UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
SCHEDULE
14A
Proxy
Statement Pursuant to Section 14(a) of the
Securities
Exchange Act of 1934 (Amendment No.)
Filed by
the Registrant [x]
Filed by
a party other than the Registrant
Check the
appropriate box:
[ ] Preliminary
Proxy Statement
[ ] Confidential,
for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
[x] Definitive
Proxy Statement
[ ] Definitive
Additional Materials
[ ] Soliciting
Material Pursuant to §240.14a.12
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BorgWarner
Inc.
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(Name
of Registrant as Specified In its Charter)
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(Name
of Person(s) Filing Proxy Statement, if other than the
Registrant)
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Payment of Filing Fee (Check the appropriate box):
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[x]
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No
fee required.
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Fee
computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
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(1) Title
of each class of securities to which transaction applies:
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(2) Aggregate
number of securities to which transaction applies:
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(3) Per
unit or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (set forth in the amount on which the filing fee is
calculated and state how it was determined):
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(4) Proposed
maximum aggregate value of transaction:
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(5) Total
fee paid:
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[
] Fee paid previously with preliminary materials.
[
] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its
filing.
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(1) Amount
Previously Paid:
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(2) Form,
Schedule or Registration Statement No.:
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(3) Filing
Party:
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(4) Date
Filed:
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BORGWARNER
INC.
NOTICE
OF ANNUAL MEETING OF STOCKHOLDERS
Auburn
Hills, Michigan
March 16,
2010
Dear
Stockholder:
BorgWarner
Inc. will hold its annual meeting of stockholders at its headquarters located at
3850 Hamlin Road, Auburn Hills, Michigan, 48326, on April 28, 2010, at
9:00 a.m., local time, for the following purposes:
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1.
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To
elect four nominees for Class II Directors to serve for the next
three years;
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2.
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To
ratify the appointment of PricewaterhouseCoopers LLP as the independent
registered public accounting firm for the Company for 2010;
and
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3.
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To
transact such other business as may properly come before the meeting or
any adjournment or postponement
thereof.
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Only
stockholders of record at the close of business on March 2, 2010 are
entitled to vote at the meeting or any adjournment or postponement
thereof.
We have
elected to furnish materials for the annual meeting via the
internet. Beginning on or about March 19, 2010, we will mail a notice
of internet availability to most of our stockholders containing instructions on
how to access the proxy materials and vote online. All of our other
stockholders will be sent a copy of our proxy materials by mail or e-mail on or
about March 19, 2010. See the first page of the proxy statement and
your proxy card for more information on how you can elect to receive your proxy
materials over the internet or by e-mail if you received them by mail this
year.
YOUR VOTE IS
IMPORTANT! You can submit your proxy by telephone or the
internet by following the instructions on page 1 of the proxy
statement. If you received a paper copy of our proxy statement, you
can vote by returning a proxy card. If you attend the meeting, you may vote in
person if you wish to do so, even if you have previously submitted your
proxy. Please read the attached proxy statement carefully as it
describes in greater detail the matters to be acted upon and your voting rights
with respect to those matters. The enclosed proxy card is solicited
by the Board of Directors of the Company.
Along
with the attached proxy statement, we are sending you our Annual Report on Form
10-K for our fiscal year ended December 31, 2009. Stockholders are
not to regard our Annual Report on Form 10-K, which includes our audited
financial statements, as proxy solicitation material.
| By Order of the Board of Directors | ||
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/s/ John J. Gasparovic | |
| John J. Gasparovic | ||
| Secretary | ||
IMPORTANT
NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR OUR ANNUAL
MEETING
Our
proxy statement and our 2009 annual report to stockholders are available
at
http://www.proxyvote.com
YOUR
VOTE IS IMPORTANT!
Please
vote as promptly as possible by using the internet or telephone or
by
signing, dating and returning the proxy card
mailed to
those who receive paper copies of this proxy statement.
BORGWARNER
INC.
3850
Hamlin Road
Auburn
Hills, Michigan 48326
PROXY
STATEMENT
March 19,
2010
This
proxy statement is furnished in connection with the solicitation of proxies by
the Board of Directors of BorgWarner Inc. (“BorgWarner” or the “Company”) for
the Company’s 2010 Annual Meeting of Stockholders to be held at the Company’s
headquarters at 3850 Hamlin Road, Auburn Hills, Michigan 48326 on April 28,
2010 at 9:00 a.m., local time, or at any adjournment or postponement
thereof.
Internet
Availability of Proxy Materials
As
permitted by rules adopted by the Securities & Exchange Commission (“SEC”),
we are providing our proxy statement, the form of proxy and our Annual Report on
Form 10-K for the fiscal year ended December 31, 2009 to stockholders
electronically via the internet. (Our Annual Report on Form 10-K for
our fiscal year ended December 31, 2009, which includes our audited financial
statements, is not to be regarded as proxy solicitation material.) Our proxy statement and our 2009
annual report to stockholders are available at
http://www.proxyvote.com.
On or
about March 19, 2010, we will initiate delivery of proxy materials to our
stockholders of record as of the close of business on March 2, 2010 via (1) a
notice containing instructions on how to access materials online, (2) a paper
copy mailing or (3) e-mail distribution. If you received a notice by
mail, you will not receive a printed copy of the proxy materials in the
mail. Instead, the notice we sent provides instructions on how to
access and review all of the important information contained in the proxy
materials. The notice also provides instructions on how you can
submit your proxy over the internet or by telephone. If you received
a notice by mail and would like to receive a printed copy of our proxy materials
or elect to receive the materials via e-mail in the future, please follow the
instructions included in the notice. If you received a printed copy
of proxy materials by mail and would like to register to receive a notice of
internet availability of proxy materials in the future, you can do so by any of
the methods that follow:
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Internet: Access
the internet, go to www.proxyvote.com
and follow the enrollment
instructions.
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Telephone: Call
us free of charge at 1-800-690-6903 from within the United States or
Canada.
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E-mail: Send
us an e-mail at www.proxyvote.com, using the
control number on your proxy card as the subject line, and state whether
you wish to receive a paper or e-mail copy of our proxy materials and
whether your request is for this meeting only or all future
meetings.
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Record
Date and Shares Outstanding
Only
stockholders of record at the close of business on March 2, 2010 are
entitled to vote at the meeting. As of such date, there were 117,676,972
outstanding shares of common stock. A list of all record holders of
our stock will be available for examination by stockholders during normal
business hours at 3850 Hamlin Road, Auburn Hills, Michigan 48326 at least ten
days prior to the annual meeting and will also be available for examination at
the annual meeting. On each matter considered at our annual meeting,
you are entitled to one vote for each of your shares of common
stock.
Voting
You have
a choice of voting over the Internet, by telephone or by using a traditional
proxy card.
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To
vote by Internet, go to www.proxyvote.com and follow the instructions
there. You will need the 12 digit number included on your proxy card,
voter instruction form or notice.
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To
vote by telephone, stockholders of record should dial 1-800-690-6903 and
follow the instructions. Beneficial holders should dial the
phone number listed on your voter instruction form. You will
need the 12 digit number included on your proxy card, voter instruction
form or notice.
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If
you received a paper copy of a proxy card or voter instruction form, you
can mark, sign and date the proxy card and return it in the envelope that
was provided to you.
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The
deadline for voting by telephone or internet is 11:59 pm Eastern Time on April
27, 2010.
If you
properly sign and return your signed proxy card or vote by telephone or by the
Internet before the annual meeting, we will vote your shares as you direct. Any
proxy returned without specification as to any matter will be voted as to each
proposal in accordance with the recommendation of the Board of
Directors.
If you
hold your stock in street name, you may change or revoke your voting
instructions by following the specific directions provided to you by your bank
or broker. If you are a stockholder of record you may change or
revoke your vote at any time before the vote is taken by delivering a written
notice of revocation to the Secretary of the Company or by submitting another
vote on or before April 28, 2010 (including a vote in person at the annual
meeting). For all methods of voting, your last vote cast will
supersede all of your previous votes.
The
election inspectors will tabulate the votes cast prior to the meeting and at the
meeting to determine whether a quorum is present. The presence in person or by
proxy of the holders of a majority of common stock will constitute a quorum. A
quorum is necessary to transact business at the annual meeting. Shares of common
stock represented by proxies that reflect abstentions or “broker non-votes”
(i.e., shares held by a broker or nominee which are represented at the annual
meeting, but with respect to which such broker or nominee is not empowered to
vote on a particular proposal) will be counted as present and entitled to vote
for purposes of determining the presence of a quorum.
With
respect to Proposal 1 and the election of Directors, stockholders may
(a) vote in favor of all nominees, (b) withhold votes as to all
nominees, or (c) withhold votes as to specific nominees. In an
uncontested director election, such as this year’s election, a director nominee
will be elected to serve on the board only if the votes cast “for” the election
of that nominee exceed the votes cast “against” that nominee’s
election. In a contested election, directors are elected by a
plurality vote. Withheld votes and broker non-votes will not affect the outcome
of the election of directors.
If you
hold your stock in “street name,” then please note that the New York Stock
Exchange (“NYSE”) rules that guide how brokers vote your stock have
changed. The election of directors is no longer considered a
“routine” matter under the NYSE rules. Consequently, your brokerage
firm or other nominee may no longer vote your shares with respect to Proposal 1
and the election of directors without specific instructions from you as to how
to vote with respect to the election of each of the four nominees for
director. Abstentions and broker non-votes represented by submitted
proxies will not be taken into account in determining the outcome of the
election of directors.
With
respect to Proposal 2, and stockholder ratification of the selection of our
auditors, ratification requires the affirmative vote of a majority of the votes
present or represented at the meeting. Accordingly, an abstention or
a broker nonvote will have the effect of a vote against this
proposal.
For all
other proposals that may come before our annual meeting the affirmative vote of
a majority of the shares present or represented at the meeting is required for
approval and adoption of that proposal. Accordingly, an abstention on any such
proposal will be the functional equivalent of a “no” vote on that proposal.
However, a broker nonvote on any one of those proposals will not be counted for
purposes of determining the number of votes cast on that proposal and thus will
not affect the outcome of the vote on that proposal.
We have
adopted a procedure called “householding,” which has been approved by the SEC.
Under this procedure, a single copy of our annual report to stockholders, our
proxy statement or our Notice of Internet Availability of Proxy materials, as
applicable, will be sent to any household at which two or more stockholders
reside, unless one of the stockholders at that address notifies us that they
wish to receive individual copies. This procedure reduces our printing costs and
fees. Stockholders who participate in householding will continue to receive
separate proxy cards. Householding will not
affect dividend check mailings, if any, in any way.
We will
deliver promptly upon written or oral request a separate copy of our annual
report to stockholders, our proxy statement or our Notice of Internet
Availability of Proxy Materials, as applicable, to any stockholder at a shared
address to which a single copy of those documents was delivered. If you share an
address with another stockholder and you wish to receive a separate copy of any
of those documents you may inform us of your wish by contacting Investor
Relations, 3850 Hamlin Road, Auburn Hills, Michigan 48326 (tel: 248-754-0882).
Similarly, if you share an address with another stockholder that is receiving
multiple copies and wish to request that the number of copies of those documents
being delivered to that address be reduced to a single copy, you may inform us
of your wish by contacting Investor Relations at the above address and telephone
number.
PROPOSAL 1 —
ELECTION OF DIRECTORS
The
Company’s Board of Directors currently consists of eleven directors and is
divided into three classes. Jere A. Drummond, Timothy M. Manganello, John R.
McKernan, Jr., and Ernest J. Novak, Jr. are the nominees for election as
Class II Directors at this meeting. Following the election of directors at
this annual meeting your Board of Directors will have eleven members and no
vacancies. If elected, each nominee to Class II will serve for a term of three
years or until their successor is elected and qualified. The Class III
Directors have terms expiring at the 2011 Annual Meeting of Stockholders and the
Class I Directors have terms expiring at the 2012 Annual Meeting of
Shareholders. Each of the nominees for election as a Class II Director has
agreed to serve if elected. All of the Class II Directors are presently
directors of the Company. In the event that any nominee should become
unavailable for election, the Board of Directors may designate a substitute
nominee, in which event the shares represented by proxies at the meeting will be
voted for such substitute nominee unless an instruction to the contrary is
indicated on the proxy card.
At the
Meeting, our stockholders will elect four directors to hold office until our
2013 Annual Meeting of Stockholders and until their respective successors have
been duly elected and qualified. The directors whose terms of office
expire at the Meeting are Directors Jere A. Drummond, Timothy M. Manganello,
John R. McKernan, Jr., and Ernst J. Novak, Jr.
