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, 1998 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 15, 1999 was approximately $1.1 billion. As
of March 15, 1999, the registrant had 25,861,968 shares of Common Stock
outstanding.
Indicate by check-mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated herein by reference
into the Part of the Form 10-K indicated.
Part of Form 10-K
into which
Document incorporated
Borg-Warner Automotive, Inc. 1998
Annual Report to Stockholders Parts I, II and IV
Borg-Warner Automotive, Inc. Proxy Statement for the
1999 Annual Meeting of Stockholders Part III
BORG-WARNER AUTOMOTIVE, INC.
FORM 10-K
YEAR ENDED DECEMBER 31, 1998
INDEX
Item
Number Page
PART I
1. Business 3
2. Properties 9
3. Legal Proceedings
4. Submission of Matters to a Vote of
Security Holders 10
PART II
5. Market for the Registrant's Common
Equity and Related Stockholder Matters 11
6. Selected Financial Data 11
7. Management's Discussion and Analysis of
Financial Condition and Results
of Operations 11
7a. Market Risk Disclosure 11
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 12
11. Executive Compensation
12. Security Ownership of Certain Beneficial
Owners and Management 12
13. Certain Relationships and Related
Transactions 12
PART IV
14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K 13
PART I
Item 1. Business
Borg-Warner Automotive, Inc. (the "Company"), a Delaware corporation, was
incorporated in 1987. The Company is a leading, global Tier I supplier of
highly engineered systems and components, primarily for 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 35 manufacturing
facilities in 12 countries serving auto makers in North America, Europe and
Asia, is an original equipment supplier to every major OEM in the world.
Financial Information About Segments
Incorporated herein by reference is Note 13 of the Notes to the
Consolidated Financial Statements on pages 43 and 44 of the Company's Annual
Report for the year ended December 31, 1998 (the "1998 Annual Report") filed as
an exhibit to this report.
Narrative Description of Operating Segments
The Company's products fall into four operating segments: Powertrain
Systems, Automatic Transmission Systems, Morse TEC and Air/Fluid Systems. During
1998, the Company completed its purchase of the European turbocharger business
of AG Kuhnle, Kopp & Kausch ("AG Kuhnle"). The results of the European
turbocharger business, previously presented as a separate business group, have
been integrated into the Morse TEC operating segment. Net revenues by segment
for the three years ended December 31, 1998, 1997 and 1996, are as follows (in
millions of dollars):
Year ended December 31,
-----------------------
1998 1997 1996
------ ------- -----
Powertrain Systems $ 518.8 $ 613.6 $ 476.8
Automatic Transmission Systems 402.6 418.2 392.2
Morse TEC 536.2 349.0 276.6
Air/Fluid Systems 351.4 342.4 242.7
Divested operations 73.5 101.4 189.2
Interbusiness eliminations (45.7) (57.6) (37.4)
-------- --------- -------
Net sales $ 1,836.8 $1,767.0 $1,540.1
========= ========== ==========
The sales information presented above excludes the sales by the Company's
unconsolidated joint ventures. See "Joint Ventures." Such sales totaled
approximately $247 million in 1998, $336 million in 1997 and $348 million in
1996.
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(R) ("TOD") transfer case system, which allows
vehicles to automatically shift from two-wheel drive to 4WD when electronic
sensors indicate it is necessary. The TOD transfer case is available on the Ford
Explorer, the best selling sport-utility vehicle in the United States in 1997
and 1998, the Ford Expedition, the Lincoln Navigator, the Isuzu Trooper and the
SsangYong Musso.
Sales of 4WD transfer cases represented 27%, 34% and 30% of the Company's
total revenues for 1998, 1997, and 1996, respectively. The Company believes that
it is the world's leading independent manufacturer of 4WD transfer cases,
producing approximately one million transfer cases in 1998. The Company's
largest customer of 4WD transfer cases is Ford Motor Company ("Ford"). The
Company supplies the majority of the 4WD transfer cases for Ford, including
those installed in the Ford Explorer, the Ford Expedition, the Ford F-150
pick-up truck, the Mercury Mountaineer and the Lincoln Navigator.
