UNITED STATES
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, 1994 COMMISSION FILE NUMBER: 33-15419

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BORG-WARNER SECURITY CORPORATION
(Exact name of registrant as specified in its charter)

DELAWARE 13-3408028
(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:

Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, par value $.01 per share New York Stock Exchange
9-1/8% Senior Subordinated Notes due 2003 New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

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Indicate by check mark whether 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, and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
--- ---

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. [ ]

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 14, 1995 was
approximately $69.3 million. As of March 14, 1995, the registrant had 21,793,425
shares of Common Stock and 1,149,600 shares of Series I Non-Voting Common Stock
outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the following documents are incorporated herein by reference into
the Part of the Form 10-K indicated.

DOCUMENT PART OF FORM 10-K INTO WHICH INCORPORATED
-------- -----------------------------------------

The Company's annual report to Parts I, II and IV
stockholders for the year ended
December 31, 1994

The Company's proxy statement for Part III
the 1995 annual meeting of stockholders

BORG-WARNER SECURITY CORPORATION
FORM 10-K
YEAR ENDED DECEMBER 31, 1994
INDEX

PART I

Item Number Page
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1. Business 3
2. Properties 13
3. Legal Proceedings 13
4. Submission of Matters to a Vote of Security Holders 16

PART II

5. Market for the Registrant's Common Stock
and Related Stockholder Matters 16
6. Selected Financial Data 17
7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 17
8. Financial Statements and Supplementary Data 17
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 18

PART III

10. Directors and Executive Officers of the Registrant 18
11. Executive Compensation 18
12. Security Ownership of Certain Beneficial
Owners and Management 18
13. Certain Relationships and Related Transactions 18

PART IV

14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K 19

PART I

ITEM 1. BUSINESS

The Company provides a broad line of protective services for its customers,
including guard, alarm, armored transport and courier services. The Company
believes that, based on revenues and the variety of services offered, it is
the largest and broadest-based supplier in the protective services industry in
the United States.

COMPANY'S BUSINESS UNITS

The Company's protective services business is divided into four business
units: guard services, alarm services, armored transport services and courier
services. Information concerning the revenues, operating profit or loss and
identifiable assets attributable to each of the Company's business units is
incorporated herein by reference to Note 9 of the Notes to Consolidated
Financial Statements.

GUARD SERVICES

The guard services unit provides a variety of guard and related security
services under the Wells Fargo(R), Burns(R), Globe(R) and other service marks
to over 13,000 government and business customers from approximately 319
locations throughout the United States, and in Canada, Colombia and the United
Kingdom. The Company believes that its guard services unit is the largest
contract guard services operation in the world, measured by revenues.

The Company's guard services unit supplies contract uniformed and
plainclothes security officers, who may or may not be armed, to perform a wide
variety of tasks. These security officers patrol and monitor commercial,
financial, industrial, residential and governmental facilities providing
deterrence against crime and breach of governmental security regulations and
detection of fire, accidents and other casualties. The security officers also
monitor electronic systems and control public and employee access to
facilities. Specialized assignments include nuclear and conventional electric
power plant security, pre-departure screening of passengers and luggage at
airports, mailroom services and investigative services, including background
investigations of prospective employees.

The guard services unit employs approximately 76,000 security officers.
Security officers undergo a standardized pre-employment screening program that
features mandatory drug screening, criminal record checks at the county and
municipal court level and verification of consumer credit reports, social
security information and driver's license records. Security officers receive
classroom orientation and field training in safety, first aid and security
techniques and in the handling of specific problems applicable to particular
industries or situations.

The guard services unit markets guard services through approximately 225
sales representatives nationwide and in Canada, Colombia and the United
Kingdom. Sales personnel operate out of local branch and sales offices. The
guard services unit also bids on contracts with governmental agencies.

Guard services contracts generally provide for such services on a
continuing basis and generally are terminable by either party upon 30 to 60
days notice. Charges for guard services are negotiated with customers and are
based upon payment of a specified amount per guard hour. Typically, such
charges are adjusted for any change in any law, ruling or collective
bargaining agreement causing a change in work hours, wage rates, working
conditions or other costs. Investigative services are generally provided under
specific arrangements, with charges varying according to the nature of the
assignment.

ALARM SERVICES

The alarm services unit provides electronic security services in the United
States and Canada under the Wells Fargo(R) service mark for its commercial
customers and under the Pony Express(R) service mark for its residential
customers. In addition, this unit provides an integrated guard, patrol and
alarm service to Bel Air, Beverly Hills and other suburbs of Los Angeles under
the trade name Bel-Air Patrol. The Company believes that its alarm services
unit is one of the largest electronic security service operations in the
United States, measured by revenues. The unit has approximately 2,440 full-
time and 165 part-time employees.

Commercial. The alarm services unit designs, installs, monitors and
services electronic detection systems located at customers' premises. These
systems are tailored to customers' needs and may include intrusion and fire
detection, critical process and sprinkler monitoring, access control and
closed-circuit television monitoring systems. The Company's alarm systems and
devices may be monitored on the premises of the customer by the customer's own
personnel or linked through telephone lines or long range radio to one of 12
central stations operated by the Company in the United States and Canada. The
Company also services its installed systems.

The alarm services unit services approximately 79,000 security systems in
financial institutions, industrial and commercial businesses and complexes,
warehouses, facilities of federal, state and local governments, defense
installations, and health care and educational facilities. Commercial accounts
represent approximately 90 percent of this unit's revenues.