Recommendation
YOUR BOARD OF DIRECTORS RECOMMENDS A
VOTE “FOR” THE ELECTION OF EACH OF THE NOMINEES FOR CLASS II DIRECTOR —
JERE A. DRUMMOND, TIMOTHY M. MANGANELLO, JOHN R. McKERNAN, JR., AND ERNEST J.
NOVAK, JR.
Required
Vote
To be
elected, each director nominee must receive a majority of the votes cast at the
Meeting. Moreover, the votes cast “for” the election of that nominee
must exceed the votes cast “against” that nominee’s election.
Information
on Nominees for Directors and Continuing Directors
The
following table sets forth as of March 2, 2010, with respect to each of the
Company’s current directors continuing to serve, his or her name, the year in
which he or she first became a director of the Company, age, principal
occupation, and his or her current directorships in other entities; a narrative
description of the directors’ experience, qualifications, attributes and skills;
all directorships at public companies and registered investment companies held
since March 1, 2005; and a description of relevant legal proceedings in which
the director was involved since March 1, 2000.
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Class
1 Directors
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Age
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Principal
Occupation
and
Directorships
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Phyllis
O. Bonanno
1999
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66
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Ms.
Bonanno retired from International Trade Solutions Inc. on September 1,
2009. She served as President and CEO of International Trade
Solutions, Inc., an international trade consulting firm, since March 2002.
She was the President of TradeBuilders, Inc. from October 2000 until
October 2001. She was President of Columbia College from July 1997 until
March 2000. She is also a director of Adams Express Company, Mohawk
Industries, Inc. and Petroleum & Resources
Corporation.
Ms.
Bonanno brings to the board operational, academic and public policy
knowledge. Ms. Bonanno’s public policy expertise was gained
through 10 years of service as the first director of the U.S. Trade
Representative’s Office of Private Sector Liaison in the Executive Office
of Presidents Carter and Reagan. She developed global business
knowledge and expertise in the manufacturing sector during her employment
as Corporate Vice President of International Trade for Warnaco, Inc., a
worldwide apparel manufacturer. Ms. Bonanno’s experience as
President of Columbia College allowed her to develop deep understanding of
the relationship of higher education to public policy and commercial
reality. Her extensive international trade expertise including
knowledge of trade rules and regulations benefits
BorgWarner. Ms. Bonanno’s experience as a director of other
public companies in varied industries has resulted in her broad and
thorough understanding of board
dynamics.
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Class
1 Directors
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Age
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Principal
Occupation
and
Directorships
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Alexis
P. Michas
1993
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52 |
Mr.
Michas has been the Managing Partner of Stonington Partners, Inc., an
investment management firm since 1994. Mr. Michas is the
founder and Managing Partner of Juniper Investment Company, LLC., an
investment management firm since 2008. He is also a director of
AirTran Holdings, Inc., PerkinElmer, Inc., Lincoln Educational Services
Corporation and a number of privately-held companies.
Mr.
Michas’ demonstrated extensive knowledge of complex financial and
operational issues and his hands on knowledge of the history of the
Company from the board level make him a valued member of the
board. Mr. Michas brings 25 years of private equity experience
across a wide range of industries, and a successful record of managing
control investments in public companies. He also brings
extensive transactional expertise including: mergers and acquisitions,
IPOs, debt and equity offerings and bank financings. Mr.
Michas’s experience as a director of other public companies in varied
industries gives him exposure to the corporate governance practices of
others. He has served on the compensation, governance, audit,
finance and executive committees of boards of other public
companies. Mr. Michas has been on BorgWarner’s board of
directors since the Company became a public company in
1993. Mr. Michas’ knowledge of the Company and his thorough
understanding of the role of the board of directors uniquely qualify him
to serve on our board of directors and to serve as Lead
Director.
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Richard
O. Schaum
2005
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63 |
Mr.
Schaum has been General Manager, 3rd Horizon Associates LLC, a technology
assessment and development company, since May 2003. He was Vice President
and General Manager of Vehicle Systems for WaveCrest Laboratories, Inc.
from October 2003 until June 2005. Before that, for more than thirty
years he was with DaimlerChrysler Corporation, most recently as Executive
Vice President, Product Development from January 2000 until his
retirement in March 2003. Mr. Schaum is a fellow of the Society
of Automotive Engineers and served as its President in 2007.
Mr.
Schaum's nearly four decades of business experience in program management,
product development and manufacturing in the global auto industry bring
technological understanding, innovation expertise and extensive industry
knowledge to BorgWarner's board. At WaveCrest Laboratories he oversaw
development and commercialization of proprietary transportation systems.
As Executive Vice President of Product Development at Chrysler, Mr. Schaum
led all Powertrain Operations, a business with $7 billion in sales of
systems that use products like those of BorgWarner. He has intimate
knowledge of the kinds of products BorgWarner must develop for the
future of transportation. Mr. Schaum possesses deep
understanding, from inside the product development function, of the
challenges an automotive supplier
faces.
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Class
1 Directors
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Age
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Principal
Occupation
and
Directorships
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Thomas
T. Stallkamp
2006
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63
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Mr.
Stallkamp has been an Industrial Partner in Ripplewood Holdings LLC, a New
York private equity group, since July 2004. From 2003 to 2004, he served
as Chairman of MSX International, Inc., a global provider of
technology-driven engineering, business and specialized staffing services,
and from 2000 to 2003 he served as its Vice Chairman and Chief Executive
Officer. From 1980 to 1999, Mr. Stallkamp held various positions with
DaimlerChrysler Corporation and its predecessor Chrysler Corporation, the
most recent of which were Vice Chairman and President. Mr. Stallkamp also
serves as a director of Baxter International, Inc., a global diversified
healthcare company, and of Asahi Tec Corporation, an
entity listed on the Tokyo Stock Exchange.
Mr.
Stallkamp’s experience within and outside of the automotive industry, and
his nearly 20 year tenure with DaimlerChrysler and Chrysler Corporation,
important customers of BorgWarner, his international perspective and his
financial acumen make him a valued member of the Company’s board. While at
Chrysler, Mr. Stallkamp became known for developing new business processes
and enhanced partnerships with the automotive supply
community. His service on the boards of Visteon (an automotive
parts supplier) 2002-2005 and Asahi TEC Corporation (a manufacturer of
automotive and other parts) 2008 to present has given him additional
insight into the priorities of and challenges confronting automotive
suppliers. Mr. Stallkamp’s perspective has been broadened by
experience in industries other than the auto industry and through his
private equity financing experience.
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Class II
Directors
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Age
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Principal
Occupation
and
Directorships
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Jere
A. Drummond
1996
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70
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Mr.
Drummond retired from the BellSouth Corporation on December 31, 2001.
He served as Vice Chairman of the BellSouth Corporation from January 2000
until his retirement. He was President and Chief Executive Officer of
BellSouth Communications Group, a provider of traditional telephone
operations and products, from January 1998 until December 1999. He was
President and Chief Executive Officer of BellSouth Telecommunications,
Inc. from January 1995 until December 1997 and was elected a director
of BellSouth Telecommunications, Inc. in 1993. He is also a director of
AirTran Holdings, Inc. and SAIC, Inc.
Having
served as an officer of a Fortune 500 company, BellSouth Corporation, for
19 years, Mr. Drummond brings extensive management experience and the
perspective of a former CEO to BorgWarner’s board. His
significant marketing experience adds to the board’s range of
knowledge. Mr. Drummond’s service on boards of directors of
other public companies, and specifically on the Compensation Committee of
another public company, adds to his value on BorgWarner’s board and as
Chair of our Compensation Committee. In addition to his current
directorships at AirTran Holdings Inc., an airline and SAIC, Inc., a
scientific, engineering, and technology applications company, Mr. Drummond
was also a director of Centilliam Communications, Inc. until
2009.
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Class
II Directors
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Age
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Principal
Occupation
and
Directorships
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Timothy
M. Manganello
2002
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60
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Mr.
Manganello has been Chairman of the Board since June 2003 and Chief
Executive Officer of the Company since February 2003. He was also
President and Chief Operating Officer from February 2002 until February
2003. He was Executive Vice President from June 2001 until February 2002.
He was Vice President of the Company from February 1999 until June
2001 and President and General Manager of BorgWarner TorqTransfer Systems
Inc. (“TorqTransfer Systems”) from February 1999 until February 2002.
He was appointed a director of the Company in 2002. Mr. Manganello is also
a director of Bemis Company, Inc. and he serves as the Board Chairman of
the Federal Reserve Bank of Chicago, Detroit branch.
Mr.
Manganello began his career in the automotive industry in
1973. He was named to his current position in February 2003,
after having served for one year as president and chief operating
officer. During his career at BorgWarner, he has held senior
management positions in operations, sales, and business
development. Before joining BorgWarner in 1989, Mr. Manganello
held product engineering management positions at Chrysler Corporation from
1973 to 1981, and sales management positions at PT Components-Link Belt
from 1981 to 1988. He is also a member of the University of
Michigan College of Engineering’s National Advisory Committee and
is the chairman of the Executive Committee of the Board of
Trustees for the Manufacturer’s Alliance (MAPI). Mr.
Manganello’s knowledge of all aspects of the Company’s business and of the
automotive industry position him well to serve as our Chairman and Chief
Executive Officer.
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John
R. McKernan, Jr.
2009
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61
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Governor
McKernan has been Chairman of the Board of Education Management
Corporation, a large provider of private post-secondary education in North
America, since December 2008. He was Executive Chairman of
Education Management Corporation from February 2007 to December 2008 and
Chief Executive Officer from September 2003 until February
2007. He previously held the offices of President and Vice
Chairman and was a member of the Board of Directors since June
1999. Mr. McKernan also served as Governor
of the State of Maine from 1987 to 1995.
Governor
McKernan brings to BorgWarner’s board a blend of experience as a former
Governor of Maine, a former US Congressman, a former State Legislator and
former CEO of a public company. His knowledge of the
legislative process combined with his demonstrated leadership capabilities
and CEO’s perspective provide a valuable point of view on the BorgWarner
board. Governor McKernan also has significant experience as a
director. Governor McKernan’s practice of corporate, regulatory
and administrative law enables him to provide a legal perspective on
issues facing the board and the Company in those areas and with respect to
corporate governance.
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Class II
Directors
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Age
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Principal
Occupation
and
Directorships
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Ernest
J. Novak, Jr.
2003
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65
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Mr.
Novak retired as a Managing Partner from Ernst & Young in June
2003. He was a Managing Partner from 1986 until June 2003. Mr. Novak is
also a director of A. Schulman, Inc. and FirstEnergy Corp.
Mr.
Novak's extensive knowledge of accounting and his financial expertise
across a broad range of public companies make him well qualified as a
member of our board and as chairman of the audit committee of our board.
Mr. Novak spent over thirty years performing, reviewing and supervising
audits of diverse public companies' financial statements and overseeing
the filing of them with the Securities and Exchange Commission. He has a
master's degree in accounting, is a Certified Public Accountant and
currently chairs the audit committees of two other public
companies.
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Class III
Directors
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Age
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Principal
Occupation
and
Directorships
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Robin
J. Adams
2005
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56
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Mr.
Adams has been Executive Vice President, Chief Financial Officer and Chief
Administrative Officer since April 2004. He was Executive Vice President —
Finance and Chief Financial Officer of American Axle & Manufacturing
Holdings Inc. (“American Axle”) from July 1999 until April 2004.
Prior to joining American Axle, he was Vice President and Treasurer and
principal financial officer of BorgWarner Inc. from May 1993 until June
1999. Mr. Adams is also a director of Carlisle Companies
Inc.
Mr.
Adams has over 30 years experience in the transportation
industry. Prior to joining BorgWarner in April 2004, he was
Executive Vice President of Finance and Chief Financial Officer at
American Axle and Manufacturing, Inc. He was previously with
BorgWarner for 13 years, a period during which he served as Vice President
and Treasurer and Principal Financial Officer. The functional
areas reporting to Mr. Adams include accounting, audit, finance, treasury,
tax, business development, investor relations and information
technology. He is a Certified Public
Accountant. Mr. Adams’ deep knowledge of the transportation
industry and the Company’s business, his mergers and acquisitions
experience and financial acumen make him a valued member of the Company’s
board.
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David
T. Brown
2004
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61
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Mr.
Brown retired from Owens Corning on December 31, 2007. He was President
and Chief Executive Officer of Owens Corning from April 2002 until his
retirement. He was Executive Vice President and Chief Operating Officer
from January 2001 to March 2002. He was Vice President of Owens Corning
and President, Insulating Systems Business from January 1997 to December
2000. Mr. Brown is also a director of Franklin Electric Co.,
Inc.
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Class III
Directors
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Age
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Principal
Occupation
and
Directorships
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As
President and Chief Executive Officer of Owens Corning, a global leader in
glass technology and a share leader in many of the markets it serves, Mr.