The Company supplies transfer cases for the Mercedes-Benz 4WD vehicle,
which was first made available to consumers in 1997 and is manufactured at
Mercedes-Benz's United States passenger-vehicle manufacturing facility. Under a
five-year agreement, which has a three-year extension provision, the Company
developed and supplies Mercedes-Benz with two-speed, electronically controlled,
all-wheel drive transfer cases that are compatible with its anti-skid braking
system.
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, and races 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(TM) 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 that 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, as well as Chrysler's
2.7 liter overhead cam engine. The Company has been selected to design and
produce complete timing chain systems for Chrysler's 3.7 liter and 4.7 liter
overhead cam engines, introduced in 1998. The Company believes that it is the
world's leading manufacturer of timing chain.
In December 1998, the Company announced the completion of its purchase of
the European turbocharger business of AG Kuhnle, renaming it 3K-Warner
Turbosystems GmbH ("3K-Warner"). 3K-Warner supplies turbochargers to European
diesel and spark ignition engine manufacturers for use in the passenger car and
commercial vehicle markets as well as for industrial locomotive and marine
engines. 3K-Warner's sales of turbochargers included in the Company's 1998
results of operations were $182.9 million.
The Company continues to own approximately 63% of AG Kuhnle, which
continues to manufacture compressors and turbines for use in the energy and
environmental support markets. As soon as practicable, the Company intends to
realize its 63% investment in AG Kuhnle.
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.
Acquisition of Kuhlman Corporation
On March 1, 1999, the Company acquired Kuhlman Corporation ("Kuhlman").
Kuhlman became a wholly-owned subsidiary of the Company. The total value of
consideration the Company paid in the merger was approximately $683 million.
Approximately $533 million of this amount was in cash, with the remaining in the
Company's common stock.
Kuhlman is a diversified, industrial manufacturing company that currently
operates in two product segments: industrial products and electrical products.
Through its Schwitzer Group, which includes Kuhlman's industrial products
business, Kuhlman is a leading worldwide manufacturer of proprietary engine
components, including turbochargers, fans and fan drives, fuel tanks,
instrumentation, heating/ventilation/air conditioning systems, and other
products used primarily in commercial transportation products and industrial
equipment. Kuhlman's electrical products businesses include the manufacture of
transformers and other products for electrical utilities and industrial users,
as well as electrical and electronic wire and cable products for use in
consumer, commercial and industrial applications. The Company intends to sell
the electrical products businesses. Kuhlman's products are sold to over 5,000
domestic and international customers operating in more than 60 countries
worldwide.
Joint Ventures
The Company has four joint ventures in which it has a less-than-100%
ownership interest. Results from two of these ventures, in which the Company is
the majority owner, are consolidated as part of the Company's results. The
Company's ownership interest in the two unconsolidated joint ventures,
NSK-Warner and Beijing Warner Gear Co., Ltd. are 49% and 50%, respectively.
These investments are reported using the equity method. During 1998, the Company
sold its ownership interest in Warner-Ishi Corporation and Warner-Ishi Europe
S.p.A. to its joint venture partner, Ishikawajima-Harima Heavy Industries Co.,
Ltd.
Management of the unconsolidated joint ventures is shared with the
Company's respective joint venture partners. Certain information concerning the
Company's joint ventures is set forth below:
Percentage Fiscal
Owned by Location 1998 Sales
Year the of Joint Venture ($ in
Joint Venture Products Organized Company Operation Partner millions)
Unconsolidated
NSK-Warner K.K. Friction products 1964 50% Japan Nippon Seiko K.K. $230
Beijing Warner
Gear Co., Ltd.Manual
transmissions 1992 49% China Beijing Gear Works $13
Consolidated
Borg-Warner Automotive
Korea, Inc. Friction products 1987 80% Korea NSK Warner K.K. $20
Divgi-Warner
Limited Transfer cases,
manual transmissions
and automatic locking
hubs 1995 60% India Divgi Metalwares,Ltd.$5
See Note 13 of the Notes to Consolidated Financial Statements on pages 43 and 44
of the Company's Annual Report for geographic information.
