Item 1. Business
The Company is the world's largest supplier of contract guard services and is a leading provider of electronic security services. As a result of its significant market presence and breadth of product offerings, the Company is well positioned to service local, multi-location and national accounts and provide total security solutions to its customers.
The Company's protective services business is divided into two business units: physical security services and electronic security services. Information concerning the revenues, operating profit or loss and identifiable assets attributable to each of the Company's business units is incorporated herein by reference to Note 11 of the Notes to Consolidated Financial Statements.
In January 1997 the Company combined its armored transport business with Loomis Armored Inc. The Company received a 49% equity interest in the combined entity and approximately $105 million (net of transaction expenses, but subject to certain adjustments), and retained casualty and employee liabilities of its armored transport unit incurred prior to closing. The Company accounts for its investment in the combined entity under the equity method.
Physical Security Services
The Company provides guard services, as well as background screening, contract employment and investigative services, to approximately 16,000 clients in the United States, Canada, the United Kingdom and Colombia. The Company services these clients with approximately 68,000 employees in approximately 294 offices under the Wells Fargo(R), Burns(R), Globe(R) and other service marks.
The physical security services unit supplies contract uniformed and plainclothes security officers, who may or may not be armed, to perform a wide variety of tasks. These security officers patrol and monitor commercial, financial, industrial, residential and governmental facilities providing deterrence against crime and breach of governmental security regulations and detection of fire, accidents and other casualties. The security officers also monitor electronic systems and control public and employee access to facilities. Specialized assignments include nuclear and conventional electric power plant security, pre-departure screening of passengers and luggage at airports, access control at health care and educational facilities, mailroom services, staffing services and investigative services, including background investigations of prospective employees.
The physical security services unit employs approximately 65,000 security officers. Security officers undergo a standardized pre-employment screening program that features mandatory drug screening, criminal record checks at the county and municipal court level and verification of consumer credit reports, Social Security information and drivers' license records. Security officers receive classroom orientation and field training in safety, first aid and security techniques and in the handling of specific problems applicable to particular industries or situations.
The physical security services unit markets guard services through approximately 141 sales representatives nationwide and in Canada, the United Kingdom and Colombia. Sales personnel operate out of local branch and sales offices. The physical security services unit also bids on contracts with governmental agencies.
Physical security services contracts generally provide for such services on a continuing basis and generally are terminable by either party upon 30 to 60 days notice. Charges for services are negotiated with customers and are based upon payment of a specified amount per service hour. Typically, such charges are adjusted for any change in any law, ruling or collective bargaining agreement causing a change in work hours, wage rates, working conditions or other costs. Investigative services are generally provided under specific arrangements, with charges varying according to the nature of the assignment.
Electronic Security Services
The Company provides integrated electronic security systems, including intrusion and fire detection, sprinkler and critical industrial process monitoring, closed circuit television and access control. The Company designs, installs, monitors and services electronic security systems located on the premises of approximately 83,000 commercial and 27,000 residential customers in the United States and Canada under the Wells Fargo(R) and Pony Express(R) service marks. The Company also provides, under the Bel-Air Patrol trade name, an integrated guard, patrol and alarm service to approximately 11,000 customers in Bel Air, Beverly Hills and other Los Angeles communities. The unit has approximately 2,200 employees.
Commercial. The Company's electronic security services unit designs, installs, monitors and services electronic detection systems located at customers' premises. These systems are tailored to customers' needs and may include intrusion and fire detection, critical process and sprinkler monitoring, access control and closed-circuit television monitoring systems. The Company's alarm systems and devices may be monitored on the premises of the customer by the customer's own personnel or linked through telephone lines or long range radio to one of 12 central stations operated by the Company in the United States and Canada. The Company also services its installed systems.
The electronic security services unit services approximately 83,000 security systems in financial institutions, industrial and commercial businesses and complexes, warehouses, facilities of federal, state and local governments, defense installations, and health care and educational facilities.