Brown led an innovative organization, that grew worldwide during a
difficult period in that company’s history associated with its
asbestos-related liability dating back to 1958. He brings
operational experience and the perspective of a former CEO to his service
on BorgWarner’s board. Mr. Brown was a director of Owens
Corning until December 31, 2007. His experience serving on
boards of other public companies in varied industries contributes to his
knowledge of board dynamics.
On
October 5, 2000, Owens Corning and 17 of its United States subsidiaries
filed petitions for reorganization under Chapter 11 of the Bankruptcy Code
in the U.S. Bankruptcy Court in Wilmington, Delaware. Owens
Corning stated that it took the action to address demands on its cash flow
resulting from asbestos-related liability. Mr. Brown was a Vice
President of Owens Corning and President, Insulating Systems Business from
January 1997 to December 2000, Executive Vice President and Chief
Operating Officer of Owens Corning from January 2001 to March 2002, and
President and Chief Executive Officer of Owens Corning from April 2002
through 2007. Mr. Brown was also an executive officer of two of
the 17 Owens Corning subsidiaries at the time of the filing of the
bankruptcy petitions.
|
||
|
Dennis
C. Cuneo
2009
|
60
|
Mr.
Cuneo has been an attorney with Arent Fox LLP since November
2006. He was Senior Vice President of Toyota North America,
Inc. from 2000 to 2006; Corporate Secretary and Chief Environmental
Officer of Toyota Motor North America Inc. from 2004 to 2006, and Senior
Vice President of Toyota Motor Manufacturing North America from 2001 to
2006. Mr. Cuneo was formerly Board Chairman of the Federal
Reserve Bank of Cleveland, Cincinnati branch and is on the board of the
Center for Automotive Research. Mr. Cuneo is also a director of AK Steel
Holding Corporation.
Mr.
Cuneo brings experience in, and a deep understanding of, the automotive
industry. Mr. Cuneo is a former senior executive and officer at
Toyota Motor North America, Inc. and Toyota Motor Manufacturing North
America. Mr. Cuneo’s Toyota career spanned more then 22 years,
during which he was responsible for legal affairs, administration, public
relations, investor relations, environmental affairs, corporate
advertising, government relations, philanthropy, planning, research and
Toyota’s Latin America Research Group. He brings to the board
his knowledge of the automotive industry and its trends, and he
contributes to its perspective on and experience in a broad range of board
oversight areas. Mr. Cuneo also is a licensed attorney, so he
is able to provide a legal perspective on issues facing the board and the
Company, particularly with respect to corporate governance and regulatory
matters.
|
No
director nominee, director or executive officer is related to any other director
nominee, director or executive officer (or to any director or executive officer
of any of the Company’s subsidiaries) by blood, marriage or adoption. There are
no arrangements or understandings between any nominee or any of our directors or
executive officers or any other person pursuant to which that nominee or
director or executive officer was nominated or
9
elected
as a director of the Company or any of its subsidiaries. No director or
executive officer of the Company is party to, or has any material interests in,
any material legal proceedings that are adverse to the Company or its
subsidiaries.
Board
of Directors and Its Committees
The Board
of Directors held five regular meetings during 2009. All of the directors
attended at least 75% of the meetings of the Board of Directors and each
committee on which they served while they were members of them. The Company’s
Corporate Governance Guidelines set forth the Company’s policy that directors
should use their best efforts to attend the Company’s annual meeting of
stockholders. All directors serving at the time of the 2009 Annual Meeting of
Stockholders attended the meeting.
The Board
has determined that all Board members meet the independence requirements of the
New York Stock Exchange (“NYSE”), with the exception of Mr. Manganello, our
Chairman and Chief Executive Officer, and Mr. Adams, our Executive Vice
President, Chief Financial Officer and Chief Administrative Officer. Under the
Company’s Corporate Governance Guidelines, a director will not be considered
independent unless the Board determines that such director has no direct or
indirect material relationship with the Company. In addition, the Company’s
Corporate Governance Guidelines provide, among other things, that:
|
|
•
|
a
director who is an employee, or whose immediate family member is an
executive officer, of the Company is not “independent” until three years
after the end of such employment
relationship.
|
|
|
•
|
a
director who receives, or whose immediate family member receives, more
than $120,000 per year in direct compensation from the Company, other than
director and committee fees or other forms of deferred compensation for
prior service (provided such compensation is not contingent in any way on
continued service), is not “independent” until three years after he or she
ceases to receive more than $120,000 per year in such
compensation.
|
|
|
•
|
a
director who is affiliated with or employed by, or whose immediate family
member is a current partner of the internal or external auditor of the
Company, is a current employee of such a firm and personally works on the
Company’s audit or was within the last three years a partner or employee
of such a firm and personally worked on the Company’s audit at that time,
is not “independent” until three years after the end of the affiliation or
the employment or auditing
relationship.
|
|
|
•
|
a
director who is employed, or whose immediate family member is employed, as
an executive officer of another company where any of the Company’s present
executives serve on that company’s compensation committee, is not
“independent” until three years after the end of such service or the
employment relationship.
|
|
|
•
|
a
director who is an executive officer or an employee, or whose immediate
family member is an executive officer, of a company that makes payments
to, or receives payments from, the listed company for property or services
in an amount which, in any single fiscal year, exceeds the greater of
$1 million, or 2% of such other company’s consolidated gross
revenues, is not “independent” until three years after falling below such
threshold.
|
|
|
•
|
a
director who is not considered independent by relevant statute or
regulation is not “independent.”
|
Board
Leadership Structure
Our board
of directors is a strong, cohesive board that has been effective in performing
its monitoring and oversight roles by acting as a unified whole and has
determined that, during the recent downturn in the industry and for
the present, having our CEO, who has extensive knowledge of the Company and the
automotive industry, also serve as Chairman has been advantageous. Mr.
Manganello has been CEO of the Company since February 2003 and Chairman and
CEO since June of 2003 and possesses the extensive knowledge and collaborative
demeanor in working with other members of the board of directors that
make this leadership structure the most appropriate structure for the
Company. Over time the Board has reached different conclusions
regarding whether the Chairman and CEO positions should be held by a single
individual in light of circumstances at the time. The Board has
10
reserved
for itself the discretion to make a different determination in the
future to serve the best interests of the Company if circumstances
change.
In view
of the fact that the Company has at times been without an independent
chairman, the Board of Directors established the role of Lead Director. The Lead
Director works with the Chairman and CEO and other members of the Board to
provide independent oversight of the Company's management and affairs on behalf
of the Company's stockholders. Among other things, the Lead Director serves as
the principal liaison between the Chairman and the independent directors
and chairs the executive session of non-employee directors at each regularly
scheduled Board meeting.
Board
Committees
The Board
of Directors has a standing Compensation Committee, Audit Committee, Corporate
Governance Committee and Executive Committee. The charters for each of our Board
committees can be accessed on the Company’s website at www.borgwarner.com.
Compensation
Committee. The current members of the Compensation Committee
are Directors Drummond (Chairman), Bonanno, and Brown. The principal functions
of the Compensation Committee include reviewing and approving compensation
philosophy and executive compensation strategy, chief executive officer and
other executive remuneration and compensation plans, and supervising the
administration of these plans. A primary purpose of the Compensation Committee
is to ensure that the compensation of Executive Officers is internally
equitable, externally competitive, motivates Executive Officers toward the
achievement of business objectives and aligns their focus with the long term
interests of Company stockholders. The Compensation Committee met five times
during 2009.
Audit
Committee. The current members of the Audit Committee are
Directors Novak (Chairman), Cuneo, McKernan and Stallkamp. The Audit Committee
is charged with assisting the full Board in fulfilling the Board’s oversight
responsibility with respect to the quality and integrity of the accounting,
auditing, financial reporting and risk management practices of the Company. The
Audit Committee also has the responsibility for, among other things, selection
and compensation of the independent registered public accounting firm,
monitoring the independent registered public accounting firm’s qualifications,
independence and work (including resolving any disagreements between the
Company’s management and the independent registered public accounting firm
regarding financial reporting), pre-approving all audit services to be performed
by the independent registered public accounting firm, monitoring the performance
of the Company’s internal audit function and reviewing on behalf of the Board
the Company’s pension plans and risk management programs. The responsibilities
of the Audit Committee are set forth in its charter, which is reviewed at least
annually and is attached as Annex A.
Each
member of the Audit Committee meets the independence requirements set by the New
York Stock Exchange, Section 10A(m)(3) of the Securities Exchange Act of
1934, as amended, and the rules and regulations of the Securities and Exchange
Commission. While other members of the Audit Committee also qualify as financial
experts as defined by the rules and regulations of the Securities and Exchange
Commission the Board of Directors has designated the Chairman of the Audit
Committee, Mr. Novak, as our audit committee financial expert. None of the
members of the Committee simultaneously serve on the audit committees of more
than two other public companies. The Audit Committee met five times
during 2009.
Corporate Governance
Committee. The present members of the Corporate Governance
Committee are Directors Michas (Chairman), Drummond and Schaum. The principal
functions of the Corporate Governance Committee include making recommendations
to the Board of Directors regarding: (i) Board composition and structure,
(ii) corporate governance principles, including the nature, duties and
powers of Board committees, (iii) term of office for members,
(iv) qualified persons to be nominated for election or re-election as
directors, (v) stockholders’ suggestions for board nominations,
(vi) the emergency successor to the Chief Executive Officer, and
(vii) any requests for waivers of application of the Company’s Code of
Ethical Conduct and any related person transactions. The Corporate Governance
Committee also establishes criteria for Board and committee membership,
evaluates Company policies relating to the recruitment of directors and oversees
the evaluation of the Board, its committees and management. The Corporate
Governance Committee met four times during 2009.
The
Corporate Governance Committee will consider nominees for the Board of Directors
from a variety of sources, including current directors, management, retained
third-party search firms, and stockholders.
Stockholders
of record of the Company may recommend director candidates for inclusion by the
Board in the slate of nominees which the Board recommends to stockholders for
election. Appropriate biographical information and background material must be
submitted to the “BorgWarner Inc. Corporate Governance Committee”
c/o BorgWarner Inc. General Counsel, 3850 Hamlin Road, Auburn Hills,
Michigan 48326 in a timely manner. Assuming that appropriate biographical and
background material is provided for candidates recommended by stockholders, the
Corporate Governance Committee will evaluate those candidates by following
substantially the same process, and applying substantially the same criteria, as
for candidates submitted by Board members. The General Counsel will review the
information and provide to the Chairman of the Corporate Governance Committee an
assessment of the candidate’s independence, freedom from conflicts of interest
and general suitability. If the Chairman of the Committee decides to submit the
candidate to the entire Committee, each member will receive the candidate’s
background information and will be afforded an opportunity to interview the
candidate.
In
considering whether to recommend to the full Board any candidate for inclusion
in the Board’s slate of recommended director nominees, the Corporate Governance
Committee will consider, among other things, the extent to which candidates
possess the following factors:
|
·
|
the
highest personal and professional ethics, integrity and
values;
|
|
·
|
demonstrated
business acumen, experience and ability to use sound judgment to
contribute to effective oversight of the business and financial affairs of
the Company;
|
|
·
|
ability
to evaluate strategic options and risks and form independent opinions,
stated constructively to contribute to guidance and direction of the
Company;
|
|
·
|
active,
objective and constructive participation at meetings of the Board and its
committees, with flexibility in approaching
problems;
|
|
·
|
open
mindedness on policy issues and areas of activity affecting overall
interests of the Company and its
stockholders;
|
|
·
|
stature
to represent the Company before the public, stockholders and various
others who affect the Company;
|
|
·
|
involvement
only in activities and interests that do not create a conflict with the
director's responsibilities to the Company and its
stockholders;
|
|
·
|
willingness
to objectively appraise management performance in the interest of the
stockholders;
|
|
·
|
interest
and availability of time to be involved with the Company and its employees
over a sustained period;
|
|
·
|
ability
to work well with others, with deep and wide perspective in dealing with
people and situations, respect for the views of
others;
|
|
·
|
a
reasoned and balanced commitment to the social responsibilities of the
Company;
|
|
·
|
contribution
to the Board's desired diversity and
balance;
|
|
·
|
willingness
of independent directors to limit public company board service to 4 or
fewer boards (Any exceptions would require Corporate Governance Committee
approval.);
|
|
·
|
willingness
to tender, promptly following the annual meeting at which they are elected
or re-elected as Director, an irrevocable resignation that will be
effective upon (i) the failure to receive the required vote at the next
annual meeting at which they face re-election and (ii) Board acceptance of
such resignation; and
|
|
·
|
willingness
to provide all information, including completion of a questionnaire,
required by the Company’s Amended and Restated
By-Laws.
|
The
Company believes that the backgrounds and qualifications of the directors,
considered as a group, should provide a significant composite mix of experience,
knowledge and abilities that will allow the Board to fulfill its
12
responsibilities. The Corporate Governance
Committee seeks to establish and maintain a board that is strong in its
collective knowledge and that possesses a diversity of skills, backgrounds and
experience with respect to vision, strategy and leadership, business judgment
and knowledge, corporate governance, accounting and finance, global markets and
industry knowledge. If the Corporate Governance Committee determines that a
stockholder-nominated candidate is suitable and that the candidate should be
recommended to the full Board, a quorum of the full Board must discuss whether
to include the candidate in the slate of nominees which the Board recommends to
stockholders for election and, if appropriate, adopt a resolution authorizing
the inclusion.