Sales and Marketing
Each of the Company's four operating segments has its own sales function
headed by a Vice President of Sales. Account executives for each group are
assigned to serve specific OEM customers for one or more of a business group's
products. Such account executives spend the majority of their time in direct
contact with OEM purchasing and engineering employees and are responsible for
servicing existing business and for identifying and obtaining new business.
Because of their close relationship with the OEMs, account executives are able
to identify and meet customers' needs based upon their knowledge of the
Company's products and design and manufacturing capabilities. Upon securing a
new order, account executives participate in product launch team activities as a
key interface to the customers.
Research and Development
Each of the Company's operating segments has its own research and
development ("R&D") organization. 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 $65.1 million, $59.0 million and $54.4
million in 1998, 1997 and 1996, respectively, on R&D activities. Not included in
the reported R&D activities were customer-sponsored R&D activities that were
approximately $8.4 million, $8.0 million and $10.0 million in 1998, 1997 and
1996, respectively.
Patents and Licenses
The Company has approximately 2,000 active domestic and foreign patents and
patent applications pending or under preparation, and receives royalties from
licensing patent rights to others. While it considers its patents on the whole
to be important, the Company does not consider any single patent, group of
related patents or any single license essential to its operations in the
aggregate or to the operations of any of the Company's business groups
individually. The expiration of the patents individually and in the aggregate
is not expected to have a material effect on the Company's financial position or
future operating results. The Company owns numerous trademarks, some of which
are valuable but none of which are essential to its business in the aggregate.
The Company owns the "Borg-Warner Automotive" trade name and housemark,
which are material to the Company's business.
Competition
Each of the Company's operating segments competes worldwide with a number
of other manufacturers and distributors which produce and sell similar products.
Price, quality and technological innovation are the primary elements of
competition. Competitors include vertically integrated units of the Company's
major OEM customers, as well as a large number of independent domestic and
international suppliers. Many of these companies are larger and have greater
resources than the Company.
A number of the Company's major OEM customers manufacture, for their own
use and for others, products which compete with the Company's products. Although
these OEM customers have indicated that they will continue to rely on outside
suppliers, the OEMs could elect to manufacture products to meet their own
requirements or to compete with the Company. There can be no assurance that the
Company's business will not be adversely affected by increased competition in
the markets in which it operates.
The competitive environment has changed dramatically over the past few
years as the Company's traditional United States OEM customers, faced with
intense international competition, have expanded their worldwide sourcing of
components 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, 1998, the Company and its consolidated subsidiaries had
approximately 10,100 salaried and hourly employees (as compared with
approximately 10,400 employees at December 31, 1997), of which approximately
7,300 were U.S. employees. Approximately 32% of the Company's domestic hourly
workers are unionized. The collective bargaining agreement covering the Muncie
Plant was renewed in March 1998 and the collective bargaining agreement covering
the Ithaca plant was renewed 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
Each of the Company's operating segments believes that its supplies of raw
materials for manufacturing requirements in 1999 are adequate and are available
from multiple sources. It is common, however, for customers to require their
prior approval before certain raw materials or components can be used, thereby
reducing sources of supply that would otherwise be available. Manufacturing
operations for each of the Company's operating segments are dependent upon
natural gas, fuel oil, propane and electricity.
Environmental Regulation and Proceedings
The Company's operations are subject to federal, state, local and foreign
laws and regulations governing, among other things, emissions to air, discharge
to waters and the generation, handling, storage, transportation, treatment and
disposal of waste and other materials. The Company believes that 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 1998 attributable to
compliance with such legislation were not material.
The Company and certain of its current and former direct and indirect
corporate predecessors, subsidiaries and divisions have been identified by the
United States Environmental Protection Agency and certain state environmental
agencies and private parties as potentially responsible parties ("PRPs") at
various hazardous waste disposal sites under the Comprehensive Environmental
Response, Compensation and Liability Act ("Superfund") and equivalent state laws
and, as such, may presently be liable for the cost of cleanup and other remedial
activities at 26 such sites. Responsibility for cleanup and other remedial
activities at a Superfund site is typically shared among PRPs based on an
allocation formula.