The majority of the Company's monitoring contracts are for an initial five- year period with automatic renewal for additional one-year terms, unless terminated by either party. Upon installation, a customer pays an installation fee and agrees to pay an annual service charge for ordinary maintenance and monitoring during the life of the contract. It has been the unit's experience that its customers generally continue the service after expiration of the initial term of the contract and enter into new five-year monitoring contracts.
The electronic security services unit conducts its sales, installation and service operations from 40 branch offices in the United States and Canada, some of which are on the same premises as a monitoring station, and additional satellite offices. The alarm services unit has a nationwide sales force that is separated into broad-based commercial groups, as well as specialized sales teams that address the specific needs of the financial community, engineered systems market and other high growth segments of the industry. One group, for example, focuses on multi-location companies such as national retail chains and fast food outlets that require a single point of control for planning, servicing, monitoring and reporting for all locations.
The Company also makes direct sales of security equipment to government and commercial users (including other companies in the alarm business) and designs, assembles and sells engineered systems for commercial fire suppression.
Residential. The electronic security services unit also installs fire and intrusion protection systems for residential customers under the Pony Express(R) service mark. Residential customer sales and service are generally performed from the same facilities as for commercial accounts. Residential systems are installed by the Company with monitoring agreements and often with maintenance agreements. The majority of the residential monitoring contracts are for an initial period of three to five years with automatic renewal for additional one- year terms, unless terminated by either party. The unit services approximately 27,000 residential security systems.
Bel-Air Patrol. The Company also provides a complete protective package, including central station alarm service and surveillance systems, security guards and day and night patrols, to residents in Bel Air and Beverly Hills and other nearby communities of Los Angeles. The Company provides these services to approximately 11,000 customers under the trade name Bel-Air Patrol.
The electronic security services unit purchases electronic equipment and component parts for systems from a number of suppliers, and is not dependent upon any single source for such equipment or parts.
Loomis, Fargo & Co.
In January 1997 the Company's armored transport unit contributed substantially all of its assets and assigned certain of its liabilities to Loomis, Fargo & Co. ("Loomis Fargo"), a newly established corporation, in exchange for 49% of Loomis Fargo's outstanding common stock and a cash payment of approximately $105 million (net of transaction costs, but subject to certain adjustments). The shareholders of Loomis Holding Corporation ("Loomis") contributed all of the Loomis common stock to Loomis Fargo in exchange for 51% of Loomis Fargo's outstanding common stock, a $6 million promissory note and a cash payment of approximately $15 million. In addition, Loomis Fargo repaid existing Loomis indebtedness and redeemed outstanding shares of Loomis preferred stock. Among the liabilities of the Company's armored transport unit that were retained are casualty and employee claims incurred prior to the closing.
The Company agreed to indemnify Loomis Fargo for environmental liabilities associated with existing underground storage tanks and other known and identified environmental liabilities. Such indemnification obligation will continue until the earlier of December 31, 1998 or the first anniversary of an initial public offering of Loomis Fargo common stock. The Company has also agreed to indemnify Loomis Fargo against certain other claims, including claims relating to receivables and taxes.
The Company and the former Loomis shareholders entered into a stockholders agreement providing that Loomis Fargo's board of directors initially will consist of seven directors: three directors nominated by the Company; three directors nominated by the former Loomis shareholders and Loomis Fargo's chief executive officer. The number of directors that may be designated pursuant to the stockholder agreement may adjust if either the Company or the former Loomis shareholders reduce their ownership stake in Loomis Fargo. The stockholder agreement provides that the vote of five of the seven directors is required for Loomis Fargo to engage in certain specified activities.
In addition, the stockholder agreement prohibits the transfer of Loomis Fargo common stock by either party for three years following the closing without the prior consent of the other party. After such period Loomis Fargo common stock may be transferred only in accordance with the provisions of the stockholder agreement, which include rights of first refusal and co-sale rights. The current stockholders also have certain preemptive and registration rights with respect to equity issuances by Loomis Fargo.