The
procedures by which security holders may recommend nominees are set forth in
Article II, Section 7-8 of the Company’s By-laws. The Company’s
By-Laws provide that postponement or adjournment of an annual meeting does not
create another opportunity for stockholders to make proposals or nominate
candidates for director; require that director nominees disclose all material
monetary agreements between the nominating stockholder and the nominees; require
that director nominees (including the board’s nominees) complete a questionnaire
regarding the nominee’s background, qualifications and conflicts of interest;
and require that stockholders proposing business disclose economic interests,
including interest in the Company as a result of derivative
instruments.
You may
send communications to your Board of Directors and to individual directors. Such
communications should be submitted in writing addressed to your Board of
Directors or to one or more named individual directors in care of BorgWarner
Inc., General Counsel, 3850 Hamlin Road, Auburn Hills, Michigan 48326. All such
communications will be forwarded promptly to your Board of Directors or such
named individual director.
Executive
Committee. The present members of the Executive Committee are
Directors Drummond, Manganello and Michas. The Executive Committee is empowered
to act for the full Board during intervals between Board meetings when
telephonic meetings cannot reasonably be arranged, with the exception of certain
matters that by law may not be delegated. The Executive Committee did not meet
during 2009.
Executive
Sessions. The non-employee directors meet in executive
sessions without the presence of any corporate officer or member of management
in conjunction with regular meetings of the Board. Lead Director Michas is the
current presiding director. Interested parties can make concerns known directly
to the non-management directors on-line at www.mysafeworkplace.com or by
toll-free call to 1-800-461-9330.
REPORT
OF THE BORGWARNER INC.
AUDIT
COMMITTEE
Management
of your Company is responsible for the preparation, presentation and integrity
of your Company’s consolidated financial statements and for the effectiveness of
internal control over financial reporting. Management and the Company’s internal
auditing department are responsible for maintaining its accounting and financial
reporting principles and internal controls and procedures designed to maintain
compliance with accounting standards and applicable laws and regulations.
PricewaterhouseCoopers LLP. (“PwC”) was the independent registered public
accounting firm for the Company in 2009 and was responsible for performing an
independent audit of your Company’s consolidated financial statements and of the
design and effectiveness of internal controls over financial reporting, and
expressing an opinion on (1) the conformity of the financial statements
with accounting principles, generally accepted in the United States of America
(“GAAP”) and (2) the effectiveness of internal control over financial
reporting. The Audit Committee is responsible for the appointment, oversight,
compensation and retention of the independent registered public accounting
firm.
In the
performance of its oversight function, the Audit Committee has reviewed and
discussed with management and PwC, the audited consolidated financial statements
for the year ended December 31, 2009. The Audit Committee also has
discussed with PwC, the matters required to be discussed by the Public Company
Accounting Oversight Board (“PCAOB”) Interim Auditing Standard AU
Section 380, “Communication with Audit Committees.” The Audit Committee
received from PwC the written disclosures and the letter required by applicable
requirements of the PCAOB regarding the independent registered accountant’s
communications with the Audit Committee concerning independence, and have
discussed with PwC their independence. The Audit Committee has concluded that
PwC’s provision of audit and non-audit services to the Company is compatible
with their independence.
The Audit
Committee discussed with PwC the overall scope and plans for their audit. The
Audit Committee met with PwC, with and without management present to discuss the
results of their audits, the evaluations of the Company’s internal controls, and
the overall quality of the Company’s financial reporting. In addition, the Audit
Committee provided
13
guidance
and oversight to the internal audit function, including the audit plan, and
results of internal audit activity. The Vice President of Internal Audit has
direct access to the Committee to discuss any matters desired, and the Vice
President or Director of Internal Audit presented an update of internal audit
activity at each Committee meeting.
The
members of the Audit Committee are not full-time employees of your Company and
are not performing the functions of auditors or accountants. As such, it is not
the duty or responsibility of the Audit Committee or its members to conduct
“field work” or other types of auditing or accounting reviews or procedures or
to set auditor independence standards. Members of the Audit Committee
necessarily rely on the information provided to them by management and the
independent auditors. Accordingly, the Audit Committee’s considerations and
discussions referred to above do not assure that the audit of the Company’s
financial statements has been carried out in accordance with generally accepted
auditing standards, that the financial statements are presented in accordance
with GAAP, or that the Company’s auditors are “independent.”
Based
upon the reports and discussions described in this report, and subject to the
limitations on the role and responsibilities of the Audit Committee that are
described above and in the Audit Committee’s charter, the Audit Committee
recommended to the Board of Directors that the audited consolidated financial
statements of the Company be included in the Company’s Annual Report on
Form 10-K for the year ended December 31, 2009 for filing with the
SEC. It also recommended to the Board that, subject to stockholder ratification,
PwC be appointed as the independent registered public accounting firm for the
Company for 2010.
|
|
BORGWARNER INC. AUDIT COMMITTEE
|
|
||
|
|
Ernest J. Novak, Jr. Chairman
|
|
||
|
|
Dennis C. Cuneo
|
John R. McKernan, Jr.
|
Thomas T. Stallkamp
|
|
The Audit
Committee Report does not constitute soliciting material. It is not considered
filed by us and shall not be incorporated by reference into any of our other
filings under the Securities Act or the Exchange Act unless we state
otherwise.
Security
Ownership of Certain Beneficial Owners and Management
The
following table sets forth, as of February 16, 2010, certain information
regarding beneficial ownership of common stock by those persons and entities
that are known to the Company as beneficially owning more than five percent of
the Company’s common stock.
|
Name and Address of
Beneficial Owner
|
Number
of
Shares
|
Percent
of
Class
|
|
FMR
LLC
|
9,946,536(a)
|
8.5%
|
|
82
Devonshire Street
|
||
|
Boston,
MA 02109
|
||
|
BlackRock,
Inc.
|
6,417,867(b)
|
5.5%
|
|
40
East 52nd
Street
|
||
|
New
York, NY 10022
|
||
|
UBS
AG
|
6,311,227(c)
|
5.4%
|
|
Bahnhofstrasse
|
||
|
45,
PO Box CH-8021
|
||
|
Zurich,
Switzerland
|
||
|
Transamerica
Investment Management, LLC
|
6,041,336(d)
|
5.2%
|
|
11111
Santa Monica Boulevard
|
||
|
Suite
820
|
||
|
Los
Angeles, CA 90025
|
|
(a)
|
Pursuant
to a Schedule 13G dated February 16, 2010 on behalf of FMR LLC indicating
that it had sole voting power for 1,809,668 shares and sole dispositive
power of 9,946,536 shares.
|
|
(b)
|
Pursuant
to a Schedule 13G dated January 29, 2010 on behalf of BlackRock, Inc.
indicating that it had sole voting power for 6,417,867 shares
and sole dispositive power for 6,417,867 shares.
|
|
(c)
|
Pursuant
to a Schedule 13G/A dated February 11, 2010 on behalf of UBS AG indicating
that it had sole voting power for 5,543,888 shares and shared dispositive
power for 6,311,227 shares.
|
|
(d)
|
Pursuant
to a Schedule 13G/A dated February 12, 2010 on behalf of Transmerica
Investment Management, LLC indicating that it had sole voting power for
5,991,406 shares and sole dispositive power for 6,041,336
shares.
|
The
following table sets forth, as of March 2, 2010, certain information
regarding the beneficial ownership of common stock by each person who was a
director of the Company at December 31, 2009, each nominee for election as
a director, each executive officer named in the Summary Compensation Table, and
the directors and executive officers of the Company as a group.
|
Name of Beneficial
Owner(a)
|
Amount
and Nature
of
Stock Ownership(b)(c)
|
Percent
of
Class
|
|
|
Timothy
M. Manganello
|
1,057,599(d)
|
*
|
|
|
Robin
J. Adams
|
384,334
|
*
|
|
|
John
G. Sanderson
|
34,170
|
*
|
|
|
Thomas
F. Waldhier
|
35,905
|
*
|
|
|
Roger
J. Wood
|
255,962
|
*
|
|
|
Phyllis
O. Bonanno
|
41,215
|
*
|
|
|
David
T. Brown
|
10,956
|
*
|
|
|
Dennis
C. Cuneo
|
6,193
|
*
|
|
|
Jere
A. Drummond
|
39,842
|
*
|
|
|
Alexis
P. Michas
|
168,603
|
*
|
|
|
John
R. McKernan, Jr. (e).
|
0
|
*
|
|
|
Ernest
J. Novak, Jr.
|
21,356
|
*
|
|
|
Richard
O. Schaum
|
17,483
|
*
|
|
|
Thomas
T. Stallkamp
|
17,089
|
*
|
|
|
Bernd
W. Matthes (f)
|
55,690
|
*
|
|
|
All
directors and executive officers of the Company (21 persons)
|
2,524,104
|
2.1%
|
|
*
|
Represents
less than one percent.
|
|
(a)
|
For
purposes of the above table, the address for each named person is 3850
Hamlin Road, Auburn Hills, Michigan 48326.
|
|
(b)
|
Includes
the following number of shares issuable upon the exercise of options
within the next 60 days: 179,386 for Mr. Adams; 20,000 for
Ms. Bonanno; 20,000 for Mr. Drummond; 518,561 for
Mr. Manganello; 53,690 for Dr. Matthes; 20,000 for Mr. Michas;
8,000 for Mr. Novak; 104,478 for Mr. Wood; and 1,120,283 for all
directors and executive officers of the Company.
|
|
(c)
|
Includes
all shares with respect to which each officer or director directly, or
indirectly, through any contract, arrangement, understanding, relationship
or otherwise, has or shares the power to vote or to direct voting of such
shares or to dispose or to direct the disposition of such
shares.
|
|
(d)
|
Includes
restricted stock units granted to Mr. Manganello under the August 3, 2007
Recognition and Retention Grant.
|
|
(e)
|
Governor
McKernan is a recently appointed director and is a nominee for Class II
Director.
|
|
(f)
|
Dr.
Matthes resigned as an officer of the Company effective August 7,
2009.
|
Section 16(a)
Beneficial Ownership Reporting Compliance
Section 16(a)
of the Securities Exchange Act of 1934 requires the Company’s executive
officers, directors and persons who beneficially own more than 10 percent
of a registered class of the Company’s equity securities, to file with the SEC
initial reports of ownership and reports of changes in ownership of the
Company’s common stock.
Such officers, directors and persons are required by SEC
regulation to furnish the Company with copies of all Section 16(a) forms
that they file with the SEC.
Based on
information provided to the Company by each director and executive officer, the
Company believes all such reports required to be filed in 2009 were timely filed
except, as result of an administrative error by the Company, reports on
Form 4 covering eight monthly distributions to Ms. Bonanno pursuant to her
election under a deferred compensation plan were inadvertently filed
late. All distributions were reported in 2009 upon discovery of the
error.
Code
of Ethics
The
Company has long maintained a Code of Ethical Conduct which is applicable to all
directors, officers and employees of the Company. In addition, the Company has
adopted a Code of Ethics for CEO and Senior Financial Officers which applies to
the Cmpany’s
Chief Executive Officer, Chief Financial Officer, Treasurer and Controller. Each
of these codes is posted on the Company’s website at www.borgwarner.com.
Risk
Oversight
Our Board
of Directors regularly and continually receives information intended
to apprise the Board of the strategic, operational, commercial,
financial, legal, and compliance risks the Company faces. Oversight of risk
is an evolving process in which management continually seeks opportunities to
further engrain enterprise risk management into business processes throughout
the organization. The Board actively encourages management to
continue to drive this evolution. While the Board of Directors has
responsibility for oversight of the Company's risk management practices,
the Audit, Compensation and Corporate Governance Committees of the Board also
have risk management oversight responsibilities. In particular, the Audit
Committee focuses on financial risk, including internal controls and
receives risk assessment and management reports from the Company's internal
Risk Committee and from the Company's internal audit function. The members of
the Risk Committee (the Company's Treasurer, Vice President of
Internal Audit, Director of Risk Management, Chief Compliance Officer and
business operations leaders) and members of the internal audit function
have direct access to the Audit Committee and Board of Directors. The Audit
Committee receives, reviews and discusses regular reports from them concerning
risk assessment and risk management policies and practices and mitigation
initiatives, to assure that the risk management processes designed and
implemented by the Company are adapted to the Company's strategy and are
functioning as expected.
