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SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
QUARTERLY REPORT
Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarter Ended September 30, 1995
Commission file number: 33-15419
BORG-WARNER SECURITY CORPORATION
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(Exact name of registrant as specified in its charter)
DELAWARE 13-3408028
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State or other jurisdiction of (I.R.S. Employer
Incorporation or organization Identification No.)
200 South Michigan Avenue, Chicago, Illinois 60604
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (312)322-8500
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
----- -----
On October 31, 1995 the registrant had 22,022,550 shares of Common Stock and
1,149,600 shares of Series I Non-Voting Common Stock outstanding.
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BORG-WARNER SECURITY CORPORATION AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
THREE MONTHS ENDED SEPTEMBER 30, 1995
INDEX
Page No.
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PART I. Financial Information
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Item 1. Financial Statements
Condensed Consolidated Balance Sheet
at September 30, 1995 and December 31, 1994 . . . . . . 2
Consolidated Statement of Earnings for
the three months ended September 30, 1995 and 1994 . . . 3
Consolidated Statement of Earnings for
the nine months ended September 30, 1995 and 1994 . . . 4
Condensed Consolidated Statement of Cash Flows for
the nine months ended September 30, 1995 and 1994 . . . 5
Notes to the Consolidated
Financial Statements. . . . . . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . 11
PART II. Other Information
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Item 1. Legal Proceedings . . . . . . . . . . . . . . . . 15
Item 2. Changes in Securities . . . . . . . . . . . . . . 16
Item 3. Defaults Upon Senior Securities . . . . . . . . . 16
Item 4. Submission of Matters to a Vote of
Security Holders . . . . . . . . . . . . . . . . 16
Item 5. Other Information . . . . . . . . . . . . . . . . 16
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . 16
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . 17
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Part I. Financial Information
Item 1. Financial Statements
--------------------
BORG-WARNER SECURITY CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
(MILLIONS OF DOLLARS)
September 30, December 31,
1995 1994
------------- ------------
ASSETS
Cash and cash equivalents $ 17.4 $ 15.8
Receivables, net 125.3 106.7
Inventories 11.9 12.2
Other current assets 28.9 24.8
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Total current assets 183.5 159.5
------ ------
Property, plant and equipment, at cost 523.1 537.7
Less accumulated depreciation 260.5 242.6
------ ------
Net property, plant and equipment 262.6 295.1
------ ------
Net excess purchase price
over net assets acquired 276.3 286.5
Deferred tax asset 51.2 50.8
Other assets 68.2 38.4
------ ------
Total assets $841.8 $830.3
====== ======
LIABILITIES & STOCKHOLDERS' EQUITY
Notes payable $ 7.9 $ 14.5
Accounts payable and accrued expenses 182.1 181.8
------ ------
Total current liabilities 190.0 196.3
------ ------
Long-term debt 475.5 454.0
Other long-term liabilities 127.9 136.2
Capital stock:
Common stock 0.3 0.2
Series I non-voting common stock - -
Other stockholders' equity 48.1 43.6
------ ------
Total stockholders' equity 48.4 43.8
------ ------
Total liabilities & stockholders'
equity $841.8 $830.3
====== ======
(See accompanying notes to financial statements)
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BORG-WARNER SECURITY CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS (UNAUDITED)
(MILLIONS OF DOLLARS, EXCEPT PER SHARE DATA)
Three Months Ended September 30,
--------------------------------
1995 1994
------ ------
Net service revenues $466.5 $450.7
Cost of services 375.8 361.0
Selling, general and
administrative expenses 54.2 52.8
Depreciation 14.2 14.4
Amortization of excess purchase
price over net assets acquired 3.5 4.0
Other income - (0.2)
Interest expense and finance charges 14.1 13.0
------ ------
Earnings before income taxes 4.7 5.7
Provision for income taxes 2.3 2.3
------ ------
Net earnings $ 2.4 $ 3.4
====== ======
Net earnings per share $ .10 $ .15
====== ======
(See accompanying notes to financial statements)
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BORG-WARNER SECURITY CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS (UNAUDITED)
(MILLIONS OF DOLLARS, EXCEPT PER SHARE DATA)
Nine Months Ended September 30,
-------------------------------
1995 1994
-------- --------
Net service revenues $1,396.2 $1,333.9
Cost of services 1,125.2 1,065.2
Selling, general and
administrative expenses 168.9 156.9
Depreciation 43.4 43.0
Amortization of excess purchase
price over net assets acquired 10.9 12.3
Other income - (1.1)
Interest expense and finance charges 42.3 37.2
-------- --------
Earnings before income taxes 5.5 20.4
Provision for income taxes 2.4 8.2
-------- --------
Net earnings $ 3.1 $ 12.2
======== ========
Net earnings per share $ .13 $ .53
======== ========
(See accompanying notes to financial statements)
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BORG-WARNER SECURITY CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(MILLIONS OF DOLLARS)
Nine Months Ended
September 30,
-------------------
1995 1994
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OPERATING:
Net earnings $ 3.1 $ 12.2
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Non-cash charges to earnings:
