UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
_______________
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1998 Commission file number: 1-5529
______________
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)
__________________
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
9-5/8% Senior Subordinated Notes due 2007 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
___________________
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.[x]
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 5, 1999 was
approximately $413.9 million. As of March 5, 1999, the registrant had 23,904,760
shares of 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 stockholders Parts I, II and IV
for the year ended December 31, 1998
The Company's proxy statement for the 1999 Part III
annual meeting of stockholders
1
BORG-WARNER SECURITY CORPORATION
FORM 10-K
YEAR ENDED DECEMBER 31, 1998
INDEX
Item Number Page
----------- ----
PART I
1. Business 3
2. Properties 8
3. Legal Proceedings 8
4. Submission of Matters to a Vote of Security Holders 10
PART II
5. Market for the Registrant's Common Stock
and Related Stockholder Matters 11
6. Selected Financial Data 11
7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
7A. Quantitative and Qualitative Disclosures
About Market Risk 12
8. Financial Statements and Supplementary Data 12
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 12
PART III
10. Directors and Executive Officers of the Registrant 13
11. Executive Compensation 13
12. Security Ownership of Certain Beneficial
Owners and Management 13
13. Certain Relationships and Related Transactions 13
PART IV
14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K 14
2
PART I
Item 1. Business
The Company is North America's largest supplier of contract guard and
related security services. As a result of its significant market presence,
breadth of product offerings and strategic alliances, the Company is well
positioned to service local, multi-location and national accounts and provide
total security solutions to its customers.
The Company provides guard services, as well as background screening,
contract employment and investigative services, to approximately 14,000 clients
in the United States, Canada, the United Kingdom and Colombia. The Company
services these clients with approximately 73,000 employees in approximately 300
offices under the Wells Fargo, Burns, Globe and other service marks.
The Company 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, access control at health care and
educational facilities, background screening, investigative services and
contract staffing services.
The Company employs approximately 67,500 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 drivers' 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 Company markets guard services through approximately 150 sales
representatives nationwide and in Canada, the United Kingdom and Colombia. Sales
personnel operate out of local branch and sales offices. The Company also bids
on contracts with governmental agencies.
Physical security service 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 services are negotiated with customers and are based
upon payment of a specified amount per service 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.
3
Information concerning the revenues and identifiable assets of the Company
is incorporated herein by reference to Note 11 of the Notes to Consolidated
Financial Statements.
Electronic Security Services
On May 29, 1998, the Company sold its electronic security services
business, Wells Fargo Alarm Services ("Alarm"), to ADT Security Services, a
subsidiary of Tyco International, Ltd. ("ADT") for approximately $425 million
plus the assumption of approximately $6 million of debt by the buyer. The
Company recorded a net after-tax gain of $42.5 million for the transaction in
the second quarter. As a result of the sale, the division's results have been
restated and reflected as discontinued operations for all periods presented.
Through Alarm, the Company provided integrated electronic security systems,
including intrusion and fire detection, sprinkler and critical industrial
process monitoring, closed circuit television and access control. Alarm
designed, installed, monitored and serviced electronic security systems located
on the premises of commercial and residential customers in the United States and
Canada under the Wells Fargo and Pony Express service marks. Alarm also
provided, under the Bel-Air Patrol trade name, an integrated guard, patrol and
alarm service to customers in Bel Air, Beverly Hills and other Los Angeles
communities. The unit had approximately 2,200 employees.
The Company and ADT entered into a strategic alliance agreement for the
furnishing of electronic and physical security services to their respective
clients.
Loomis, Fargo & Co.
In January 1997, the Company's armored transport unit contributed
substantially all of its assets and assigned certain of its liabilities to
Loomis, Fargo & Co. ("Loomis Fargo"), a newly established corporation, in
exchange for 49% of Loomis Fargo's outstanding common stock and a cash payment
of approximately $105 million (net of transaction costs, but subject to certain
adjustments).
The Company agreed to indemnify Loomis Fargo for environmental liabilities
associated with existing underground storage tanks and other known and
identified environmental liabilities. Such indemnification obligation continued
until December 31, 1998. Refer to the discussion of environmental proceedings
on page 9. The Company also agreed to indemnify Loomis Fargo against certain
other claims, including claims relating to cargo losses and taxes.
The Company and the former Loomis shareholders entered into a stockholders
agreement providing that Loomis Fargo's board of directors initially will
consist of seven directors: three directors nominated by the Company; three
directors nominated by the former Loomis shareholders; and the Loomis Fargo
chief executive officer. The number of directors that may be designated
pursuant to the stockholder agreement may be adjusted if either the Company or
the former Loomis shareholders reduce their ownership stake in Loomis Fargo.