Loomis Fargo operates in all 50 states and Puerto Rico to provide armored ground transportation services, ATM services and cash vault and related services to financial institutions and commercial customers.
Employees
The Company's business is labor intensive and, accordingly, is affected by the availability of qualified personnel and the cost of labor. Although the protective services industry is characterized generally by high turnover, the Company believes its experience compares favorably with that of the industry. The Company has not experienced any material difficulty in employing suitable numbers of qualified security guards and other employees. The Company considers its relations with its employees to be generally satisfactory.
The Company is a party to collective bargaining agreements with various local unions covering approximately 5,700 employees. The collective bargaining agreements expire at various dates from 1998 to 2000 and relate, among other things, to wages, hours and conditions of employment. Under section 9(b)(3) of the National Labor Relations Act, if a union admits to membership, or is affiliated directly or indirectly with a union that admits to membership, employees other than guards, an employer of guards can refuse to bargain with such union and such union cannot be certified as the representative of a unit of guards. As a result, the Company has in many instances refused to
recognize or withdrawn recognition of labor organizations that admit as members employees other than guards.
Competition
The physical security services unit competes with major national firms and numerous smaller regional and local companies providing similar services. Competition in the security guard industry is based on price in relation to the quality of service, the scope of services performed, the extent and quality of guard supervision, recruiting and training and name recognition.
The electronic security services unit competes with major national firms and numerous smaller regional and local companies. Competition in the alarm services industry is based on price in relation to the quality of service, the scope of alarm installation and service, and the level of technological and engineering sophistication.
Regulation
Due to the nature of the Company's business, its operations are subject to a variety of federal, state, county and municipal laws, regulations and licensing requirements. The Company believes that its operations are in substantial compliance with those laws, regulations and requirements.
The Company's physical security services operations are subject to a variety of city, county and state firearm and occupational licensing laws. In addition, many states have laws requiring training and registration of security officers, regulating the use of badges, identification cards and uniforms and imposing minimum bond surety and insurance requirements. Federal legislation has been introduced relating to security officer qualification and training. Similar legislation is pending in several states. The Company generally supports the creation of standards for the industry and does not expect that the establishment of such standards will have a material affect on its physical security services operations.
The Company's electronic security services operations are subject to regulatory requirements of federal, state and local authorities. In addition, this unit relies upon the use of telephone lines to transmit signals, and the cost of such lines and the type of equipment which may be used are currently regulated by both federal and state governments. In some instances, the Company contracts with the local government to permit it to link a customer's business or home directly into the local police or fire department station for which it may pay a fee to such local government. As a result of a high incidence of false alarms in some communities, some local governments have imposed assessments, fines and penalties on customers based on the number of false alarms reported, or have restricted police response to systems producing excessive false alarms.
From time to time, in the ordinary course of business, the Company is subjected to penalties or fines as the result of licensing irregularities or the misconduct of one or more of its agents or employees. In addition, under principles of common law, the Company can generally be held liable
for acts or omissions of its agents or employees performed in the course and scope of their employment. In addition, some states have statutes that expressly impose on the Company legal responsibility for the conduct of its employees.
Risk Management
The nature of the services provided by the Company potentially exposes it to greater risks of liability for employee acts, injuries (including workers' compensation claims) or omissions than may be posed by other service businesses.
The Company generally obtains customer indemnification or liability limitations in its contracts to mitigate this risk exposure. The Company carries insurance of various types, including workers' compensation, automobile and general liability coverage. These policies include deductibles per occurrence for which the Company is self-insured. The Company obtains its insurance at rates and upon terms negotiated periodically with various underwriters. The loss experience of the Company and, to some extent, other protective services companies affects premium rates charged to the Company. The Company does not believe that limitations on, or the uncertainty of, insurance coverage for punitive damages in certain states in which it operates is likely to be material, based upon the Company's prior experience with punitive damages claims. The Company also attempts to manage its risk liability through analysis of customer facilities and transportation routes and employee screening, training, supervision and evaluation.