Depreciation and amortization 54.3 55.3
Amortization of debt discounts 1.6 1.6
Changes in assets and liabilities:
Decrease in receivables 1.4 0.9
(Increase) in other current assets (3.8) (3.3)
Increase (Decrease) in accounts payable and
accrued expenses 0.3 (1.0)
Net change in other long-term assets and liabilities (9.1) (8.1)
Other (2.9) (1.3)
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Net cash provided by operating activities 44.9 56.3
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INVESTING:
Capital expenditures and investments in sales-type
leases (38.9) (51.5)
Payments related to businesses acquired - (9.5)
Proceeds from sales of other assets 1.8 3.5
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Net cash (used in) investing activities (37.1) (57.5)
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FINANCING:
Net increase (decrease) in notes payable (6.6) 4.9
Increases in long-term debt 62.1 42.8
Reductions in long-term debt (42.2) (38.5)
Net (decrease) in receivables sold (20.0) (4.0)
Sales of treasury common stock 0.5 0.8
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Net cash (used in) provided by financing activities (6.2) 6.0
------ ------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1.6 4.8
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 15.8 11.2
------ ------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 17.4 $ 16.0
====== ======
(See accompanying notes to financial statements)
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) The financial statements of Borg-Warner Security Corporation and
Consolidated Subsidiaries ("Company") have been prepared in accordance with the
instructions to Form 10-Q. The statements are unaudited, but include all
adjustments, consisting of normal recurring items, which the Company considers
necessary for a fair presentation of the information set forth herein. The
results of operations for the three and nine month periods ended September 30,
1995 are not necessarily indicative of the results to be expected for the entire
year.
(2) The allowance for doubtful accounts was $6.5 million at September 30, 1995
and $7.7 million at December 31, 1994. The accumulated amortization on excess
purchase price over net assets acquired was $89.4 million at September 30, 1995
and $78.5 million at December 31, 1994. The outstanding balance of receivables
sold at September 30, 1995 was $92.0 million, compared with $112.0 million sold
at December 31, 1994.
Net cash payments for interest and income taxes were as follows (in millions of
dollars):
Nine Months Ended
September 30,
1995 1994
----- -----
Interest paid $36.2 $29.5
Income taxes refunded (0.1) (4.5)
(3) The Company's provisions for income taxes for the three and nine month
periods ended September 30, 1995 and 1994 reflect estimated annual tax rates for
the year applied to federal, state and foreign income.
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(4) The following tables summarize the capitalization of the Company at
September 30, 1995 and December 31, 1994 (in millions of dollars):
September 30, 1995 December 31,1994
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DEBT Current Long-Term Current Long-Term
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Bank borrowings (at an average
rate of 7.3% in 1995 and 5.4%
in 1994; and 7.2% at
September 30, 1995) $ - $ 50.0 $ - $ 88.0
Bank revolving commitment
loan due through 1999 (at
an average rate of 8.4% in
1995 and 7.6% in 1994; and
8.2% at September 30, 1995) - 167.3 - 105.2
8% notes (face amount of
$100 million due 1996) - 99.0 - 97.5
Unsecured notes (at an average
rate of 6.9% in 1995 and 5.9%
in 1994; and 7.2% at
September 30, 1995) 0.6 0.8 5.3 1.3
Capital lease liability (at an
average rate of 8.5% in 1995 and
9.2% in 1994; and 8.3% at
September 30,1995) 7.3 9.3 9.2 13.0
9-1/8% senior subordinated
notes due 2003 - 149.1 - 149.0
---- ------ ----- ------
Total notes payable and
long-term debt $7.9 $475.5 $14.5 $454.0
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STOCKHOLDERS' EQUITY September 30, December 31,
1995 1994
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Common stock:
Common stock $ 0.3 $ 0.2
Series I non-voting common stock - -
Preferred stock - -
Capital in excess of par value 29.6 30.9
Notes receivable - management stock
purchase (0.3) (1.0)
Retained earnings 32.8 29.7
Cumulative translation adjustment (0.2) (0.5)
------ ------
62.2 59.3
Less treasury common stock, 1,999,630
shares in 1995 and 2,237,344 shares
in 1994, at cost (13.8) (15.5)
------ ------
Total stockholders' equity $ 48.4 $ 43.8
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-8-
CAPITAL STOCK - NUMBER OF SHARES September 30, December 31,
(Thousands of shares) 1995 1994
------------- ------------
Common Stock, $.01 par value:
Authorized 50,000.0 50,000.0
Issued 22,446.1 22,435.7
Outstanding 22,016.9 21,758.4
Series I non-voting common stock,
$.01 par value:
Authorized 25,000.0 25,000.0
Issued 2,720.0 2,720.0
Outstanding 1,149.6 1,160.0
Preferred stock, $.01 par value:
Authorized 5,000.0 5,000.0
Issued and outstanding - -
In October 1995, the Company completed a financing which updated more than
$600 million of existing bank facilities. The financing included a $200
million intermediate term loan, a commitment for a $100 million accounts
receivable facility, an extension of the maturity of an existing letter of
credit facility of $155 million, and amendments to an existing $178 million
revolving loan facility. The new accounts receivable facility is available to
replace the existing $100 million facility which expires November 30, 1995.