In
addition, as part of its compensation philosophy, the Compensation Committee
strives to adopt compensation incentives that encourage appropriate risk-taking
behavior that is consistent with the Company's long term business strategy and
objectives. To meet its obligations under the Securities and Exchange
Commission's Enhanced Disclosure Rules, the Company undertook a process to
assess to what extent risks arising from our compensation programs for
employees are reasonably likely to have a material adverse effect on the
Company. We concluded that it is not likely that our compensation policies will
have such an effect. The Corporate Governance Committee oversees risk
management practices in its domain, including director candidate selection,
governance and succession matters.
COMPENSATION
DISCUSSION AND ANALYSIS
General
The
unprecedented economic challenges confronting the global automotive industry,
which began in the second half of 2008, became even more pronounced in the first
half of 2009 as vehicle production in the global automotive industry continued
to decline. Management responded by initiating a variety of actions
impacting executive compensation in 2009. These actions included
salary reductions, which began at a 10% reduction for the first two months of
the year and were increased to a 15% reduction for the remaining 10 months of
2009, a reduction in the number of executive positions, a freeze on company car
lease renewals.
In order
to focus the Company leaders on managing through this period of severe sales
decline, management, with the approval of our Compensation Committee, suspended
the traditional economic value (“EV”) formula of the annual incentive plan to
focus 2009 performance on two key components of EV: cash flow and operating
income. Further discussion of this appears below in the Short-Term
Incentives section on page 19. Throughout the year, our Compensation
Committee reviewed the progress of this modified plan on a quarterly
basis. It maintained its determination to ensure the alignment of
compensation goals and strategic business goals during the economic
crisis. This focus on maximizing earnings as sales declined, while
also preserving cash, produced improved profitability in the second half of
2009. For 2010, as the global automotive market appears to be
improving, the performance measures for the annual incentive plan will return to
our traditional EV design.
Due to
shifting trends in executive compensation practices generally, management also
recommended and our Compensation Committee has approved the elimination of tax
gross-ups on perquisites beginning with the 2010 tax year and the elimination of
the excise tax gross-up for new Change of Control Agreements beginning in
2009.
Compensation
Philosophy
Throughout
this unprecedented time of economic crisis, our Compensation Committee
reaffirmed our underlying executive compensation objectives, which are
to:
|
·
|
attract
and retain the best possible global executive talent,
|
|
·
|
motivate
our executives to achieve goals that support the Company’s business
strategy (including growth and the creation of long term
value),
|
|
·
|
link
executives’ and stockholders’ interests through equity-based incentive
plans,
|
|
·
|
provide
a compensation package that reflects individual performance as well as
overall business results.
|
To
achieve these objectives, our Compensation Committee has implemented and
maintains compensation plans and programs that tie a substantial portion of our
executives’ overall compensation to our short term and long term financial
performance, our common stock price, and the achievement of total stockholder
return as compared to our industry. Overall, the intention is to set
compensation targets slightly above the median competitive levels of comparable
companies in the automotive, transportation and general industry sectors (as
described further in the Compensation Benchmarking section) and reward above
median performance. Targets are set above the median to motivate
exceptional performance.
Consistent
with our historical practices, in 2009 the primary components of our
compensation program were base salary, annual bonus plan, performance shares and
restricted stock. Generally, base salary is set at the market median, which we
believe enables us to hire and retain individuals in a competitive environment
and to reward individual performance and a satisfactory level of contribution to
our overall business goals. Annual cash incentives are used to reward our
executives for meeting the annual objectives of our long-range
plan. Long term equity incentives are used to reward long-term
performance (over a time horizon of three or more years), thus linking our
executives’ interests with that of stockholders and incentivizing the
maximization of long-term stockholder value. The appropriate level
for each compensation component for each executive is based in part, but not
exclusively, on competitive benchmarking. Other factors that affect
these decisions include our recruiting and retention goals, our view of internal
equity and consistency (e.g., size and complexity of business managed, scope and
influence of role), and other considerations we deem relevant, such as rewarding
superior performance, experience, time in position and potential.
Our
Compensation Committee performs a strategic review of our executive officers’
compensation at least annually. During this review, our Compensation Committee
evaluates our compensation philosophy and objectives to ensure that they
continue to reflect
our philosophy of paying for performance, our business objectives, competitive
realities and our Board’s determination of the best interests of stockholders.
Our Compensation Committee then determines whether our compensation programs are
meeting these objectives, providing adequate incentives and motivation to our
executive officers and adequately compensating our executive officers relative
to comparable officers in other companies with whom we compete for executives.
As part of this strategic review for 2009, our Compensation Committee determined
the compensation of our 19 corporate officers including
17
our Chief
Executive Officer, our Chief Financial Officer and the four other officers whose
compensation is detailed in the Summary Compensation Table on page 27 (the
“Named Executive Officers”). For compensation decisions, including decisions
regarding the grant of equity compensation relating to executive officers other
than our Chief Executive Officer, our Compensation Committee considers
recommendations from our Chief Executive Officer. At the request of the
Compensation Committee, materials for Compensation Committee meetings are
prepared by our Vice President, Human Resources, with assistance from the
compensation consultant engaged by the Committee, Hewitt Associates, LLC (the
“Compensation Consultant”) in 2009. After 2009 Year End, but prior to the filing
of this proxy statement, Hewitt Associates spun off its executive compensation
practice into a separate, entirely independent entity named Meridian
Compensation Partners, LLC. Due to the importance of independence,
and to maintain consistent process and representation, the Compensation
Committee of BorgWarner has retained Meridian going forward as its independent
executive compensation consultant. Our Compensation Committee’s
strategic review for the 2009 plan year occurred in October 2008 and its
strategic review for the 2010 plan year occurred in October 2009 (in each
instance in an extended session). The Committee consulted with our Chief
Executive Officer during these sessions regarding the compensation of our other
corporate officers.
Compensation
Benchmarking
Our
Compensation Committee believes that benchmarking is a useful tool because it is
a reflection of the market in which we compete for talent and provides
credibility for our compensation programs with both our employees and our
stockholders. However, benchmarking is not the only criterion used in
compensation decisions. Other factors such as internal equity,
individual and business performance, retention, and the degree of alignment
between job duties of the incumbent with the benchmark job description are also
considered. For example, in instances where an executive officer is
uniquely key to our success, our Compensation Committee may provide compensation
in excess of these benchmarks.
As part
of our compensation benchmarking, each year our Compensation Committee engages
an outside consultant, Hewitt Associates, LLC in 2009, to compare the total
compensation levels (including base salary, annual bonus, and long-term
incentives) for our executive officers to the compensation practices of a
comparator group with whom we compete for talent. Our Compensation Committee has
established that the comparator group (“Comparator Group”) used for benchmarking
executive officer compensation should include companies with revenues between
approximately $1.5 billion and $15 billion in the automotive, transportation and
general industrial sectors, with general industrial companies comprising no more
than 25% of the total group. The group used for establishing 2009 compensation
levels consisted of the following twenty-nine companies:
|
AMSTED
Industries, Inc.
|
Eaton
Corporation
|
Praxair
Inc.
|
|
BAE
Systems, Inc.
|
Fleetwood
Enterprises, Inc.
|
Robert
Bosch Corporation
|
|
Ball
Corporation
|
Harley-Davidson
Motor Co.
|
The
Sherwin-Williams Co.
|
|
Brunswick
Corporation
|
Illinois
Tool Works Inc.
|
The
Timken Company
|
|
Cummins
Inc.
|
ITT
Industries, Inc.
|
TRW
Automotive Inc.
|
|
Daimler
Trucks North America, LLC
|
Kennametal
Inc.
|
Valmont
Industries Inc.
|
|
Dana
Corporation
|
Metaldyne
Corporation
|
Worthington
Industries Inc.
|
|
Denso
International America, Inc.
|
Navistar
|
|
|
Donaldson
Company Inc.
|
PACCAR
Inc.
|
|
|
Dover
Corporation
|
Parker
Hannifin Corporation
|
|
|
Eastman
Chemical Co.
|
Polaris
Industries Inc.
|
Due to
differences in size among the comparator companies, regression analysis is used
in order to normalize the survey results to better reflect the size of our
Company relative to that of the comparator companies.
Generally,
our executive compensation program comprises base salary at the 50th percentile
of the Comparator Group, annual target bonus at the 65th percentile of the
Comparator Group, and long-term target incentives at the 65th percentile of the
Comparator Group. We believe that these percentiles reflect consideration of our
stockholders’ interests in paying what is necessary to achieve our
corporate goals. We also believe that these percentiles provide for a
competitive level of base compensation at the midpoint of the market and place a
higher level of compensation potential (65th percentile) on direct
performance-based components (bonus and long-term
18
incentives).
Further, the achievement of a target level long-term incentive payout under the
performance share grants is
predicated on our Total Shareholder Return (TSR) over a three year period being
at the 65th percentile of our peers. See pages 22 and 23 for an
overview of this aspect of our compensation practices. The economic
climate in late 2008 and early 2009 had an impact on compensation in 2009 both
in the automotive and general industries. Survey data showed
reductions in several components of compensation. There is
uncertainty as to whether this snapshot data reflects short-term initiatives or
a longer, more permanent shift in compensation trends. With the
recovery expected to begin in 2010, actions such as salary restorations are
beginning to emerge. Our Compensation Committee took this into
consideration in setting executive compensation levels for 2010, resulting in
some elements of compensation being above the target percentiles established
within the compensation philosophy. Our Compensation Committee
intends to closely monitor this in 2010 and make appropriate adjustments in 2011
compensation if this reduction in total compensation experienced in 2009 within
the Comparator Group appears to be sustained in 2010.
Components
of Compensation
The key
elements of our executive compensation program are base salary, short-term
(annual) incentives and long-term incentives. We strive to have each
compensation element complement the others and reward the achievement of
short-term and long-term business objectives. In 2009, the primary
short-tem incentive vehicle used was the Management Incentive Plan, and the
primary long-term incentive vehicles used were performance shares and restricted
stock. However, in order to keep our compensation programs in
alignment with our compensation objectives and our strategic business goals, and
to meet changing economic conditions and competitive challenges and pressures,
we maintain flexibility in the use of these plans and
vehicles. Additionally, a limited number of executive benefits and
perquisites are used based on competitive practices and to provide a connection
to our industry, such as providing leased vehicles with BorgWarner component
content to our executives.
Base Salary
Base
salaries for our executives are established based on the scope of the
executive’s responsibilities, time in position and potential, taking into
account competitive market compensation paid by other companies for similar
positions and internal equity. Base salaries are reviewed annually, and
adjusted as appropriate to realign salaries with market levels after taking into
account individual responsibilities, individual and business unit performance,
and experience.
Based on
its review of 2009 base salaries for our Named Executive Officers in October
2008, our Compensation Committee determined that base salary increases for
2009 were warranted at that time. However in January 2009, in
consultation with our Compensation Committee, our officers recommended and
voluntarily implemented a salary decrease of 10% from the 2008 base salary to
contribute to the Company’s cost reduction efforts. A further
decrease of 5% from the 2008 base salary, for a total of 15% decrease, was
implemented effective March 16, 2009 for the remainder of the
year. In view of improving conditions in the industry, at its
November 2009 meeting, our Compensation Committee authorized the reinstatement
of officer salaries to their 2008 levels at the same time as salaries for all
employees were to be reinstated. This subsequently occurred on
January 1, 2010.
Short-Term
Incentives
TheMIP is
our cash-based, annual incentive plan for executives. The primary purposes
of the MIP are: (i) to focus key managers on creating economic value
("EV") for the Company; (ii) to reinforce teamwork and collaboration among
key managers of the Company by measuring the management team at each business
unit by the business results they achieve together; (iii) to deliver competitive
awards for key managers when economic value objectives are achieved or
surpassed; and (iv) to attract and retain key managers by enabling participants
in the MIP to share in the success of the Company. Consequently, we use EV
as our standard performance measure because we consider EV to be the foundation
on which we operate and a very dynamic measure of how well we turn investment
into profit. It is based on the concept that a business can be financially
strong in the long run only if it consistently earns enough to cover its
operating cost and, at the same time, produces enough additional earnings
to
19
cover its
cost of capital or pay interest on debt and provide the required return to its
stockholders. We consider any amount that exceeds these requirements to truly be
additional economic value.
