrill Lynch & Co., Inc., (the
exclusion of such stock shall not be deemed an admission by the registrant that
such person is an affiliate of the registrant)) on March 15, 1996 was
approximately $456 million. As of March 15, 1996, the registrant had 23,402,987
shares of Common Stock and 122,644 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
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Borg-Warner Automotive, Inc. 1995 Annual Report to Stockholders............. Parts II and IV
Borg-Warner Automotive, Inc. Proxy Statement for the 1996 Annual Meeting of
Stockholders.............................................................. Part III
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BORG-WARNER AUTOMOTIVE, INC.
FORM 10-K
YEAR ENDED DECEMBER 31, 1995
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
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PART I
Borg-Warner Automotive, Inc. (the "Company") was incorporated in Delaware
in 1987 in connection with the acquisition of Borg-Warner Corporation ("Old
Borg-Warner") by an indirect wholly owned subsidiary of Borg-Warner Security
Corporation ("BW-Security"). Until January 1993, the Company was a wholly owned
subsidiary of BW-Security. In January 1993, BW-Security, as part of a
recapitalization, distributed all of the outstanding common stock of the Company
as a dividend to the holders of BW-Security common stock (the "Spin-Off"). In
August 1993, the Company completed an initial public offering of 3,660,300
shares of its Common Stock (the "IPO").
ITEM 1. BUSINESS
The Company develops, manufactures and markets highly engineered components
and systems primarily for automotive powertrain applications. The Company's
products are sold worldwide primarily to Original Equipment Manufacturers
("OEMs") of passenger cars, sport-utility vehicles and light trucks.
Company Business Units
The Company's products fall into four categories: Powertrain Systems,
Automatic Transmission Systems, Morse TEC and Control Systems. Net revenues by
product grouping for the three years ended December 31, 1995, 1994 and 1993, are
as follows (in millions of dollars):
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
-------- -------- --------
Powertrain Systems................................... $ 544.8 $ 529.9 $ 418.4
Automatic Transmission Systems....................... 454.4 378.5 307.6
Morse TEC............................................ 257.6 239.9 202.3
Control Systems...................................... 107.6 97.3 83.7
-------- -------- --------
1,364.4 1,245.6 1,012.0
Interbusiness eliminations........................... (35.3) (22.2) (26.6)
-------- -------- --------
Net sales.......................................... $1,329.1 $1,223.4 $ 985.4
======== ======== ========
The Company has restated 1993 and 1994 quarterly sales to eliminate
intra-group sales at the group level instead of eliminating all intercompany
sales at the Company-wide level.
The sales information presented above excludes the sales by the Company's
unconsolidated joint ventures. See "Joint Ventures." Such sales totaled
approximately $394 million in 1995, approximately $316 million in 1994 and
approximately $312 million in 1993.
The Company conducts business in one industry segment. See the Consolidated
Statements of Operations and Consolidated Balance Sheets on pages 19 and 20 of
the Company's Annual Report for information concerning the revenues, operating
profit or loss, and identifiable assets attributable to the Company's industry
segment.
Powertrain Systems
The Company manufactures fully assembled transmission systems and
components for automotive applications. Major products include four-wheel drive
("4WD") and all-wheel drive transfer cases and manual transmissions.
Transfer cases are installed 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. Shifting from two-wheel drive to 4WD can be
accomplished mechanically through a lever or electronically through a push
button activated motor.
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The Company has designed and developed an exclusive 4WD
Torque-on-Demand (TM) ("TOD") transfer case system, which allows vehicles to
automatically shift from two-wheel drive to four-wheel drive when electronic
sensors indicate it is necessary. The TOD transfer case is a feature on the
Ford Explorer, the best selling sport-utility vehicle in the United States in
1995.
Sales of 4WD transfer cases represented 30%, 26% and 28% of the Company's
total revenues for 1995, 1994 and 1993, respectively. The Company believes that
it is the world's leading independent manufacturer of 4WD transfer cases,
producing approximately 847,000 transfer cases in 1995. 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 and the Ford F-150 pick-up truck.
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 at Mercedes-Benz's new U.S.
passenger-vehicle manufacturing facility beginning in 1997. 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 sq. ft.
facility in Seneca, South Carolina, to establish the production facility for
manufacture of the Mercedes-Benz transfer case.