The stockholder agreement provides that the vote of five of the seven directors
is required for Loomis Fargo to engage in certain specified activities.
4
In addition, the stockholder agreement prohibits the transfer of Loomis
Fargo common stock by either party for three years following the closing without
the prior consent of the other party. After such period Loomis Fargo common
stock may be transferred only in accordance with the provisions of the
stockholder agreement, which include rights of first refusal and co-sale rights.
The current stockholders also have certain preemptive and registration rights
with respect to equity issuances by Loomis Fargo.
Loomis Fargo operates in all 50 states and Puerto Rico to provide armored
ground transportation services, ATM services and cash vault and related services
to financial institutions and commercial customers.
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 6,100 employees. The collective bargaining
agreements expire at various dates from 1999 to 2001 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 of
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.
Competition
The Company competes with major national and international firms 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.
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. 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. The Company believes that its operations are in substantial
compliance with those laws, regulations and requirements. Federal legislation
has been introduced relating to security
5
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 physical security services operations.
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.
The Company generally obtains customer indemnification or liability
limitations in its contracts to mitigate this risk exposure. The Company carries
insurance of various types, including workers' compensation, automobile and
general liability coverage. These policies include deductibles per occurrence
for which the Company is self-insured. The Company obtains its 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 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, customer profiles and employee screening, training,
supervision and evaluation.
Discontinued Operations
On May 29, 1998, the Company sold its courier services business, Pony
Express Delivery Services, Inc. In the first quarter of 1998, the Company
recorded a $15.9 million after-tax charge to reduce its investment in this
business and to provide for costs associated with its disposition. The Company
did not record a gain or loss as a result of completing the sale.
Since September 1996, the Company had treated its courier services unit as
a discontinued operation. The unit transported time-sensitive packages for
commercial businesses and non-negotiable financial documents for Federal Reserve
banks and financial institutions in 36 states under the Pony Express(R) service
mark. The unit employed approximately 3,600 persons and used a fleet of
approximately 3,000 vehicles, many of which were vehicles provided by the unit's
employees. The courier services unit operated both as a common and contract
carrier and used a combination of tariffs and shipping contracts to control the
terms, conditions and rates applicable to the transportation of shipments. Rates
were dependent upon many factors, including the weight
6
and type of the shipped item, the distance and urgency of the shipment and the
geographical location.
As previously mentioned, the May 29, 1998 sale of Alarm caused the
Company's results to be restated and for Alarm to be reflected as a discontinued
operation for all periods presented.
Trademarks and Patents
The Company maintains several service marks of importance 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. For
both the United States and foreign patents, their expiration, individually or in
the aggregate, is not expected to have any material effect on the Company's
financial condition or results of operations.
The Company entered into an agreement with Borg-Warner Automotive, Inc.
("Automotive") effective July 31, 1998 whereby the Company sold its rights to
the "Borg-Warner" name and mark in the security field. Automotive granted the
Company an exclusive, royalty-free license to use the "Borg Warner" name and
mark in the security field for a four-year period.
Executive Officers
Set forth below are the names, ages, positions and certain other
information concerning the executive officers of the Company as of March 1,
1999.
Name Age Position With Company
J. Joe Adorjan 60 Chairman of the Board
John A. Edwardson 49 Chief Executive Officer and President
John D. O'Brien 56 Senior Vice President
Timothy M. Wood 51 Vice President, Finance
Robert E. T. Lackey 50 Vice President, General Counsel and Secretary
Mr. Adorjan has been a director of the Company since 1993, Chairman of the
Board (since January 1996), Chief Executive Officer (from October 1995 to March
1999) and President (from April 1995 to March 1999). Mr. Adorjan was President
of Emerson Electric Co., a manufacturer of electronic, electrical and other
products, from 1992 to 1995. Mr. Adorjan is also a director of The Earthgrains
Company, ESCO Electronics Corporation, Goss Graphic Systems, Inc. and Loomis,
Fargo & Co.
Mr. Edwardson was appointed Chief Executive Officer and President of the
Company in March 1999 and will be presented for election to the board of
directors at the Company's Annual Meeting on April 20, 1999. Mr. Edwardson was
President of United Airlines from July 1994 to September 1998 and Chief
Operating Officer of United Airlines from April 1995 to September
7
1998. Mr. Edwardson was also Executive Vice-President and Chief Financial
Officer of Ameritech Corp. from March 1991 to July 1994. Mr. Edwardson is a
director of Household International and Focal Communications Corporation.