For
purposes of the MIP, EV is defined as After-Tax Operating Income minus the
product of Average Operating Investment times Cost of
Capital. However, although EV is a powerful measure and a firm part
of our culture, it is not an accurate measure of success in an appreciably
declining market. Applying a growth measure to a 2009 short-term
incentive plan in light of worldwide declines in auto industry sales (which
exceeded 20%) and the conditions in the global financial markets in late 2008
and in 2009 would not realistically reflect attainable results. In
order to better align our compensation goals with the Company’s critical needs
and strategic goals for 2009, our Compensation Committee determined that in 2009
the MIP should: (i) focus our management team and incent
their behaviors toward specific targets intended to reflect the circumstances
facing the Company in 2009; (ii) reinforce actions that would make a difference
in managing through these circumstances; and (iii) still support long-term
economic value.
For the
2009 plan year, EV was replaced as the MIP performance measure with two related
critical measures: Cash Flow (at the enterprise level) and Relative
Profitability (at the enterprise and business unit levels). We define
“Cash Flow” as net operating cash minus capital expenditures plus asset
disposals. We define “Relative Profitability” as the change in
operating income divided by the change in sales. Because these two
measures are key building blocks of the traditional EV used for the MIP, using
these measures retained the critical underlying components of EV in the MIP for
2009, while also temporarily shifting from a greater emphasis on operating
income to a more equal balance between operating income and net operating cash
flow.
Actual
performance under our MIP is measured annually from January 1 to December 31.
Our Compensation Committee determines any earned MIP bonuses for any given
fiscal year after review of the actual performance in relation to
pre-established targets for that fiscal year.
Ordinarily, bonuses are paid in a single installment in the first
quarter following the completion of a given fiscal year. Our
Compensation Committee may adjust bonus measures and awards based on other
financial or non-financial measures that it believes will benefit long-term
stockholder value.
Traditionally,
a range of performance expectations (Threshold, Target and Maximum) based on EV
is set for the MIP by management and approved by our Compensation Committee
three years at a time. These levels were last established for the 2008 through
2010 three-year cycle. Because EV was not used as a measure in 2009,
the levels previously set for 2009 performance expectations were not
applicable. Performance expectations for 2009 were established based
on the measures used specifically for 2009, but still following the Threshold,
Target, and Maximum pattern. At the time these performance
expectations were set, there was substantial uncertainty as to whether they
would be met.
|
|
|
2009 Performance
Expectations
|
|
|
|
|
|
Cash
Flow
|
Relative
Profitability
|
|
|
|
Threshold
|
($100,000,000)
|
35%
|
|
|
|
Target
|
($50,000,000)
|
30%
|
|
|
|
Maximum
|
Positive
|
20%
|
|
In order
to encourage a longer-term perspective in decision-making while continuing to
reward participants for the achievement of annual goals, our MIP includes a
“Carryover Bonus” feature that allows participants to earn, over the following
two-year period, any MIP bonus opportunity (up to specified maximum limits) that
was not attained during the current plan year. Thus, if the Maximum bonus
opportunity is not earned in a given year, then the amount of the shortfall can
be earned over the next two years (50% each year) by achieving results each year
which are higher than the prior year. However, no Carryover Bonus
from a prior year is earned if the Threshold level of performance for the
current year is not achieved. For example, if an individual was part of a unit
which achieved results at Threshold in year one, that individual would carry
over the lost dollar opportunity between Threshold and Maximum into years two
and three (50% each year). If in year two that individual’s unit
achieved Maximum results,
20
he would
be paid 50% of that lost opportunity from year one. If in the
subsequent year three, his unit’s performance was below Threshold, he would lose
the other 50% of the original carryover from year one. Because the
carryover opportunity is available in addition to the basic bonus opportunity
for the next two years, in a given year, the Carryover Bonus from prior years
may increase the annual bonus opportunity of the executive officers above the
regular target levels.
Based on
our compensation philosophy, in November 2008, for the 2009 plan year, our
Compensation Committee approved Target bonus opportunities ranging from 75% to
130% of base salary for our Named Executive Officers. (See Grants of
Plan-Based Awards table on page 19). “Base salary” for purposes of the
2009 bonus was defined as the salary in effect immediately prior to the 10%
reduction described on page 29 above. Our Named Executive Officers
receive 50% of the Target opportunity for achieving Threshold performance and
200% of the Target opportunity for achieving Maximum performance or above.
Results in between these levels are interpolated. In November 2009,
our Compensation Committee approved the Target bonus opportunities for our
executive officers for 2010. These Target bonus opportunities
range from 75% to 130% of base salary for our Named Executive
Officers. The Target bonus opportunities generally reflect the
approximated 65th percentile of annual bonus levels for similar positions in the
Comparator Group. The final bonus amounts paid, if any, are determined by
our Compensation Committee based on achievement of the performance
measures.
The bonus
opportunity for each officer for 2009 was further defined by unit and corporate
results as applicable. For our Named Executive Officers, the 2009
bonus opportunities were allocated as follows:
|
BorgWarner
Inc.
Cash
Flow
|
BorgWarner
Inc.
Relative
Profitability
|
Business
Unit
Relative
Profitability
|
|
|
T.
Manganello, CEO
|
50%
|
50%
|
|
|
R.
Adams, EVP, CFO and CAO
|
50%
|
50%
|
|
|
R.
Wood, President,
Turbo
and Emissions Systems
|
50%
|
10%
|
40%
|
|
J.
Sanderson, President,
Drivetrain
Systems
|
50%
|
10%
|
40%
|
|
T.
Waldhier, President,
BERU
|
50%
|
10%
|
40%
|
|
B.
Matthes, Former President,
Transmission
Systems
|
50%
|
10%
|
40%
|
In
February 2010, our Compensation Committee determined that, for purposes of our
MIP, during the 2009 plan year maximum results were achieved for the BorgWarner
Inc. Cash Flow and BorgWarner Inc. Relative Profitability
measures. Maximum results were also achieved for the Drivetrain
Systems and BERU business units, while the Turbo and Emission Systems
business unit achieved 95% of maximum results. However, due to
overall profitability considerations for the year, management recommended and
our Compensation Committee approved an adjusted payment down to the target level
where maximum performance was achieved for the 2009 payout under the
MIP. A portion of the bonus payments for all Named Executive Officers
also included carryover. For details of these amounts see the Summary
Compensation Table on page 27.
Due to
the anticipated recovery in the global automotive industry and return to
increasing sales going forward, for the 2010 plan year, our Compensation
Committee has determined to return to the traditional EV-based formula and has
established targets for the 2010 – 2012 three-year cycle.
Long-Term
Incentives
We
believe that long-term performance is achieved through an ownership culture that
rewards our executives for the maximization of long-term stockholder value. Our
long-term incentive plans have been established and operated to provide certain
of our employees, including our executive officers, with appropriate incentives
to help align their interests with the interests of our stockholders.
Furthermore, our stock compensation plans have provided a method for our
executive officers to acquire equity interests in our Company and comply with
our stock ownership guidelines.
SIP. All long-term incentive
grants awarded in 2009 (performance shares and restricted stock) were awarded
under the BorgWarner Inc. Amended and Restated 2004 Stock Incentive Plan (the
“SIP”). Although the SIP provides for the use of a variety of equity-related
vehicles, our Compensation Committee determined in 2009 to rely
primarily
on grants of restricted stock and performance shares in order to motivate and
reward executives for growth in total stockholder return as compared to our
industry (in the case of performance shares) and officer retention and growth in
the Company’s stock price (in the case of restricted stock and performance
shares).
As
discussed above, the target awards (in dollars) for our executives are typically
based on the 65th percentile market value that reflects the responsibility of
each Named Executive Officer, with grant sizes (in shares) based on
a valuation methodology calculated by the Compensation
Consultant. This methodology is the same one used by the Compensation
Consultant in its market study to value equity compensation consistently between
companies. Based on its review of the market data described above, our
Compensation Committee approved grants in 2009 that were substantially at this
target market value for our Named Executive Officers.
In 2009,
two-thirds of total value of the target long-term incentive opportunity was
delivered through performance shares and one-third of total value was delivered
through restricted stock. Due to the significant challenges in the automotive
industry, our Compensation Committee determined to place the greater emphasis on
performance shares because of its belief that this long-term incentive vehicle
provides a more direct comparison of our longer term performance to the longer
term performance of our peers within
our industry, while firmly aligning our executives’ interests with the interests
of our stockholders. See further discussion of the performance shares
below. Restricted stock was granted to our Named Executive Officers
in February 2009 as is our traditional practice. Performance shares
were granted in March of 2009, after finalization by our Compensation Committee
of the performance measure described below, to coincide with the beginning of
the three-year performance period.
Performance
Shares. Annual grants of performance shares are designed to
provide competitive payouts at the end of a three-year period relative to how
well we perform against a peer group of companies (the “Peer Group Companies”)
in terms of TSR. A listing of the Peer Group Companies can be found on page
29. Our Board of Directors reserves the right to modify the list at
any time in order to ensure that the peer group remains relevant as a measure
for TSR performance. When granted, each performance share represents one share
of common stock. In order for participants to earn a target award,
the performance of our common stock must be at the 65th percentile of the TSR
performance over a three-year period when compared to the Peer Group Companies.
The value of the payout at the end of the three-year performance period is based
on both the TSR performance and the stock price at the end of the period.
This provides an additional link to stockholder value.
A new
performance period begins each January 1 and ends three years later on December
31. As a result, in any given year up to three performance periods may
overlap.
The
target award is determined at the beginning of the performance period. The award
is expressed in terms of performance shares. Our Compensation
Committee established a convention in February 2007 for determining the stock
price to be used for converting the target dollar amount to a specific number of
shares. This was established in order to provide consistency in the
method of determining the stock price to be used from year to
year. The convention uses the average closing price of the Company’s
common stock for the last five trading days of the year preceding the date
of grant, which coincides with the end of the prior performance period. The
actual shares awarded for 2009 are detailed on page 29 in the Grants of
Plan-Based Awards table. The final value of each performance share will be
determined only after the close of the performance period. There is no annual
vesting of the target awards under this plan.
For
grants made in 2009, the actual number of performance shares earned at the time
of payout ranges from 0% to a maximum of 200% of target, depending on our TSR
performance at the end of the three-year period. Due to the
volatility of the industry and the dramatic decline in market capitalization of
our Peer Group Companies, our Compensation Committee determined that for the
2009 performance share grants (encompassing the 2009 – 2011 performance period),
the Company’s TSR will be compared to the weighted average TSR of the Peer Group
Companies. This approach takes into account the relative size of the
Peer Group Companies. The actual number of performance shares paid at
the end of the three year period will be determined based on the following
scale.
|
Performance
Share TSR Performance/Payout Table
|
||
|
Relative
Increase in
BorgWarner
TSR vs. Peer Group
|
BorgWarner’s
Relative Increase
Percentile
Rank
|
Percent
of Target Number of
Performance
Shares Earned
|
|
<81.3%
|
Below
25th
percentile
|
0.000%
|
|
81.3%
|
25th
percentile
|
25.000%
|
|
87.5%
|
35th
percentile
|
43.750%
|
|
100.0%
|
50th
percentile
|
71.875%
|
|
112.5%
|
65th
percentile
|
100.000%
|
|
118.8%
|
75th
percentile
|
140.000%
|
|
141.1%
|
90th
percentile and above
|
200.000%
|
For
example, if the Company’s TSR increases at the same rate as the Peer Group
Companies, the relative increase would be 100%. This represents a
50th
percentile rank and would result in 71.875% of the target number of shares
awarded to be paid. Interpolation is used to determine the percent of
performance shares when our percentile rank does not fall directly on one of the
ranks listed in the above.
Payment
of earned performance shares is made in a combination of stock and cash in order
to facilitate ownership of our common stock by our executives. Under current
practice, sixty percent of the earned performance shares are converted to our
common stock. The shares of stock are typically delivered shortly after our
Compensation Committee certifies the results, which occurs during the first
quarter after the three-year cycle has ended. Also under current practice, forty
percent of the award is paid in cash since the full amount of the award is
subject to income tax in the year in which it is received. The cash
portion is based on the fair market value (average of the high and low sales
price) of our stock on the date of delivery.
Restricted Stock and Stock Units
.. The role of restricted stock and stock units in the overall
executive compensation package serves multiple purposes. They are
retention tools and they incent and reward executives for improving the long
term stock value to stockholders. In 2009, restricted stock was
granted in February to our executives based in the U.S., as is our traditional
practice. Restrictions on one-half of the shares granted will lapse
on the second anniversary of the grant and the restrictions on the remainder of
the grant will lapse on the third anniversary of the grant provided that the
recipient is still employed by the Company. Instead
of restricted stock grants in February 2009, stock units were granted
to our executives based outside the U.S. One-half of the stock units
granted will vest on the second anniversary of the grant and the remaining 50%
will vest on the third anniversary of the grant, provided that the recipient is
still employed with the Company. Stock units are utilized outside the
U.S. in order to provide similar tax treatment to the recipients as restricted
stock holds for U.S. executives. Prior to vesting, the recipient has
no rights as a stockholder associated with the stock units.