The Company also designs and manufactures five and six-speed rear-wheel
drive manual transmissions for passenger cars and light trucks. Sales of manual
transmissions accounted for 11%, 14% and 10% of the Company's total sales in
1995, 1994 and 1993, respectively. The Company believes that it is the leading
independent manufacturer of manual transmissions for cars and light trucks in
North America, producing approximately 257,000 five and six-speed manual
transmissions in 1995. The Company's five-speed manual transmission is used in
high performance cars such as the Ford Mustang, the Chevrolet Camaro and the
Pontiac Firebird, and light trucks such as the Isuzu Rodeo. The Company's
six-speed manual transmission is used in the Dodge Viper, the Camaro Z-28 and
the Firebird Formula and Trans Am. The Company is the sole supplier of manual
transmissions for these cars.
In January 1996, the Company announced its intention to seek a buyer for
its North American manual transmission business due to the decline in demand for
such products in North America and rising in-house supply of manual
transmissions by OEMs. See Item 7, Management's Discussion and Analysis of
Financial Condition and Results of Operations, for a further discussion of this
matter.
The Company signed agreements to establish joint ventures in India and
China in 1995 for the manufacture of 4WD transfer cases and manual
transmissions.
Automatic Transmission Systems
The Company engineers and manufactures systems and components for automatic
transmissions as well as systems combining such components worldwide. Principal
product lines include friction plates, one-way clutches, transmission bands and
torque converters for automatic transmissions.
The Company manufactures over 100 different varieties of friction plates
incorporating asbestos-free, organic friction paper linings. The Company offers
over 20 proprietary friction material formulas, each developed to satisfy
specific customer requirements. The quality of the friction surface results in
high durability, smooth shifting quality, low noise and vibration and minimal
drag. The Company also manufactures over 16 varieties of transmission bands used
in automatic transmissions and over 100 types of one-way clutches for automotive
and aircraft applications. The Company believes that, with the inclusion of one
of its joint ventures, it is the world's leading manufacturer of friction
elements and one-way clutches for automatic transmissions. The Company is an
original equipment supplier to virtually every major automatic transmission
manufacturer in the world.
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The Company is also North America's leading independent supplier of torque
converter assemblies for trucks, buses and heavy-duty off-highway vehicles. A
torque converter is a fluid clutch that transmits power from the engine
crankshaft to the transmission.
In 1995, the Company completed the purchase of the Precision Forged
Products Division ("PFPD") of Federal-Mogul Corporation. PFPD is a manufacturer
of precision forged sintered metallurgy products, including races for one-way
clutches and engine connecting rods which utilize powdered metal technology.
This acquisition will allow the Company to incorporate products of PFPD with
existing products to become a supplier of one-way clutch systems.
Morse TEC
Morse TEC manufactures chain and chain systems, including HY-VO(R)
front-wheel and 4WD chain, timing chain and timing chain systems, crankshaft and
camshaft sprockets, chain tensioners and snubbers.
HY-VO chain is used in front-wheel drive transmissions and for four-wheel
drive transfer case applications. Transmission chain is used to transfer power
from the engine to the transmission. The Company's MORSE GEMINI(TM) Chain
System, which is used on Chrysler's LH models, emits significantly less chain
pitch frequency noise than conventional transmission chain systems. In 1997, GM
will be incorporating this system in its front-wheel drive vehicles. The chain
in a transfer case distributes power between the front and rear output shafts
which, in turn, drives the front and rear wheels. The Company believes it is the
world's leading manufacturer of chain for front-wheel drive transmissions and
four-wheel drive transfer cases. The Company is an original equipment supplier
to every major manufacturer who uses chain for such applications.
The Company manufactures complete engine timing chain systems and accessory
drives, including chain, sprockets, tensioners, snubbers, balance shaft gears
and precision gearing. Timing chain is installed around the crankshaft and
camshaft sprockets. The crankshaft turns and transfers power via the timing
chain to the camshaft. The camshaft, in turn, operates the intake and exhaust
valves in the engine cylinder head. The Company's timing chain system is used on
Ford's new family of overhead cam engines, including the Duratech engine. The
Company recently announced that it will be designing and producing a similar
timing chain system for Chrysler's new overhead cam engines beginning in late
1997. The Company believes that it is the world's leading manufacturer of timing
chain.