The majority of the Company's monitoring contracts are for an initial five-
year period with automatic renewal for additional one-year terms, unless
terminated by either party. Upon installation, a customer pays an installation
fee and agrees to pay an annual service charge for ordinary maintenance and
monitoring during the life of the contract. It has been the unit's experience
that its customers generally continue the service after

expiration of the initial term of the contract and enter into new five-year
monitoring contracts. The cost of the installation is capitalized and
depreciated over varying periods that have a weighted average life of
approximately ten years. Approximately 71 percent of the alarm services
unit's revenue for 1994 was derived from service charges for maintenance and
central station monitoring.

The alarm services unit conducts its sales, installation and service
operations from 40 branch offices in the United States and Canada, some of
which are on the same premises as a monitoring station, and additional
satellite offices. The alarm services unit has a nationwide sales force that
is separated into broad-based commercial groups, as well as specialized sales
teams that address the specific needs of the financial community, engineered
systems market and other high growth segments of the industry. One group, for
example, focuses on multi-location companies such as national retail chains
and fast food outlets that require a single point of control for planning,
servicing, monitoring and reporting for all locations.

In 1994, the alarm services unit was restructured to bring decision-making
about service closer to the customer, and to strengthen management's
connection with existing operations. Nine regional offices were established to
manage the unit's 40 branches. The Company expects that the regional offices
will manage most of the administrative issues, while the branch offices devote
full attention to sales and service issues. The unit has continued
consolidating its monitoring stations into regional monitoring centers in
order to reduce costs. Since the beginning of 1991, the Company has reduced
the number of its monitoring stations from 34 to 12. The alarm services unit
has enhanced customer service through intensive training programs for sales,
management, installation and service employees and more sophisticated
operational controls.

The alarm services unit also makes direct sales of security equipment to
government and commercial users (including other companies in the alarm
business) and designs, assembles and sells engineered systems for commercial
fire suppression.

Residential. The alarm services unit also installs fire and intrusion
protection systems for residential customers under the Pony Express(R) service
mark. Residential customer sales, service and monitoring are generally
performed from the same facilities as for commercial accounts. Residential
systems are installed by the Company with monitoring agreements and often with
maintenance agreements. The majority of the residential monitoring contracts
are for an initial period of three to five years with automatic renewal for
additional one-year terms, unless terminated by either party. The unit
services approximately 27,000 residential security systems.

Bel-Air Patrol. The Company also provides a complete protective package,
including central station alarm service and surveillance systems, security
guards and day and night patrols, to residents in Bel Air and Beverly Hills
and other nearby communities of Los Angeles. The Company provides these
services to approximately 13,000 customers under

the trade name Bel-Air Patrol.

The alarm services unit purchases electronic equipment and component parts
for systems from a number of suppliers, and is not dependent upon any single
source for such equipment or parts.

ARMORED TRANSPORT SERVICES

The armored transport services unit is a security-related cash services
business that provides traditional armored transport services, automatic
teller machine ("ATM") services and cash management services in the United
States under the Wells Fargo(R) service mark. The unit employs approximately
7,000 employees at approximately 125 facilities throughout the United States
and Puerto Rico.

Armored Transport. The Company provides vault storage and specialized,
secure transportation services using armed guards in carrying currency,
securities and other valuables for banks and national and local retail
customers. Despite the widespread use of credit cards and wire transfers,
billions of dollars of currency, securities and other valuables are
transported daily as part of the United States economy. The Company's armored
transport business uses a fleet of approximately 2,100 vehicles to transport
approximately $5 billion of currency and securities each business day. The
Company believes it is the second largest armored transportation operation in
the United States, measured by revenues.

The Company provides armored transport services for over 15,000 customers,
including NationsBank, K-Mart and Wal Mart. Most of the customer contracts are
for a multi-year term with automatic renewal for additional one-year terms,
unless terminated by either party. It has been the unit's experience that its
customers generally continue the service after the initial term of the
contract.

The armored transport services operation has a sales force of approximately
40 people dedicated to the solicitation of transportation-related accounts and
a separate sales force that focuses solely on transportation-related accounts
for national retail customers. Approximately 45 percent of the armored
transport unit's revenue in 1994 was derived from retail customers. The
Company believes that retail customers provide an opportunity for significant
growth in the armored transport business.

Generally, the Company assumes responsibility for the safe arrival at the
destination of transported commodities. The armored transport unit maintains a
risk management department that is responsible for loss prevention, security
investigation, employee safety and training and coordination with local and
federal law enforcement personnel.

ATM Servicing. The armored transport unit also provides special services to
approximately 18,000 ATMs on a national basis. The Company believes it is the
leading

servicer of ATMs in the United States, measured by both revenues and the
number of ATMs serviced.

The Company controls its ATM services through an automated national
dispatching center located in Columbia, Maryland. The dispatch center
coordinates all customer requests and directs field technicians throughout the
country. The automation system provides detailed service confirmation data
both internally and to the customer. ATM servicing is a time-critical business
and the Company guarantees a response time of 90 minutes or less to its major
accounts.

During 1994 the Company expanded its service to offer financial
institutions a complete range of management and maintenance services for ATM
networks. The Company provides cash preparation and replenishment, deposit
collection and verification, on-site balancing of ATM funds, preventive
maintenance and first and second line maintenance services, including
necessary hardware maintenance. The Company also sells refurbished ATM
equipment.

In January 1994 the Company's ATM servicing unit acquired the assets of
Shields Business Machines, Inc., a New Jersey-based servicer of approximately
2,000 ATMs in Pennsylvania, New Jersey and New York.