Executive
Benefits and Perquisites
General. Our U.S.-based Named
Executive Officers are eligible to participate in all of our employee benefit
plans (such as medical, dental and vision care plans; flexible spending accounts
for healthcare; life, accidental death and dismemberment and disability
insurance; employee assistance programs (confidential counseling); a defined
contribution retirement plan including a 401(k) feature; and paid time off), in
each case on the same basis as our other employees. The retirement plans
described on pages 32 and 33 are provided to all employees and executives in
order to permit them to accumulate funds for retirement and to provide a
competitive retirement package as compared to other companies. Our
benefit plans outside the U.S. are generally consistent with local
practices.
Additionally,
a limited number of executive perquisites are offered, also based on competitive
practices. We believe that the benefits and perquisites we provide our
executives are currently at or below median competitive levels for comparable
companies. The executive perquisites available to our U.S.-based Named Executive
Officers include a company-leased vehicle, financial counseling, and limited
personal use of corporate aircraft (we do not encourage personal use but
recognize that at times it is appropriate). Typically each of our
Named Executive Officers is eligible for a new vehicle at the earlier of 60,000
miles or three years. Due to the economic environment, all new
vehicle orders were suspended in 2009. In addition to the cost of the
lease, we pay for the cost of insurance, vehicle license, taxes, and
maintenance. Financial counseling and annual income tax preparation services are
23
provided
to our Named Executive Officers through a third-party service to allow Named
Executive Officers to better focus on meeting the considerable demands of their
positions. Our Compensation Committee in its discretion may revise,
amend or add to an officer’s executive benefits and perquisites if it deems it
advisable. Due to the changing environment regarding the
acceptability of “grossing up” certain forms of compensation to cover the
associated tax, in November 2009, management and our Compensation Committee
decided to eliminate tax gross-ups on all executive perquisites beginning with
the 2010 tax year.
The other
executive benefit available to our U.S.-based Named Executive Officers in 2009
was the BorgWarner Inc. Retirement Savings Excess Benefit Plan (“Excess
Plan”). This is the same plan available to all other U.S.-based
employees who exceed the qualified Retirement Savings Plan limits within the
year. All of our U.S.-based Named Executive Officers received Company
contributions under the Excess Plan in 2009. See further descriptions
of this plan on pages 34 and 35 under the Non-Qualified Deferred
Compensation section.
In
addition to benefits available to all local BERU employees, Dr. Waldhier, our
only non-U.S.-based Named Executive Officer, is eligible to receive
reimbursement for supplemental health and accident insurance policies and a
company-leased vehicle in line with the competitive market. He is
also eligible to participate in a deferred compensation retirement arrangement
as described on page 35.
Pension Benefits.
Except as described below on pages 32 to 35, none of our Named
Executive Officers participate in or have account balances in any of the
qualified or non-qualified defined benefit pension plans sponsored by
us.
Potential
Payments Upon Termination or Change of Control
Change of Control Employment
Agreements. We have entered into Change of Control Employment
Agreements (the “Change of Control Agreements”) with each of our U.S.-based
Named Executive Officers and 12 other executives. In establishing the Change of
Control Agreements, our Board of Directors determined that it is in the best
interests of the Company and its stockholders to (i) assure that we
will have the continued dedication of our Named Executive Officers in the event
of the threat or occurrence of a Change of Control, and (ii) diminish the
inevitable distraction of our Named Executive Officers by virtue of the personal
uncertainties and risks created by a pending or threatened Change of Control by
agreeing to provide two to three years of compensation
(depending on position) if the executive’s employment is terminated as a result
of a Change of Control. See pages 36 and 37 for further details of the Change of
Control Agreements for our Named Executive Officers. In order to
reflect evolving trends in executive compensation and governance, at the
recommendation of management, our Board of Directors approved changes to the
form Change of Control Agreement, These changes, which apply to all
Change of Control Agreements issued beginning in 2009, (i) eliminate the current
excise tax gross-up provisions, (ii) provide for a portion of the benefit in the
event of a change of control to be attributable to a non-compete agreement in
order to mitigate the potential for the excise tax to occur, and (iii)
incorporate a clause that allows an executive to forego a portion of benefits in
the event that the excise tax would otherwise be triggered.
Severance Benefits. Each of
our U.S.-based Named Executive Officers is eligible for severance benefits under
the BorgWarner Inc. Transitional Income Plan (“TIP”). The TIP was established to
provide some financial protection to all U.S. salaried employees in the event
that their employment is terminated for reasons beyond their control. The TIP
benefit includes a lump sum payment that is based on salary level and length of
service with us (with a maximum benefit of twenty-six weeks of base salary,
adjusted for unemployment benefits) and medical coverage.
Stock Ownership
Guidelines
In order
to promote equity ownership and further align the interests of our management
and our stockholders, we have established stock ownership guidelines that expect
our executives to hold a significant and sustained long-term personal financial
interest in the Company. Our stock ownership guidelines, which apply
to
24
all of our officers including our Named Executive
Officers, request that our officers own and continuously hold a minimum level of
stock as long as we employ them. The levels of requested stock ownership for our
Named Executive Officers are as follows:
|
Position
|
Stock Ownership
Guideline
|
|
CEO
|
Three
times average salary plus bonus for prior three years
|
|
CFO
and Presidents
|
Two
times average salary plus bonus for prior three
years
|
Each of
our Named Executive Officers is expected to fulfill this goal within five years
of his or her appointment as an officer. Moreover, enough stock must be secured
during each of the first five years to demonstrate progress toward fulfilling
the goal by year five. Our Compensation Committee reviews the ownership level
for our Chief Executive Officer and all other persons covered under this
guideline each year. Our Board of Directors reserves the right to determine what
action will be taken if a covered individual does not meet the requested
ownership guidelines. All of our Named Executive Officers met the requested
stock ownership guidelines in 2009.
Our
Insider Trading and Confidentiality Policy prohibits our directors and employees
from engaging in any transaction involving a put, call or other option on
BorgWarner securities and from selling any BorgWarner securities he or she does
not own (i.e., “selling short”).
Deductibility
of Compensation
Section
162(m) of the U.S. Internal Revenue Code (“IRC”) generally limits to $1 million
the U.S. federal deductibility of compensation paid in one year to certain
“covered employees” of a publicly held corporation (generally, our Chief
Executive Officer, Chief Financial Officer and our next three most highly
compensated executive officers in the year that the compensation is
paid). However, performance-based compensation generally is not
subject to the limits on deductibility so long as it meets certain
requirements. Our compensation plans are generally designed so that
our incentive compensation determined thereunder qualifies as performance-based
compensation within the meaning of Section 162(m).
Our
Compensation Committee, which is comprised solely of “outside directors” for
purposes of Section 162(m), strives to provide our Named Executive Officers with
compensation programs that will preserve the tax deductibility of compensation
paid by the Company, to the extent reasonably practicable and to the extent
consistent with our other compensation objectives and with our strategic
business goals. However, our Compensation Committee believes that
stockholder interests are best served by compensation programs that attract,
retain and reward the executive talent necessary for our
success. Accordingly, the Committee has discretion and flexibility in
structuring our compensation programs, and, in any year, may authorize
compensation that is not fully deductible under Section 162(m) if it believes
such compensation will enable us to better achieve our compensation objectives
and strategic business goals and promote the interests of our
stockholders.
The
Compensation Committee of the Company has reviewed and discussed the
Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K
with management and, based on such review and discussions, the Compensation
Committee recommended to the Board that the Compensation Discussion and Analysis
be included in this Proxy Statement.
THE
COMPENSATION COMMITTEE
Jere A.
Drummond, Chairman
Phyllis
O. Bonanno
David T.
Brown
The
Compensation Committee Report does not constitute soliciting material. It
is not considered filed by us and shall not be incorporated by reference into
any of our other filings under the Securities Act or the Exchange Act unless we
state otherwise.
Compensation
Committee Interlocks and Insider Participation
During
our last completed fiscal year, the voting members of our Compensation Committee
were Jere A. Drummond, Chairman, Phyllis O. Bonanno and David T. Brown. None of
these persons was an officer or employee of the Company or any of its
subsidiaries, or was formerly an officer of the Company or of any of its
subsidiaries. None of these persons has any relationship requiring disclosure by
the Company under Item 404 of Regulation S-K.
No
executive officer of the Company served as a member of the compensation
committee (or other board committee performing equivalent functions or, in the
absence of any such committee, the entire board of directors) of another entity,
one of whose executive officers served on the Company’s Compensation Committee
or the Company’s Board of Directors. No executive officer of the Company served
as a director of another entity, or as a member of the compensation committee
(or other board committee performing equivalent functions or, in the absence of
any such committee, the entire board of directors) of such other entity, one of
whose executive officers served on the Compensation Committee or the Board of
Directors of the Company.
Summary
Compensation Table
The following table sets
forth information regarding compensation earned by our Named Executive
Officers during 2009:
|
Name
and Principal
|
|
Salary
|
Bonus
|
Stock
Awards (1)
|
Option
Awards (1)
|
Non-Equity
Incentive Plan Compensation (2)
|
Change
in Pension Value and Non-Qualified Deferred Compensation
Earnings
|
All
Other Compensation
|
Total
|
||||||||||||||||||||||||
| Position | Year |
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
||||||||||||||||||||||||
|
(a)
|
(b)
|
(c)
|
(d)
|
|
(e)
|
(f)
|
(g)
|
(h)
|
(i)
|
(j)
|
|||||||||||||||||||||||
|
Timothy
M. Manganello
|
2009
|
946,458 | - | 4,952,018 | - | 2,997,412 | - | 199,605 | 9,095,493 | ||||||||||||||||||||||||
|
Chairman
and Chief Executive Officer
|
2008
|
1,100,000 | - | 4,252,938 | - | - | - | 534,372 | 5,887,310 | ||||||||||||||||||||||||
|
2007
|
900,000 | - | 14,246,851 | 1,208,117 | 2,666,782 | - | 237,695 | 19,259,445 | |||||||||||||||||||||||||
|
Robin
J. Adams
|
2009
|
486,135 | - | 1,856,972 | - | 1,243,419 | - | 88,759 | 3,675,285 | ||||||||||||||||||||||||
|
Executive
VP, Chief Financial Officer and Chief Admin Officer
|
2008
|
565,000 | - | 1,379,110 | - | - | - | 241,630 | 2,185,740 | ||||||||||||||||||||||||
|
2007
|
466,000 | - | 1,169,000 | 457,199 | 1,061,342 | - | 111,776 | 3,265,317 | |||||||||||||||||||||||||
|
Roger
J. Wood
|
2009
|
437,865 | - | 1,114,224 | - | 641,862 | - | 157,962 | 2,351,913 | ||||||||||||||||||||||||
|
President,
Turbo & Emissions Systems & Thermal Systems
|
2008
|
480,000 | - | 982,638 | - | 522,447 | - | 200,439 | 2,185,524 | ||||||||||||||||||||||||
|
2007
|
395,000 | - | 728,000 | 284,671 | 709,924 | - | 158,982 | 2,276,577 | |||||||||||||||||||||||||
|
Thomas
Waldhier (3)(4)(5)
|
2009
|
429,660 | 279,340 | 1,320,525 | - | 619,524 | 117,519 | 43,956 | 2,810,524 | ||||||||||||||||||||||||
|
President,
BERU
|
|||||||||||||||||||||||||||||||||
|
John
G. Sanderson (6)
|
2009
|
322,878 | - | 1,331,652 | - | 338,498 | - | 54,802 | 2,047,830 | ||||||||||||||||||||||||
|
President,
Drivetrain Systems
|
|||||||||||||||||||||||||||||||||
|
Bernd
W. Matthes (4)(7)
|
2009
|
211,651 | - | 928,676 | - | 596,983 | - | 669,962 | 2,407,272 | ||||||||||||||||||||||||
|
Former
President, Transmission Systems
|
2008
|
405,000 | - | 781,324 | - | - | - | 162,825 | 1,349,149 | ||||||||||||||||||||||||
|
2007
|
365,000 | - | 532,000 | 207,244 | 326,478 | - | 321,672 | 1,752,394 | |||||||||||||||||||||||||
|
(1)
The aggregate values in columns (e) and (f) reported for 2009
represent the grant date fair market value of the awards noted in the
Grants of Plan-Based Awards Table. The Stock and Option awards
for 2008 and 2007 reported in columns (e) and (f) have been recomputed to
reflect the fair market value of the awards as reported in the applicable
year's Grants of Plan-Based Awards Table. The August 7, 2007
Recognition and Retention Grant to Mr. Manganello is included in the
value reported for the 2007 stock award. Details of this grant were
disclosed in a current report on Form 8-K filed on August 7, 2007.