Based on information available to the Company which, in most cases,
includes: an estimate of allocation of liability among PRPs; the probability
that other PRPs, many of whom are large, solvent public companies, will fully
pay the costs apportioned to them; currently available information from PRPs
and/or federal or state environmental agencies concerning the scope of
contamination and estimated remediation costs; remediation alternatives;
estimated legal fees; and other factors, the Company has established a reserve
for indicated environmental liabilities in the aggregate amount of approximately
$7.9 million at December 31, 1998. The Company expects this amount to be
expended over the next three to five years.
The Company entered into a Settlement Agreement and Specific Mutual Release
dated as of May 31, 1998 (the "Settlement Agreement") with Borg-Warner Security
Corporation ("BWSC"), the successor corporation to its former parent. The
previously-reported dispute involved whether BWSC was entitled to
indemnification from the Company for certain environmental liabilities under a
Distribution and Indemnity Agreement dated January 27, 1993.
Pursuant to the Settlement Agreement, the Company and BWSC agreed to
dismiss and vacate any and all arbitration awards resulting from the arbitration
proceeding and to dismiss with prejudice the lawsuit filed by the Company in the
Circuit Court of Cook County, Illinois on January 27, 1998. Under the
Settlement Agreement, the Company agreed to indemnify BWSC for the first $2.9
million BWSC pays in environmental costs after April 30, 1998 and 50% of any
amounts in excess of $2.9 million. At present, the Company does not have
sufficient information to determine the extent of its liability under the
Settlement Agreement, but does not anticipate that such amount will have a
material adverse effect on its financial position or future operating results.
It is expected that indemnification payments will be made by the Company over
the course of several years as the environmental costs are incurred.
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,
1999.
Name Age Position with Company
John F. Fiedler 60 Chairman and Chief Executive Officer
Robin J. Adams 45 Vice President and Treasurer
William C. Cline 49 Vice President and Controller
Gary P. Fukayama 51 Executive Vice President
Christopher A. Gebelein 52 Vice President--Business Development
Laurene H. Horiszny 43 Vice President, Secretary and General Counsel
John A. Kalina 53 Vice President, Chief Information Officer
Geraldine Kinsella 51 Vice President--Human Resources
Timothy Manganello 49 Vice President
Ronald M. Ruzic 60 Executive Vice President
Robert D. Welding 50 Executive 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.
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 Borg-Warner Security Corporation from 1987
to 1993.
Mr. Fukayama has been Executive Vice President of the Company since
November 1992 and is Group President and General Manager of Borg-Warner
Automotive Air/Fluid Systems Corporation. 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
Automotive Transmission & Engine Components Corporation, Automatic Transmission
Systems from November 1992 to December 1994.
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.
Mr. Kalina has been Vice President, Chief Information Officer of the
Company since January 1999. He was an Executive IT Consultant for IBM from
August 1997 until January 1999 and was Chief Information Officer for Walbro
Corporation from September 1995 until December 1996. He was Chief Information
Officer of Robert Bosch Corporation from October 1985 until December 1994.
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. Manganello has been Vice President of the Company and President and
General Manager of Borg-Warner Automotive Powertrain Systems Corporation since
February 1999. He was Vice President, Operations of Borg-Warner Automotive
Powertrain Systems Corporation, Muncie Plant from December 1995 until January
1999. He was Vice President, Business Development of Borg-Warner Automotive
Powertrain Systems Corporation, from October 1994 until November 1995. He was
Vice President of Sales of Borg-Warner Automotive Morse Chain Systems from
January 1989 to October 1994.
Mr. Ruzic has been Executive Vice President of the Company and Group
President of Borg-Warner Automotive Morse TEC Corporation since October 1992,
Chairman of 3K-Warner Turbosystems GmbH since September 1998 and Vice Chairman
of AG Kuhnle, Kopp & Kausch since September 1997.
