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, 1997 Commission file number: 1-12162 Borg-Warner Automotive, Inc. (Exact name of registrant as specified in its charter) Delaware 13-3404508 (State of Incorporation) (I.R.S. Employer Identification No.) 200 South Michigan Avenue Chicago, Illinois 60604 (312) 322-8500 (Address and telephone number of principal executive offices) Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered - ------------------------ ----------------------- Common Stock, par value $.01 per share New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check-mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No The aggregate market value of the voting stock of the registrant held by stockholders (not including voting stock held by directors and executive officers of the registrant) on March 16, 1998 was approximately $1.4 billion. As of March 16, 1998, the registrant had 23,610,409 shares of Common Stock and 1,500 shares of Non-Voting Common Stock outstanding. Indicate by check-mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K./x/ DOCUMENTS INCORPORATED BY REFERENCE Portions of the following documents are incorporated herein by reference into the Part of the Form 10-K indicated. Part of Form 10-K into which Document incorporated -------- --------------------- Borg-Warner Automotive, Inc. 1997 Annual Report to Stockholders Parts II and IV Borg-Warner Automotive, Inc. Proxy Statement for the 1998 Annual Meeting of Stockholders Part III
BORG-WARNER AUTOMOTIVE, INC. FORM 10-K YEAR ENDED DECEMBER 31, 1997 INDEX Item Number Page PART I 1. Business 3 2. Properties 10 3. Legal Proceedings 10 4. Submission of Matters to a Vote of Security Holders 11 PART II 5. Market for the Registrant's Common Equity and Related Stockholder Matters 11 6. Selected Financial Data 11 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 8. Financial Statements and Supplementary Data 12 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 12 PART III 10. Directors and Executive Officers of the Registrant 12 11. Executive Compensation 12 12. Security Ownership of Certain Beneficial Owners and Management 12 13. Certain Relationships and Related Transactions 12 PART IV 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 13
PART I Item 1. Business Borg-Warner Automotive, Inc., a Delaware corporation (the "Company"), was incorporated in 1987. The Company is a leading, global Tier I supplier of highly engineered systems and components, primarily for automotive powertrain applications. These products are manufactured and sold worldwide, primarily to original equipment manufacturers ("OEMs") of passenger cars, sport utility vehicles and light trucks. The Company, which operates 36 manufacturing facilities in 12 countries serving the North American, European and Asian automotive markets, is an original equipment supplier to every major OEM in the world. Company Business Units The Company's products fall into four categories: Powertrain Systems, Automatic Transmission Systems, Morse TEC and Air/Fluid Systems. Net revenues by product grouping for the three years ended December 31, 1997, 1996 and 1995, are as follows (in millions of dollars): <TABLE> <CAPTION> Year ended December 31, 1997 1996 1995 ------- ------- -------- <S> <C> <C> <C> Powertrain Systems $ 605.2 $ 562.7 $ 544.8 Automatic Transmission Systems 519.8 481.8 454.4 Morse TEC 324.1 276.5 257.6 Air/Fluid Systems 357.0 258.8 107.6 AG Kuhnle, Kopp & Kausch 24.8 -- -- --------- ------- -------- 1,830.9 1,579.8 1,364.4 Interbusiness eliminations (63.9) (39.7) (35.3) -------- --------- ---------- Net sales $1,767.0 $1,540.1 $1,329.1 ========= ========== ========= </TABLE> The Company's newest acquisition, a majority interest in AG Kuhnle, Kopp & Kausch, is shown separately since the Company is not the sole stockholder and has not yet finalized its plans concerning future integration of the business nor determined which product grouping is appropriate. The sales information presented above excludes the sales by the Company's unconsolidated joint ventures. See "Joint Ventures." Such sales totaled approximately $386 million in 1997, approximately $430 million in 1996 and approximately $394 million in 1995. The Company conducts business in one industry segment. See Note 9 of the Notes to Consolidated Financial Statements on pages 33 and 34 of the Company's Annual Report. Powertrain Systems Powertrain Systems' products include four-wheel drive ("4WD") and all-wheel drive transfer cases. Transfer cases are installed primarily on light trucks and sport-utility vehicles. A transfer case attaches to the transmission and distributes torque to the front and rear axles for 4WD, improving vehicle control during off-road use and in a variety of road conditions. The Company has designed and developed an exclusive 4WD Torque-on-Demand ("TOD") transfer case system, which allows vehicles to automatically shift from two-wheel drive to 4WD when electronic sensors indicate it is necessary. The TOD transfer case is available on the Ford Explorer, the best selling sport-utility vehicle in the United States in 1996 and 1997, and the new Ford Expedition and Lincoln Navigator. Sales of 4WD transfer cases represented 33% of the Company's total revenues for 1997 and 30% of total revenues for 1996 and 1995. The Company believes that it is the world's leading independent manufacturer of 4WD transfer cases, producing approximately 1.2 million transfer cases in 1997. The Company's largest customer of 4WD transfer cases is Ford Motor Company ("Ford"). The Company supplies substantially all of the 4WD transfer cases for Ford, including those installed in the Ford Explorer, the Ford Expedition, the Ford F-150 pick-up truck, the Mercury Mountaineer and the Lincoln Navigator. The Company supplies transfer cases for a new Mercedes-Benz M-Class all-activity vehicle, which was first made available to consumers in 1997 and is manufactured at Mercedes-Benz's new United States