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, 1996
Commission file number: 1-12162
BORG-WARNER AUTOMOTIVE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3404508
State or other jurisdiction of (I.R.S. Employer
Incorporation or organization Identification No.)
200 South Michigan Avenue, Chicago, Illinois 60604
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (312) 322-8500
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, 1996 the registrant had 23,553,334 shares of Common Stock and
60,500 shares of Series I Non-Voting Common Stock outstanding.
<PAGE>
BORG-WARNER AUTOMOTIVE, INC.
FORM 10-Q
NINE MONTHS ENDED SEPTEMBER 30, 1996
INDEX
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Introduction . . . . . . . . . . . . . . . . . . . 2
Condensed Consolidated Balance Sheets at
September 30, 1996 and December 31, 1995 . . 3
Consolidated Statements of Income for the three
months ended September 30, 1996 and 1995 . . 4
Consolidated Statements of Income for the nine
months ended September 30, 1996 and 1995 . . 5
Consolidated Statements of Cash Flows for the nine
months ended September 30, 1996 and 1995 . . 6
Supplemental Notes to the Consolidated
Financial Statements . . . . . . . . . . . . 7
Item 2.
Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . 19
Item 2. Changes in Securities . . . . . . . 20
Item 3. Defaults Upon Senior Securities . . 20
Item 4. Submission of Matters to a Vote of
Security Holders . . . . . . . . . 20
Item 5. Other Information . . . . . . . . . 20
Item 6. Exhibits and Reports on Form 8-K . 21
SIGNATURES . . . . . . . . . . . . . . . . . . . 22
<PAGE>
BORG-WARNER AUTOMOTIVE, INC.
FORM 10-Q
NINE MONTHS ENDED SEPTEMBER 30, 1996
PART I.
ITEM 1.
A. Borg-Warner Automotive, Inc. and Consolidated Subsidiaries'
Financial Statements
The financial statements of Borg-Warner Automotive, Inc. and Consolidated
Subsidiaries ("Company") have been prepared in accordance with the instructions
to Form 10-Q under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). The statements are unaudited but include all adjustments,
consisting only of recurring items, except as noted, which the Company considers
necessary for a fair presentation of the information set forth herein. The
results of operations for the nine months ended September 30, 1996 are not
necessarily indicative of the results to be expected for the entire year. The
following financial statements and Management's Discussion and Analysis of
Financial Condition and Results of Operations should be read in conjunction with
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1995.
<PAGE>
BORG-WARNER AUTOMOTIVE, INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(millions of dollars except share data)
<TABLE>
<CAPTION>
(Unaudited)
September 30, December 31,
1996 1995
<S> <C> <C>
A S S E T S
Cash . . . . . . . . . . . . . . . . . . . . . $ 16.2 $ 5.1
Short-term securities . . . . . . . . . . . . . . 5.9 7.0
Receivables . . . . . . . . . . . . . . . . . . . 126.9 91.4
Inventories . . . . . . . . . . . . . . . . . . . 109.3 94.0
Prepayments . . . . . . . . . . . . . . . . . . . 13.2 10.0
------ -------
Total current assets . . . . . . . . . . . 271.5 207.5
Property, plant, and equipment at cost . . . . . 905.6 927.8
Less accumulated depreciation . . . . . . . . . . 357.7 404.8
------ -------
Net property, plant and equipment . . . . 547.9 523.0
Investments and advances . . . . . . . . . . . . 136.0 140.0
Goodwill . . . . . . . . . . . . . . . . . . . . 546.2 313.0
Deferred income tax asset . . . . . . . . . . . . 40.4 40.8
Other noncurrent assets . . . . . . . . . . . . . 124.1 110.9
------- ------
Total other assets . . . . . . . . . . . 846.7 604.7
------- ------
$1,666.1 $1,335.2
========= =========
LIABILITIES & STOCKHOLDERS' EQUITY
Notes payable . . . . . . . . . . . . . . . . . . $43.0 $ 31.6
Accounts payable and accrued expenses . . . . . . 215.7 194.3
Income taxes payable . . . . . . . . . . . . . . 31.6 26.6
------ ------
Total current liabilities . . . . . . . . 290.3 252.5
Long-term debt . . . . . . . . . . . . . . . . . . 352.0 103.1
Long-term retirement-related liabilities . . . . . 334.2 337.4
Other long-term liabilities . . . . . . . . . . . 53.3 42.2
------- ------
Total long-term liabilities . . . . . . . . . . 387.5 379.6
Capital stock:
Preferred stock, $.01 par value; authorized
5,000,000 shares; none issued . . . . . . . -- --
Common stock, $.01 par value; authorized
50,000,000 shares; issued and outstanding
shares of 23,525,393 in 1996 . . . . . . . . . 0.2 0.2
Non-voting common stock, $.01 par value;
authorized 25,000,000 shares; issued shares
of 2,520,000 in 1996 and outstanding shares
of 84,500 in 1996 . . . . . . . . . . . . . -- --
Capital in excess of par value . . . . . . . . . . 562.3 560.1
Retained earnings . . . . . . . . . . . . . . . . . 76.4 34.1
Currency translation adjustment . . . . . . . . . . 14.1 22.3
Minimum pension liability adjustment . . . . . . . (16.7) (16.7)
------ -------
Total stockholders' equity . . . . . . . . 636.3 600.0
------ -------
$1,666.1 $1,335.2
========== =========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
BORG-WARNER AUTOMOTIVE, INC.
AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(millions of dollars except share data)
<TABLE>
Three Months Ended
September 30,
-------------------
1996 1995
------- -------
<S> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . $ 387.7 $ 298.5
Cost of sales. . . . . . . . . . . . . . . . 308.1 241.0
Depreciation . . . . . . . . . . . . . . . . 17.8 15.8
Selling, general and administrative expenses 29.8 22.1
Minority interest . . . . . . . . . . . . . . 0.7 0.5
Goodwill amortization . . . . . . . . . . . . 4.0 2.5
Equity in affiliate earnings and other income (6.3) (4.7)
------ ------
Earnings before interest and finance
charges and income taxes . . . . . . . 33.6 21.3
Interest expense and finance charges . . . . . 7.0 3.6
------- -------
Earnings before income taxes . . . . . . 26.6 17.7
Provision for income taxes . . . . . . . . . . 7.8 4.5
------ ------
Net earnings . . . . . . . . . . . $ 18.8 $ 13.2
======== =======
Net earnings per share . . . . . . . . . . . . $ 0.80 $ 0.56
======== =======
Average shares outstanding (thousands). . . . . 23,543 23,632
======== =======
Dividends declared per share . . . . . . . . . $ 0.15 $ 0.15
======== ========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
BORG-WARNER AUTOMOTIVE, INC.
AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(millions of dollars except share data)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------
1996 1995
------- ------
<S> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . . . . $ 1,118.4 $ 982.3
Cost of sales . . . . . . . . . . . . . . . . . . . 883.1 771.0
Depreciation . . . . . . . . . . . . . . . . . . . 53.7 51.1
Selling, general and administrative expenses . . . 89.8 74.8
Minority interest . . . . . . . . . . . . . . . . . 1.9 1.5
Goodwill amortization . . . . . . . . . . . . . . . 9.4 7.2
Equity in affiliate earnings and other income . . . (13.2) (14.8)
------- ------
Earnings before interest and finance
charges and income taxes . . . . . . . . . . 93.7 91.5
Interest expense and finance charges . . . . . . . . 14.0 10.7
------- ------
Earnings before income taxes . . . . . . . . . 79.7 80.8
Provision for income taxes . . . . . . . . . . . . . 26.8 29.0
------- ------
Net earnings . . . . . . . . . . . . . . $ 52.9 $ 51.8
========= =======
Net earnings per share . . . . . . . . . . . . . . . $ 2.25 $ 2.20
======== =======
Average shares outstanding (thousands). . . . . . . . 23,543 23,522
========= ======
Dividends declared per share . . . . . . . . . . . . $ 0.45 $ 0.45
========= ========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
BORG-WARNER AUTOMOTIVE, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(millions of dollars)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------
1996 1995
------ -------
<S>
OPERATING <C> <C>
Net earnings . . . . . . . . . . . . . . . . . . . . . . $ 52.9 $ 51.8
Adjustments to reconcile net earnings to net cash flows
from operating activities:
Non-cash charges (credits) to operations:
Depreciation . . . . . . . . . . . . . . . . . . . . . 53.7 51.1
Goodwill amortization . . . . . . . . . . . . . . . . . 9.4 7.2
Other, principally equity in affiliate earnings . . . . 11.2) (15.1)
Changes in assets and liabilities, net of acquisition:
(Increase) decrease in receivables . . . . . . . . . . 14.0) 0.4
Increase in inventories . . . . . . . . . . . . . . . . (7.5) (8.2)
(Increase)decrease in prepayments . . . . . . . . . . . 3.9 (5.7)
Increase(decrease)in accounts payable and accrued
expenses . . . . . . . . . . . . . . . . . . . . . 6.3 (41.7)
Increase (decrease) in income taxes payable . . . . . . 5.2 (2.5)
Net change in other long-term assets and liabilities . (25.1) (3.2)
------ ------
Net cash provided by operating activities . . . . 73.6 34.1
INVESTING
Capital expenditures . . . . . . . . . . . . . . . . . . . (57.8) (57.1)
Investment in affiliates . . . . . . . . . . . . . . . . . 2.5 (0.6)
Payments for business acquired . . . . . . . . . . . . . . (287.8) (32.9)
Proceeds from other assets . . . . . . . . . . . . . . . . 7.3 14.0
------- -------
Net cash used for investing activities . . . . . . . . (335.8) (76.6)
FINANCING
Net increase (decrease)in notes payable . . . . . . . . . . 10.6 (0.7)
Additions to long-term debt . . . . . . . . . . . . . . . . 300.1 49.2
Reduction in long-term debt . . . . . . . . . . . . . . . . (30.0) (0.2)
Proceeds from options exercised . . . . . . . . . . . . . . 2.3 3.3
Dividends paid . . . . . . . . . . . . . . . . . . . . . . (10.6) (10.5)
Reissuance of treasury shares . . . . . . . . . . . . . . . -- 0.6
------- ------
Net cash provided by financing activities . . . 272.4 41.7
Effect of exchange rate changes on cash and cash
equivalents . . . . . . . . . . . . . . . . . . . . . . . (0.2) --
------- ------
Net increase(decrease)in cash and cash equivalents . . . . . 10.0 (0.8)
Cash and cash equivalents at beginning of year . . . . . . . 12.1 14.9
------- ------
Cash and cash equivalents at end of period . . . . . . . . . $22.1 $14.1
======== ======
SUPPLEMENTAL CASH FLOW INFORMATION
Net cash paid during the period for:
Interest expense . . . . . . . . . . . . . . . . . . $ 12.0 $ 11.2
Income taxes . . . . . . . . . . . . . . . . . . . . 25.3 27.6
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS<PAGE>
BORG-WARNER AUTOMOTIVE, INC. AND CONSOLIDATED SUBSIDIARIES
SUPPLEMENTAL NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Research and development costs charged to expense for the three and nine
months ended September 30, 1996 were $14.4 million and $37.7 million,
respectively. Costs charged to expense for the three and nine months ended
September 30, 1995 wer e $8.8 million and $27.5 million, respectively.
(2) Inventories consisted of the following (millions of dollars):
September 30, December 31,
1996 1995
------------- ------------
<TABLE>
<CAPTION>
<S> <C> <C>
Raw materials . . . . . . $ 49.2 $ 48.6
Work in progress . . . . . 41.7 31.6
Finished goods . . . . . . 18.4 13.8
------- -------
Total inventories . . . . $109.3 $ 94.0
======= ========
</TABLE>
(3) The Company has a 50% interest in NSK-Warner K.K. ("NSK-Warner), a joint
venture based in Japan that manufactures friction products. The Company's
share of the earnings or losses reported by NSK-Warner is accounted for using
the equity method of accounting. NSK-Warner has a fiscal year-end of March 31.
The Company's investment in NSK-Warner was $126.9 million at September
30, 1996 and $128.9 million at December 31, 1995. The decrease in the invest-
ment is due to the impact of the change in currency rates and dividends
received.
Following are summarized financial data for NSK-Warner. Balance sheet
data is presented as of September 30, 1996 and March 31, 1996 and statement
ofincome data is presented for the three and six months ended September 30,
1996 and 1995. The Company's results include its share of NSK-Warner's
results for the three and nine months ended August 31, 1996 and 1995.
<TABLE>
<CAPTION>
September 30, March 31,
1996 1996
----------- ----------
<S> (in millions)
BALANCE SHEET <C> <C>
Current assets . . . . . . . . . . . . . . . $ 139.9 $ 156.5
Noncurrent assets . . . . . . . . . . . . . . 144.6 152.0
Current liabilities (excluding debt) . . . . 90.9 85.8
Noncurrent liabilities (excluding debt) . . . 11.1 11.1
Total debt . . . . . . . . . . . . . . . . . . 8.6 22.7
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
September 30,
--------------------
1996 1995
-------- -------
STATEMENT OF INCOME (in millions)
<S> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . . $ 74.5 $ 83.9
Gross profit . . . . . . . . . . . . . . . . . 19.4 20.0
Net income . . . . . . . . . . . . . . . . . . 7.1 7.6
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended
September 30,
----------------------
1996 1995
-------- -------
STATEMENT OF INCOME (in millions)
<S> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . . $ 144.1 $ 171.3
Gross profit . . . . . . . . . . . . . . . . . . 36.6 43.7
Net income . . . . . . . . . . . . . . . . . . 13.3 16.8
</TABLE>
(4) The Company's provisions for income taxes for the three and nine months
ended September 30, 1996 and 1995 are based upon estimated annual tax rates
for the year applied to federal, state and foreign income. The effective
rate differed from the U.S. statutory rate primarily due to a) state income
taxes, b)foreign rates which differ from those in the U.S., and c) realization
of certain business tax credits, including foreign tax credits and research
and development credits.
(5) Following is a summary of notes payable and long-term debt:
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
------------------ ------------------
Current Long-Term Current Long-Term
------- -------- ------- ---------
DEBT (millions of dollars)
<S> <C> <C> <C> <C>
Bank borrowings and other . . . . . $ 22.9 $ 278.1 $ 24.5 $ 19.5
Bank term loans due through 2001 (at
an average rate of 5.6% at September,
1996 and December, 1995) . . . . . . 20.0 68.2 6.9 77.7
Capital lease liability . . . . . . . 0.1 5.7 0.2 5.9
-------- ------- ------ ------
Total notes payable and
long-term debt . . . . . . . $ 43.0 $ 352.0 $ 31.6 $ 103.1
========= ======= ======= =======
</TABLE>
At September 30, 1996, the Company utilized $230 million of a $300 million
revolving credit facility, which was totally unused at December 31, 1995. This
facility remains fully available through December 31, 1999. On October 10,
1996, the Company amended its existing revolving credit facility. Major changes
include increasing the amount of the facility from $300 million to $350 million,
extending the maturity of the facility from 1999 to 2001, and releasing the
subsidiaries' guaranties of the credit facility.