Mr. Welding has been Executive Vice President of the Company since November
1998 and has been President of Borg-Warner Automotive Automatic Transmission
Systems Corporation since May 1996. He was Vice President of the Company from
May 1996 until October 1998 and was Vice President-Operations of Borg-Warner
Automotive Automatic Transmission Systems Corporation, Bellwood Plant, from
November 1993 to May 1996.
Item 2. Properties
As of December 31, 1998, the Company had 35 manufacturing facilities
strategically located throughout the United States and worldwide. In addition
to its domestic manufacturing facilities, the Company has three facilities in
Germany, two facilities in Japan and India, and one facility in each of Canada,
Italy, Mexico, China, 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 following is additional information concerning the headquarters and the
major manufacturing plants operated by the Company and its consolidated
subsidiaries. Unless otherwise noted, these plants are owned by the Company.
1998
Percent of
Capacity
Utilization
Locations (1)(2)
Air/Fluid Systems 77.9%
Headquarters: Warren, Michigan
Blytheville, Arkansas (leased)
Dixon, Illinois
Sallisaw, Oklahoma
Tulle, France
Water Valley, Mississippi
Automatic Transmission Systems 130.7%
Headquarters: Lombard, Illinois
Bellwood, Illinois
Coldwater, Michigan
Eumsung, Korea (80% JV)
Frankfort, Illinois
Gallipolis, Ohio
Heidelberg, Germany
Ketsch, Germany
Lombard, Illinois (aftermarket)
Margam, Wales
Morse TEC 120.7%
Headquarters: Ithaca, New York
Arcore, Italy
Guadalajara, Mexico
Ithaca, New York
Nabari City, Japan
Simcoe, Ontario, Canada
Tainan Shien, Taiwan
Frankenthal, Germany
Kirchheimbolanden, Germany
Powertrain Systems 105.1%
Headquarters: Sterling Heights, Michigan
Cary, North Carolina
Livonia, Michigan
Longview, Texas (leased)
Margam, Wales
Muncie, Indiana
Pune, India (60% JV)
Seneca, South Carolina
Sirsi, India (60% JV)
(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. Excluded from this figure is the Sterling Heights facility which the
Company is in the process of selling.
(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 in accordance with generally
accepted accounting principles. These provisions include both legal fees and
possible outcomes of legal proceedings.
It is the opinion of the Company that the various asserted claims and
litigation in which the Company is currently involved will not materially affect
its financial position or future operating results, although no assurance can be
given with respect to the ultimate outcome for any such claim or litigation.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to the security holders of the Company
during the fourth quarter of 1998.
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, 1999, there were approximately 1,682 holders of record
of Common Stock.
The Company has paid cash dividends of $.15 per share on its Common Stock
and Non-Voting Common Stock during each quarter for the last two fiscal years.
While the Company currently expects that comparable quarterly cash dividends
will continue to be paid in the future, the dividend policy is subject to review
and change at the discretion of the Board of Directors.
High and low sales prices (as reported on the New York Stock Exchange
composite tape) for the Common Stock for each quarter in 1997 and 1998 were:
Quarter ended High Low
March 31, 1997 $42.625 $38.375
June 30, 1997 $53.250 $42.000
September 30, 1997 $57.750 $50.438
December 31, 1997 $60.875 $46.125
March 31, 1998 $64.500 $49.625
June 30, 1998 $68.125 $43.688
September 30, 1998 $51.563 $37.063
December 31, 1998 $55.813 $33.313
Item 6. Selected Financial Data
The Selected Financial Data for the five years ended December 31, 1998 with
respect to the following line items set forth on page 45 of the Company's Annual
Report is incorporated herein by reference and made a part of this report: net
sales; net earnings; net earnings per share; total assets; total debt; and cash
dividend declared per share. See the material incorporated herein by reference
in response to Item 7 of this report for a discussion of the factors that
materially affect the comparability of the information contained in such data.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The Management's Discussion and Analysis of Financial Condition and Results
of Operations set forth on pages 21 through 26 in the Company's Annual Report
are incorporated herein by reference and made a part of this report.