passenger-vehicle manufacturing facility. Under a five-year agreement, which has a three-year extension provision, the Company developed and supplies Mercedes-Benz with new two-speed, electronically controlled, all-wheel drive transfer cases that are compatible with its anti-skid braking system. Automatic Transmission Systems The Company engineers and manufactures components for automatic transmissions and the systems which combine such components around the world. Principal product lines include friction plates, one-way clutches, transmission bands, races and torque converters for automatic transmissions. The Company is a supplier to virtually every major automatic transmission manufacturer in the world. The Company's 50%-owned joint venture in Japan, NSK-Warner Kabushiki Kaisha ("NSK Warner"), is a leading producer of friction plates and one-way clutches in Japan. Morse TEC Morse TEC manufactures chain and chain systems, including HY-VO front-wheel drive transmission chain ("FWD") and 4WD chain, MORSE GEMINI Chain Systems, timing chain and timing chain systems, crankshaft and camshaft sprockets, chain tensioners and snubbers. HY-VO(R) chain is used in transmissions and for 4WD transfer case applications. Transmission chain is used to transfer power from the engine to the transmission. The Company's MORSE GEMINI(TM) Chain System, which is used on Chrysler's LH models, emits significantly less chain pitch frequency noise than conventional transmission chain systems. In the 1997 model year, beginning in the third quarter of 1996, GM began incorporating this system in its FWD vehicles. The chain in a transfer case distributes power between the front and rear output shafts which, in turn, drive the front and rear wheels. The Company believes it is the world's leading manufacturer of chain for FWD transmissions and 4WD transfer cases. The Company is an original equipment supplier to every major manufacturer that uses chain for such applications. The Company's timing chain system is used on Ford's new family of overhead cam engines, including the Duratech and Triton engines. The Company has been selected to design and produce complete timing chain systems for Chrysler's new 3.7 liter and 4.7 liter overhead cam engines beginning in 1998. The Company believes that it is the world's leading manufacturer of timing chain. Air/Fluid Systems Air/Fluid Systems designs and manufactures sophisticated mechanical, electro-mechanical and electronic components and systems used for engine air intake and exhaust management, fuel and vapor management, electronically controlled automatic transmissions and steering and suspension systems. Key products for engine air intake management produced by the Company include throttle bodies, intake manifolds, throttle position sensors, and complete engine induction systems. The Company's products for emissions control and improved gas mileage include mechanical and electrical air pumps, air control valves and pressure feedback exhaust gas re-circulation valves. The fuel management and vapor recovery products include roll valves, canister purge solenoids and complete vapor recovery systems. The Company also produces oil pumps. Effective October 31, 1997, the Company purchased from Penske Corporation a 63% interest in AG Kuhnle, Kopp & Kausch, a German corporation ("AG Kuhnle"). AG Kuhnle is a manufacturer of turbochargers and turbomachinery. AG Kuhnle supplies turbochargers to European diesel and spark ignition engine manufacturers for use in the passenger car and commercial vehicle markets as well as for industrial locomotive and marine engines. AG Kuhnle's turbomachinery business manufacturers compressors and turbines for use in the energy and environmental support markets. AG Kuhnle's sales of turbochargers included in the Company's 1997 results of operations for the period from October 31, 1997 were $25 million. The Company is primarily interested in AG Kuhnle's turbocharger business which provides the Company with another strategic technology to develop advanced powertrain solutions to reduce emissions and improve fuel economy. The net carrying value of the turbo-machinery business is included in prepayments and other current assets on the December 31, 1997 balance sheet. Joint Ventures The Company has six joint ventures in which it has a less-than-100% ownership interest. Results from two of these ventures, in which the Company is the majority owner, are consolidated as part of the Company's results. The Company's ownership interest in the remaining four joint ventures ranges from 39% to 50%. The results of NSK-Warner, Warner-Ishi Corporation, Beijing Warner Gear Co., Ltd. and Warner-Ishi Europe S.p.A. are reported using the equity method. Management of the unconsolidated joint ventures is shared with the Company's respective joint venture partners. Certain information concerning the Company's joint ventures is set forth below:
<TABLE> <CAPTION> Percentage Fiscal Owned by Location 1997 Sales Year the of Joint Venture ($ in Joint Venture Products Organized Company Operation Partner millions) - -------------- --------- ---------- --------- ---------- ---------- ---------- <S> <C> <C> <C> <C> <C> <C> Unconsolidated NSK-Warner K.K.Friction products 1964 50% Japan Nippon Seiko K.K. $297 Warner-Ishi Corporation Turbochargers 1980 50% U.S. Ishikawajima-Harima Heavy Industries Co., Ltd. $19 Beijing Warner Gear Co., Ltd. Manual transmissions 1992 39% China Beijing Gear Works $25 Warner-Ishi Europe,S.p.A. Turbochargers 1995 50% Italy Ishikawajima-Harima Heavy Industries Co., Ltd. $13 Consolidated Borg-Warner Automotive Korea, Inc. Friction products 1987 60% Korea Hyundai Motor Company, NSK Warner K.K. $32 Divgi-Warner Limited Transfer cases, manual transmissions and automatic locking hubs 1995 60% India Divgi Metalwares, Ltd. $0.2 </TABLE> See Note 9 of the Notes to Consolidated Financial Statements on pages 33 and 34 of the Company's Annual Report for geographic information.