Control Systems
Control Systems designs and manufactures sophisticated mechanical,
electromechanical and electronic components and systems used for engine and
emission control, fuel and vapor management, electronically controlled automatic
transmissions and steering and suspension systems. The Company produces a
pressure feedback exhaust gas recirculation valve that provides for emissions
control and improved gas mileage. The Company also produces fuel management
control systems, including roll valves for vapor recovery and vapor management,
canister purge solenoids and complete vapor recovery systems.
In 1995, the Company completed the purchase of Societe de L'Usine de la
Marque ("SUM"), a designer and manufacturer of electromechanical and electronic
automotive components located in Tulle, Cedex, France.
JOINT VENTURES
The Company has eight 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 five joint ventures ranges from
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20% to 50%. The results of NSK-Warner K.K., Warner-Ishi Corporation, Beijing
Warner Gear Co., Ltd. and Korea Powertrain Ltd. are reported using the equity
method.
In 1995, the Company entered into a joint venture with Divgi Metalwares
Private Ltd. ("Divgi") to produce transfer cases, manual transmissions and
automatic locking hubs in India. The venture, named Divgi-Warner Private Ltd.,
is expected to begin operations in 1996 and is 60% owned by the Company and 40%
owned by Divgi.
In 1995, the Company entered into a joint venture with Shiyan Automotive
Transmission Factory ("Shiyan") to produce manual transmissions in China. The
venture, to be called Huazhong Warner Transmission Company Ltd. is expected to
begin operations in 1997 and is 60% owned by the Company and 40% owned by
Shiyan.
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 1995 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. $337
Warner-Ishi Turbochargers 1980 50% U.S. Ishikawajima-Harima $ 15
Corporation.......... Heavy Industries
Co., Ltd.
Beijing Warner
Gear Co., Ltd........ Manual transmissions 1992 39% China Beijing Gear Works $ 34
Korea Powertrain, Ltd. Torque converters 1993 20% Korea Pyeong HWA Clutch $ 8
Industries Co.
Ltd.
Warner-Ishi Europe,
S.p.A................ Turbochargers 1995 50% Italy Ishikawajima-Harima N/A
Heavy Industries
Co., Ltd.
Consolidated
Borg-Warner Automotive
Korea, Inc........... Friction products 1987 60% Korea Hyundai Motor $ 25
Company, NSK
Warner K.K.
Divgi-Warner
Private, Ltd......... Transfer cases, manual 1995 60% India Divgi Metalwares N/A
transmissions, and Private, Ltd.
automatic locking hubs
Huazhong Warner
Transmission
Company Ltd.......... Manual transmissions 1995 60% China Shiyan Automotive N/A
Transmission
Factory
See Note 9 of the Notes to Consolidated Financial Statements on page 28 of
the Company's Annual Report for geographic information.
CUSTOMERS
Approximately 86% of the Company's total sales in 1995 were to automotive
OEMs, with the remaining 14% 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 1995 to Ford and General Motors
Corporation constituted approximately 41% and 25%, respectively, of its 1995
consolidated sales. Approximately 26% of consolidated sales for 1995 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
page 28 of the Company's Annual Report.
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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.
RESEARCH AND DEVELOPMENT
Each of the Company's business groups has its own research and development
organization. Approximately 310 employees, including engineers, mechanics and
technicians, are engaged in research and development 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 research and development personnel conceive, design,
develop and manufacture new proprietary automotive components and systems.
Research and development personnel also work to improve current products and
production processes. The Company believes its commitment to research and
development will allow it to obtain new orders from its OEM customers.
Consistent with its strategy of developing technologically innovative
products, the Company spent approximately $36.7 million, $33.8 million and $25.2
million in 1995, 1994 and 1993, respectively, on research and development
activities. Not included in the reported research and development activities
were customer-sponsored research and development activities that were
approximately $11.3 million, $11.2 million and $16.1 million in 1995, 1994 and
1993, 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. During 1994, the Company and BW-Security
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 a large 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 powertrain components to meet their own
requirements or to compete with the Company. There can be no
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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 healthcare costs and, in some cases, export subsidies and/or raw materials
subsidies.
