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 June 30, 1997
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 July 31, 1997 the registrant had 23,670,215 shares of Common Stock and
46,000 shares of Series I Non-Voting Common Stock outstanding.
<PAGE>
BORG-WARNER AUTOMOTIVE, INC.
FORM 10-Q
SIX MONTHS ENDED JUNE 30, 1997
INDEX
Page No.
PART I. Financial Information
Item 1. Financial Statements
Introduction . . . . . . . . . . . . . . . . . . . . 2
Condensed Consolidated Balance Sheets at
June 30, 1997 and December 31, 1996 . . . . . . 3
Consolidated Statements of Income for the three
months ended June 30, 1997 and 1996 . . . . . . 4
Consolidated Statements of Income for the six
months ended June 30, 1997 and 1996 . . . . . . 5
Consolidated Statements of Cash Flows for the six
months ended June 30, 1997 and 1996 . . . . . . 6
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 . . . . . . . . . . . . . . . 17
Item 2. Changes in Securities . . . . . . . . . . . . . 18
Item 3. Defaults Upon Senior Securities . . . . . . . . 18
Item 4. Submission of Matters to a Vote of
Security Holders . . . . . . . . . . . . . 18
Item 5. Other Information . . . . . . . . . . . . . . . 19
Item 6. Exhibits and Reports on Form 8-K . . . . . . . 19
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . 20
<PAGE>
BORG-WARNER AUTOMOTIVE, INC.
FORM 10-Q
SIX MONTHS ENDED JUNE 30, 1997
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 six months ended June 30, 1997 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, 1996.
<PAGE>
BORG-WARNER AUTOMOTIVE, INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(millions of dollars except share data)
<TABLE>
<CAPTION>
(Unaudited)
June 30, December 31,
1997 1996
--------- -----------
<S> <C> <C>
A S S E T S
Cash and cash equivalents $ 29.4 $ 11.5
Receivables 144.0 124.6
Inventories 100.9 91.1
Prepayments 11.5 8.1
Deferred income tax asset 17.8 17.8
--------- -------
Total current assets 303.6 253.1
Property, plant, and equipment at cost 902.9 863.1
Less accumulated depreciation 350.7 328.9
---------- --------
Net property, plant and equipment 552.2 534.2
Investments and advances 139.5 135.9
Goodwill 547.8 555.7
Deferred income tax asset 34.2 35.4
Other noncurrent assets 115.6 109.3
--------- --------
Total other assets 1,389.3 836.3
--------- -------
$1,692.9 $1,623.6
=========== ==========
LIABILITIES & STOCKHOLDERS' EQUITY
Notes payable $ 47.4 $ 38.0
Accounts payable and accrued expenses 288.6 269.3
Income taxes payable 45.4 30.6
----- -------
Total current liabilities 381.4 337.9
Long-term debt 256.7 279.3
Long-term retirement-related liabilities 326.6 326.8
Other long-term liabilities 50.1 50.8
------- ------
Total long-term liabilities 376.7 377.6
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 23,663,225 in 1997 0.2 0.2
Non-voting common stock, $.01 par value;
authorized 25,000,000 shares; issued shares
of 2,520,000 in 1997 and outstanding shares
of 46,000 in 1997 -- --
Capital in excess of par value 564.9 563.9
Retained earnings 109.1 61.8
Currency translation adjustment 11.3 10.3
Minimum pension liability adjustment (7.4) (7.4)
-------- --------
Total stockholders' equity 678.1 628.8
-------- --------
$1,692.9 $1,623.6
========= =========
</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>
Three Months Ended
June 30,
1997 1996
-------- ----------
<S> <C> <C>
Net sales $ 449.7 $ 381.8
Cost of sales 346.9 297.5
Depreciation 17.7 17.5
Selling, general and administrative expenses 34.0 29.2
Minority interest 0.5 0.5
Goodwill amortization 4.1 2.8
Equity in affiliate earnings and other income (4.6) (2.8)
------- -------
Earnings before interest and finance
charges and income taxes 51.1 37.1
Interest expense and finance charges 6.3 3.5
------ -------
Earnings before income taxes 44.8 33.6
Provision for income taxes 15.2 11.8
------- --------
Net earnings $ 29.6 $ 21.8
========= =========
Net earnings per share $ 1.25 $ 0.93
======== =========