Customers Approximately 85% of the Company's total sales in 1997 were to automotive OEMs, with the remaining 15% of the Company's sales to a diversified group of industrial, construction and agricultural vehicle manufacturers, auto part manufacturers and to distributors of automotive aftermarket and replacement parts. The Company's worldwide sales in 1997 to Ford, General Motors Corporation ("GM") and Chrysler Corporation ("Chrysler") constituted approximately 43%, 20% and 10%, respectively, of its 1997 consolidated sales. Approximately 16% of consolidated sales for 1997 were outside the United States, including exports. However, a substantial portion of such sales were to foreign OEMs of vehicles that are, in turn, exported to the United States. See Note 9 of the Notes to Consolidated Financial Statements on pages 33 and 34 of the Company's Annual Report. The Company's automotive products are sold directly to OEMs pursuant to the terms and conditions of the OEMs' purchase orders, and deliveries are subject to periodic authorizations based upon the production schedules of the OEMs. The Company ships its products directly from its plants to the OEMs. Sales and Marketing Each of the Company's four business groups has its own sales function headed by a Vice President of Sales. Account executives for each group are assigned to serve specific OEM customers for one or more of a business group's products. Such account executives spend the majority of their time in direct contact with OEM purchasing and engineering employees and are responsible for servicing existing business and for identifying and obtaining new business. Because of their close relationship with the OEMs, account executives are able to identify and meet customers' needs based upon their knowledge of the Company's products and design and manufacturing capabilities. Upon securing a new order, account executives participate in product launch team activities as a key interface to the customers. Research and Development Each of the Company's business groups has its own research and development ("R&D") organization. Over 400 employees, including engineers, mechanics and technicians, are engaged in R&D activities at Company facilities worldwide. The Company also operates testing facilities such as prototype, measurement and calibration, life testing and dynamometer laboratories. By working closely with the OEMs and anticipating their future product needs, the Company's R&D personnel conceive, design, develop and manufacture new proprietary automotive components and systems. R&D personnel also work to improve current products and production processes. The Company believes its commitment to R&D will allow it to obtain new orders from its OEM customers. Consistent with its strategy of developing technologically innovative products, the Company spent approximately $59 million, $54.4 million and $36.7 million in 1997, 1996 and 1995, respectively, on R&D activities. Not included in the reported R&D activities were customer-sponsored R&D activities that were approximately $8 million, $10 million and $11.3 million in 1997, 1996 and 1995, respectively. Patents and Licenses The Company has approximately 2,000 active domestic and foreign patents and patent applications pending or under preparation, and receives royalties from licensing patent rights to others. While it considers its patents on the whole to be important, the Company does not consider any single patent, group of related patents or any single license essential to its operations in the aggregate. The expiration of the patents individually and in the aggregate is not expected to have a material effect on the Company's financial position or future operating results. The Company owns numerous trademarks, some of which are valuable but none of which are essential to its business in the aggregate. The "Borg-Warner Automotive" trade name, and the housemark adopted in 1984 are material to the Company's business. The Company and Borg-Warner Security Corporation ("BW-Security") have entered into an Assignment of Trademarks and License Agreement (the "Trademark Agreement") whereby BW-Security assigned certain trademarks and trade names (including the "Borg-Warner Automotive" trade name) to the Company (which trademarks and trade names had been previously licensed to the Company) for use in the automotive field. Pursuant to the Trademark Agreement, the Company agreed to pay an additional $7.5 million to BW-Security upon the occurrence of certain events, including a change of control of the Company. Competition The Company competes worldwide with a number of other manufacturers and distributors which produce and sell similar products. Price, quality and technological innovation are the primary elements of competition. The Company's competitors include vertically integrated units of the Company's major OEM customers, as well as a number of independent domestic and international suppliers. Many of these companies are larger and have greater resources than the Company. A number of the Company's major OEM customers manufacture, for their own use and for others, products which compete with the Company's products. Although these OEM customers have indicated that they will continue to rely on outside suppliers, the OEMs could elect to manufacture products to meet their own requirements or to compete with the Company. There can be no assurance that the Company's business will not be adversely affected by increased competition in the markets in which it operates. The competitive environment has changed dramatically over the past few years as the Company's traditional United States OEM customers, faced with intense international competition, have expanded their worldwide sourcing of components with the stated objective of better competing with lower-cost imports. As a result, the Company has experienced competition from suppliers in other parts of the world enjoying economic advantages