The Company's ATM servicing unit has a sales force of approximately five
persons. Most of the customer contracts are for a multi-year term with
automatic renewal for additional one-year terms, unless terminated by either
party.

Cash Management Services. The armored transport unit also provides cash
management services to approximately 500 financial institutions and retail
customers. These highly automated services include currency storage and
preparation, micro-encoding of checks, deposit verification and consolidation,
coin wrapping and storage and food stamp processing. The Company's cash
management services represent a growing component of service as both financial
and retail institutions increasingly are outsourcing such operations. Existing
customers of the armored transport and ATM services operations represent a
potential market for the Company's cash management service. Most of the
customer contracts are for a multi-year term with automatic renewal for
additional one-year terms, unless terminated by either party.

COURIER SERVICES

The courier services unit transports time-sensitive packages for commercial
businesses and non-negotiable financial documents for Federal Reserve banks
and financial institutions through 39 branch and 70 satellite offices in 32
states under the Pony Express(R) service mark. The unit provides ground
courier services through a fleet of approximately 3,300 vehicles and
commercial and charter air service for longer distance or extremely time-
critical shipments. During 1994 the courier services unit handled

approximately 22 million shipments and traveled approximately 230 million
miles.

Although the Pony Express service mark traces its roots to the Pony Express
of Old West fame, the present courier operation began as a financial commodity
courier transporting cancelled checks and other non-negotiable financial
documents among financial institutions as a part of the armored transportation
unit. While shipments of non-negotiable financial documents are still a
substantial part of the unit's business, the courier services unit also
delivers small packages, particularly business-to-business shipments of parts,
extremely urgent mail, film, medical and pharmaceutical supplies and other
commodities. The primary focus of the courier service unit is same-day or
next-day service by ground transportation in intrastate and regional
interstate markets. In 1994, approximately 40 percent of the unit's net
service revenues were derived from business involving shipments with a transit
time of eight hours or less. The typical customer ships multiple, time-
critical, small shipments on a daily or weekly basis from one or more
locations to one or more other locations within a 500-mile radius. The Company
may design a customized distribution system initially for one or two large
customers and make available to smaller customers the excess capacity on such
system.

The courier services unit attempts to meet customer needs for secure
transportation through flexible and customized services. Shipments are picked
up and delivered by uniformed courier guards who are trained in security
measures. The unit has developed sophisticated information systems that
provide automated billing, computer-assisted routing and package tracking and
other programs that enhance customer service. The unit is expanding its use of
PonyTrak(TM), an electronic tracking system that uses a hand-held scanner to
record pickup and delivery times, dates and locations by reading package bar
codes. The Company offers services outside of normal business hours that
sometimes require couriers to unlock and enter customer premises and secure
premises when leaving.

The unit employs approximately 6,000 persons. The unit owns approximately
1,400 vehicles and leases the remainder from its employees. The Company
believes such lease arrangements provide a competitive advantage because such
employees tend to provide better customer service, drive more safely and have
a more vested interest in the success of the business.

The courier services unit operates both as a common and contract carrier
and uses a combination of tariffs and shipping contracts to control the
terms, conditions and rates applicable to the transportation of shipments.
Rates are dependent upon many factors, including the weight and type of the
shipped item, the distance and urgency of the shipment and the geographical
location.

COMPETITION

The guard services unit competes with major national firms, including
Pinkerton's Inc. and The Wackenhut Corporation, and numerous smaller regional
and local companies providing similar services. Competition in the security
guard industry is based on price in relation to the quality of service, the
scope of services performed, the extent and quality of guard supervision,
recruiting and training and name recognition.

The alarm services unit competes with major national firms, including ADT,
Inc., the Protection Securities Division of Honeywell, Inc. and The National
Guardian Corporation, and numerous smaller regional and local companies. ADT,
Inc., which provides primarily residential alarm services, is materially
larger than the Company's alarm services unit. Competition in the alarm
services industry is based on price in relation to the quality of service, the
scope of alarm installation and service, and the level of technological and
engineering sophistication.

The armored transport unit competes with major national firms, including
Brink's Incorporated (a subsidiary of The Pittston Company) and Loomis Armored
Inc., and numerous smaller regional and local companies. On a worldwide basis,
Brink's Incorporated is materially larger than the Company's armored
transportation unit. Competition in the armored transport industry is based
primarily on price in relation to quality of service, the scope of services
performed, quality of cargo insurance and name recognition.

The courier services unit competes with numerous regional and local courier
companies. Competition in the courier industry is based primarily on price in
relation to quality of service and size and configuration of distribution
routes. Because of low barriers to entry in some areas, smaller local
competitors with substantially lower overhead expenses are often able to
compete effectively with the Company for local shipments.

REGULATION

Due to the nature of the Company's business, its operations are subject to
a variety of federal, state, county and municipal laws, regulations and
licensing requirements. The Company believes that its operations are in
substantial compliance with those laws, regulations and requirements.

The Company's guard services operations are subject to a variety of city,
county and state firearm and occupational licensing laws. In addition, many
states have laws requiring training and registration of security officers,
regulating the use of badges, identification cards and uniforms and imposing
minimum bond surety and insurance requirements. Federal legislation has been
introduced relating to security officer qualification and training. Similar
legislation is pending in several states. The Company generally supports the
creation of standards for the industry and does not expect that the

establishment of such standards will have a material affect on its guard
services operations.