The credit agreement contains numerous financial and operating covenants
including, among others, covenants requiring the Company to maintain certain
financial ratios and restricting its ability to incur additional foreign
indebtedness.
Bank term loans totaling $88.2 million have maturities of $24.9 million in 1997,
$30.0 million in 1998, $6.7 million in 1999, $13.3 million in 2000, and $13.3
million in 2001.
On November 5, 1996, the Company issued $150 million 7.0% Senior Notes due 2006.
Interest is payable semiannually on May 1 and November 1. The notes are
unsecured, not redeemable prior to maturity and do not require a sinking fund.
The Company will use the proceeds to pay down borrowings under the revolving
credit facility.
(6) The Company and certain of its current and former direct and indirect
corporate predecessors, subsidiaries and divisions have been identified by the
U.S. Environmental Protection Agency and certain state environmental agencies
and private parties as potentially responsible parties ("PRPs") at 28 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 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; estimated legal fees and other factors, the Company has
established a reserve in its financial statements for indicated environmental
liabilities with a balance at September 30, 1996 of approximately $9.5 million.
The Company expects this amount to be expended over the next three to five
years.
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.
As of September 30, 1996, the Company had sold $100 million of receivables under
an $102 million Receivables Transfer Agreement for face value without recourse.
The Company had sold receivables aggregating $85.6 million under similar
facilities at December 31, 1995.
(7) On June 17, 1996, the Company purchased the operations and substantially
all of the operating assets of three of Coltec Industries' automotive OEM
Businesses: Holley Automotive, Coltec Automotive and Performance Friction
Products. Under the terms of the agreement, the Company paid $283 million in
cash for the businesses. This acquisition was financed under the Company's
revolving credit facility. These businesses reported combined sales of $255
million in 1995.
(8) On October 21, 1996, the Company entered into an agreement to sell its
North American manual transmission manufacturing business located in Muncie,
Indiana, to Transmissions Y Equipos Mecanicos S.A. De C.V. (Tremec). Under the
terms of the agreement, the Company will receive $20 million in cash at closing
for certain assets of the business plus approximately $20 million during the
transition period for the value of the inventory and certain services to be
provided. Consummation of the transaction is subject to the expiration or
termination of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, as well as satisfaction of certain other customary conditions. As a
result of the transaction, the Company currently expects to take a one-time
after-tax charge of $35 million, or $1.50 per share, in the fourth quarter of
1996. This charge includes costs associated with the sale of the assets; costs
necessary to supply existing customers while the business is transferred to its
new location; and costs related to reconfiguring the Company's Muncie, Indiana
operation. The Company expects that a substantial portion of the proceeds from
the sale will be reinvested in the Muncie plant's remaining four-wheel drive
transfer case manufacturing operation.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
Borg-Warner Automotive, Inc. (the "Company") operates as a leading, global Tier
I supplier primarily to original equipment manufacturers (" OEMs") of passenger
cars, sport utility vehicles and light trucks in the North American, European
and Asian markets offering a wide variety of highly engineered systems and
components, primarily related to drivetrain applications such as automatic
transmission components, four-wheel drive ("4WD") transfer cases, automotive
chain and chain systems, engine timing components and systems, sensors, valves,
throttle bodies and other engine and fuel system control devices. The Company
also manufactures manual transmissions, but recently reached an agreement to
sell its North American manual transmission business.
The following discussion covers the results of operations for the three and nine
months ended September 30, 1996 and 1995 and financial condition as of September
30, 1996 and December 31, 1995.
RESULTS OF OPERATIONS
The Company's products fall into four operating groups: Powertrain Systems,
Automatic Transmission Systems, Morse TEC and Air/Fluid Systems (formerly known
as Control Systems). Net sales by operating group for the three and nine months
ended September 30, 1996 and 1995 are as follows (in millions of dollars):
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, September 30,
--------------- --------------
1996 1995 1996 1995
----- ----- ----- ------
<S> <C> <C> <C> <C>
Powertrain Systems . . . . . . . . . . $ 125.1 $118.8 $ 411.0 $ 410.4
Automatic Transmission Systems . . . . 116.9 106.7 365.1 326.2
Morse TEC . . . . . . . . . . . . . . . 68.1 55.8 204.8 193.8
Air/Fluid Systems . . . . . . . . . . . 87.0 25.6 165.4 78.6
----- ------ ------- -------
397.1 306.9 1,146.3 1,009.0
Intergroup eliminations . . . . . . . . (9.4) (8.4) (27.9) (26.7)
------ ------ ------- -------
Net sales . . . . . . . . . . . . . . . $ 387.7 $ 298.5 $1,118.4 $ 982.3
====== ======= ======== ========
</TABLE>
THIRD QUARTER ENDED SEPTEMBER 30, 1996
Sales for the quarter ended September 30, 1996 were up 30% from the same period
in the prior year with all operating groups experiencing sales growth. Strong
sales of engine timing chain systems, transmission chain, 4WD transfer cases,
automatic transmission components and air management devices drove the increase
for the quarter. Revenue growth continued from the Company's presence on
sport-utility vehicles and light trucks, which are growing at a rate in excess
of the overall automotive marketplace. Of the quarterly sales increase, $55
million was contributed by the Coltec businesses (see below), acquired in June
1996, and $3.7 million was contributed by France's Societe de l'Usine de la
Marque ("SUM") acquired at the end of 1995. Both of these businesses are
included in the Air/Fluid Systems operating group. Powertrain Systems revenue
growth has been offset by a $6.7 million decrease in sales versus 1995 in the
manual transmission business due to the loss of the General Motors S-Truck
manual transmission business in the summer of 1995 (see Other for a discussion
of the Company's recent announcement of an agreement to sell the manual trans-
mission business). The manual transmission business had total sales of $21.2
million for the quarter ended September 30, 1996 compared to $27.9 million for
the quarter ended September 30, 1995. Automatic Transmission Systems sales
increased 10%, principally from gains in the U.S. and Korea. Morse TEC sales
rose 22%, reflecting increased sales of engine timing systems and MORSE GEMINI
TM Transmission Chain Systems to GM. Air/Fluid Systems sales, excluding
acquisitions, rose 11%, with increased sales of its various valve products.
For the quarter ended September 30, 1996, the Company reported net earnings of
$18.8 million, an increase of $5.6 million or 42% compared to $13.2 million for
the same period of 1995. The increase was primarily the result of increased
sales volume and an improvement in gross profit margin from 19.3% in the third
quarter of 1995 to 20.5% for the same period of 1996. Productivity gains and
cost reduction efforts contributed to the gross margin improvement. These
increases were offset by the increases in goodwill amortization from
acquisitions, interest related to financing the Coltec acquisition and an
increase in operating loss from the manual transmission business. In addition,
the Company's results were affected by start-up problems with new OEM engine and
transmission programs in Europe.
For the three months ended September 30, 1996 and 1995, the Company's portion of
NSK-Warner's earnings were $3.4 million and $4.5 million, respectively.
NSK-Warner earnings are down due to a weakening of the yen against the dollar
and a decline in yen denominated sales as a result of a softening in the
Japanese market.
The Company's income taxes are based upon estimated annual tax rates for the
year. In the third quarter of 1996, the Company realized certain tax credits
related to research and development programs and foreign operations. These
realized credits resulted in the effective income tax rate for the third quarter
of 1996 being lower than the standard federal and state tax rates. In 1995, the
Company also realized similar types of credits, which because of lower levels of
pretax income, had a greater impact on the tax rate.