Average shares outstanding (thousands) 23,672 23,519
======= =========
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>
Six Months Ended
June 30,
1997 1996
------- ---------
<S> <C> <C>
Net sales $ 893.2 $ 730.7
Cost of sales 692.6 575.0
Depreciation 34.5 35.9
Selling, general and administrative expenses 70.0 60.0
Minority interest 1.2 1.2
Goodwill amortization 8.2 5.4
Equity in affiliate earnings and other income (8.6) (6.9)
------- --------
Earnings before interest and finance
charges and income taxes 95.3 60.1
Interest expense and finance charges 12.8 7.0
--------- --------
Earnings before income taxes 82.5 53.1
Provision for income taxes 28.1 19.0
--------- --------
Net earnings $ 54.4 $ 34.1
========= =======
Net earnings per share $ 2.30 $ 1.45
======== ========
Average shares outstanding (thousands) 23,672 23,519
======== ========
Dividends declared per share $ 0.30 $ 0.30
======== ========
</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)
Six Months Ended
June 30,
<TABLE>
<CAPTION>
1997 1996
------- ---------
<S> <C> <C>
Operating
Net earnings $ 54.4 $ 34.1
Adjustments to reconcile net earnings to net cash flows
from operating activities:
Non-cash charges (credits) to operations:
Depreciation 34.5 35.9
Goodwill amortization 8.2 5.4
Other, principally equity in affiliate earnings(8.2) (7.5)
Changes in assets and liabilities:
Increase in receivables (22.1) (22.8)
Increase in inventories (11.3) (3.9)
(Increase)decrease in prepayments (3.7) 7.2
Increase in accounts payable and accrued
expenses 21.5 45.8
Increase in income taxes payable 14.7 3.9
Net change in other long-term assets
and liabilities (4.0) (0.4)
------ -----
Net cash provided by operating activities 84.0 97.7
Investing
Capital expenditures (59.5) (32.0)
Investment in affiliates -- 0.7
Payments for business acquired -- (287.8)
Proceeds from other assets 7.5 5.9
----- ------
Net cash used for investing activities (52.0) (313.2)
Financing
Net increase in notes payable 10.8 14.5
Additions to long-term debt 0.4 246.6
Reduction in long-term debt (19.7) (34.9)
Proceeds from options exercised 1.0 1.5
Dividends paid (7.1) (7.1)
------ ------
Net cash provided by (used for)
financing activities (14.6) 220.6
Effect of exchange rate changes on cash and cash
equivalents 0.5 (0.4)
----- ------
Net increase in cash and cash equivalents 17.9 4.7
Cash and cash equivalents at beginning of year 11.5 12.1
------ ------
Cash and cash equivalents at end of period $ 29.4 $ 16.8
======= =======
Supplemental Cash Flow Information
Net cash paid during the period for:
Interest expense $ 13.2 $ 6.3
Income taxes 15.2 15.6
</TABLE>
See accompanying notes to financial statements
<PAGE>
Borg-Warner Automotive, Inc. and Consolidated Subsidiaries
Notes to the Consolidated Financial Statements
(Unaudited)
(1) Research and development costs charged to expense for the three and six
months ended June 30, 1997 were $13.7 million and $27.3 million,
respectively. Costs charged to expense for the three and six months ended
June 30, 1996 were $11.6 million and $23.3 million, respectively.
(2) Inventories consisted of the following (millions of dollars):
June 30, December 31,
1997 1996
------- ---------
Raw materials $ 46.4 $ 43.5
Work in progress 42.1 30.9
Finished goods 12.4 16.7
-------- -------
Total inventories $ 100.9 $ 91.1
======== ========
(3) The Company has a 50% interest in NSK-Warner K.K. ("NSK-Warner"), a joint
venture based in Japan that manufactures automatic transmission components.
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 $130.1 million at June 30, 1997
and $127.1 million at December 31, 1996.
Following are summarized financial data for NSK-Warner. Balance sheet data
is presented as of June 30, 1997 and March 31, 1997 and statement of income
data is presented for the three months ended June 30, 1997 and 1996. The
Company's results include its share of NSK-Warner's results for the three
and six months ended May 31, 1997 and 1996.