such as lower labor costs, lower health care costs and, in some cases, export subsidies and/or raw materials subsidies. Employees As of December 31, 1997, the Company and its consolidated subsidiaries had approximately 10,400 salaried and hourly employees (as compared with 9,800 employees at December 31, 1996), of which approximately 8,100 were U.S. employees. Approximately 37% of the Company's domestic hourly workers are unionized. The Company's Muncie, Indiana plant has approximately 1,600 employees represented by the United Auto Workers union. Approximately 880 hourly employees at the Company's Ithaca, New York, plant are represented by the International Association of Machinists. The collective bargaining agreement covering the Muncie Plant expires in March 1998 and the collective bargaining agreement covering the Ithaca plant expires in October 1998. The hourly workers at the Company's European facilities are also unionized. The Company believes its present relations with employees to be satisfactory. Raw Materials The Company believes that its supplies of raw materials for manufacturing requirements in 1998 are adequate and are available from multiple sources. It is common, however, for customers to require their prior approval before certain raw materials or components can be used, thereby reducing sources of supply that would otherwise be available. Manufacturing operations are dependent upon natural gas, fuel oil, propane and electricity. Environmental Regulation and Proceedings The Company's operations are subject to federal, state, local and foreign laws and regulations governing, among other things, emissions to air, discharge to waters and the generation, handling, storage, transportation, treatment and disposal of waste and other materials. The Company believes that its business, operations and facilities have been and are being operated in compliance in all material respects with applicable environmental and health and safety laws and regulations, many of which provide for substantial fines and criminal sanctions for violations. However, the operation of automotive parts manufacturing plants entails risks in these areas, and there can be no assurance that the Company will not incur material costs or liabilities. In addition, potentially significant expenditures could be required in order to comply with evolving environmental and health and safety laws, regulations or requirements that may be adopted or imposed in the future. The Company believes that the overall impact of compliance with regulations and legislation protecting the environment will not have a material effect on its financial position or future operating results, although no assurance can be given in this regard. Capital expenditures and expenses in 1997 attributable to compliance with such legislation were not material. The Company and certain of its current and former direct and indirect corporate predecessors, subsidiaries and divisions have been identified by the United States Environmental Protection Agency and certain state environmental agencies and private parties as potentially responsible parties ("PRPs") at various hazardous waste disposal sites under the Comprehensive Environmental Response, Compensation and Liability Act ("Superfund") and equivalent state laws and, as such, may presently be liable for the cost of cleanup and other remedial activities at 26 such sites. Responsibility for cleanup and other remedial activities at a Superfund site is typically shared among PRPs based on an allocation formula. The means of determining allocation among PRPs is generally set forth in a written agreement entered into by the PRPs at a particular site. An allocated share assigned to a PRP is often based on the PRP's volumetric contribution of waste to a site and the characteristics of the waste material. Based on information available to the Company which, in most cases, includes: an estimate of allocation of liability among PRPs; the probability that other PRPs, many of whom are large, solvent public companies, will fully pay the costs apportioned to them; currently available information from PRPs and/or federal or state environmental agencies concerning the scope of contamination and estimated remediation costs; remediation alternatives; estimated legal fees; and other factors, the Company has established a reserve for indicated environmental liabilities in the aggregate amount of approximately $7.2 million at December 31, 1997. The Company expects this amount to be expended over the next three to five years. The Company was a wholly-owned subsidiary of Borg-Warner Security Corporation ("BW-Security") until January 27, 1993, at which time it was distributed to the stockholders of BW-Security in a tax-free distribution (the "Spin-Off"). In connection with the Spin-Off, the Company and BW-Security entered into a Distribution and Indemnity Agreement (the "Indemnity Agreement") which provided for, among other matters, certain cross-indemnities designed principally to place financial responsibility for the liabilities of businesses conducted by BW-Security and its subsidiaries with BW-Security and financial responsibility for liabilities of the Company or related to its automotive businesses with the Company. BW-Security has requested indemnification from the Company for past costs of approximately $3.3 million and for future costs related to these environmental matters. At the time of the Spin-Off, BW-Security maintained a letter of credit for approximately $9 million with respect to the principal portion of such environmental matters. The parties submitted the matter to arbitration and on November 4, 1997, the Arbitrator ruled against the Company. The Company appealed the Arbitrator's ruling and on February 13, 1998, the ruling was upheld by an arbitration appeal panel. The Company plans to vigorously contest the arbitration award and plans to oppose any attempt by BW-Security to