NINE MONTHS ENDED SEPTEMBER 30, 1996
Sales increased 14% in the first nine months of 1996 to $1,118.4 million from
$982.3 million in the first nine months of 1995. Adjusted for the effect of the
manual transmission business decline and the impact of acquisitions, sales for
the Company's core businesses increased 9%, compared with North American
production which was flat, Japanese production which declined by approximately
2% and a European market which increased by approximately 7%. The overall sales
gain, primarily driven by increased volume, resulted in a $24 million increase
in gross profit for the nine months ended September 30, 1996.
Powertrain Systems sales were flat compared to the prior year due to a decrease
of 34% or $41.6 million in the manual transmission business as a result of the
loss of the GM business previously mentioned as well as a decline in sales of
sporty cars which feature the Company's five and six-speed manual transmissions.
This decline was offset by a 14% volume increase in transfer case applications
primarily as a result of continued market penetration, particularly in the light
truck area. Automatic Transmission Systems sales increased 12% due to the
acquisition of the Precision Forged Products Division at the end of April 1995,
which accounts for 7% of the increase, increased content in certain automatic
transmissions and volume increases by the Company's OEM customers. Morse TEC
sales increased 6% due to increased volume from new timing chain system
applications on overhead cam engines for passenger cars and light trucks and the
initial sales of MORSE GEMINI TM Transmission Chain Systems to GM offset by a
sluggish Japanese market. Air/Fluid Systems sales increased 110.6% or $86.9
million which includes a contribution of $63.9 million and $12.3 million related
to the Coltec and SUM businesses, respectively. Excluding these acquisitions,
Air/Fluid Systems sales increased 13.5% primarily due to volume increases of
various solenoids and valves, particularly in Chrysler applications.
The Company has increased its spending on research and development by $5.6
million and $10.2 million for the three and nine months ended September 30,
1996, respectively, due to additional spending related to the Coltec businesses
and to maintain and expand its technological expertise in both product and
process in all of the Company's core businesses.
As mentioned, in the third quarter of 1996, the Company realized certain tax
credits related to its research and development programs. Additionally, in the
first nine months of 1996, the Company realized certain tax credits related to
its foreign operations. These realized credits resulted in the effective income
tax rate for the first nine months of 1996 being lower than the standard federal
and state tax rates. The Company's effective tax rate was also lower than the
standard federal and state tax rates in 1995 as the Company benefited from
research and development tax credits in 1995 as well.
For the nine months ended September 30, 1996 and 1995, the Company's portion of
NSK-Warner's earnings were $10 million and $14.7 million, respectively. The
decline is due to decreasing sales volume and weakening of the yen by
approximately 16% against the dollar.
For the first nine months of 1996, the Company reported an increase in net
earnings of $1.1 million over $51.8 million for the same period of 1995. The
increase can be primarily attributed to increased sales volume in core
operations offset by larger operating losses from the manual transmission
business, lower earnings from the NSK-Warner joint venture and the start up
problems in Europe referred to earlier.
FINANCIAL CONDITION AND LIQUIDITY
The addition of the former Coltec businesses accounted for the majority of the
changes in the September 30, 1996 consolidated balance sheet as compared with
December 31, 1995. Working capital increased $26.2 million at September 30,
1996 from December 31, 1995. The majority of the working capital increase was
related to an increase in accounts receivable partially offset by an increase in
accounts payable and accrued expenses. The increase is attributable to higher
sales and to the Coltec acquisition. Property, plant and equipment and the
related accumulated depreciation declined due to the write-off of certain fully
depreciated assets acquired in the 1987 leveraged buyout. Investments and
advances declined slightly despite current year earnings because of the impact
of the change in currency rates on the Company's Japanese joint venture and
dividends. Goodwill increased approximately $240 million as a result of the
Coltec acquisition.
For the nine months ended September 30, 1996, $73.6 million of cash was provided
by operations principally as a result of earnings and non-cash expenses offset
by increased working capital, consisting primarily of an increase in accounts
receivable and inventory, offset by an increase in accounts payable and accrued
expenses. Goodwill amortization increased in the third quarter of 1996 compared
to 1995 as a result of the Coltec and SUM acquisitions. Capital spending was
slightly higher in the third quarter of 1996 compared to 1995. The Company
anticipates that capital spending for full-year 1996 will be slightly higher
than full-year 1995 levels as a result of the Coltec acquisition and increased
spending on major projects primarily to increase capacities.
<PAGE>
As of September 30, 1996, the Company had sold $100 million of receivables
under an $102 million Receivables Transfer Agreement for face value without
recourse. The Company had sold receivables aggregating $85.6 million under
similar facilities at December 31, 1995.
The acquisition of the operations and substantially all of the operating assets
of the former Coltec businesses accounted for an outflow of $287.8 million. The
Company paid $283 million in cash for the businesses and assumed certain
liabilities of Coltec. This acquisition was initially financed by the Company's
utilization of $260 million of the $300 million revolving credit facility and
$23 million of borrowings under various money market facilities. As discussed
in Note 5, in November 1996, the Company issued $150 million 7.0% Senior Notes
due 2006. The Company will use the proceeds to pay down borrowings under the
revolving credit facility. Had the Senior
Notes been in place for the entire third quarter of 1996, interest expense would
have been approximately $240,000 higher than that reported.
The Company believes that working capital will be reduced in the remainder of
1996 and that the combination of cash from its operations and available credit
facilities will be sufficient to satisfy cash needs for the remainder of 1996.
OTHER
On October 21, 1996, the Company entered into an agreement to sell its North
American manual transmission manufacturing business located in Muncie, Indiana,
to Transmisiones Y Equipos Mecanicos S.A. De C.V. (Tremec). Under the terms of
the agreement, the Company will receive $20 million in cash at closing for
certain assets of the business plus approximately $20 million during the
transition period for the value of the inventory and certain services to be
provided. Consummation of the transaction is subject to the expiration or
termination of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, as well as satisfaction of certain other customary conditions. As a
result of the transaction, the Company currently expects to take a one-time
after tax charge of $35 million, or $1.50 per share, in the fourth quarter of
1996. This charge includes costs associated with the sale of the assets; costs
necessary to supply existing customers while the business is transferred to its
new location; and costs related to reconfiguring the Company's Muncie, Indiana
operation. The Company expects that a substantial portion of the proceeds from
the sale will be reinvested in the Muncie plant's remaining 4WD transfer case
manufacturing operation.
The decision to sell the business resulted from the recognition that all major
North American OEMs have allied suppliers for their significant rear-wheel drive
manual transmission applications, which left only one niche open to the Company
in North America. The business lost money in 1995, on an operating basis, as a
result of declining volumes, due both to the loss of the GM truck business in
the third quarter 1995 and lower volume in the Company's only remaining niche -
sporty and performance cars. The sales decline continued in 1996. For the
quarter and the nine months ended September 30, 1996, sales were $21.2 million
and $79.8 million, respectively, as compared with $27.9 million and $121.4
million for the comparable 1995 periods. This business lost money on an
operating basis for the three and nine months ended September 30, 1996. The
swing in operating results for the manual transmission business resulted in a
reduction in earnings of $.04 per share for the third quarter and $.28 per share
year-to-date. Despite the sale of the North American business, the Company
plans to continue to implement its strategy to capitalize on manual transmission
opportunities in developing markets in Asia.
In July of 1996, a secondary offering of 3.25 million shares of the Company's
common stock was completed by certain affiliates of Merrill Lynch Capital
Partners, Inc. ("MLCP") who participated in the 1987 leverage buyout of Borg-
Warner Corporation. An additional 487,800 shares of common stock were sold to
the underwriters in August, 1996 upon exercise of the greenshoe option. As a
result of the offering, voting power of certain affiliates of MLCP was reduced
to approximately 23%. The Company received no proceeds from this offering.