Discontinued Operations
The Company has treated its courier services unit as a discontinued operation since September 1996. The unit transports time-sensitive packages for commercial businesses and non-negotiable financial documents for Federal Reserve banks and financial institutions in 36 states under the Pony Express(R) service mark. The unit employs approximately 3,600 persons and uses a fleet of approximately 3,000 vehicles, many of which are vehicles provided by the unit's employees. The courier services unit operates both as a common and contract carrier and uses a combination of tariffs and shipping contracts to control the terms, conditions and rates applicable to the transportation of shipments. Rates are dependent upon many factors, including the weight and type of the shipped item, the distance and urgency of the shipment and the geographical location.
Trademarks and Patents
The Wells Fargo(R), Pony Express(R) and Burns(R) service marks are especially important to the Company's business. The Company believes that its rights in these marks are adequately protected and of unlimited duration. While the Company has patents it considers to be important to the overall conduct of its business, it does not consider any particular patent, or group of related patents, essential to its operations. For both the United States and foreign patents, their expiration, individually or in the aggregate, is not expected to have any material effect on the Company's financial condition or results of operations.
Executive Officers
Set forth below are the names, ages, positions and certain other information concerning the executive officers of the Company as of March 1, 1998.
Mr. Adorjan has been a director of the Company since 1993, Chairman of the Board (since January 1996), Chief Executive Officer (since October 1995) and President (since April 1995). Mr. Adorjan was President of Emerson Electric Co., a manufacturer of electronic, electrical and other products, from 1992 to 1995. Mr. Adorjan is also a director of The Earthgrains Company, ESCO Electronics Corporation, Goss Graphic Systems, Inc. and Loomis, Fargo & Co.
Mr. O'Brien has been Senior Vice President of the Company since 1993 and was Vice President of the Company from 1987 to 1993. Mr. O'Brien is also President of Borg-Warner Protective Services Corporation and a director of Loomis, Fargo & Co.
Mr. Wood has been Vice President, Finance of the Company since 1994 and was Vice President and Controller of the Company from 1987 to 1994 and is also a director of Loomis, Fargo & Co.
Mr. Lackey has been Vice President, General Counsel and Secretary of the Company since 1997 and was Vice President, General Counsel and Secretary of Transamerica Commercial Finance Corp. from 1991 to 1995.
Each of the executive officers named above was elected by the Board of Directors to serve in the office indicated until his successor is elected and qualified.
Item 2.
Item 2. Properties
The Company and its subsidiaries maintain central alarm stations, plants and general offices in various cities in the United States, Canada, the United Kingdom and Colombia. At December 31, 1997, the physical security services unit occupied approximately 294 branch and satellite offices, all
but one of which were leased. At December 31, 1997, the electronic security services unit operated 12 central stations, of which 5 were leased, 28 additional branch and headquarters offices, 11 of which were owned and 48 additional satellite offices, all of which were leased. The Company leases approximately 57,000 square feet of office space in Chicago, Illinois for its executive offices. The Company believes that its properties are in good condition and are adequate to meet its current and reasonably anticipated needs.
Item 3.
Item 3. Legal Proceedings
The Company is presently, and is from time to time, subject to claims and suits arising in the ordinary course of its business. In certain of such actions, plaintiffs request punitive or other damages that may not be covered by insurance. In addition, the Company has been subject to claims and suits relating to certain discontinued operations. The most important of these legal proceedings are discussed below. The Company believes that the various asserted claims and litigation in which it is currently involved will not materially affect its financial position or future operating results, although no assurance can be given with respect to the ultimate outcome for any such claim or litigation. The Company believes that it has established adequate provisions for litigation liabilities in its financial statements in accordance with generally accepted accounting principles. These provisions include both legal fees and possible outcomes of legal proceedings (including the environmental matters discussed below).