Mr. O'Brien has been Senior Vice President of the Company since 1993 and
was Vice President of the Company from 1987 to 1993. Mr. O'Brien is also
President of Borg-Warner Protective Services Corporation and a director of
Loomis, Fargo & Co.
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 and is also a
director of Loomis, Fargo & Co.
Mr. Lackey has been Vice President, General Counsel and Secretary of the
Company since 1997 and was Vice President, General Counsel and Secretary of
Transamerica Commercial Finance Corp. from 1991 to 1995.
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 general offices in various cities
in the United States, Canada, the United Kingdom and Colombia. At December 31,
1998, the Company occupied approximately 300 branch and satellite offices, all
but one of which were leased. The Company leases approximately 57,000 square
feet of office space in Chicago, Illinois for its executive offices. However, it
currently subleases 23,000 square feet of such office space to third parties.
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).
8
Centaur Litigation
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 not in excess of Centaur's assets. In rehabilitation,
Centaur's assets are 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 remaining reinsurance
contracts.
On August 10, 1998 the Mission Trust and the Company agreed to settle the
suit against the Company, subject to court approval. The suit had alleged
damages in excess of $100 million because of Centaur's failure to satisfy its
reinsurance obligations. As a part of the settlement, the Company agreed to pay
the Mission Trust $4 million and one-third of any dividend or other distribution
that may be paid to the Company after rehabilitation of Centaur. Any future
payments by the Company will not have an effect on Company earnings. Separately,
the Mission Trust and Centaur agreed to an uncontested liquidated claim in the
Centaur estate of $48 million, for which the Company is not liable.
Additionally, the Illinois Director of Insurance, on behalf of the Centaur
estate, and the Company agreed to exchange mutual releases of any remaining
liability of the Company to the Centaur estate. The parties have finalized and
executed the settlement and release agreements. The required court approvals of
the settlement are being sought by the parties with final approval and dismissal
of the lawsuit anticipated by the end of the first half of 1999.
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. In addition, the Company has or may have liability for
environmental matters at properties it presently or previously owned or leased.
Based on currently available information, 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,
indemnification obligations in favor of the Company from the current owners of
certain sold or discontinued operations, 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 $5 million
(relating to environmental matters with respect to discontinued operations of
the
9
Company). While estimates of liability for environmental matters can vary over
time due to, among other things, changes in laws, technology or available
information, the Company believes that such provisions for indicated
environmental liabilities have been established on a basis consistent with
generally accepted accounting principles.
Loomis, Fargo Indemnification Claims
In November and December, 1998, Loomis, Fargo made various claims against
the Company for indemnification under the Contribution agreement dated November
28, 1996 for certain cargo losses and environmental losses. The Company has
objected to the claims. If the parties are unable to resolve their dispute, it
will be referred to arbitration as provided for under the Contribution
Agreement.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to the security holders of the Company
during the fourth quarter of 1998.
10
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters
As of March 5, 1999, there were approximately 150 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
prohibited under the terms of the Company's indebtedness. 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 1997 and 1998 were:
Quarter Ended High Low
------------- ---- ---
1997 March 31 $15 1/8 $10 1/8
June 30 18 13 3/4
September 30 19 9/16 16 1/8
December 31 19 3/4 15 1/4
1998 March 31 $19 7/16 $15 5/16
June 30 24 3/4 17 7/8
September 30 23 1/16 13 1/4
December 31 20 1/16 13 1/16
Item 6. Selected Financial Data
The selected financial data for the five years ended December 31, 1998,
with respect to the following line items shown under the "Consolidated
Statistical Review" on page 18 of the Annual Report, are 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 Financial Condition and Results
of Operations (set forth on pages 20 through 23) in the Annual Report are
incorporated herein by reference and made a part of this Report.
11
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Disclosures about market risk are contained within page 23 of the
Management's Discussion and Analysis of Financial Condition and Results of
Operations in the Annual Report, and 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 24 through 38) 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, 1998 and 1997 is set forth in Note 15 of the Notes to
Consolidated Financial Statements. For a list of financial statements and
schedules filed as part of this report, see Item 14.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Inapplicable.