Item 7a. Market Risk Disclosure
Information with respect to the levels of indebtedness subject to interest
rate fluctuation is contained in Note 5 of the Notes to Consolidated Financial
Statements on pages 35 or 36 of the Company's Annual Report and is incorporated
herein by reference and made a part of this report. Information with respect to
the Company's level of business outside the United States which is subject to
foreign currency exchange rate market risk is contained in Note 13 of the Notes
to Consolidated Financial Statements on page 44 under the caption "Geographic
Information."
The Company is subject to market risk associated with adverse changes in
interest rates and foreign currency exchange rates, but does not hold any market
risk sensitive instruments for trading purposes. Principal exposed to interest
rate risk at December 31, 1998 is limited to $237 million in variable rate debt.
The Company measures its interest rate risk by estimating the net amount by
which potential future net earnings would be impacted by hypothetical changes in
market interest rates related to all interest rate sensitive assets and
liabilities. Assuming a hypothetical 20% increase in interest rates as of
December 31, 1998, the estimated reduction in future earnings, net of tax, would
be approximately $2 million.
The Company mitigates its foreign currency exchange rate risk principally
by establishing local production facilities in the markets it serves, by
invoicing customers in the same currency as the source of the products and by
funding its investments in foreign markets through local currency loans. The
Company also monitors its foreign currency exposure in each country and
implements strategies to respond to changing economic and political
environments. In the aggregate, the Company's exposure related to such
transactions is not material to the Company's financial position, results of
operations or cash flows.
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 27 through 44
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, 1998 and 1997
is set forth in Note 9 of the Notes to Consolidated Financial Statements on page
40 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
page 4 of the Company's Proxy Statement and "Executive Compensation," "Stock
Options," "Long-Term Incentive Plans," and "Employment Agreements" 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 page 5 of the Company's Proxy Statement is incorporated
herein by reference and made a part of this report.
Item 13. Certain Relationships and Related Transactions
Information with respect to certain relationships and related transactions
under the caption "Certain Relationships and Related Transactions" on page 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 27 through 44 of the Company's Annual Report are incorporated herein by
reference:
Independent Auditors' Report
Consolidated Statements of Operations--years ended December 31, 1998, 1997
and 1996
Consolidated Balance Sheets--December 31, 1998 and 1997
Consolidated Statements of Cash Flows--years ended December 31, 1998, 1997
and 1996
Consolidated Statements of Stockholders' Equity--years ended December 31,
1998, 1997 and 1996
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.
(1) On December 11, 1998, the Company filed a report on Form 8-K
announcing that it had completed the purchase of the turbocharger systems
division of AG Kuhnle, Kopp & Kausch.
(2) On December 21, 1998, the Company announced that it had entered into
an Agreement and Plan of Merger with Kuhlman Corporation, pursuant to which BWA
Merger Corp., a newly formed wholly-owned subsidiary of the Company, will be
merged with and into Kuhlman.
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.
/s/ John F. Fiedler
By:---------------------------
John F. Fiedler
Chairman and Chief Executive Officer
Date: March 19, 1999
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 19th day of March, 1999.
Signature Title
/s/ John F. Fiedler
------------------------- Chairman of the Board of Directors and
John F. Fiedler Chief Executive Officer (Principal
Executive Officer)
/s/ Robin J. Adams
------------------------- Vice President and Treasurer (Principal
Robin J. Adams Financial Officer)
/s/ William C. Cline
------------------------- Vice President and Controller
William C. Cline (Principal Accounting Officer)
*
-------------------------
Andrew F. Brimmer Director
*
-------------------------
William E. Butler Director
*
-------------------------
Jere A. Drummond Director
*
-------------------------
Paul E. Glaske Director
*
-------------------------
Ivan W. Gorr Director
*
-------------------------
James J. Kerley Director
*
-------------------------
Alexis P. Michas Director
*
-------------------------
John Rau Director
/s/ John F. Fiedler
--------------------------
John F. Fiedler As attorney-in-fact for the directors
marked by an asterisk.
EXHIBIT INDEX
Exhibit
Number Document Description
- ------- -------------------------
*3.1 Restated Certificate of Incorporation of the Company (incorporated by
reference to Exhibit No. 3.1 of the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1993).