Centaur Litigation
Centaur Insurance Company ("Centaur"), a 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 claim liabilities at an aggregate level that is not in excess of Centaur's assets. In rehabilitation, Centaur's assets are currently being used to satisfy claim liabilities under direct insurance policies written by Centaur. Any remaining assets will be applied to Centaur's obligations to other insurance companies under reinsurance contracts. The foregoing has resulted in one pending lawsuit against the Company for recovery of alleged damages from the failure of Centaur to satisfy its reinsurance obligations. Certain former officers and directors of the Company's current and former subsidiaries have been named as defendants in such lawsuit and the Company has agreed to indemnify such individuals. Centaur is not a defendant in this lawsuit against the Company. Although the Illinois Director of Insurance has not made any claims against the Company for any of Centaur's liabilities, the Illinois Director of Insurance has requested, and the Company has agreed to, an extension of the statute of limitations for any such claims.
As of December 31, 1996, Centaur's total liabilities were $166.9 million and its deficit in net worth was $84.4 million, according to financial statements submitted on behalf of the Illinois Director of Insurance. Such financial statements were presented on a liquidating basis with assets carried at their market value or estimated realizable value and liabilities for direct insurance based on estimates of Centaur's potential exposure and liabilities for reinsurance based on the amount of the reinsurer's
claim. Although Centaur is a subsidiary of the Company, the Company does not operate Centaur and has no responsibility for, nor does it participate in the preparation of, such financial statements. Centaur's financial results, assets and liabilities are not reflected in the Company's financial statements.
In June 1988, the Insurance Commissioner of the State of California as trustee of Mission Insurance Trust and four other affiliated insurance companies filed a complaint in the Superior Court of the State of California, County of Los Angeles, against the Company and certain of its current and former subsidiaries alleging damages resulting from the failure of Centaur to satisfy its reinsurance obligations. This lawsuit alleges damages to plaintiff, as Trustee of Mission Insurance Company, Mission National Insurance Company, Enterprise Insurance Company, Holland-America Insurance Company and Mission Reinsurance Corporation, based on (i) conduct justifying piercing the corporate veil, (ii) fraud and (iii) negligent misrepresentation. The complaint was amended in 1989 to add 11 former officers and directors of the Company's current and former subsidiaries as defendants and to allege additional causes of action based on (i) breach of fiduciary duty and imposition of personal liability, (ii) fraudulent conveyance, (iii) constructive trust and (iv) conspiracy. Subsequently, seven of the 11 individual defendants were dismissed from the lawsuit. The complaint was amended again in 1995 to allege additional causes of action based on negligence and breach of the covenant of good faith and fair dealing. Plaintiff seeks judgment in excess of $100 million for current losses, future losses and other damages and also seeks punitive damages. In 1992, the Centaur rehabilitator filed a motion to intervene and dismiss the complaint on the grounds that the plaintiff lacked standing and that its claims were not ripe for adjudication. The motion is pending.
The parties have agreed to split the trial into two phases; the first phase was to address liability issues and the second phase was to address damages issues. The liability phase of the trial was held in 1996. The court requested post-trial briefs and set a schedule for closing arguments. Before hearing closing arguments, the presiding judge declared a mistrial and recused himself from the case. A new judge has been assigned to the case and a new trial to address liability issues is scheduled to be held in 1998. The Company intends to defend this lawsuit vigorously.
The Company believes that any damages for failure to satisfy reinsurance obligations are solely the responsibility of Centaur and that the resolution of the lawsuit relating to Centaur, including the Company's indemnification obligations to former officers and directors, will not have a material adverse effect on its financial position or future operating results; however, no assurance can be given as to the ultimate outcome with respect to such lawsuit.
Environmental Proceedings
The Company and certain of its current and former subsidiaries have been identified by the U.S. Environmental Protection Agency and certain state environmental agencies as potentially responsible parties ("PRPs") at a number of hazardous waste disposal sites under the Comprehensive Environmental Response, Compensation and Liability Act ("Superfund") and equivalent state laws and, as such, may be liable for the cost of cleanup and other remedial activities at these sites.
Responsibility for cleanup and other remedial activities at a Superfund site is typically shared among PRPs based on an allocation formula. In addition, the Company has or may have liability for environmental matters at properties it presently or previously owned or leased.