BACKLOG
Total backlog at December 31, 1995, was approximately $336.0 million
(compared to $374.2 million at December 31, 1994), all of which is expected to
be filled during 1996.
EMPLOYEES
As of December 31, 1995, the Company and its consolidated subsidiaries had
approximately 8,600 salaried and hourly employees (as compared with 7,800
employees at December 31, 1994), of which approximately 7,100 were U.S.
employees. Approximately 59% of the Company's domestic hourly workers are
unionized. The Company's Muncie, Indiana plant has approximately 1,665 employees
represented by the United Auto Workers union. Approximately 810 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. 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 1996 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 1995 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
U.S. Environmental Protection Agency and
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certain state environmental agencies and private parties as potentially
responsible parties ("PRPs") at 28 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 $11 million at December 31,
1995. 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.
EXECUTIVE OFFICERS
Set forth below are the names, ages, positions and certain other
information concerning the executive officers of the Company as of March 15,
1996.
NAME AGE POSITION WITH COMPANY
- ------------------------------ --- ------------------------------------------------
John F. Fiedler............... 57 Chairman and Chief Executive Officer
Robin J. Adams................ 42 Vice President and Treasurer
William C. Cline.............. 46 Vice President and Controller
Gary P. Fukayama.............. 48 Executive Vice President
Christopher A. Gebelein....... 49 Vice President--Business Development
Laurene H. Horiszny........... 40 Vice President, Secretary and General Counsel
Geraldine Kinsella............ 48 Vice President--Human Resources
Fred M. Kovalik............... 58 Executive Vice President
Ronald M. Ruzic............... 57 Executive Vice President
Terry A. Schroeder............ 47 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, Inc.
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 and Assistant
Treasurer of BW-Security 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.
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Mr. Fukayama has been Executive Vice President of the Company since
November 1992. He has been President and General Manager of Borg-Warner
Automotive Automatic Transmission Systems Corporation since January 1995. He was
President and General Manager of Borg-Warner Automotive 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 and President and General Manager
of Borg & Beck Torque Systems, Inc. from January 1989 to January 1991.
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. Schroeder has been Vice President of the Company since April 1995 and
President and General Manager of the Company's Control Systems Group since
December 1993. Mr. Schroeder was Vice President and Director of Business
Development for ITT Cannon ("Cannon") from February 1993 to November 1993, and
General Manager for Cannon's Components Group in North America and Asia from
1991 to February 1993.
ITEM 2. PROPERTIES
The Company operates 13 manufacturing facilities in the United States, two
facilities in Germany and one facility in each of Canada, France, Italy, Japan,
Korea 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. In 1995, the Company purchased a 211,000 sq. ft.
facility in Seneca, South Carolina, to establish the production facility for
manufacture of the Mercedes-Benz transfer case.
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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.
1995
PERCENT OF
CAPACITY
LOCATIONS UTILIZATION*
------------------------------------------------------------ ------------
U.S.: Blytheville, Arkansas (leased); Bellwood, Dixon and
Frankfort, Illinois; Muncie, Indiana; Sterling Heights,
Coldwater, Livonia and Romulus, Michigan; Ithaca, New York
(2 plants); Gallipolis, Ohio; Cary, North Carolina.......... 114%
Non-U.S.: Canada, France, Germany (2 plants), Italy (leased), Japan,
Korea, and Wales............................................ 83%
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* 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.
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 in accordance with generally
accepted accounting principles. These provisions include both legal fees and
possible outcomes of legal proceedings.
Centaur Insurance Company ("Centaur"), Old Borg-Warner's discontinued
property and casualty insurance subsidiary and currently 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 1995.
11
12
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 15, 1996, there were approximately 169 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 $.125 per share was paid on February 15, 1994. A quarterly dividend of $.15
per share was paid on May 16, August 15 and November 15, 1994, and February 15,
May 15, August 15 and November 15, 1995. 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 1994 and 1995 were:
QUARTER ENDED HIGH LOW
------------- ------- -------
March 31, 1994....................................... $34.000 $26.375
June 30, 1994........................................ $31.625 $22.625
September 30, 1994................................... $29.125 $22.625
December 31, 1994.................................... $25.500 $21.625
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
ITEM 6. SELECTED FINANCIAL DATA
The Selected Financial Data for the five years ended December 31, 1995,
with respect to the following line items set forth on page 31 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 13 through 17 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 18 through 31
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, 1995 and 1994
is set forth in Note 11 of the Notes to Consolidated Financial Statements on
page 29 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.