The Company's alarm services operations are subject to regulatory
requirements of federal, state and local authorities. In addition, this unit
relies upon the use of telephone lines to transmit signals, and the cost of
such lines and the type of equipment which may be used are currently regulated
by both federal and state governments. In some instances, the Company
contracts with the local government to permit it to link a customer's business
or home directly into the local police or fire department station for which it
may pay a fee to such local government. As a result of a high incidence of
false alarms in some communities, some local governments have imposed
assessments, fines and penalties on customers based on the number of false
alarms reported, or have restricted police response to systems producing
excessive false alarms.

The Company's armored transport and courier operations are subject to the
regulations of the Interstate Commerce Commission ("ICC") and various state
commerce commissions governing safety and insurance matters. Operations are
conducted both as a common carrier and as a contract carrier under
certificates and permits issued by the ICC. Such operations are also subject
to regulation by federal and state agencies with respect to safety of
employees, operations and equipment, vehicle emissions and underground fuel
storage tanks.

From time to time, in the ordinary course of business, the Company is
subjected to penalties or fines as the result of licensing irregularities or
the misconduct of one or more of its agents or employees. In addition, under
principles of common law, the Company can generally be held liable for acts or
omissions of its agents or employees performed in the course and scope of
their employment. In addition, some states have statutes that expressly impose
on the Company legal responsibility for the conduct of its employees.

RISK MANAGEMENT

The nature of the services provided by the Company potentially exposes it
to greater risks of liability for employee acts, injuries (including workers'
compensation claims) or omissions than may be posed by other service
businesses. See "--Regulation."

The Company often obtains customer indemnification or liability limitations
in its contracts to mitigate this risk exposure. In addition to self-insurance
reserves, the Company carries insurance of various types, including general
liability coverage. The Company obtains such insurance at rates and upon terms
negotiated periodically with various underwriters. The loss experience of the
Company and, to some extent, other protective services companies affects
premium rates charged to the Company. The Company generally maintains
insurance coverage for punitive damages, although the laws of many states
limit or prohibit insurance coverage for liability for punitive damages. The
Company does not believe that limitations on, or the uncertainty of, insurance

coverage for punitive damages in certain states in which it operates is likely
to be material, based upon the Company's prior experience with punitive
damages claims. The Company also attempts to manage its risk liability through
analysis of customer facilities and transportation routes and employee
screening, training, supervision and evaluation.

EMPLOYEES

The Company's business is labor intensive and, accordingly, is affected by
the availability of qualified personnel and the cost of labor. Although the
protective services industry is characterized generally by high turnover, the
Company believes its experience compares favorably with that of the industry.
The Company has not experienced any material difficulty in employing suitable
numbers of qualified security guards and other employees. The Company
considers its relations with its employees to be generally satisfactory.

The Company is a party to collective bargaining agreements with various
local unions covering approximately 8,836 employees. The collective bargaining
agreements expire at various dates from 1995 to 2000 and relate, among other
things, to wages, hours and conditions of employment. Under section 9(b)(3) of
the National Labor Relations Act, if a union admits to membership, or is
affiliated directly or indirectly with a union that admits to membership,
employees other than guards, an employer of guards can refuse to bargain with
such union and such union cannot be certified as the representative of a unit
of guards. As a result, the Company has in many instances refused to recognize
or withdrawn recognition of labor organizations that admit as members
employees other than guards.

The NLRB has certified various locals of the International Brotherhood of
Teamsters, Chauffeurs, Warehousemen and Helpers of America as the exclusive
collective bargaining representative of certain of its courier services
employees. The unit is engaged in contract negotiations with such
representative. During 1994 such representative called strikes at branches
located in 12 cities. As of the end of 1994, strikes have been abandoned at
all locations with striking employees returning to work.

TRADEMARKS AND PATENTS

The Wells Fargo(R), Pony Express(R) and Burns(R) service marks are
especially important to the Company's business. The Company believes that its
rights in these marks are adequately protected and of unlimited duration.
While the Company has patents it considers to be important to the overall
conduct of its business, it does not consider any particular patent, or group
of related patents, essential to its operations. The Company's 13 United
States patents, which generally relate to the Company's alarm services unit,
expire between 1997 and 2008, and the Company's 18 foreign patents, which
generally relate to the Company's alarm services unit, expire between 1995 and
2009. For both the United States and the foreign patents, their expiration,
individually, and in the aggregate,

is not expected to have any material effect on the Company's financial
condition or results of operations.

EXECUTIVE OFFICERS

Set forth below are the names, ages, positions and certain other
information concerning the current executive officers of the Company as of
March 1, 1995. On March 27, 1995 the Company announced that J. Joe Adorjan had
been named President and Chief Operating Officer. He is expected to become
Chairman and Chief Executive Officer of the Company after a transition period.

NAME AGE POSITION WITH COMPANY

Donald C. Trauscht..................61 Chairman of the Board, Chief
Executive Officer and President;
Director

Neal F. Farrell.....................60 Executive Vice President;
Director

John D. O'Brien.....................52 Senior Vice President

Timothy M. Wood.....................47 Vice President, Finance

Edwin L. Lewis......................49 Vice President--Law

Mr. Trauscht has been a director of the Company since 1987, Chief Executive
Officer and President of the Company since January 1992 and Chairman of the
Board of Directors since December 1992. He was Chief Operating Officer and
President from September 1991 to January 1992 and Chief Operating Officer and
Vice President from 1990 to 1991; Vice President-Finance and Strategy from
1987 to 1990. He is also a director of Baker Hughes Incorporated, Blue Bird
Corporation, Borg-Warner Automotive, Inc., Esco Electronics Corporation and
Thiokol Corporation.