(5) Earnings per common share are based on average outstanding common shares
and common share equivalents. Common share equivalents recognize the dilutive
effects of common shares which may be issued in the future upon exercise of
certain stock options. The number of shares used in the computation of
earnings per share were as follows (in thousands of shares):
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
------ ------ ------ ------
Average common shares
outstanding 23,164 22,907 23,068 22,886
Common stock equivalents 183 287 188 313
------ ------ ------ ------
Total used for computation
of per share earnings 23,347 23,194 23,256 23,199
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(6) The Company's discontinued property and casualty insurance subsidiary
("Centaur") 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 claim
liabilities at an aggregate level that is
-9-
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. If all of
Centaur's obligations are not satisfied through rehabilitation, it is possible
that satisfaction could be sought from the Company for Centaur's liabilities.
The foregoing has resulted in one pending lawsuit against the Company, certain
of its current and former subsidiaries, and directors and officers of certain
current and former subsidiaries for recovery of alleged damages incurred because
of Centaur's failure to satisfy its reinsurance obligations. The lawsuit seeks
in excess of $100 million for current losses, future losses and other damages
and also seeks punitive damages. 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 certain 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.
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 several
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 effect 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 the aggregate amount of
approximately $11 million (relating to environmental matters with respect to
discontinued operations of the Company).
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 plastic 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 and there are no other material limitations or exclusions with
respect thereto. If any environmental liability claim
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relating to the operations of the Company's discontinued automotive subsidiary
is made, the Company will be indemnified by such former subsidiary.
The Company believes that the various asserted claims and litigation in which it
is involved will not materially affect its financial position or future
operating results, although no assurance can be given with respect to the
ultimate outcome of any such claim or litigation.
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Item 2. Management's Discussion and Analysis of
---------------------------------------
Financial Condition and Results of Operations
---------------------------------------------
RESULTS OF OPERATIONS
- ---------------------
Consolidated net service revenue for the third quarter and first nine months of
1995 increased 4% and 5%, respectively, over the comparable 1994 periods. All
business units except Courier reported higher revenues, with the largest gains
due to higher volume at Armored and recognition of Alarm revenue under sales-
type leases. The revenue contributed by each of the Company's business units was
as follows (in millions of dollars):
Three Months Ended Nine Months Ended
September 30 September 30
------------------ --------------------
1995 1994 1995 1994
------ ------ -------- --------
Guard $306.6 $305.6 $ 916.3 $ 895.1
Alarm 63.1 52.0 191.4 154.5
Armored 58.1 52.6 171.5 156.4
Courier 38.7 40.5 117.0 127.9
------ ------ -------- --------
Total $466.5 $450.7 $1,396.2 $1,333.9
====== ====== ======== ========
Consolidated revenue for the three and nine month periods ended September 30,
1995 includes $9.1 million and $29.8 million, respectively, related to
recognition of certain alarm services contracts as sales-type leases. There was
no comparable activity in 1994. Excluding the impact of the sales-type leases,
consolidated revenue for the third quarter and first nine months of 1995
increased 2% over the comparable 1994 periods.