<PAGE>
<TABLE>
<CAPTION>
June 30, March 31,
1997 1997
-------- ---------
<S> <C> <C>
Balance Sheet (in millions)
Current assets $154.5 $ 145.7
Noncurrent assets 132.0 124.7
Current liabilities (excluding debt) 73.3 74.1
Noncurrent liabilities (excluding debt) 8.9 8.1
Total debt 12.0 7.4
Three Months Ended
June 30,
-----------------
1997 1996
------ -------
Statement of Income (in millions)
- --------------------
Net sales $ 68.2 $ 68.9
Gross profit 17.8 17.0
Net income 6.7 6.2
</TABLE>
(4) The Company's provisions for income taxes for the three and six months
ended June 30, 1997 and 1996 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>
June 30, 1997 December 31, 1996
---------------- -------------------
Current Long-Term Current Long-Term
-------- --------- -------- ---------
DEBT (millions of dollars)
<S> <C> <C> <C> <C>
Bank borrowings $ 17.1 $ 67.7 $ 17.9 $ 56.5
Bank term loans due through 2001(at
an average rate of 4.8% at June 1997
and 5.1% at December 1996) 30.1 33.8 20.0 67.2
7% Senior Notes due 2006, net of
unamortized discount -- 149.6 -- 149.6
Capital lease liability 0.2 5.6 0.1 6.0
-------- ------ ------- --------
Total notes payable and
long-term debt $ 47.4 256.7 $ 38.0 $ 279.3
======== ======== ======== =========
</TABLE>
The Company maintains a $350 million revolving credit facility. The facility
was unused at December 31, 1996. At June 30, 1997, there was $45 million
outstanding. The facility is available through September 30, 2001.
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.
(6) 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 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 clean-up and other remedial activities at
these sites. Responsibility for clean-up and other remedial activities at a
Superfund site is typically shared among PRPs based on an allocation formula.
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 June 30, 1997 of approximately $8 million. The
Company expects this amount to be expended over the next three to five years.
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 $2.5 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. The parties have agreed to submit this matter to binding
arbitration which is expected to be completed during 1997. 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, 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 June 30, 1997, the Company had sold $100 million of receivables under a
$102 million Receivables Transfer Agreement for face value without recourse. The
Company had sold receivables under facilities aggregating $100 million at
December 31, 1996.
(7) In April 1997, the Company announced that it plans to seek a buyer for its
powder metal engine connecting rod business and that Lehman Brothers has been
retained to solicit proposals. The connecting rod product line was acquired as
part of the Company's purchase of the Precision Forged Products Division from
Federal-Mogul Corporation in 1995. The connecting rod business does not offer a
strategic fit with the Company's core business and although the business is
experiencing rapid growth and is a solid process-oriented business,
management has determined that the Company's resources are better spent on the
Company's core technologies in highly engineered products and systems. For the
three and six months ended June 30, 1997, this business reported net sales of
$7.4 million and $15.2 million, respectively.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
Borg-Warner Automotive, Inc. (the "Company") operates as a leading, global
supplier primarily to original equipment manufacturers ("OEMs") of passenger
cars, sport utility vehicles and light trucks in the North American, European
and Asian markets. Its products include a wide variety of highly engineered
components and systems primarily related to drivetrain applications. Examples
include "shift quality" automatic transmission components and systems,
four-wheel drive ("4WD") transfer cases, automotive chain and chain systems,
engine timing components and systems, and a variety of air and fluid control
components and systems for engine and fuel systems control.
The following discussion covers the results of operations for the three and six
months ended June 30, 1997 and 1996 and financial condition as of June 30, 1997
and December 31, 1996.
RESULTS OF OPERATIONS
The Company's products fall into four operating groups: Powertrain Systems,
Automatic Transmission Systems, Morse TEC and Air/Fluid Systems. Net sales by
product grouping for the three and six months ended June 30, 1997 and 1996 are
as follows (in millions of dollars):
<TABLE> Three Months Six Months
<CAPTION> Ended June 30, Ended June 30,
-------------- ---------------
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Powertrain Systems $155.4 $147.0 $310.6 $286.0
Automatic Transmission Systems 134.6 128.9 262.4 248.2
Morse TEC 81.9 70.7 161.3 136.7
Air/Fluid Systems 94.4 44.4 189.9 78.2
------- ------- ------- -------
466.3 391.0 924.2 749.1
Intergroup eliminations (16.6) (9.2) (31.0) (18.4)
-------- -------- -------- --------
Net sales $449.7 $381.8 $893.2 $730.7
======== ========= ======== ========
</TABLE>
Sales for the quarter ended June 30, 1997 were up 18% from the same period in
the prior year despite a softening in second quarter automotive production
numbers. Adjusted for the effects of the manual transmission sale in December
1996 and the acquisition of the Holley Automotive, Coltec Automotive and
Performance Friction Products businesses ("Coltec") in June 1996, sales
increased 13%. Strong sales of 4WD transfer cases, engine timing chain systems,
transmission chain, and automatic transmission components drove
the increase for the quarter. Revenue growth continued from the Company's
presence on sport-utility vehicles and light trucks, which continue to outpace
the overall growth in the automotive marketplace. The Coltec businesses had
sales of $62 million in the second quarter of 1997 compared with $10.7 million
for the period June 17, 1996 (date of acquisition) through June 30, 1996.