12
13
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) 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 7 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 pages 5 and 6 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 15 through 16 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 18 through 31 of the Company's Annual Report are incorporated herein
by reference:
Independent Auditors' Report
Consolidated Statements of Operations -- years ended December 31,
1995, 1994 and 1993
Consolidated Balance Sheets -- December 31, 1995 and 1994
Consolidated Statements of Cash Flows -- years ended December 31,
1995, 1994 and 1993
Consolidated Statements of Stockholders' Equity -- years ended
December 31, 1995, 1994 and 1993
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.
No reports on Form 8-K were filed by the Company during the three-month
period ended December 31, 1995.
13
14
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 22, 1996
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 22ND DAY OF MARCH, 1996.
SIGNATURE TITLE
--------- -----
/s/ JOHN F. FIEDLER Chairman of the Board of Directors and Chief
- ----------------------------------------------- Executive Officer (Principal Executive
John F. Fiedler 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/ MATTHIAS B. BOWMAN Director
- -----------------------------------------------
Matthias B. Bowman
/s/ ALBERT J. FITZGIBBONS, III Director
- -----------------------------------------------
Albert J. Fitzgibbons, III
(by John F. Fiedler)
/s/ PAUL E. GLASKE Director
- -----------------------------------------------
Paul E. Glaske
(by John F. Fiedler)
/s/ IVAN W. GORR Director
- -----------------------------------------------
Ivan W. Gorr
(by John F. Fiedler)
/s/ JAMES J. KERLEY Director
- -----------------------------------------------
James J. Kerley
(by John F. Fiedler)
/s/ ALEXIS P. MICHAS Director
- -----------------------------------------------
Alexis P. Michas
(by John F. Fiedler)
/s/ DONALD C. TRAUSCHT Director
- -----------------------------------------------
Donald C. Trauscht
(by John F. Fiedler)
14
15
EXHIBIT INDEX
SEQUENTIAL
EXHIBIT PAGE
NUMBER DOCUMENT DESCRIPTION NUMBER
- -------- -------------------- -----------
*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).
*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
Documentation 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.
*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).
*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 Registration Rights Agreement dated January 27, 1993 (incorporated by
reference to Exhibit No. 10.5 to Registration Statement No. 33-64934).
+*10.6 Borg-Warner Automotive, Inc. Management Stock Option Plan, as amended
(incorporated by reference to Exhibit No. 10.6 to Registration
Statement No. 33-64934).
+10.7 Borg-Warner Automotive, Inc. 1993 Stock Incentive Plan as amended
effective November 8, 1995.
*10.8 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).
*10.9 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).
*10.10 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).
10.11 Third Amendment of Receivables Transfer Agreement dated as of October
23, 1995.
A-1
16
SEQUENTIAL
EXHIBIT PAGE
NUMBER DOCUMENT DESCRIPTION NUMBER
- -------- -------------------- -----------
*10.12 Service Agreement, dated as of December 31, 1992, by and between Borg-
Warner Security Corporation and Borg-Warner Automotive, Inc.
(incorporated by reference to Exhibit No. 10.10 to Registration
Statement No. 33-64934).
*10.13 Government Relations Service Agreement, dated as of September 1, 1993,
by and between Borg-Warner Security Corporation and Borg-Warner
Automotive, Inc. (incorporated by reference to Exhibit No. 10.14 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1993).
+*10.14 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).
+*10.15 Form of Employment Agreement for Executive Officers (incorporated by
reference to Exhibit 10.3 of the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 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.
+*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.
11. Computation of earnings per share.
13. Annual Report to Stockholders for the year ended December 31, 1995 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. Subsidiaries of the Company.
23. Independent Auditors' Consent.
A-2
17
SEQUENTIAL
EXHIBIT PAGE
NUMBER DOCUMENT DESCRIPTION NUMBER
- -------- -------------------- -----------
24. Power of Attorney.
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).
A-3