Mr. Farrell has been Executive Vice President and a director of the Company
since January 1992. He was Vice President, Chief Financial Officer and General
Counsel from 1990 to January 1992; Vice President and General Counsel from
1987 to 1990. He is also a director of Calumet Steel Co.

Mr. O'Brien has been Senior Vice President of the Company since 1993 and
was Vice President of the Company from 1987 to 1993. He is also a director of
Borg-Warner Automotive, Inc.

Mr. Wood has been Vice President, Finance of the Company since 1994 and was
Vice President and Controller of the Company from 1987 to 1994.

Mr. Lewis has been Vice President--Law of the Company since January 1995.
He was Vice President--Law of the Company's guard services unit from 1991 to
1994 and was Vice President--Law of the Company's alarm services unit from
1983 to 1991.

Each of the executive officers named above was elected by the Board of
Directors to serve in the office indicated until his successor is elected and
qualified.

ITEM 2. PROPERTIES

The Company and its subsidiaries maintain armored transport and courier
terminals, central alarm stations, plants and general offices in various
cities in the United States, Puerto Rico, Canada, the United Kingdom and
Colombia. At December 31, 1994, the guard services unit occupied approximately
319 branch and satellite offices, all but one of which were leased. At
December 31, 1994, the alarm services unit operated 12 central stations (10 of
which are on the same premises as branch offices), of which 6 were leased, 28
additional branch and 48 separate satellite offices, of which 20 branches and
all satellites were leased. At December 31, 1994, the armored services unit
occupied 125 facilities, of which 108 were leased, and 45 of which contained
vaults. At December 31, 1994, the courier services unit occupied approximately
109 branches and satellites, of which all but four were leased. The Company
leases approximately 100,000 square feet of office space in Chicago, Illinois
for its executive offices. The Company believes that its properties are in
good condition and are adequate to meet its current and reasonably anticipated
needs.

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 of such
actions, plaintiffs request punitive or other damages that may not be covered
by insurance. In addition, the Company has been subject to claims and suits
relating to certain discontinued operations. The most important of these
legal proceedings are discussed below. The Company believes that the various
asserted claims and litigation in which it 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. 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 (including
the environmental matters discussed below).

Centaur Litigation

Centaur Insurance Company ("Centaur"), a discontinued property and casualty
insurance subsidiary, 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 one pending lawsuit
against the Company for recovery of alleged damages from the failure of
Centaur to satisfy its reinsurance obligations. Certain former officers and
directors of the Company's current and former subsidiaries have been named as
defendants in such lawsuit and the Company has agreed to indemnify such
individuals. Centaur is not a defendant in this lawsuit against the Company.
Although the Illinois Director of Insurance has not made any claims against
the Company for any of Centaur's liabilities, the Illinois Director of
Insurance has requested, and the Company has agreed to, an extension of the
statute of limitations for any such claims.

As of December 31, 1993, Centaur's total liabilities were $135 million and
its deficit in net worth was $54.7 million, according to financial statements
submitted on behalf of the Illinois Director of Insurance. Such financial
statements were presented on a liquidating basis with assets carried at their
market value or estimated realizable value and liabilities carried at their
present value through the provision of a present value discount. Although
Centaur is a subsidiary of the Company, the Company does not operate Centaur
and has no responsibility for, nor does it participate in the preparation of,
such financial statements. Centaur's financial results, assets and liabilities
are not reflected in the Company's financial statements.

In June 1988, the Insurance Commissioner of the State of California as
trustee of Mission Insurance Trust and four other affiliated insurance
companies filed a complaint in the Superior Court of the State of California,
County of Los Angeles, against the Company and certain of its current and
former subsidiaries alleging damages resulting from the failure of Centaur to
satisfy its reinsurance obligations. This lawsuit alleges damages to
plaintiff, as Trustee of Mission Insurance Company, Mission National Insurance
Company, Enterprise Insurance Company, Holland-America Insurance Company and
Mission Reinsurance Corporation, based on (i) conduct justifying piercing the
corporate veil, (ii) fraud and (iii) negligent misrepresentation. Plaintiff
seeks judgment in the amount of the insurance companies' current losses, which
allegedly total approximately $14.2 million, plus a declaratory order that the
Company pay future losses alleged to exceed $66 million. The complaint was
amended in 1989 to add 11 former officers and directors of the Company's
current and former subsidiaries as defendants and to allege additional causes
of action based on (i) breach of fiduciary duty and imposition of personal
liability, (ii) fraudulent conveyance, (iii) constructive trust and (iv)
conspiracy and additional current losses totalling more than $9.8 million and
to add a claim for punitive damages in the amount of $270 million.

In 1989, the Company filed a motion to dismiss or stay the action, pending
resolution

of Centaur's rehabilitation in Illinois. The court declined to dismiss the
action, but entered an order staying the action until the rehabilitation
proceeding is resolved, except that the parties may pursue discovery to
preserve evidence. In 1992, the Centaur rehabilitator filed a motion to
intervene and dismiss the complaint on the grounds that the plaintiff lacked
standing and that its claims were not ripe for adjudication. The motion is
pending. In 1993, six of the 11 individual defendants were dismissed from the
lawsuit. In September 1994, the court effectively lifted its stay. Active
discovery is now being pursued. The Company intends to defend this lawsuit
vigorously.