obtain a judgment based on the arbitration. The Company does not currently have information sufficient to determine the extent of its liability to BW-Security for indemnification of such liabilities. In addition, on January 27, 1998, the Company filed a lawsuit in the Circuit Court of Cook County, Illinois against BW-Security and certain others, alleging, among other things, breach of fiduciary duty and breach of contract in connection with apportionment of environmental liabilities and assets in the Spin-Off. While the Company intends to pursue its claims vigorously and believes such claims to be valid, it is too early in the proceedings to determine the likelihood of success in this litigation. Both parties have agreed to mediate this dispute. The Company believes that none of these matters, individually or in the aggregate, will have a material adverse effect on its financial position or future operating results, generally either because estimates of the maximum potential liability at a site are not large or because liability will be shared with other PRPs, although no assurance can be given with respect to the ultimate outcome of any such matter. Executive Officers Set forth below are the names, ages, positions and certain other information concerning the executive officers of the Company as of March 16, 1998. Name Age Position with Company - -------- ----- --------------------- John F. Fiedler 59 Chairman and Chief Executive Officer Robin J. Adams 44 Vice President and Treasurer William C. Cline 48 Vice President and Controller Gary P. Fukayama 50 Executive Vice President Christopher A. Gebelein 51 Vice President--Business Development Laurene H. Horiszny 42 Vice President, Secretary and General Counsel Geraldine Kinsella 50 Vice President--Human Resources Fred M. Kovalik 60 Executive Vice President Ronald M. Ruzic 59 Executive Vice President Robert D. Welding 49 Vice President Mr. Fiedler has been Chairman of the Board of Directors since March 1996 and has been Chief Executive Officer of the Company since January 1995. He was President from June 1994 to March 1996. He was Chief Operating Officer from June 1994 to December 1994. Mr. Fiedler was Executive Vice President of Goodyear Tire & Rubber Company, in charge of the North American Tire division, from 1991 to 1994. He is a director of Navistar International Corporation. Mr. Adams has been Vice President and Treasurer of the Company since May 1993. He was Assistant Treasurer of the Company from 1991 to 1993. Mr. Cline has been Vice President and Controller of the Company since May 1993. He was Assistant Controller of BW-Security from 1987 to 1993. Mr. Fukayama has been Executive Vice President of the Company since November 1992 and is Group President and General Manager of Borg-Warner Automotive Air/Fluid Systems Corporation. He was President and General Manager of Borg-Warner Automotive Automatic Transmission Systems Corporation from January 1995 to April 1996. He was President and General Manager of Borg-Warner Automotive Transmission & Engine Components Corporation, Automatic Transmission Systems from November 1992 to December 1994. Mr. Gebelein has been Vice President-Business Development of the Company since January 1995. He was General Manager of Corporate Development of Inland Steel Industries from 1987 to 1994. Ms. Horiszny has been Vice President, Secretary and General Counsel of the Company since May 1993. She was Assistant General Counsel of the Company from December 1991 to 1993, and Senior Attorney from 1988 to December 1991. Ms. Kinsella has been Vice President-Human Resources of the Company since May 1993. She was Vice President-Human Resources of Borg-Warner Automotive Transmission & Engine Components Corporation, Automatic Transmission Systems from November 1990 to 1993. Mr. Kovalik has been Executive Vice President of the Company since March 1994 and is President and General Manager of Borg-Warner Automotive Powertrain Systems Corporation. He was General Manager-Heavy and Medium Duty Transmissions for Eaton Corporation from April 1992 to February 1994. Mr. Ruzic has been Executive Vice President of the Company since October 1992 and is Group President and General Manager of Borg-Warner Automotive Morse TEC Corporation ("Morse TEC"). He was President and General Manager of Borg-Warner Automotive Transmission & Engine Components Corporation, Chain Systems, from October 1989 to December 1994 and of Morse TEC from January 1995 to October 1997. Mr. Welding has been Vice President of the Company since May 1996 and is President and General Manager of Borg-Warner Automotive Automatic Transmission Systems Corporation. He was Vice President--Operations of Borg-Warner Automotive Automatic Transmission Systems Corporation, Bellwood Plant, from November 1993 to May 1996. He was Vice President--Operations of Borg-Warner Automotive Automatic Transmission Systems Corporation, Frankfort Plant, from November 1990 to October 1993. Item 2. Properties The Company has numerous manufacturing facilities which are strategically located in the United States and worldwide. The Company has three facilities in Germany, two facilities in Japan, India and Italy, and one facility in each of Canada, China, France, Korea, Taiwan and Wales. The Company also has numerous sales offices, warehouses and technical centers. The Company's executive offices, which are leased, are located in Chicago, Illinois. In general, the Company believes that its properties are in good condition and are adequate to meet its current and reasonably anticipated needs. The following is additional information concerning the major manufacturing plants operated by the Company and its consolidated subsidiaries. Unless otherwise noted, these plants are owned by the Company. <TABLE> <CAPTION> 1997 Percent of Capacity Utilization Location (1)(2) --------- -------- <S> <C> <C> U.S.: Blytheville, Arkansas (leased); Bellwood, Dixon and Frankfort, Illinois; Muncie, Indiana; Sterling Heights, Coldwater, Livonia and Romulus, Michigan; Water Valley, Mississippi; Ithaca, New York; Gallipolis, Ohio; Sallisaw, Oklahoma; Cary, North Carolina; Seneca, South Carolina and Longview, Texas (leased). 