On June 17, 1996, the Company purchased the operations and substantially all of
the operating assets of three of Coltec Industries' automotive OEM businesses:
Holley Automotive, Coltec Automotive and Performance Friction Products. These
businesses reported combined sales of $255 million in 1995. The Coltec
businesses had sales of $55 million for the quarter ended September 30, 1996.
For 1996, the Company expects that the sales contribution from the Coltec
businesses will be less than their 1995 sales because of the timing of certain
new and expiring programs.
As discussed more fully in Note 6 of the Supplemental Notes to the Consolidated
Financial Statements, various claims and suits arising in the ordinary course of
business and seeking money damages have been filed against the Company. In each
of these cases, the Company believes that it has a defendable position or has
made adequate provisions 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. These provisions include both legal fees and possible
outcomes of legal proceedings.
In connection with the Spin-Off, the Company and BW-Security entered into a
Distribution and 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. The Company has been
advised that BW-Security believes that the Company is responsible for certain
liabilities relating to environmental matters retained by BW-Security at the
time of the Spin-Off. BW-Security has requested indemnification from the
Company for past costs of approximately $1.6 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. Although there can be
no assurance, based upon information currently available to the Company, the
Company does not believe that it is required to indemnify BW-Security under the
Distribution and Indemnity Agreement with respect to such liabilities. In
addition, the Company does not currently have information sufficient to
determine what its liability would be if it is ultimately determined that it is
required to indemnify BW-Security with respect to such liabilities.
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 proceedings.
On October 18, 1996, the Company declared a $0.15 per share dividend to be paid
on November 15, 1996 to shareholders of record on November 1, 1996.
<PAGE>
PART II
Item 1. 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 reserves 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.
In connection with the Spin-Off, the Company and BW-Security entered into a
Distribution and 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. The Company has been
advised that BW-Security believes that the Company is responsible for certain
liabilities relating to environmental matters retained by BW-Security at the
time of the Spin-Off. BW-Security has requested indemnification from the
Company for past costs of approximately $1.6 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. Although there can be
no assurance, based upon information currently available to the Company, the
Company does not believe that it is required to indemnify BW-Security under the
Distribution and Indemnity Agreement with respect to such liabilities. In
addition, the Company does not currently have information sufficient to
determine what its liability would be if it is ultimately determined that it is
required to indemnify BW-Security with respect to such liabilities.
Centaur Insurance Company ("Centaur"), Borg-Warner Security's ("BW-Security")
discontinued property and casualty insurance subsidiary, ceased writing
insurance in 1984 and has been operating under rehabilitation since September
1987. Rehabilitation is a process supervised by the Illinois Director of
Insurance to attempt to compromise liabilities at an aggregate level that is not
in excess of the subsidiary's assets. In the 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 2. CHANGES IN SECURITIES
Inapplicable.
Item 3. DEFAULTS UPON SENIOR SECURITIES
Inapplicable.
<PAGE>
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Inapplicable
Item 5. OTHER INFORMATION
Inapplicable
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
10.1 Replacement and Restatement Agreement dated as of October
10, 1996 of the Credit Agreement dated as of December 7,
1994 as amended.
27.0 Financial data schedule
(b) REPORTS ON FORM 8-K
A report on Form 8-K dated June 17, 1996 was filed
with the Commission under Item 2, acquisition or
disposition of assets on July 2, 1996.
<PAGE>
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, hereunto duly authorized.
BORG-WARNER AUTOMOTIVE, INC.
(Registrant)
By /s/ WILLIAM C. CLINE
----------------------------
WILLIAM C. CLINE
William C. Cline
Vice President and Controller
(Principal Accounting Officer)
Date: November 14, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Statement of Financial Condition as of September 30, 1996
(unaudited) and the Condensed Consolidated Statement of Income for the Three
Months Ended September 30, 1996 (unaudited) and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 16,200
<SECURITIES> 5,900
<RECEIVABLES> 126,900
<ALLOWANCES> 0
<INVENTORY> 109,300
<CURRENT-ASSETS> 271,500
<PP&E> 905,600
<DEPRECIATION> 357,700
<TOTAL-ASSETS> 1,666,100
<CURRENT-LIABILITIES> 290,300
<BONDS> 1,032,100
0
0
<COMMON> 200
<OTHER-SE> 636,100
<TOTAL-LIABILITY-AND-EQUITY> 1,666,100
<SALES> 387,700
<TOTAL-REVENUES> 387,700
<CGS> 308,100
<TOTAL-COSTS> 308,100
<OTHER-EXPENSES> 46,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,000
<INCOME-PRETAX> 26,600
<INCOME-TAX> 7,800
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,800
<EPS-PRIMARY> .80
<EPS-DILUTED> .80
</TABLE>
Execution Copy
REPLACEMENT AND RESTATEMENT AGREEMENT
REPLACEMENT AND RESTATEMENT AGREEMENT dated as of October 10, 1996 of the
Credit Agreement dated as of December 7, 1994 (as amended, supplemented or
otherwise modified from time to time, the "CREDIT AGREEMENT"; terms not
otherwise defined herein shall be used herein as therein defined)among:
(i) BORG-WARNER AUTOMOTIVE, INC., a Delaware corporation (the "BORROWER");
(ii) the several banks and other financial institutions from time to time
parties to the Credit Agreement (the "LENDERS");
(iii) BANK OF MONTREAL, CREDIT LYONNAIS, CHICAGO AND CAYMAN ISLAND BRANCHES, THE
INDUSTRIAL BANK OF JAPAN, LTD., THE LONG-TERM CREDIT BANK OF JAPAN, LIMITED,
NATIONSBANK, N.A., THE SUMITOMO BANK, LIMITED, CHICAGO BRANCH, BANK OF AMERICA
ILLINOIS, and THE FUJI BANK, LIMITED, as lead managers thereunder (the "LEAD
MANAGERS");
(iv) THE CHASE MANHATTAN BANK (formerly Chemical Bank), a New York banking
corporation ("CHASE"), and THE BANK OF NOVA SCOTIA, a Canadian chartered bank
("SCOTIABANK"), as co-arrangers thereunder (in such capacity, the
"CO-ARRANGERS");
(v) SCOTIABANK, as documentation agent for the Lenders thereunder (in such
capacity, the "DOCUMENTATION AGENT"); and
(vi) CHASE, as administrative agent for the Lenders thereunder (in such
capacity, the "ADMINISTRATIVE AGENT").
W I T N E S S E T H :
WHEREAS, the parties hereto desire to replace and restate the Credit
Agreement to increase the Aggregate Revolving Credit Commitment thereunder to
$350,000,000 and to effect certain other amendments on the terms and conditions
set forth herein; and
WHEREAS, the Borrower, the Administrative Agent and each Lender has
agreed to so replace and restate the Credit Agreement on the terms set forth
below;
NOW, THEREFORE, for and in consideration of the premises and other
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree, on the terms and subject to the
conditions set forth herein, as follows:
1. REPLACEMENT AND RESTATEMENT. Subject to the conditions set forth in
Section 23 hereof, the Credit Agreement, including all schedules and exhibits
thereto, is hereby replaced and restated as of the New Credit Agreement
Effective Date in the form of a new agreement (the "NEW CREDIT AGREEMENT")
identical to the Credit Agreement except as expressly provided herein, and all
rights and obligations of the Borrower, the Lenders, the Lead Managers, the Co-
Arrangers, the Documentation Agent and the Administrative Agent under the
Agreement shall continue as rights and obligations of such parties under the New
Credit Agreement, modified as expressly provided herein.
2. CLOSING DATE. The New Credit Agreement shall be dated as of October 10,
1996 (which shall constitute the "date hereof" and the Closing Date in respect
of the New Credit Agreement).