12
PART III
Item 10. Directors and Executive Officers of the Registrant
Information with respect to directors and nominees for election as
directors of the Company is incorporated herein by reference to the information
under the caption "Election of Directors" on pages 2 through 4 of the Company's
Proxy Statement for the 1999 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)
Beneficial Ownership Reporting Compliance" on page 8 of the Company's Proxy
Statement for the 1999 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 8 and 9, and "Compensation
of Directors" on pages 5 and 6, of the Company's Proxy Statement for the 1999
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 6 through 8 of the Company's Proxy Statement for the 1999 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 page 18 of the Company's
proxy statement for the 1999 Annual Meeting of Stockholders.
13
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 24 through 38 of the
Annual Report, and the Independent Auditors' Report, set forth on page 39 of the
Annual Report, are incorporated herein by reference:
Consolidated Statement of Operations--three years ended December 31, 1998
Consolidated Balance Sheet--December 31, 1998 and 1997
Consolidated Statement of Cash Flows--three years ended December 31, 1998
Consolidated Statement of Shareholders' Equity--three years ended
December 31, 1998
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, 1998.
14
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Borg-Warner Security Corporation
We have audited the consolidated financial statements of Borg-Warner Security
Corporation (the "Company") as of December 31, 1998 and 1997, and for each of
the three years in the period ended December 31, 1998, and have issued our
report thereon dated February 2, 1999; such consolidated financial statements
and report are included in your 1998 Annual Report to Stockholders and are
incorporated herein by reference. Our audits 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's management. Our responsibility is to express an
opinion based on our audits. In our opinion, the financial statement schedule,
when considered in relation to the basic consolidated financial statements taken
as a whole, presents fairly in all material respects the information set forth
therein.
/s/ Deloitte & Touche LLP
- -------------------------
DELOITTE & TOUCHE LLP
Chicago, Illinois
February 2, 1999
15
SCHEDULE II
BORG-WARNER SECURITY CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
($ MILLIONS)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
---------- --------------------------- ---------- ----------
Years Ended December 31,
Additions
---------------------------
Balance at Charged to Charged to Balance at
Beginning Costs and Other Close of
Description of Period Expenses Accounts Deductions Period
---------- ---------- ---------- ---------- ----------
1996
Allowance for Doubtful Accounts $5.9 $2.9 $2.0 $5.4 $5.4
========== ========== ========== ========== ==========
1997
Allowance for Doubtful Accounts $5.4 $3.1 $0.4 $4.9 $4.0
========== ========== ========== ========== ==========
1998
Allowance for Doubtful Accounts $4.0 $5.1 $0.3 $2.4 $7.0
========== ========== ========== ========== ==========
The above table sets forth the valuation and qualifying accounts for the
previous three years. Previously reported amounts have been restated to reflect
the discontinued operations related to the May 29, 1998 sales of the Company's
electronic security division and the Company's courier services division.
16
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/ J. Joe Adorjan
------------------
J. Joe Adorjan
Chairman of the Board, Chief Executive Officer
and President*
Date: February 2, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on this day of February 2, 1999.
Signature Title
- --------- -----
/s/ J. Joe Adorjan Chairman of the Board, Chief Executive
- --------------------------------- Officer and President* and Director
J. Joe Adorjan (Principal Executive Officer)
/s/ Timothy M. Wood Vice President, Finance
- --------------------------------- (Principal Financial and Accounting Officer)
Timothy M. Wood
/s/ James J. Burke, Jr. Director
- ---------------------------------
James J. Burke, Jr.
/s/ Albert J. Fitzgibbons, III Director
- ---------------------------------
Albert J. Fitzgibbons, III
/s/ Arthur F. Golden Director
- ---------------------------------
Arthur F. Golden
* Effective 3/1/99, resigned as Chief Executive Officer and President
17
/s/ Dale W. Lang Director
- -------------------------------
Dale W. Lang
/s/ Robert A. McCabe Director
- -------------------------------
Robert A. McCabe
/s/ Andrew McNally, IV Director
- -------------------------------
Andrew McNally IV
/s/ Alexis P. Michas Director
- -------------------------------
Alexis P. Michas
/s/ H. Norman Schwarzkopf Director
- -------------------------------
H. Norman Schwarzkopf
/s/ Donald C. Trauscht Director
- -------------------------------
Donald C. Trauscht
/s/ John A. Edwardson* *Chief Executive Officer and President
- ------------------------------- Effective 3/1/99
John A. Edwardson Signature date: March 16, 1999
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EXHIBIT INDEX
Exhibit
Number Document Description
- ------- -----------------------------------------------------------------------
*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 Amended and Restated Credit Agreement dated as of June 30, 1998 among
the Company, the lenders party thereto and the agents named therein
(incorporated by reference to Exhibit 4 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1998).