The Company believes that any damages for failure to satisfy reinsurance
obligations are solely the responsibility of Centaur and that the resolution
of the lawsuit relating to Centaur, including the Company's indemnification
obligations to former officers and directors, will not have a material adverse
effect on its financial position or future operating results; however, no
assurance can be given as to the ultimate outcome with respect to such
lawsuit.

Environmental Proceedings

The Company and certain of its current and former subsidiaries have been
identified by the U.S. Environmental Protection Agency and certain state
environmental agencies as potentially responsible parties ("PRPs") at a
number of 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 Company believes that none of these matters
individually or in the aggregate will have a material adverse affect on its
financial position or future operating results, generally either because the
maximum potential liability at a site is 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 liability. Based on its estimate of
allocations of liability among PRPs, the probability that other PRPs, many of
whom are large, solvent public companies, will fully pay the costs allocated
to them, currently available information concerning the scope of contamination
at such sites, estimated remediation costs at such sites, estimated legal fees
and other factors, the Company has made provisions for indicated environmental
liabilities in its financial statements in the aggregate amount of
approximately $12 million (relating to environmental matters with respect to
discontinued operations of the Company). The Company believes that such
provisions for indicated environmental liabilities have been established on a
basis consistent with generally accepted accounting principles. If any
environmental liability claim relating to the Company's former chemical and
plastics business is made, the Company is indemnified by the purchaser of such
business, General Electric Company. Since the disposition, the Company has
notified General Electric Company of various claims made with respect to the
Company's former chemical and plastics business and General Electric Company
has assumed all of such claims and has not contested its indemnification
obligations. There

is no dollar limitation on the General Electric Company's indemnification
obligations and there are no other material limitations or exclusions with
respect thereto. If any environmental liability claim relating to the
operations of Borg-Warner Automotive, Inc. ("BW-Automotive") is made, the
Company will be indemnified by BW-Automotive. There is no dollar limitation
on BW-Automotive's indemnification obligations and there are no other material
limitations or exclusions with respect thereto.

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 1994.

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS.

On January 20, 1993, the Company's Common Stock was listed for trading on
the New York Stock Exchange. Prior to that date, there was no established
public trading market for shares of Common Stock. As of March 14, 1995, there
were approximately 180 holders of record of Common Stock.

The Company has neither paid nor declared any cash dividends on its Common
Stock during the last two years. The payment of dividends by the Company is
subject to certain restrictions under the terms of the Company's indebtedness.
Under the terms of its credit facility, the Company will be permitted to pay
cash dividends with respect to its Common Stock beginning in 1995, subject to
certain limitations and restrictions, including that no event of default under
such facility has occurred and is continuing; that after giving effect to such
dividend the Company meets certain debt and interest coverage ratios; and that
the aggregate amount of dividends be limited to the lesser of (a) 50% of the
Company's consolidated excess cash flow (as defined in the facility) for the
immediately preceding year or (b) $5 million in 1995, $10 million in 1996, $15
million in 1997, $20 million in 1998 and $25 million in 1999.

The Company currently intends to retain earnings for acquisitions, working
capital, capital expenditures, general corporate purposes and reduction of
outstanding indebtedness. Accordingly, the Company does not expect to be able
to nor does it expect to pay cash dividends in the foreseeable future.

High and low sales prices (as reported on the New York Stock Exchange
composite tape) for the Common Stock for each quarter during 1993 and 1994
were:

Quarter ended High Low
------------- ------- -------

1993 March 31 $22 5/8 $19 5/8
June 30 22 1/4 19 5/8
September 30 22 7/8 18
December 31 20 1/2 18 1/4

1994 March 31 $22 $16 3/8
June 30 16 7/8 10 3/4
September 30 12 3/4 10 5/8
December 31 11 1/8 8 1/4

ITEM 6. SELECTED FINANCIAL DATA

The selected financial data for the five years ended December 31, 1994,
with respect to the following line items shown under the "Consolidated
Statistical Review" (set forth on page 12) in the Annual Report is
incorporated herein by reference and made a part of this report: Net service
revenues; earnings (loss) from continuing operations; earnings (loss) from
continuing operations per share; total assets and total debt.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

The Management's Discussion and Analysis of Results of Operations and
Financial Condition (set forth on pages 14 through 19) in the 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 (set forth on pages 20 through 40) in the 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, 1994 and 1993 is set forth in Note 14 of the
Notes to Consolidated Financial Statements. For a list of financial statements
and schedules filed as part of this report, see the "Index to Financial
Statements and Financial Statement Schedules."

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Inapplicable.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information with respect to directors and nominees for election as
directors of the Company is incorporated herein by reference to the
information under the caption "Election of Directors" on pages 1 through 3 of
the Company's proxy statement for the 1995 annual meeting of stockholders.
Information with respect to executive officers of the Company is set forth in
part I of this report. Information concerning compliance with Section 16(a) of
the Exchange Act is incorporated by reference to the information under the
caption "Section 16(a) Compliance" on page 6 of the Company's proxy statement
for the 1995 annual meeting of stockholders.

ITEM 11. EXECUTIVE COMPENSATION

Information with respect to compensation of executive officers and
directors of the Company is incorporated herein by reference to the
information under the captions "Executive Compensation" on pages 7 through 9,
and "Compensation of Directors" on page 4, of the Company's proxy statement
for the 1995 annual meeting of stockholders.