Operating profit, which is pretax earnings before interest expense and
unallocated corporate expenses, for the first nine months of 1995 declined 10%
from 1994, reflecting the continued impact of lower margins earned by the Guard
and Alarm units during the first half of 1995. Lower margins resulted from
higher direct costs, primarily labor costs, outpacing the units' efforts to
implement price increases. Operating profit increased 8% in the third quarter of
1995 from the comparable 1994 period, reflecting an improving trend in the Guard
and Alarm units and continued strong Armored performance.
Guard revenue for the third quarter of 1995 was unchanged from the comparable
1994 period. Volume, as measured by average guard hours-in-force, declined 2% as
cancellations exceeded new sales. The decline in volume was offset by higher
average billing rates implemented to offset higher labor costs. Guard revenue
for the first nine months of 1995 increased 2% due to higher average guard hours
and higher average billing rates. Operating profit increased 3% in the third
quarter of
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1995 but remains slightly below 1994 year-to-date. While operating margins have
been generally improving throughout 1995 as a result of pricing improvements and
operations streamlining, year-to-date results reflect the inflationary impact on
wages and unbillable overtime costs of continued low unemployment rates in
certain labor markets. The Company is continuing its consolidation plan for
guard services administrative support staff and certain field operations to
reduce overhead costs and provide customers with more streamlined and
standardized service.
Alarm revenue increased 21% and 24% for the third quarter and first nine months
of 1995, respectively, compared to the comparable 1994 periods. Excluding the
impact of the sales-type leases, the revenue increases were 4% and 5% for the
same periods, primarily as a result of higher direct sales of commercial alarm
installations and higher service revenue on residential operations. The increase
in revenue related to sales-type leases will be offset in future periods by
reduced rental revenue from equipment under operating leases. Alarm's 1995
operating profit increased 6% for the third quarter but has declined 31% year-
to-date as compared to 1994. Operating margins improved in the third quarter
primarily because of improved pricing and investment control performance.
Operating margins have been adversely affected year-to-date in 1995 by
increased operating expenses to improve customer service and higher selling
expense to increase residential market penetration. Although the customer
cancellation rate in 1995 exceeds 1994, due primarily to customer cutbacks and
closures, annual contract service-in-force at September 30, 1995 remains
comparable to September 30, 1994.
Armored revenue increased 10% for the third quarter and first nine months of
1995 compared to 1994. The increases resulted primarily from increased prices
and higher volume in the armored transport and ATM service operations. Despite
higher labor, vehicle and insurance costs, operating profit increased 46% and
19% for the third quarter and year-to-date, respectively. Operating margins have
improved primarily due to improved pricing and profitability programs. Although
actual cargo loss experience has improved significantly in 1995, the Company is
maintaining its provision for reserves at higher levels. The unit continues to
invest in programs for improvements in both safety and service quality.
Courier revenue declined 4% and 8% in the third quarter and first nine months of
1995, respectively, compared to 1994. The lower revenue results from a reduced
volume of traditional financial document shipments. This lost volume has been
partially offset by increased activity in the unit's package express business.
Operating profit declined sharply in 1995 compared to 1994 due to the reduced
revenues against a fixed cost base in established route structures. The courier
unit will continue its efforts to improve margins by utilizing excess capacity
in its current route structures and through internal cost reduction efforts.
Interest expense and finance charges increased 9% and 14% in the third quarter
and first nine months of 1995, respectively, over the comparable 1994 periods.
The increases were due to higher market interest rates
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combined with increased rates under the March 1995 amendment to the credit
agreement.
FINANCIAL CONDITION AND LIQUIDITY
- ---------------------------------
Current liabilities exceeded current assets at September 30, 1995 and December
31, 1994 due to the sale of receivables pursuant to a receivable transfer
facility. The outstanding balance of sold receivables was $92 million and $112
million at September 30, 1995 and December 31, 1994, respectively. The proceeds
of these sales were applied to reduce long-term debt. The levels of receivables,
inventory and current liabilities are partly seasonal in nature and are
influenced by the timing of billings, collections and payrolls. The Company's
policy is to keep working capital as low as is operationally feasible to
minimize related carrying costs.
Although cash provided by operating activities decreased $11.4 million due to
lower earnings in 1995, cash used for investing activities was reduced by $20
million due to improved Alarm investment control and the absence of
acquisitions. As a result net cash flow was $1.6 million for the first nine
months of 1995 and total debt (including receivables sold) declined to $575.4
million at September 30, 1995 from $580.5 million at December 31, 1994. The
Company expects that continuing operations, together with existing credit
facilities will generate sufficient cash to fund current operating requirements
and capital expenditures.