3. AMENDMENT TO COVER PAGE. The cover page of the Credit Agreement is
amended by deleting the amount "$300,000,000" and substituting therefor the
amount "$350,000,000".
4. AMENDMENT TO SUBSECTION 1.1 OF THE CREDIT AGREEMENT. (a) The definition
of "Aggregate Revolving Credit Commitment" set forth in subsection 1.1 of the
Credit Agreement is hereby amended by deleting the amount "$300,000,000" and
substituting therefor the amount "$350,000,000".
(b) The definition of "Consolidated Net Worth" set forth in
subsection 1.1 of the Credit Agreement is hereby amended by deleting that
definition in its entirety and substituting therefor the following:
"CONSOLIDATED NET WORTH": at a particular date, all amounts
which would, in conformity with GAAP, be included under "total shareholders'
equity" (or any like caption) on a consolidated balance sheet of the Borrower
and its Subsidiaries as at such date.
(c) The definitions of "Guarantees", "Guarantors" and "Subsidiaries
Guarantee" set forth in subsection 1.1 of the Credit Agreement are hereby
amended by deleting those definitions in their entirety.
(d) The definition of "Loan Documents" set forth in subsection 1.1 of
the Credit Agreement is hereby amended by deleting that definition in its
entirety and substituting therefor the following:
"LOAN DOCUMENTS": this Agreement, the Notes and the
Applications.
(e) The definition of "Termination Date" set forth in subsection 1.1
of the Credit Agreement is hereby amended by deleting the date "December 7,
1999" and substituting therefor the date "September 30, 2001".
5. AMENDMENT TO SUBSECTION 7.1 OF THE CREDIT AGREEMENT. Subsection 7.1 of
the Credit Agreement is hereby amended by (a) deleting from paragraph (a) the
date "December 31, 1993" and substituting therefor the date "December 31, 1995",
(b) deleting from paragraph (a) the date "September 30, 1994" and substituting
therefor the date "June 30, 1996", (c) deleting from paragraph (a) each
reference to the phrase "nine-month" and substituting therefor the phrase "six-
month" and (d) deleting from paragraph (b) each reference to the date "September
30, 1994" and substituting therefor the phrase "June 30, 1996".
6. AMENDMENT TO SUBSECTION 7.2 OF THE CREDIT AGREEMENT. Subsection 7.2 of
the Credit Agreement is hereby amended by (a) deleting the date "December 31,
1993" and substituting therefor the date "December 31, 1995" and (b) inserting
immediately before the period at the end of such subsection the following:
"except as disclosed on or prior to the Closing Date (i) in writing to the
Lenders, or (ii) in any public filing with the Securities and Exchange
Commission".
7. AMENDMENT TO SUBSECTION 7.20. Subsection 7.20 of the Credit Agreement
is hereby amended by deleting it in its entirety and substituting therefor the
phrase "7.20 [Reserved]".
8. AMENDMENT TO SUBSECTION 9.7. Subsection 9.7 of the Credit Agreement is
hereby amended by deleting from paragraph (d) clause (i) thereof the phrase
"liability of $5,000,000 or more" and substituting therefor "Material Adverse
Effect".
9. AMENDMENT TO SUBSECTION 9.9. Subsection 9.9 of the Credit Agreement is
hereby amended by deleting it in its entirety and substituting therefor the
phrase "9.9 [Reserved]".
10. AMENDMENT TO SUBSECTION 10.1. Subsection 10.1 of the Credit Agreement
is hereby amended by deleting paragraph (a) thereof in its entirety and
substituting therefor the following:
(a) MAINTENANCE OF CONSOLIDATED NET WORTH. Permit Consolidated
Net Worth at any time to be less than the amount equal to (i) $475,000,000
PLUS (ii) the amount equal to 25% of the aggregate Consolidated Net Income of
the Borrower and its consolidated Subsidiaries since June 30, 1996; PROVIDED
that, in the event that the Borrower and its consolidated Subsidiaries have
Consolidated Net Loss for any fiscal quarter, Consolidated Net Income for
purposes only of clause (ii) of this subsection 10.1(a) shall be deemed to be
zero for such fiscal quarter.
11. AMENDMENT TO SUBSECTION 10.1. Subsection 10.1 of the Credit Agreement
is hereby amended by deleting paragraph (b) thereof in its entirety and
substituting therefor the following:
(b) LEVERAGE RATIO. Permit the ratio (the "LEVERAGE RATIO") of (a)
Consolidated Funded Debt on the last day of any fiscal quarter of the Borrower
to (b) Consolidated Capitalization as at such date to exceed 0.50 to 1.0."
12. AMENDMENT TO SUBSECTION 10.1. Subsection 10.1 of the Credit Agreement
is hereby amended by deleting clause (c) thereof in its entirety.
13. AMENDMENT TO SUBSECTION 10.2. Subsection 10.2 of the Credit Agreement
is hereby amended by (a) deleting the proviso from paragraph (b) thereof and (b)
deleting from paragraph (d) thereof the amount "$100,000,000" and substituting
therefor "$150,000,000".
14. AMENDMENT TO SUBSECTION 10.4. Subsection 10.4 of the Credit Agreement
is hereby amended by deleting paragraph (a) in its entirety and substituting
therefor the phrase "(a) [Reserved];".
15. AMENDMENT TO SUBSECTION 10.5. Subsection 10.5 of the Credit Agreement
is hereby amended by (a) deleting clause (ii) of the proviso in paragraph (a)
thereof and substituting therefor the following new clause:
(ii) in the case of any merger or consolidation between Subsidiaries
at least one of which is a domestic Subsidiary, a domestic Subsidiary shall
be the surviving Person
(b) deleting the "and" at the end of paragraph (a), (c) deleting
the period at the end of paragraph (b) and substituting therefor the phrase
"; and" and (d) adding the following new paragraph:
(c) in addition to the mergers permitted by paragraph (a) above, any
other Person may merge into the Borrower PROVIDED that (i) the Borrower shall
be the continuing or surviving corporation and (ii) after giving effect to
any such merger (A) the requirements of subsection 10.1 would be satisfied on
a PRO FORMA basis as at the last day of the most recently ended fiscal
quarter of the Borrower with respect to which financial statements have been
delivered pursuant to subsection 9.1 if such merger had been effective on
such day and (B) no Default or Event of Default would occur or be continuing.
16. AMENDMENT TO SUBSECTION 10.12. Subsection 10.12 of the Credit
Agreement is hereby amended by adding the following clause immediately before
the period at the end of such subsection:
; PROVIDED THAT the Borrower's proposed issuance of up to $150,000,000
of its senior unsecured notes, the terms of which will be no more
restrictive than the terms of this Agreement, may contain a
prohibition or limitation on the creation of Liens substantially
similar to that in subsection 10.3 of this Agreement
17. AMENDMENT TO SUBSECTION 10.14. Subsection 10.14 of the Credit
Agreement is hereby amended by deleting it in its entirety and substituting
therefor the following:
10.14 VALUE OF ASSETS. At any time, permit the assets (without
duplication) held by the Borrower and its Subsidiaries (other than the
assets of any Foreign Subsidiary), taken as a whole, to have a book
value of less than 75% of the then book value of all of the assets of the
Borrower and its Subsidiaries on a consolidated basis.
18. AMENDMENT TO SECTION 11. Section 11 of the Credit Agreement is hereby
amended by (a) deleting paragraph (d) in its entirety and substituting therefor
the phrase "(d) [Reserved];" and (b) deleting paragraph (f) in its entirety and
substituting therefor the phrase "(f) [Reserved];".