Powertrain Systems realized an $8.4 million increase in sales over the same
period of 1996, a 6% improvement despite the loss of manual transmission
revenues ($30 million for the second quarter of 1996) due to the sale of the
manual transmission business on December 31, 1996. Excluding 1996 manual
transmission revenues, the sales gain was 33%, driven by increased volume of
transfer case sales. Automatic Transmission Systems sales increased 4%,
principally from volume increases by the Company's OEM customers. Morse TEC
sales rose 16%, reflecting increased sales of engine timing systems and MORSE
GEMINI(TM)Chain Systems to GM which commenced in the third quarter of 1996.
Additionally, the group benefited from engine timing chain system sales for
Ford's new 4-liter overhead cam engine which commenced in late 1996. Air/Fluid
Systems sales, excluding the Coltec units acquired, were flat compared to the
prior quarter.
Sales increased 22% (16% for comparable sales) in the first six months of 1997
to $893.2 million from $730.7 million in the first six months of 1996 continuing
the Company's trend of growth exceeding that of world automobile production.
Comparatively, North American production increased by 2%, Japanese production
increased by 12% and the European market increased by 2%. The sales increase
was fueled by significant volume increases in transfer case, engine timing
system and transmission chain sales. Large transfer case unit sales increased
47% due to sales of new large transfer cases for the Ford Expedition and F-150
pickups introduced during 1996. Small transfer case unit sales increased 20%
due to a higher percentage of total Ford Explorer production incorporating 4WD.
Foreign exchange negatively impacted sales by approximately $9 million
particularly due to the strength of the dollar against the German mark and
Japanese yen.
The Company has increased its spending on research and development by $2.1
million and $4.0 million for the three and six months ended June 30, 1997
primarily due to additional spending related to the Coltec businesses acquired
in June 1996 and to maintain and expand its technological expertise in both
product and process. Spending continued at approximately 3.0% of sales.
For the three months ended June 30, 1997 and 1996, the Company's portion of
NSK-Warner's earnings was $3.9 million and $2.9 million, respectively. The
Company's portion of such earnings for the six months ended June 30, 1997
increased 12% to $7.4 million from $6.6 million in the prior period. The
earnings increase for both periods is due to strong yen denominated operating
results partially offset by a weaker yen against the dollar compared to the same
periods of the prior year.
The Company's income taxes are based upon estimated annual tax rates for the
year. The first quarter and six months of 1997 reflect certain tax credits
related to research and development programs and foreign operations. These
realized credits resulted in the effective income tax rate for the first quarter
and six months of 1997 being lower than the standard federal and state tax
rates. The Company's effective rate was also lower than the standard federal
and state rates in 1996 as the Company also benefited from foreign tax credits
in 1996 as well. However, research and development credits were not effective
until June 1996, thus the effective rate in 1996 was slightly higher than the
rate for 1997.
Net earnings for the quarter ended June 30, 1997 rose 36% to $29.6 million
compared with $21.8 million for the second quarter ended June 30, 1996. The
increase was primarily the result of increased sales volume, a slight
improvement in gross profit margin, and increased NSK-Warner earnings. The
margin improvement is the result of volume gains, ongoing cost reduction
efforts and the positive effect from the sale of the manual transmission
business in 1996. The improvement was tempered by price reductions from
customers and increases in goodwill amortization and interest related to the
Coltec acquisition.
For the first six months of 1997, the Company reported an increase in net
earnings of 60%, or $54.4 million, compared to $34.1 million for the same period
of 1996. The increase is attributed to the same conditions as those related to
the second quarter improvement discussed above.
FINANCIAL CONDITION AND LIQUIDITY
Cash generated from operations for the six months ended June 30, 1997 totaled
$84 million primarily from net earnings of $54.4 million, a net reduction in
operating assets and liabilities of $4.9 million and non-cash items, including
$34.5 million of depreciation and $8.2 million of goodwill amortization. The
increase in goodwill amortization is a result of the Coltec acquisition.
The operating cash was used to fund $59.5 million in capital expenditures for
the six months ended June 30, 1997. The increase in capital spending of $27.5
million over the prior year period is due to increased spending to increase
capacities and to fund existing and new programs. The Company anticipates that
capital spending for full-year 1997 will be higher than full-year 1996 due to a
full year of spending on the Coltec businesses acquired and to continue to fund
existing and new programs. The remainder of operating cash was used to reduce
the Company's debt. The Company believes that the combination of cash from its
operations and available credit facilities will be sufficient to satisfy cash
needs for the remainder of 1997.