126% Non-U.S.: Canada, China, France, Germany, Italy, India, Japan, Korea, Taiwan and Wales. 86% </TABLE> (1) The figure shown in each case is a weighted average of the percentage utilization of each major plant within the category, with an individual plant weighted in proportion to the number of employees employed when such plant runs at 100% capacity. Capacity utilization at the 100% level is defined as operating five days per week, with two eight-hour shifts per day and normal vacation schedules. Item 3. Legal Proceedings The Company is presently, and is from time to time, subject to claims and suits arising in the ordinary course of its business. In certain such actions, plaintiffs request punitive or other damages that may not be covered by insurance. The Company believes that it has established adequate provisions for litigation liabilities in its financial statements in accordance with generally accepted accounting principles. These provisions include both legal fees and possible outcomes of legal proceedings. Centaur Insurance Company ("Centaur"), a discontinued property and casualty insurance subsidiary and a wholly owned subsidiary of BW-Security, ceased writing insurance in 1984 and has been operating under rehabilitation since September 1987. Rehabilitation is a process supervised by the Illinois Director of Insurance to attempt to compromise liabilities at an aggregate level that is not in excess of Centaur's assets. In rehabilitation, Centaur's assets are currently being used to satisfy claim liabilities under direct insurance policies written by Centaur. Any remaining assets will be applied to Centaur's obligations to other insurance companies under reinsurance contracts. The foregoing has resulted in several lawsuits seeking substantial dollar amounts being filed against BW-Security, and in some cases the Company, for recovery of alleged damages from the failure of Centaur to satisfy its reinsurance obligations. All of these lawsuits, except one to which the Company is not currently a party, have been settled. The defense of this litigation is being managed by BW-Security and the Company is indemnified by BW-Security for any losses or expenses arising out of the litigation. It is the opinion of the Company that the various asserted claims and litigation in which the Company is currently involved will not materially affect its financial position or future operating results, although no assurance can be given with respect to the ultimate outcome for any such claim or litigation. Item 4. Submission of Matters to a Vote of Security Holders There were no matters submitted to the security holders of the Company during the fourth quarter of 1997. PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters The Company's Common Stock is listed for trading on the New York Stock Exchange. As of March 16, 1998, there were approximately 244 holders of record of Common Stock and one registered holder of the Company's Non-Voting Common Stock. The Company has paid cash dividends of $.15 per share on its Common Stock and Non-Voting Common Stock during each quarter for the last two fiscal years. While the Company currently expects that comparable quarterly cash dividends will continue to be paid in the future, the dividend policy is subject to review and change at the discretion of the Board of Directors. High and low sales prices (as reported on the New York Stock Exchange composite tape) for the Common Stock for each quarter in 1996 and 1997 were: <TABLE> <CAPTION> <S> <C> <C> Quarter ended High Low - --------------- -------- ------- March 31, 1996 $33.625 $28.375 June 30, 1996 $43.000 $33.625 September 30, 1996 $40.375 $34.000 December 31, 1996 $40.875 $33.250 March 31, 1997 $42.625 $38.375 June 30, 1997 $53.250 $42.000 September 30, 1997 $57.750 $50.437 December 31, 1997 $60.875 $46.750 </TABLE> Item 6. Selected Financial Data The Selected Financial Data for the five years ended December 31, 1997 with respect to the following line items set forth on page 38 of the Company's Annual Report is incorporated herein by reference and made a part of this report: Net sales; earnings before cumulative effect of accounting change; earnings per share before cumulative effect of accounting change; total assets; total debt; and cash dividend declared per share. See the material incorporated herein by reference in response to Item 7 of this report for a discussion of the factors that materially affect the comparability of the information contained in such data. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The Management's Discussion and Analysis of Financial Condition and Results of Operations set forth on pages 17 through 22 in the Company's Annual Report are incorporated herein by reference and made a part of this report. Item 8. Financial Statements and Supplementary Data The consolidated financial statements (including the notes thereto) of the Company and the Independent Auditors' Report as set forth on pages 23 through 37 in the Company's Annual Report are incorporated herein by reference and made a part of this report. Supplementary financial information regarding quarterly results of operations (unaudited) for the years ended December 31, 1997 and 1996 is set forth in Note 11 of the Notes to Consolidated Financial Statements on page 35 of the Company's Annual Report. For a list of financial statements filed as part of this report, see Item 14, "Exhibits, Financial Statement Schedules, and Reports on Form 8-K" beginning on page 13. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable. PART III Item 10. Directors and Executive Officers of the Registrant Information with respect to directors and nominees for election as directors of the Company under the caption "Election of Directors" on pages 1 through 3 of the Company's Proxy Statement and information under the caption "Section 16(a) Beneficial Ownership Reporting Compliance" on page 6 of the Company's Proxy Statement is incorporated herein by reference and made a part of this report. Information with respect to executive officers of the Company is set forth in Part I of this report. Item 11. Executive Compensation Information with respect to compensation of executive officers and directors of the Company under the captions "Compensation of Directors" on pages 4 and 5 of the Company's Proxy Statement and "Executive Compensation," "Stock Options," "Long-Term Incentive Plans," and "Employment Agreements" on pages 7 through 10 of the Company's Proxy Statement is incorporated herein by reference and made a part of this report. Item 12. Security Ownership of Certain Beneficial Owners and Management Information with respect to security ownership by persons known to the Company to beneficially own more than five percent of the Company's Common Stock, by directors and nominees for directors of the Company and by all directors and executive officers of the Company as a group under the caption "Stock Ownership" on page 5 of the Company's Proxy Statement is incorporated herein by reference and made a part of this report. Item 13. Certain Relationships and Related Transactions Information with respect to certain relationships and related transactions under the caption "Certain Relationships and Related Transactions" on pages 15 through 16 of the Company's Proxy Statement is incorporated herein by reference and made a part of this report. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) 1. The following consolidated financial statements of the Company on pages 23 through 37 of the Company's Annual Report are incorporated herein by reference: Independent Auditors' Report Consolidated Statements of Operations--years ended December 31, 1997, 1996 and 1995 Consolidated Balance Sheets--December 31, 1997 and 1996 Consolidated Statements of Cash Flows--years ended December 31, 1997, 1996 and 1995 Consolidated Statements of Stockholders' Equity--years ended December 31, 1997, 1996 and 1995 Notes to Consolidated Financial Statements 2. Certain schedules for which provisions are made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. 3. The exhibits filed in response to Item 601 of Regulation S-K are listed in the Exhibit Index on page A-1. (b) Reports on Form 8-K. No reports on Form 8-K were filed by the Company during the three-month period ended December 31, 1997.
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BORG-WARNER AUTOMOTIVE, INC. By: /s/ John F. Fiedler ------------------------- John F. Fiedler Chairman and Chief Executive Officer Date: March 20, 1998 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 20th day of March, 1998. Signature Title /s/ John F. Fiedler Chairman of the Board of Directors and Chief John F. Fiedler Executive Officer (Principal Executive Officer) /s/ Robin J. Adams Vice President and Treasurer (Principal Robin J. Adams Financial Officer) /s/ William C. Cline Vice President and Controller (Principal William C. Cline Accounting Officer) * Andrew F. Brimmer Director * William E. Butler Director * Jere A. Drummond Director * Paul E. Glaske Director * Ivan W. Gorr Director * James J. Kerley Director * Alexis P. Michas Director * John Rau Director /s/ John F. Fiedler As attorney-in-fact for the directors marked John F. Fiedler by an asterisk.
EXHIBIT INDEX Exhibit Number Document Description - --------- ----------------------- *3.1 Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit No. 3.1 of the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1993). *3.2 By-laws of the Company (incorporated by reference to Exhibit No. 3.2 of the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1993). *4.1 Indenture, dated as of November 1, 1996, between Borg-Warner Automotive, Inc. and The First National Bank of Chicago (incorporated by reference to Exhibit No. 4.1 to Registration Statement No. 333-14717). *10.1 Credit Agreement dated as of December 7, 1994 among Borg-Warner Automotive, Inc., as Borrower, the Lenders listed therein,as Lenders, Chemical Bank and the Bank of Nova Scotia, as Co-Arrangers, Chemical Bank, as Administrative Agent and The Bank of Nova Scotia as Documentation Agent (incorporated by reference to Exhibit No. 10.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1994). *10.2 First Amendment of Credit Agreement dated as of December 15, 1995 (incorporated by reference to Exhibit 10.2 of the Company's Annual Report on Form 10-K for the year ended December 31, 1995). *10.3 Second Amendment of Credit Agreement dated as of January 16, 1996 (incorporated by reference to Exhibit 10.3 of the Company's Annual Report on Form 10-K for the year ended December 31, 1996). *10.4 Replacement and Restatement Agreement dated as of October 10, 1996 to the Credit Agreement dated as of December 7, 1994 (incorporated by reference to Exhibit 10.1 on Form 10-Q for the quarter ended September 30, 1996). *10.5 Distribution and Indemnity Agreement dated January 27, 1993 between Borg-Warner Automotive, Inc. and Borg-Warner Security Corporation (incorporated by reference to Exhibit No. 10.2 to Registration Statement No. 33-64934). *10.6 Tax Sharing Agreement dated January 27, 1993 between Borg-Warner Automotive, Inc. and Borg-Warner Security Corporation (incorporated by reference to Exhibit No. 10.3 to Registration Statement No. 33-64934). *10.7 Borg-Warner Automotive, Inc. Management Stock Option Plan, as amended (incorporated by reference to Exhibit No. 10.6 to Registration Statement No. 33-64934). *10.8 Borg-Warner Automotive, Inc. 1993 Stock Incentive Plan as amended effective November 8, 1995 and further amended April 29, 1997 (incorporated by reference to Appendix A of the Company's Proxy Statement dated March 21, 1997).