Based on currently available information, the Company believes that none of these matters individually or in the aggregate will have a material adverse affect on its financial position or future operating results, generally either because the maximum potential liability at a site is not large or because liability will be shared with other PRPs, although no assurance can be given with respect to the ultimate outcome of any such liability. Based on its estimate of allocations of liability among PRPs, the probability that other PRPs, many of whom are large, solvent public companies, will fully pay the costs allocated to them, currently available information concerning the scope of contamination at such sites, estimated remediation costs at such sites, indemnification obligations in favor of the Company from the current owners of certain sold or discontinued operations, estimated legal fees and other factors, the Company has made provisions for indicated environmental liabilities in its financial statements in the aggregate amount of approximately $7 million (relating to environmental matters with respect to discontinued operations of the Company). While estimates of liability for environmental matters can vary over time due to, among other things, changes in laws, technology or available information, the Company believes that such provisions for indicated environmental liabilities have been established on a basis consistent with generally accepted accounting principles.
Borg-Warner Automotive
The Company has requested that its former subsidiary, Borg-Warner Automotive, Inc., indemnify it against certain past and future costs relating to environmental and financing liabilities associated with certain former automotive operations. At December 31, 1997 such past costs were approximately $3.5 million. Borg-Warner Automotive has contested its indemnification obligation with respect to such liabilities, and the parties submitted the dispute to binding arbitration. In November 1997, the arbitrator found in favor of the Company. In February 1998, an appellate panel upheld the arbitration award.
Separately, in January 1998, Borg-Warner Automotive filed suit in Circuit Court of Cook County, Illinois against the Company, Merrill Lynch Capital Partners, Inc. and certain current and former directors, officers and employees of the Company. The lawsuit seeks declaratory, injunctive and other equitable relief, and for the recovery of assets, losses and unspecified compensatory and punitive damages arising from alleged fraudulent misrepresentations, breaches of fiduciary duties, breaches of contract and civil conspiracy relating to the 1993 spin-off of Borg-Warner Automotive to the Company's stockholders. The Company intends to defend this lawsuit vigorously.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to the security holders of the Company during the fourth quarter of 1997.
PART II
Item 5.
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters
As of March 6, 1998, there were approximately 161 holders of record of Common Stock.
The Company has neither paid nor declared any cash dividends on its Common Stock during the last two years. The payment of dividends by the Company is prohibited under the terms of the Company's indebtedness. The Company currently intends to retain earnings for acquisitions, working capital, capital expenditures, general corporate purposes and reduction of outstanding indebtedness. Accordingly, the Company does not expect to be able to nor does it expect to pay cash dividends in the foreseeable future.
High and low sales prices (as reported on the New York Stock Exchange composite tape) for the Common Stock for each quarter during 1996 and 1997 were:
Item 6.
Item 6. Selected Financial Data
The selected financial data for the five years ended December 31, 1997, with respect to the following line items shown under the "Consolidated Statistical Review" (set forth on page 14) in the Annual Report is incorporated herein by reference and made a part of this report: net service revenues; earnings (loss) from continuing operations; earnings (loss) from continuing operations per share; total assets and total debt.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The Management's Discussion and Analysis of Financial Condition and Results of Operations (set forth on pages 16 through 18) in the Annual Report are incorporated herein by reference and made a part of this report.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Inapplicable.
Item 8.
Item 8. Financial Statements and Supplementary Data
The consolidated financial statements (including the notes thereto) of the Company (set forth on pages 19 through 34) in the Annual Report are incorporated herein by reference and made a part of this report. Supplementary financial information regarding quarterly results of operations (unaudited) for the years ended December 31, 1997 and 1996 is set forth in Note 15 of the Notes to Consolidated Financial Statements. For a list of financial statements and schedules filed as part of this report, see Item 14.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Inapplicable.