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 director of the Company and by all
directors and executive officers of the Company as a group is incorporated
herein by reference to the information under the caption "Stock Ownership" on
pages 5 and 6 of the Company's proxy statement for the 1995 annual meeting of
stockholders.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information with respect to certain relationships and related transactions
is incorporated herein by reference to the information under the caption
"Certain Relationships and Related Transactions" on pages 12 through 16 of the
Company's proxy statement for the 1995 annual meeting of stockholders.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)(1) The following consolidated financial statements of the registrant
and its consolidated subsidiaries, set forth on pages 20 through 40 of the
Annual Report, are incorporated herein by reference:

Consolidated Balance Sheet--December 31, 1994 and 1993

Consolidated Statement of Operations--three years ended December 31,
1994

Consolidated Statement of Cash Flows--three years ended December 31,
1994

Consolidated Statement of Stockholders' Equity--three years ended
December 31, 1994

Notes to Consolidated Financial Statements

(a)(2) The following report of independent auditors and financial statement
schedule of the registrant and its consolidated subsidiaries are included
herein:

Report of Deloitte & Touche LLP, independent auditors

II Valuation and Qualifying Accounts

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.

(a)(3) The exhibits listed in the "Exhibit Index."

(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, 1994.

EXHIBIT
NUMBER DOCUMENT DESCRIPTION
------ --------------------

EXHIBIT INDEX

*3.1 Amended and Restated Certificate of Incorporation of the
Company (incorporated by reference to Exhibit 3.1 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1992).

*3.2 Amended and Restated Bylaws of the Company (incorporated by
reference to Exhibit 3.2 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1992).

*4.1 Credit Agreement dated as of January 27, 1993 ("Credit
Agreement") among the Company, the lenders party thereto and
the administrative agent named therein (incorporated by
reference to Exhibit 4.3 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1992), as amended by
the First Amendment thereto (incorporated by reference to
Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q for
the quarterly period ending June 30, 1994).

*4.2 Credit Agreement dated as of January 27, 1993 ("L/C
Agreement") among the Company, the banks party thereto and the
agent named therein (incorporated by reference to Exhibit 4.4
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1992), as amended by the First Amendment thereto
(incorporated by reference to Exhibit 4.2 to the Company's
Quarterly Report on Form 10-Q for the quarterly period ending
June 30, 1994).

*4.3 Indenture dated as of January 15, 1983 by and between Borg-
Warner and Harris Trust & Savings Bank, Trustee, entered into
in connection with the registration of up to $150 million of
debt securities and under which Borg-Warner issued 8% Notes
due April 1, 1996 (incorporated by reference to Exhibit 9(d)
to Registration Statement No. 2-81437).

*4.4 Supplemental Indenture dated as of December 31, 1987 to the
Indenture dated as of January 15, 1983 by and between the
Company and Harris Trust and Savings Bank (incorporated by

B-1

EXHIBIT
NUMBER DOCUMENT DESCRIPTION
------ --------------------

reference to Exhibit 4.7 to the Company's Annual Report on
Form 10-K for the Ten Months ended October 31, 1987).

*4.5 Form of Security for 8% Notes due April 1, 1996 (incorporated
by reference to Exhibit 4.8 to Registration Statement No.
33-53480).

*4.6 Indenture dated as of April 1, 1986 by and between Borg-Warner
and Harris Trust and Savings Bank, entered into in connection
with the registration of up to $150,000,000 of Debt Securities
and Warrants to Purchase Debt Securities for issuance under a
shelf registration on Form S-3 (incorporated by reference to
Registration Statement No. 33-4670).

*4.7 Indenture dated as of May 3, 1993 by and between the Company
and The First National Bank of Chicago (incorporated by
reference to Exhibit 4.1 to the Company's Quarterly Report on
Form 10-Q for the quarterly period ended March 31, 1993).

4.8 Second Amendment and Consent to Credit Agreement dated as of
March 15, 1995.

4.9 Fifth Amendment to L/C Agreement dated as of March 15, 1995.

+*10.1 Borg-Warner Security Corporation Directors Stock Appreciation
Rights Plan (incorporated by reference to Exhibit 10.5 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1988).

+*10.2 Borg-Warner Security Corporation Retirement Savings Excess
Benefit Plan (incorporated by reference to Exhibit 10.7 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1988), as amended by Amendment No. 1 thereto
(incorporated by reference to Exhibit 10.16 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1989).

*10.3 Form of Indemnification Agreement dated September 23, 1986
between the Company and Messrs. Farrell, O'Brien, Trauscht and

B-2

EXHIBIT
NUMBER DOCUMENT DESCRIPTION
------ --------------------

Wood (incorporated by reference to Exhibit 10.17 to Borg-
Warner's Annual Report on Form 10-K for the year ended
December 31, 1986).

+*10.4 Borg-Warner Corporation Management Stock Option Plan, as
amended through January 19, 1993 (incorporated by reference to
Exhibit 10.7 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1992).

*10.5 Form of Recourse Secured Promissory Note (incorporated by
reference to Exhibit 10.9 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1992).

+*10.6 Form of Employment Agreement for Messrs. Farrell, O'Brien,
Trauscht and Wood (incorporated by reference to Exhibit 10.26
to Registration Statement No. 33-15419).

+*10.7 Form of Amendment of Employment Agreement for Messrs. Farrell,
O'Brien, Trauscht and Wood, dated January 19, 1989
(incorporated by reference to Exhibit 10.11 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1988).

+*10.8 Form of Amendment of Employment Agreement for certain
executives of the Company (incorporated by reference to
Exhibits 10.12 and 10.13 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1990).

+ 10.9 Borg-Warner Retirement Savings Plan, as amended through
January 1, 1995.