*4.2 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).
*4.3 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).
*4.4 Indenture dated as of March 24, 1997 by and between the Company and The
Bank of New York, as trustee (incorporated by reference to Exhibit 4.3
to Registration Statement No. 333-26573).
+*10.1 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, 1988).
+*10.2 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, 1992).
+*10.3 Borg-Warner Security Corporation 1993 Stock Incentive Plan, conformed
to include amendments thereto (incorporated by reference to Exhibit
10.3 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1997).
20
+*10.4 Borg-Warner Security Corporation Performance Share Plan, conformed to
include amendments thereto (incorporated by reference to Exhibit 10.4
to the Company's Annual Report on Form 10-K for the year ended December
31, 1997).
+*10.5 Borg-Warner Security Corporation Executive Officer Incentive Plan.
(incorporated by reference to Exhibit 10.5 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1997).
+*10.6 Employment Agreement dated as of March 28, 1995 for J.J. Adorjan
(incorporated by reference to Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1995).
+*10.7 Amendment to Employment Agreement dated as of September 5, 1997 for
J.J. Adorjan (incorporated by reference to Exhibit 10.7 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1997).
+*10.8 Noncompetition Agreement dated as of September 5, 1997 by and between
the Company and J.J. Adorjan. (incorporated by reference to Exhibit
10.8 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1997).
+*10.9 Employment Agreement dated September 5, 1997 for J.D. O'Brien
(incorporated by reference to Exhibit 10.9 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1997).
+*10.10 Noncompetition Agreement dated as of September 5, 1997 by and between
the Company and J.D. O'Brien (incorporated by reference to Exhibit
10.10 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1997)
+*10.11 Employment Agreement dated September 5, 1997 for T.M. Wood
(incorporated by reference to Exhibit 10.11 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1997).
+*10.12 Noncompetition Agreement dated as of September 5, 1997 by and between
the Company and T.M. Wood (incorporated by reference to Exhibit 10.12
to the Company's Annual Report on Form 10-K for the year ended December
31, 1997).
+*10.13 Borg-Warner Security Corporation Retirement Savings Excess Benefit
Plan, as amended and restated through January 1, 1995 (incorporated by
reference to Exhibit 10.21 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1994).
21
+*10.14 Borg-Warner Security Corporation Supplemental Benefits Compensation
Program (incorporated by reference to Exhibit 10.10 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1994).
+10.15 Consulting Agreement amended as of August 31, 1998 between the Company
and H. Norman Schwarzkopf.
*10.16 Contribution Agreement dated as of November 28, 1996 by and among the
Company, Wells Fargo Armored Service Corporation, Loomis-Wells
Corporation (now known as Loomis, Fargo & Co.), Loomis Holding
Corporation and Loomis Stockholders Trust (incorporated by reference to
Exhibit 2.1 to the Company's Current Report on Form 8-K dated February
7, 1997).
+10.17 Employment Agreement dated February 23, 1999 for J. A. Edwardson.
+10.18 Employment Agreement dated August 31, 1998 for R. E. T. Lackey.
10.19 Stock Purchase Agreement, dated as of April 17, 1998, among ADT
Security Services, Inc., Tyco International (US) Inc. and the Company
relating to the purchase and sale of the common stock of Wells Fargo
Alarm Services, Inc., BW-Canada Alarm (Wells Fargo) Corporation and
Wells Fargo Pyro Technologies, Inc.
10.20 Stock Purchase Agreement, dated as of April 22, 1998, by and between
the Company and Mustang Holdings, Inc. relating to the purchase and
sale of the common stock of Pony Express Delivery Services, Inc.
*10.21 Amended and Restated Credit Agreement dated as of June 30, 1998 among
the Company, Lenders listed therein, Canadian Imperial Bank of
Commerce, as Documentation Agent, NationsBank N.A., as Syndication
Agent, and Bankers Trust Company, as Administrative Agent related to
the Company's receivables facility (incorporated by reference to
Exhibit 4 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998).
+*10.22 Borg-Warner Security Corporation's 1999 Stock Incentive Plan
(incorporated by reference to Appendix A of the Company's Proxy
Statement dated March 19, 1999).
13 Portions of the 1998 Annual Report to Stockholders.
21 Subsidiaries of the Company.
23 Consent of Deloitte & Touche LLP.
27 Financial Data Schedule.
99 Cautionary Statement.
_________
* Incorporated by reference.
+ Indicates a management contract or compensatory plan or arrangement
required to be filed pursuant to Item 14(c)
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