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant
Information with respect to directors and nominees for election as directors of the Company is incorporated herein by reference to the information under the caption "Election of Directors" on pages 2 and 3 of the Company's proxy statement for the 1998 annual meeting of stockholders. Information with respect to executive officers of the Company is set forth in part I of this report. Information concerning compliance with Section 16(a) of the Exchange Act is incorporated by reference to the information under the caption "Section 16(a) Beneficial Ownership Reporting Compliance" on page 6 of the Company's proxy statement for the 1998 annual meeting of stockholders.
Item 11.
Item 11. Executive Compensation
Information with respect to compensation of executive officers and directors of the Company is incorporated herein by reference to the information under the captions "Executive Compensation" on pages 7 through 9, and "Compensation of Directors" on pages 4 and 5, of the Company's proxy statement for the 1998 annual meeting of stockholders.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information with respect to security ownership by persons known to the Company to beneficially own more than five percent of the Company's common stock, by directors and nominees for director of the Company and by all directors and executive officers of the Company as a group is incorporated herein by reference to the information under the caption "Stock Ownership" on pages 5 and 6 of the Company's proxy statement for the 1998 annual meeting of stockholders.
Item 13.
Item 13. Certain Relationships and Related Transactions
Information with respect to certain relationships and related transactions is incorporated herein by reference to the information under the caption "Certain Relationships and Related Transactions" on pages 12 and 13 of the Company's proxy statement for the 1998 annual meeting of stockholders.
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)(1) The following consolidated financial statements of the registrant and its consolidated subsidiaries, set forth on pages 19 through 34 of the Annual Report, and the Independent Auditors' Report, set forth on page 35 of the Annual Report, are incorporated herein by reference:
Consolidated Statement of Operations--three years ended December 31,
Consolidated Balance Sheet--December 31, 1997 and 1996
Consolidated Statement of Cash Flows--three years ended December 31,
Consolidated Statement of Shareholders' Equity--three years ended December 31, 1997
Notes to Consolidated Financial Statements
(a)(2) The following report of independent auditors and financial statement schedule of the registrant and its consolidated subsidiaries are included herein:
Report of Deloitte & Touche LLP, independent auditors
II Valuation and Qualifying Accounts
Certain schedules for which provisions are made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted.
(a)(3) The exhibits listed in the "Exhibit Index."
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Company during the three-month period ended December 31, 1997.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders Borg-Warner Security Corporation
We have audited the consolidated financial statements of Borg-Warner Security Corporation (the "Company") as of December 31, 1997 and 1996, and for each of the three years in the period ended December 31, 1997, and have issued our report thereon dated February 3, 1998; such consolidated financial statements and report are included in your 1997 Annual Report to Stockholders and are incorporated herein by reference. Our audits also included the financial statement schedule of Borg-Warner Security Corporation listed in Item 14 of this Annual Report on Form 10-K. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
/s/ Deloitte & Touche LLP --------------------- DELOITTE & TOUCHE LLP
Chicago, Illinois February 3, 1998
SCHEDULE II BORG-WARNER SECURITY CORPORATION VALUATION AND QUALIFYING ACCOUNTS ($ MILLIONS)
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
BORG-WARNER SECURITY CORPORATION
By /s/ J. Joe Adorjan -------------------------------------------- J. Joe Adorjan Chairman of the Board, Chief Executive Officer and President
Date: March 20, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on this day of March 20, 1998.
/s/ Dale W. Lang Director ________________________________ Dale W. Lang
/s/ Robert A. McCabe Director - -------------------------------- Robert A. McCabe
/s/ Andrew McNally IV - -------------------------------- Andrew McNally IV Director
/s/ Alexis P. Michas Director - -------------------------------- Alexis P. Michas
/s/ H. Norman Schwarzkopf Director - -------------------------------- H. Norman Schwarzkopf
/s/ Donald C. Trauscht Director - -------------------------------- Donald C. Trauscht
EXHIBIT INDEX
B-1
B-2
- -------- * Incorporated by reference. + Indicates a management contract or compensatory plan or arrangement required to be filed pursuant to Item 14(c).
B-3