+ 10.10 Borg-Warner Security Corporation Supplemental Benefits
Compensation Program.

*10.11 Distribution and Indemnity Agreement dated as of January 27,
1993 between the Company and Borg-Warner Automotive, Inc.
(incorporated by reference to Exhibit 10.16 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1992).

B-3

EXHIBIT
NUMBER DOCUMENT DESCRIPTION
------ --------------------

*10.12 Tax Sharing Agreement dated as of January 27, 1993 between the
Company and Borg-Warner Automotive, Inc. (incorporated by
reference to Exhibit 10.17 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1992).

*10.13 Benefits Agreement dated as of January 27, 1993 between the
Company and Borg-Warner Automotive, Inc. (incorporated by
reference to Exhibit 10.18 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1992).

+*10.14 Borg-Warner Security Corporation 1993 Stock Incentive Plan
(incorporated by reference to Exhibit 10.19 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1992).

*10.15 Service Agreement dated as of December 31, 1992 between the
Company and Borg-Warner Automotive, Inc. (incorporated by
reference to Exhibit 10.20 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1992).

10.16 Assignment of Trademarks and License Agreement dated as of
November 2, 1994 between the Company and Borg-Warner
Automotive, Inc.

10.17 Transfer and Administration Agreement dated as of November 21,
1994 among BPS Financial Services, Inc., the Company and
Enterprise Funding Corporation.

*10.18 Consulting Agreement dated as of September 1, 1993 between the
Company and H. Norman Schwarzkopf (incorporated by reference
to Exhibit 10.20 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1993).

*10.19 Administrative Services Agreement dated as of January 1, 1994
between the Company and Borg-Warner Automotive, Inc.
(incorporated by reference to Exhibit 10.21 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1993).

B-4

EXHIBIT
NUMBER DOCUMENT DESCRIPTION
------ --------------------

*10.20 Government Relations Agreement dated as of January 1, 1994
between the Company and Borg-Warner Automotive, Inc.
(incorporated by reference to Exhibit 10.22 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1993).

+ 10.21 Borg-Warner Security Corporation Retirement Savings Excess
Benefit Plan, as amended and restated through January 1, 1995.

11 Computation of earnings per share.

13 1994 Annual Report to Stockholders.

21 Subsidiaries of the Company.

23 Consent of Deloitte & Touche LLP.

27 Financial Data Schedule.
--------------------

* Incorporated by reference.
+ Indicates a management contract or compensatory plan or arrangement
required to be filed pursuant to Item 14(c).

B-5

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 SECURITY CORPORATION

By /s/ Donald C. Trauscht
----------------------
Donald C. Trauscht
Chairman of the Board, Chief Executive Officer
and President

Date: March 23, 1995

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 DAY OF MARCH 23, 1995.

Signature Title
--------- ------

/s/ Donald C. Trauscht Chairman of the Board, Chief
---------------------- Executive Officer and President
Donald C. Trauscht and Director (Principal Executive
Officer)

/s/ Timothy M. Wood Vice President, Finance
------------------- (Principal Financial and Accounting
Timothy M. Wood Officer)

/s/ J. Joe Adorjan Director
------------------
J. Joe Adorjan

/s/ James J. Burke, Jr. Director
-----------------------
James J. Burke, Jr.

/s/ Neal F. Farrell Director
-------------------
Neal F. Farrell

/s/ Albert J. Fitzgibbons, III Director
------------------------------
Albert J. Fitzgibbons, III

/s/ Dale W. Lang Director
----------------
Dale W. Lang

/s/ Robert A. McCabe Director
--------------------
Robert A. McCabe

/s/ Alexis P. Michas Director
--------------------
Alexis P. Michas

/s/ H. Norman Schwarzkopf Director
-------------------------
H. Norman Schwarzkopf

SCHEDULE II

BORG-WARNER SECURITY CORPORATION

VALUATION AND QUALIFYING ACCOUNTS

Column A Column B Column C Column D Column E
-------- -------- ------------------------ -------- --------
Additions
Years Ended December 31, (1) (2)
Balance at Charged to Charged to Balance
Beginning Costs and Other at Close
Description of Period Expenses Accounts Deductions of Period
----------- ---------- ---------- ---------- ---------- ---------

1992
Allowance for Doubtful Accounts $ 8.1 $ 5.1 $ 0.4 $ 5.4 $ 8.2
====== ====== ====== ====== ======
1993
Allowance for Doubtful Accounts $ 8.2 $ 4.2 $ 0.5 $ 4.1 $ 8.8
====== ====== ====== ====== ======
1994
Allowance for Doubtful Accounts $ 8.8 $ 5.5 $ 1.5 $ 8.1 $ 7.7
====== ====== ====== ====== ======

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders
Borg-Warner Security Corporation

We have audited the financial statements of Borg-Warner Security Corporation
as of December 31, 1994 and 1993 and for each of the three years in the period
ended December 31, 1994, and have issued our report thereon dated February 10,
1995 (except as to the fourth sentence of the fifth paragraph of Note 5, for
which the date is March 15, 1995); such financial statements and report are
included in the 1994 Annual Report to Stockholders and are incorporated herein
by reference. Our audit also included the financial statement schedule of
Borg-Warner Security Corporation listed in Item 14 of this Annual Report on
Form 10-K. This financial statement schedule is the responsibility of the
Company. Our responsibility is to express an opinion based on our audit. In
our opinion, the financial statement schedule, when considered in relation to
the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.

DELOITTE & TOUCHE LLP

Chicago, Illinois
February 10, 1995