The majority of the changes in the June 30, 1997 balance sheet as compared to
December 31, 1996 were due to the increase in level of business. Increases in
receivables, inventories and accounts payable and accrued expenses were
commensurate with the increase in volume of business. Net working capital,
excluding notes payable, increased by $16.4 million. Investments and advances
increased $3.6 million primarily due to current year affiliate earnings offset
by dividends.
As of June 30, 1997 and December 31, 1996, the Company had sold $100 million of
receivables under a $102 million Receivables Transfer Agreement for face value
without recourse.
OTHER
In April 1997, the Company announced that it plans to seek a buyer for its
powder metal engine connecting rod business and that Lehman Brothers has been
retained to solicit proposals. The connecting rod product line was acquired as
part of the Company's purchase of the Precision Forged Products Division from
Federal-Mogul Corporation in 1995. The connecting rod business does not offer a
strategic fit with the Company's core business and although the business is
experiencing rapid growth and is a solid process-oriented business, management
has determined that the Company's resources are better spent on the Company's
core technologies in highly-engineered products and systems. For the three and
six months ended June 30, 1997, this business reported net sales of $7.4 million
and $15.2 million, respectively.
As discussed more fully in Note 6 of the 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 Borg-Warner Security
Corporation ("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 $2.5 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. The parties have agreed
to submit this matter to binding arbitration which is expected to be completed
during 1997. 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, generally either because estimates of the maximum
potential liability at a site are not large or because liability will be shared
with other PRP's although no assurance can be given with respect to the ultimate
outcome of any such matter.
On July 15, 1997, the Company declared a $0.15 per share dividend to be paid on
August 15, 1997 to shareholders of record on August 1, 1997.
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 $2.5
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"), BW-Security's 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.
Item 4. Submission of Matters to a Vote of Security Holders
On April 29, 1997, the Company held its annual meeting of
stockholders. At such meeting, Andrew F. Brimmer. James J. Kerley and
Alexis P. Michas were elected as directors to serve for a term
expiring in 2000. Each of Jere A. Drummond, Ivan W. Gorr, John F.
Fiedler, Albert J. Fitzgibbons, III and Paul E. Glaske continued to
serve as directors following the meeting. At such meeting, the
following votes were cast in the election of directors:
For Against Withheld
--------- -------- --------
Andrew F. Brimmer 16,591,268 4,190 39,513
James J. Kerley 16,592,896 2,562 37,885
Alexis P. Michas 16,595,272 186 35,509
At such meeting, the proposal to amend the Company's 1993 Stock
Incentive Plan was approved by the following votes:
For Against Abstain
------------ ------- ---------
16,223,480 342,036 20,506
At such meeting, the selection of Deloitte & Touche LLP as auditors
was approved by the following votes:
For Against Abstain
------------ ------- ----------
16,619,173 7,123 4,484
Item 5. Other Information
Inapplicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 Restated Certificate of Incorporation on 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).
27.0 Financial data schedule
(b) Reports on Form 8-K
No Reports on Form 8-K were filed during the period.<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
(Signature)
Vice President and Controller
Principal Accounting Officer)
Date: August 11, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Statement of Financial Condition as of June 30, 1997
(unaudited) and the Condensed Consoidated Statement of Income for the Three
Months Ended June 30, 1997 (unaudited) and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 22,300
<SECURITIES> 7,100
<RECEIVABLES> 144,000
<ALLOWANCES> 0
<INVENTORY> 100,900
<CURRENT-ASSETS> 303,600
<PP&E> 902,900
<DEPRECIATION> 350,700
<TOTAL-ASSETS> 1,389,300
<CURRENT-LIABILITIES> 381,400
<BONDS> 256,700
0
0
<COMMON> 200
<OTHER-SE> 677,900
<TOTAL-LIABILITY-AND-EQUITY> 1,389,300
<SALES> 893,200
<TOTAL-REVENUES> 893,200
<CGS> 692,600
<TOTAL-COSTS> 692,600
<OTHER-EXPENSES> 105,300
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,800
<INCOME-PRETAX> 82,500
<INCOME-TAX> 28,100
<INCOME-CONTINUING> 54,400
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 54,400
<EPS-PRIMARY> 2.30
<EPS-DILUTED> 2.30
</TABLE>