Exhibit Number Document Description - ------ --------------------- *10.9 Receivables Transfer Agreement dated as of January 28, 1994 among BWA Receivables Corporation, ABN AMRO Bank N.V. as Agent and the Program LOC Provider and Windmill Funding Corporation (incorporated by reference to Exhibit No. 10.12 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993). *10.10 First Amendment of Receivables Transfer Agreement dated as of December 21, 1994 (incorporated by reference to Exhibit No. 10.11 to the Company's Annual Report on Form 10-K for the year ended December 31, 1994). *10.11 Second Amendment of Receivables Transfer Agreement dated as of January 1, 1995 (incorporated by reference to Exhibit No. 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1995). *10.12 Third Amendment of Receivables Transfer Agreement dated as of October 23, 1995 (incorporated by reference to Exhibit No. 10.11 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995). *10.13 Fourth Amendment of Receivables Transfer Agreement dated as of June 21, 1996 (incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996). *10.14 Service Agreement, dated as of December 31, 1992, by and between Borg-Warner Security Corporation and Borg-Warner Automotive, Inc. (incorporated by reference to Exhibit No. 10.10 to Registration Statement No. 33-64934). *10.15 Borg-Warner Automotive, Inc. Transitional Income Guidelines for Executive Officers amended as of May 1, 1989 (incorporated by reference to Exhibit 10.16 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993). *10.16 Borg-Warner Automotive, Inc. Management Incentive Bonus Plan dated January 1, 1994 (incorporated by reference to Exhibit No. 10.18 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993). *10.17 Borg-Warner Automotive, Inc. Retirement Savings Excess Benefit Plan dated January 27, 1993 (incorporated by reference to Exhibit No. 10.20 of the Company's Annual Report on Form 10-K for the year ended December 31, 1993). *10.18 Borg-Warner Automotive, Inc. Retirement Savings Plan dated January 27, 1993 as further amended and restated effective as of April 1, 1994 (incorporated by reference to Exhibit 10.18 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995). *10.19 Borg-Warner Automotive, Inc. Deferred Compensation Plan dated January 1, 1994 (incorporated by reference to Exhibit No. 10.24 of the Company's Annual Report on Form 10-K for the year ended December 31, 1993). +*10.20 Form of Employment Agreement for John F. Fiedler (incorporated by reference to Exhibit No. 10.0 of the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994.) +10.21 Form of Employment Agreement for John F. Fiedler dated January 27, 1998. Exhibit Number Document Description - ------- --------------------- +*10.22 Form of Change of Control Employment Agreement for Executive Officers (incorporated by reference to Exhibit No. 10.1 to the Company's Quarterly Report on Form 10-Q for the Quarter ended September 30, 1997). +10.23 Amendment to the Change of Control Employment Agreement between the Company and John F. Fiedler effective January 30, 1998. *10.24 Assignment of Trademarks and License Agreement (incorporated by reference to Exhibit No. 10.0 of the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994). +*10.25 Borg-Warner Automotive, Inc. Executive Stock Performance Plan (incorporated by reference to Exhibit No. 10.23 of the Company's Annual Report on Form 10-K for the year ended December 31, 1995). *10.26 Agreement of Purchase and Sale dated as of May 31, 1996 by and among Coltec Industries Inc., Holley Automotive Group, Ltd., Holley Automotive Inc., Coltec Automotive Inc., and Holley Automotive Systems GmbH and Borg-Warner Automotive, Inc., Borg-Warner Automotive Air/Fluid Systems Corporation and Borg-Warner Automotive Air/Fluid Systems Corporation of Michigan (incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K dated as of June 17, 1996). 13.1 Annual Report to Stockholders for the year ended December 31, 1997 with manually signed Independent Auditors' Report. (The Annual Report, except for those portions which are expressly incorporated by reference in the Form 10-K, is furnished for the information of the Commission and is not deemed filed as part of the Form 10-K). 21.1 Subsidiaries of the Company. 23.1 Independent Auditors' Consent. 24.1 Power of Attorney. 27.1 Financial Data Schedule. 99.1 Cautionary Statements. * Incorporated by reference. + Indicates a management contract or compensatory plan or arrangement required to be filed pursuant to Item 14(c).