19. AMENDMENT TO SECTION 13. Section 13.1 of the Credit Agreement is
hereby amended by deleting paragraph (b) in its entirety and substituting
therefor the phrase "(b) [Reserved]".
20. AMENDMENT TO EXHIBIT D. Exhibit D of the Credit Agreement is hereby
amended by deleting it in its entirety and substituting therefor the phrase
"Exhibit D [Reserved]".
21. INCREASE IN COMMITMENTS; AMENDMENT TO SCHEDULE I (COMMITMENTS). In
connection with the increase in the Aggregate Revolving Credit Commitment to
$350,000,000, Schedule I of the Credit Agreement is hereby amended by deleting
such Schedule in its entirety and substituting therefor the revised Schedule I
attached hereto.
22. AMENDMENT TO SCHEDULE IA (APPLICABLE MARGINS AND FACILITY FEE RATES).
The Credit Agreement is hereby amended by deleting Schedule IA thereto in its
entirety and substituting therefor the revised Schedule IA attached hereto.
23. CONDITIONS TO EFFECTIVENESS. The New Credit Agreement shall become
effective on and as of the date (the "NEW CREDIT AGREEMENT EFFECTIVE DATE") that
the Administrative Agent shall have received:
(i) counterparts of this Replacement and Restatement Agreement, duly
executed and delivered by a duly authorized officer of each of the Borrower,
the Administrative Agent, and each Lender;
(ii) copies of:
(a) the resolutions, in form and substance satisfactory
to the Administrative Agent, of the Board of Directors of the Borrower
authorizing (i) the execution, delivery and performance of this Replacement
and Restatement Agreement and (ii) the borrowings and other extensions of
credit contemplated under the New Credit Agreement, certified by the Secretary
or an Assistant Secretary of the Borrower as of the New Credit Agreement
Effective Date, which certificate shall state that the resolutions thereby
certified have not been amended, modified, revoked or rescinded and shall be
in form and substance satisfactory to the Administrative Agent;
(b) a certificate of the Secretary or an Assistant
Secretary of the Borrower, dated the New Credit Agreement Effective Date,
as to the incumbency and signature of the officers of each Person executing
this Replacement and Restatement Agreement on behalf of the Borrower and any
certificate or other documents to be delivered by it pursuant thereto,
together with evidence of the incumbency of such Secretary or Assistant
Secretary, as the case may be; and
(c) the executed legal opinion of counsel to the Borrower,
dated the New Credit Agreement Effective Date, substantially in the form of
Exhibit A hereto, which such legal opinion shall cover such other matters
incident to the transactions contemplated by this Replacement and Restatement
Agreement as the Co-Arrangers may reasonably require and the counsel
delivering the foregoing legal opinion is expressly instructed to deliver its
opinion for the benefit of each of the Administrative Agent, the Co-Arrangers
and the Lenders;
(iii) for the account of each Lender, a duly executed Revolving
Credit Note, substantially in the form of Exhibit A to the Credit Agreement,
reflecting each Lender's Revolving Credit Commitment as set forth on Schedule
I of this Replacement and Restatement Agreement; and
(iv) evidence satisfactory to it that the Borrower has paid all of
the interest, fees, expenses and other costs accrued and unpaid through the
New Credit Agreement Effective Date under the Credit Agreement including,
without limitation, all amounts accrued and unpaid to the New Credit Agreement
Effective Date under subsections 5.3, 6.6, 6.7 and 6.14 of the Credit Agreement.
24. TERMINATION OF SUBSIDIARIES GUARANTEE. On the New Credit Agreement
Effective Date the obligations of the Subsidiaries under the Subsidiaries
Guarantee will be released and the Subsidiaries Guarantee will terminate and the
original copies of the Subsidiaries Guarantee held by the Administrative Agent
and its counsel will either be returned to the Borrower or destroyed.
25. LENDERS. On the New Credit Agreement Effective Date (a) The Toronto-
Dominion Bank will no longer be a party to the Credit Agreement and shall not
have a Revolving Credit Commitment under the Credit Agreement and (b) the
Borrower will repay all amounts owed The Toronto-Dominion Bank under the Credit
Agreement. On the New Credit Agreement Effective Date Istituto Bancario San
Paolo Di Torino, SPA New York will become a Lender party to the New Credit
Agreement having the Revolving Credit Commitment set forth on Schedule I of this
Replacement and Restatement Agreement.
26. ALLOCATION PROCEDURES. On the New Credit Agreement Effective Date the
Lenders will make payments of the Revolving Credit Loans, through the
Administrative Agent and as directed by the Administrative Agent, among
themselves in order that, after giving effect thereto, each Lender will hold
Revolving Credit Loans in a ratable amount consistent with Schedule I of this
Replacement and Restatement Agreement. On the New Credit Agreement Effective
Date the participating interests held by each Lender in each then outstanding
Letter of Credit shall be deemed to be reallocated in accordance with the
Commitment Percentages set forth in Schedule I of this Replacement and
Restatement Agreement.
27. REPRESENTATIONS AND WARRANTIES. (a) The Borrower hereby represents and
warrants as of the date hereof and as of the New Credit Agreement Effective Date
that each of the representations and warranties made by it in the Credit
Agreement is true and correct in all material respects on and as of each such
date as if made on and as of each such date (except to the extent such
representations and warranties specifically relate to an earlier date, in which
case such representations and warranties shall have been true and correct in all
material respects on and as of such earlier date), with all references therein
to "this Agreement" being deemed to refer to the New Credit Agreement; (b) the
Borrower hereby represents and warrants as of the date hereof and as of the New
Credit Agreement Effective Date that no Default or Event of Default has occurred
or is continuing.
28. RETURN OF REVOLVING CREDIT NOTES. Each Lender shall, no later than
October 25, 1996, return to the Borrower any Revolving Credit Note issued
pursuant to the Credit Agreement prior to the New Credit Agreement Effective
Date.
29. SCOPE. This Replacement and Restatement Agreement is to be narrowly
construed. Except as expressly amended and waived herein, all of the covenants
and provisions of the Credit Agreement are and shall continue to be in full
force and effect as restated in the New Credit Agreement.
30. GOVERNING LAW. THIS REPLACEMENT AND RESTATEMENT AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK.
31. COUNTERPARTS. This Replacement and Restatement Agreement may be
executed by one or more of the parties hereto on any number of separate
counterparts, and all of said counterparts taken together shall be deemed to
constitute one and the same instrument.
IN WITNESS WHEREOF, the undersigned have caused this Replacement and
Restatement Agreement to be duly executed and delivered as of the date first
above written.
BORG-WARNER AUTOMOTIVE, INC.
By ROBIN J. ADAMS
--------------------------------
ROBIN J. ADAMS
Title: Vice President
THE CHASE MANHATTAN BANK, as Administrative Agent, as a
Co-Arranger and as a Lender
By ROSEMARY BRADLEY
-------------------------------
ROSEMARY BRADLEY
Title: Vice President
THE BANK OF NOVA SCOTIA, as Documentation Agent, as Co-
Arranger and as a Lender
By F.C.H. ASHBY
--------------------------------
F.C.H. ASHBY
Title: Senior Manager of Loan Operations
BANK OF AMERICA ILLINOIS, as a Lead
Manager and as a Lender
By WILLIAM F. SWEENER
--------------------------------
WILLIAM F. SWEENER
Title: Vice President
BANK OF MONTREAL, as a Lead Manager
and as a Lender
By EDWARD P. MCGUIRE
--------------------------------
EDWARD P. MCGUIRE
Title: Director
CREDIT LYONNAIS, CHICAGO BRANCH, as a
Lead Manager and as a Lender
By MICHAEL BUYSSCHAERT
-------------------------------
MICHAEL BUYSSCHAERT
Title: Vice President
THE FIRST NATIONAL BANK OF CHICAGO, as Lead Manager and
as a Lender
By JAMES GABLE
------------------------------
JAMES GABLE
Title: As Authorized Agent
THE FUJI BANK, LIMITED, as a Lead
Manager and as a Lender
By PETER L. CHINNICI
------------------------------
PETER L. CHINNICI
Title: Joint General Manager
THE INDUSTRIAL BANK OF JAPAN, LIMITED,
as a Lead Manager and as a Lender
By HIROAKI NAKAMURA
----------------------------
HIROAKI NAKAMURA
Title: Joint General Manager
THE LONG-TERM CREDIT BANK OF JAPAN,
LTD., as a Lead Manager and as a
Lender
By ARMUND J. SCHOEN, JR.