The Company amended its revolving and letter of credit facilities in March 1995
with respect to covenants related to earnings, leverage, fixed charge coverage,
net worth, capital expenditures and acquisitions. In connection with the
renegotiation of financial covenants required to be maintained under its
receivables transfer facility, the Company agreed to increased reserve
requirements and certain other changes. In addition, the maturity date of this
facility was changed to September 30, 1995 from November 1997. In September 1995
the maturity date was extended to November 30, 1995. The Company has entered
into a commitment for a $100 million accounts receivable facility to replace the
existing facility.
On October 17, 1995, the Company entered into a credit agreement with a
syndicate of banks, providing for a $200 million term loan due December 31,
1998. On such date the Company also amended its existing revolving credit and
letter of credit facilities, principally to permit the term loan, change
pricing, amend covenants relating to interest coverage, leverage, net worth and
earnings, extend the maturity of the letter of credit facility to December 31,
1998 and reduce the level of commitments under the letter of credit facility to
$155 million.
The Company will use the initial $100 million of proceeds from the term loan to
prepay an existing $50 million term loan and for general corporate purposes. The
remaining $100 million of term loan proceeds
-14-
will be available for borrowing, subject to customary borrowing conditions, in
connection with the repayment at maturity of the $100 million principal amount
of its 8% notes due April 1, 1996.
The Company is required to prepay the term loan with the proceeds from certain
asset sales, certain reversions of surplus pension plan assets, issuance of debt
or equity securities and excess cash flow. In the event that, as of the end of
each quarter beginning with the quarter ended March 31, 1997, the Company has
not achieved for the four consecutive quarters ending on such date (i) an
interest coverage ratio (as defined in the credit agreement) of at least 2.5 to
1.0 and (ii) consolidated EBITDA (as defined in the credit agreement) of at
least $160 million, the Company is required to prepay $150 million of the term
loan not later than 120 days after the end of such quarter. If the Company is
required to make such payment, it expects to fund such amount through some
combination of transactions that may include the issuance of debt or equity
securities, the sale of assets or other financing alternatives.
As discussed more fully in Note 6 of the Notes to Consolidated Financial
Statements, various complaints seeking substantial dollar amounts have been
filed against the Company. In each of these cases, the Company believes that it
has a defendable position or has adequate reserves to protect the Company from
material losses. The Company believes that it has established adequate
provisions for litigation liabilities in its financial statements in accordance
with generally accepted accounting principles.
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, although no assurance can be given with respect to the
ultimate outcome of any such proceeding.
-15-
Part II. Other Information
Item 1. Legal Proceedings
-----------------
As previously reported in the Company's Annual Report on Form 10-K for the year
ended December 31, 1994, Centaur Insurance Company ("Centaur"), the Company's
discontinued property and casualty insurance subsidiary, has been operating
under rehabilitation since September 1987. Rehabilitation is a process
supervised by the Illinois Director of Insurance to attempt to compromise
Centaur's liabilities at an aggregate level that is not in excess of its assets.
The foregoing has resulted in one pending lawsuit against the Company for
recovery of alleged damages incurred as a result of Centaur's failure to satisfy
its reinsurance obligations.
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. 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 to add a
claim for punitive damages. The complaint was further amended in February 1995
to allege additional causes of action based on negligence and breach of the
covenant of good faith and fair dealing. The second amended complaint seeks
judgment for current losses, future losses and other damages in an amount
alleged to exceed $100 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.
-16-
Item 2. Changes in Securities
---------------------
Inapplicable
Item 3. Defaults Upon Senior Securities
-------------------------------
Inapplicable
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None
Item 5. Other Information
-----------------
None
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits:
4.1 - Credit Agreement, dated as of October 16 1995, among
the Company, various lenders and Bankers Trust
Company, as Agent.
4.2 - Third Amendment to Credit Agreement and Consent, dated
as of October 16, 1995, among the Company, various
lenders, certain lead managers and co-agents and
Bankers Trust Company, as Administrative Agent.
4.3 - Amendment No. 6 to Credit Agreement, dated as of
October 16, 1995, among the Company, various financial
institutions and the Long-Term Credit Bank of Japan,
Ltd. as Agent.
27 - Financial Data Schedule
(b) Reports on Form 8-K:
None
-17-
SIGNATURES
Pursuant to the requirements 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
--------------------------------
(Registrant)
By /s/ Timothy M. Wood
------------------------
(Signature)
Timothy M. Wood
Vice President, Finance
(Principal Financial and Accounting Officer)
Date: November 10, 1995