*3.2 By-laws of the Company (incorporated by reference to Exhibit No. 3.2
of the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1993).
3.3 Certificate of Designation, Preferences and Rights of Series A Junior
Participating Preferred Stock.
*4.1 Indenture, dated as of November 1, 1996, between Borg-Warner
Automotive, Inc. and The First National Bank of Chicago (incorporated
by reference to Exhibit No. 4.1 to Registration Statement
No. 333-14717).
*4.2 Indenture, dated as of February __, 1999, between Borg-Warner
Automotive, Inc. and The First National Bank of Chicago (incorporated
by reference to Exhibit No. 4.1 to Amendment No. 1 to Registration
Statement No. 333-66879).
*4.3 Rights Agreement, dated as of July 22, 1998, between Borg-Warner
Automotive, Inc. and ChaseMellon Shareholder Services,
L.L.C.(incorporated by reference to Exhibit 4.1 to the Registration
Statement on Form 8-A filed on July 24, 1998).
*10.1 Credit Agreement dated as of 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
(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
(incorporated by reference to Exhibit 10.3 of the Company's Annual
Report on Form 10-K for the year ended December 31, 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 Amendment to Credit Agreement dated as of February 2, 1999 to the
Credit Agreement dated as of December 7, 1994.
*10.6 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).
*10.7 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).
Exhibit
Number Document Description
- ------- -------------------------
+*10.8 Borg-Warner Automotive, Inc. Management Stock Option Plan, as amended
(incorporated by reference to Exhibit No. 10.6 to Registration
Statement No. 33-64934).
+*10.9 Borg-Warner Automotive, Inc. 1993 Stock Incentive Plan as amended
effective November 8, 1995 (incorporated by reference to Appendix A of
the Company's Proxy Statement dated March 21, 1997).
*10.10 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).
10.11 Amended and Restated Receivables Loan Agreement dated as of December
23, 1998 among BWA Receivables Corporation, as Borrower, Borg-Warner
Automotive, Inc., as Collection Agent, ABN AMRO Bank N.V., as Agent,
the Banks from time to time party hereto, ABN AMRO Bank N.V., as the
Program LOC Provider and the Program LOC Provider and Windmill Funding
Corporation.
*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 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).
+*10.14 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).
+*10.15 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).
+*10.16 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).
+*10.17 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).
+*10.18 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).
+*10.19 Amended Form of Employment Agreement for John F. Fiedler dated January
27, 1998 (incorporated by reference to Exhibit 10.21 of the Company's
Annual Report on Form 10-K for the year ended December 31, 1997).
Exhibit
Number Document Description
- ------- -------------------------
+*10.20 Form of Change of Control Employment Agreement for Executive Officers
(incorporated by reference to Exhibit No. 10.1 to the Company's
Quarterly Report on Form 10-Q for the Quarter ended September 30,
1997).
+*10.21 Amendment to the Change of Control Employment Agreement between the
Company and John F. Fiedler dated effective January 30, 1998
(incorporated by reference to Exhibit 10.23 of the Company's Annual
Report on Form 10-K for the year ended December 31, 1997).
*10.22 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 Amendment to Assignment of Trademarks and License Agreement.
+*10.24 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).
*10.25 Agreement of Purchase and Sale dated as of May 31, 1996 by and among
Coltec Industries Inc., Holley Automotive Group, Ltd., Holley
Automotive Inc., Coltec Automotive Inc., and Holley Automotive Systems
GmbH and Borg-Warner Automotive, Inc., Borg-Warner Automotive
Air/Fluid Systems Corporation and Borg-Warner Automotive Air/Fluid
Systems Corporation of Michigan (incorporated by reference to
Exhibit 10.1 of the Company's Current Report on Form 8-K dated as of
June 17, 1996).
*10.26 Agreement and Plan of Merger dated as of December 17, 1998 by and
between Borg-Warner Automotive, Inc., BWA Merger Corp. and Kuhlman
Corporation (incorporated by reference to Exhibit 2 of the Company's
Current Report on Form 8-K dated as of December 21, 1998).
13.1 Annual Report to Stockholders for the year ended December 31, 1998
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).