---------------------------
ARMUND J. SCHOEN, JR.
Title: Vice President and Deputy
General Manager
NATIONSBANK, N.A.,
as a Lead Manager and as a Lender
By MARY CAROL DALY
--------------------------
MARY CAROL DALY
Title: Vice President
THE SUMITOMO BANK, LIMITED, CHICAGO
BRANCH, as a Lead Manager and as a
Lender
By KEN-ICHIRO KOBAYASKI
---------------------------
KEN-ICHIRO KOBAYASKI
Title: Joint General Manager
BANK OF HAWAII
By DONNA PARKER
----------------------------
DONNA PARKER
Title: Assistant Vice President
THE BANK OF NEW YORK
By JOHN LOKAY
------------------------------
JOHN LOKAY
Title: Vice President
THE BANK OF TOKYO-MITSUBISHI LTD., CHICAGO BRANCH
By NOBORU KOBAYASKI
--------------------------------
NOBORU KOBAYASKI
Title: Deputy General Manager
CAISSE NATIONALE DE CREDIT AGRICOLE
By DEAN BALICE
---------------------------------
DEAN BALICE
Title: Senior Vice President
Branch Manager
ISTITUTO BANCARIO SAN PAOLO DI
TORINO, SPA NEW YORK
By WILLIAM J. DEANGELO
------------------------------
WILLIAM J. DEANGELO
Title: First Vice President
By ROBERTO GORLIER
------------------------------
ROBERTO GORLIER
Title: First Vice President
MELLON BANK, N.A.
By LAUREN L. LARSON
--------------------------------
LAUREN L. LARSON
Title: Assistant Vice President
THE NORTHERN TRUST COMPANY
By MICHELLE M. TETEAK
-------------------------------
MICHELLE M. TETEAK
Title: Vice President
<PAGE>
THE SANWA BANK, LIMITED, CHICAGO BRANCH
By RICHARD H. AULT
-------------------------------
RICHARD H. AULT
Title: Vice President
BARCLAYS BANK PLC
By PAUL C. KAVANAUGH
-------------------------------
PAUL C. KAVANAUGH
Title: Director
<PAGE>
SCHEDULE I to
NEW CREDIT AGREEMENT
REVOLVING CREDIT COMMITMENTS
Revolving
Credit Commitment
LENDER COMMITMENT PERCENTAGE
The Chase Manhattan Bank $ 30,000,000 8.571
The Bank of Nova Scotia 30,000,000 8.571
Bank of America Illinois 20,000,000 5.714
Bank of Montreal 20,000,000 5.714
Credit Lyonnais, Chicago Branch 20,000,000 5.714
The First National Bank of Chicago 20,000,000 5.714
The Fuji Bank, Limited 20,000,000 5.714
The Industrial Bank of Japan, Ltd. 20,000,000 5.714
The Long-Term Credit Bank of Japan, Ltd.20,000,000 5.714
Nationsbank, N.A. 20,000,000 5.714
The Sumitomo Bank, Limited 20,000,000 5.714
Bank of Hawaii 12,500,000 3.571
The Bank of New York 12,500,000 3.571
The Bank of Tokyo-Mitsubishi Ltd. 12,500,000 3.571
Caisse Nationale de Credit Agricole 12,500,000 3.571
Istituto Bancario San Paolo Di Torino 12,500,000 3.571
Mellon Bank, N.A. 12,500,000 3.571
The Northern Trust Company 12,500,000 3.571
The Sanwa Bank, Limited 12,500,000 3.571
Barclays Bank 10,000,000 2.857
----------- ------
Totals $350,000,000 100%
============ ======
<PAGE>
SCHEDULE IA to
NEW CREDIT AGREEMENT
APPLICABLE MARGINS AND FACILITY FEE RATES
For each Type of Loan, the Facility Fee Rate and the Applicable Margin at any
time shall be the respective rates set forth on the pricing grid attached to
this Schedule IA as Annex A, determined in the following manner:
1. For the purposes hereof, (i) Moody's Investors Service, Inc. and Standard &
Poor's Ratings Group shall be referred to each as a "RATING AGENCY" or
collectively as the "RATING AGENCIES"; (ii) the rating by a Rating Agency in
effect at any time of the Borrower's senior unsecured long-term debt shall be
referred to as a "RATING" or, collectively, the "RATINGS"; (iii) each set of
Ratings, Leverage Ratio, Applicable Margin and Facility Fee Rate set forth
opposite each "Level" appearing on Annex A shall be referred to as a "PRICING
LEVEL"; (iv) reference to a "higher" or "lower" Pricing Level shall be to the
*Pricing Level with the higher ordinal number and the higher pricing or the
lower ordinal number and the lower pricing, respectively; and (v) "LEVERAGE
RATIO" shall have the meaning ascribed thereto in subsection 10.1(b).
2. (a) In the event that at any time both of the Rating Agencies shall have a
Rating in effect, the applicable Pricing Level shall be the Pricing Level
including such Ratings, PROVIDED that (i) in the event that the Ratings fall
into two different Pricing Levels not more than one Pricing Level apart, the
applicable Pricing Level shall be the lower Pricing Level and (ii) in the event
that the Ratings fall into two different Pricing Levels more than one Pricing
Level apart, the applicable Pricing Level shall be the Pricing Level one Pricing
Level higher than the lower of such differing Pricing Levels.
(b) In the event that at any time there is not a Rating in effect from both of
the Rating Agencies, the applicable Pricing Level shall be the Pricing Level
including the Leverage Ratio as of the last day of the most recent fiscal
quarter of the Borrower for which the Borrower has delivered financial
statements pursuant to subsection 9.1(a).
3. Any change in applicable Pricing Level as a result of a change in a Rating
shall become effective as of the announcement or publication of such Rating by
the relevant Rating Agency. Any change in applicable Pricing Level as a result
of a change in the Leverage Ratio shall become effective as of the first
Business Day following the receipt by the Administrative Agent of the financial
statements referred to in subsection 9.1(a) reflecting such change. If and for
so long as the Borrower shall fail to deliver the financial statements referred
to in subsections 9.1(a) as required thereunder and the Pricing Level is not at
such time determined based on Ratings, then the applicable Pricing Level during
such period shall automatically, and without further act of the Administrative
Agent, be the highest Pricing Level appearing on Annex A.
<PAGE>
ANNEX A to Schedule 1A
PRICING LEVELS
Facility LIBOR C/D Alternate Base
LEVEL RATINGS LEVERAGE FEE MARGIN RATE MARGIN RATE MARGIN
RATIO
<
1 A-/A3 or Higher - .175:1 .080% .170% .295% 0%
<
2 BBB+/Baa1 - .250:1 .100% .200% .325% 0%
<
3 BBB/Baa2 - .400:1 .125% .225% .350% 0%
<
4 BBB-/Baa3 or lower - .400:1 .175% .275% .400% 0%