Assuming maximum performance levels are achieved for the 2010-2012
Performance Share Plan, the maximum value of all stock awards granted
would be $8,467,721 for Mr. Manganello, $3,175,097 for Mr. Adams,
$1,905,099 for Mr. Wood, $2,244,819 for Dr. Waldhier, $2,319,662 for Mr.
Sanderson, and $1,588,793 for Dr. Matthes, based on fair market value at
the time of grant.
|
|
(2)
The values in column (g) reflect payments made under the Management
Incentive Plan (MIP), including Carryover Bonus payments. The 2009 plan
year payout, paid in February 2010, includes a Carryover Bonus payment of
$1,567,412 for Mr. Manganello, $650,169 for Mr. Adams, $191,889 for
Mr. Wood, $283,269 for Dr. Waldhier, and $354,315 for Dr. Matthes.
The 2008 plan year payout includes a Carryover Bonus payment of $32,847
for Mr. Wood. The 2007 plan year payout under the MIP includes Carryover
Bonus payments of $691,606 for Mr. Manganello, $243,180 for Mr. Adams,
$95,801 for Mr. Wood, and $80,424 for Dr. Matthes.
|
|
(3)
Compensation reported for Dr. Waldhier is converted to US Dollars using an
exchange rate of 1 Euro = 1.3967 USD, which is a periodic average rate for
2009.
|
|
(4)
The actual change in the present value of the accumulated pension value
increased for Dr. Matthes in 2009 by $85,194 leaving a remaining balance
of ($8,406) when netted against last year’s balance. The change in Pension
Value for 2009 for both Dr. Waldhier and Dr. Matthes was converted from
Euros to US Dollars using an exchange rate of 1 Euro = 1.3967 US Dollar.
The actual change in the present value of the accumulated pension value
increased for Dr. Matthes in 2008 by $5,308 leaving a remaining balance of
($93,600) when netted against last year’s balance. The change in Pension
Value for 2008 was converted from Euros to US Dollars using an exchange
rate of 1 Euro = 1.3969 US Dollar. The actual change in the present value
of the accumulated pension value decreased for Dr. Matthes by $98,908 in
2007 due to an increase in the discount rate used in 2007 compared to the
rate used in 2006. Change in Pension Value for 2007 was converted from
Euros to US Dollars using an exchange rate of 1 Euro = 1.4598 US
Dollar.
|
|
(5)
The value reported in column (d) represents a special one-time recognition
and retention cash payment.
|
|
(6)
Mr. Sanderson joined BorgWarner Inc. as an officer on February 23,
2009.
|
|
(7)
Dr. Matthes resigned as an officer of the Company effective August 7,
2009. As required, Dr. Matthes is reported as a Named Executive
Officer as he would have qualified as one of our top five most highly
compensated executives had he remained with the Company as of December 31,
2009. Stock Awards reported in cloumn (e) granted on February 10, 2009
were forfeited on August 7, 2009 in connection with the resignation of Dr.
Matthes as disclosed in a current report on Form 8-K filed on August 13,
2009.
|
All Other
Compensation Table
The
following table details, by category, the amounts reported above in the “All
Other Compensation” column of the Summary Compensation Table for each of our
Named Executive Officers. All of our Named Executive Officers exceeded the
aggregate threshold of $10,000 for perquisites and personal benefits. The chart
below indicates the amount in each category for each of our Named Executive
Officers:
|
|
Personal
Use of Leased Vehicle
|
Financial
Counseling
|
Personal
Use of Company Aircraft
|
Club
Memberships
|
Tax
Reimbursement
|
Registrant
Contributions to Defined Contribution Plans (1)
|
German
Supplemental Insurance Contributions
|
Separation
Payments
|
TOTAL
of "All Other Compensation"
|
|||||||||||||||||||||||||||
| Name |
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
|||||||||||||||||||||||||||
|
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
(g)
|
(h)
|
(i)
|
(j)
|
|||||||||||||||||||||||||||
|
Timothy
M. Manganello
|
20,863 | 10,820 | 13,086 | 1,228 | 20,361 | 133,247 | - | - | 199,605 | |||||||||||||||||||||||||||
|
Robin
J. Adams
|
11,920 | 10,820 | - | - | 7,662 | 58,357 | - | - | 88,759 | |||||||||||||||||||||||||||
|
Roger
J. Wood
|
4,553 | 10,820 | 417 | - | 8,213 | 133,959 | - | - | 157,962 | |||||||||||||||||||||||||||
|
Thomas
Waldhier (2)
|
27,886 | - | - | - | - | - | 16,070 | - | 43,956 | |||||||||||||||||||||||||||
|
John
G. Sanderson
|
9,141 | 10,035 | 834 | 905 | 7,788 | 26,099 | - | - | 54,802 | |||||||||||||||||||||||||||
|
Bernd
W. Matthes (3)
|
6,321 | 7,215 | - | - | 5,837 | 19,510 | - | 631,079 | 669,962 | |||||||||||||||||||||||||||
|
(1)
Amounts contributed by the Company on behalf of its Named Executive
officers during 2009 pursuant to the provisions of the RSP and the Excess
Plan.
|
||||||||||||||||||||||||||||||||||||
|
(2)
Reimbursements for Health Insurance of €3,286, Accident Insurance of €180,
and German Old Age and Unemployment Insurance Programs of €8,040 per the
German employment contract of Dr. Waldhier. Compensation reported for Dr.
Waldhier is converted to US Dollar using an exchange rate of 1 Euro =
1.3967 USD, which is a periodic average rate for 2009.
|
||||||||||||||||||||||||||||||||||||
|
(3)
Payments in connection with the resignation of Dr. Matthes as disclosed in
a current report on Form 8-K filed on August 13, 2009. The amount
includes $304,000 as a Separation Payment, $304,000 as payment for
vacation obligations owed and as partial consideration for his
non-competition agreement, $7,000 in Outplacement Services, and $16,079 in
potential "COBRA" medical insurance premium payments. The medical
insurance payments would cease should Dr. Matthes become eligible for
benefits under another company's plan.
|
||||||||||||||||||||||||||||||||||||
|
The
following table details the tax reimbursement amounts listed in Column
(f) of the above table. These reimbursements will be
eliminated in 2010.
|
||||||||||||||||||||
|
|
Tax
Reimbursement for Personal Use of Leased Vehicle
|
Tax
Reimbursement for Financial Counseling Services
|
Tax
Reimbursement for Personal Use of Company Aircraft
|
Tax
Reimbursement for Club Memberships
|
Total
Tax Reimbursement
|
|||||||||||||||
|
Name
|
($)
|
($)
|
($)
|
($)
|
($)
|
|||||||||||||||
|
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
|||||||||||||||
|
Timothy
M. Manganello
|
2,846 | 7,457 | 3,894 | 6,164 | 20,361 | |||||||||||||||
|
Robin
J. Adams
|
2,846 | 4,816 | - | - | 7,662 | |||||||||||||||
|
Roger
J. Wood
|
1,891 | 6,136 | 186 | - | 8,213 | |||||||||||||||
|
Thomas
Waldhier
|
- | - | - | - | - | |||||||||||||||
|
John
G. Sanderson
|
2,846 | 2,408 | 371 | 2,163 | 7,788 | |||||||||||||||
|
Bernd
W. Matthes
|
2,626 | 3,211 | - | - | 5,837 | |||||||||||||||
|
|
|||||||||||||||||||||||||||||||||||||||||
| The following table summarizes the grants of equity and non-equity plan awards to our Named Executive Officers in 2009: | |||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
All
Other Stock Awards: Number of Shares or Stock Units
|
All
Other Option Awards: Number of Securities Underlying Option
|
Exercise
or Base Price of Option Awards
|
Grant
Date Fair Value of Stock and Option Awards
|
||||||||||||||||||||||||||||||||||
|
Estimated
Possible Payout Under Non-Equity
Incentive Plan Awards (1) |
Estimated
Future Payout Under Equity Incentive Plan
Awards |
||||||||||||||||||||||||||||||||||||||||
|
Threshold
|
Target
|
Maximum
|
Threshold
|
Target
|
Maximum
|
||||||||||||||||||||||||||||||||||||
| Name | Grant Date |
($)
|
($)
|
($)
|
(#) | (#) | (#) | (#) | (#) |
($/Share)
|
($)
|
||||||||||||||||||||||||||||||
|
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
(g)
|
(h)
|
(i)
|
(j)
|
(k)
|
(l)
|
||||||||||||||||||||||||||||||
|
Timothy
M. Manganello
|
715,000 | 1,430,000 | 2,860,000 | ||||||||||||||||||||||||||||||||||||||
|
3/25/2009
(2)
|
41,675 | 166,700 | 333,400 | 3,515,703 | |||||||||||||||||||||||||||||||||||||
|
2/10/2009
(3)
|
70,650 | - | - | 1,436,315 | |||||||||||||||||||||||||||||||||||||
|
Robin
J. Adams
|
296,625 | 593,250 | 1,186,500 | ||||||||||||||||||||||||||||||||||||||
|
3/25/2009
(2)
|
15,625 | 62,500 | 125,000 | 1,318,125 | |||||||||||||||||||||||||||||||||||||
|
2/10/2009
(3)
|
26,505 | - | - | 538,847 | |||||||||||||||||||||||||||||||||||||
|
Roger
J. Wood
|
229,204 | 458,408 | 916,816 | ||||||||||||||||||||||||||||||||||||||
|
3/25/2009
(2)
|
9,375 | 37,500 | 75,000 | 790,875 | |||||||||||||||||||||||||||||||||||||
|
2/10/2009
(3)
|
15,905 | - | - | 323,349 | |||||||||||||||||||||||||||||||||||||
|
Thomas
Waldhier
|
168,129 | 336,256 | 672,511 | ||||||||||||||||||||||||||||||||||||||
|
3/25/2009
(2)
|
6,250 | 25,000 | 50,000 | 527,250 | |||||||||||||||||||||||||||||||||||||
|
2/10/2009
(4)
|
2,825 | 11,300 | 19,775 | 222,384 | |||||||||||||||||||||||||||||||||||||
|
2/10/2009
(4)
|
3,900 | 15,600 | 27,300 | 307,008 | |||||||||||||||||||||||||||||||||||||
|
2/10/2009
(5)
|
12,980 | - | - | 263,883 | |||||||||||||||||||||||||||||||||||||
|
John
G. Sanderson
|
169,250 | 338,498 | 676,998 | ||||||||||||||||||||||||||||||||||||||
|
3/25/2009
(2)
|
7,825 | 31,300 | 62,600 | 660,117 | |||||||||||||||||||||||||||||||||||||
|
2/25/2009
(6)
|
3,325 | 13,300 | 23,275 | 235,410 | |||||||||||||||||||||||||||||||||||||
|
2/25/2009
(6)
|
2,850 | 11,400 | 19,950 | 201,780 | |||||||||||||||||||||||||||||||||||||
|
2/25/2009
(7)
|
13,210 | - | - | 234,345 | |||||||||||||||||||||||||||||||||||||
|
Bernd
W. Matthes
|
182,250 | 364,500 | 729,000 | ||||||||||||||||||||||||||||||||||||||
|
3/25/2009
(2)(8)
|
7,825 | 31,300 | 62,600 | 660,117 | |||||||||||||||||||||||||||||||||||||
|
2/10/2009
(3)(8)
|
13,210 | - | - | 268,559 | |||||||||||||||||||||||||||||||||||||
|
(1)
2009 bonus opportunity under the MIP. Estimated possible payout levels do
not reflect carryover opportunities for the prior years. Dr. Waldhier's
Non-Equity Incentive Plan threshold, target, and maximum payout values are
converted to US Dollar using an exchange rate of 1 Euro = 1.3967 USD,
which is a periodic average rate for 2009. Dr. Matthes' award levels
reflect the full year opportunity. His actual payout was prorated to
reflect his termination date.
|
|||||||||||||||||||||||||||||||||||||||||
|
(2)
2009 Performance Share Grant: Value of grant = number of target shares
times the closing stock price on grant date of $21.09.
|
|||||||||||||||||||||||||||||||||||||||||
|
(3)
2009 Restricted Stock Grant: Granted same day as approved by Compensation
Committee of the Board of Directors.
|
|||||||||||||||||||||||||||||||||||||||||
|
FMV
at grant date = number of restricted shares times the average of the high
and low stock price on February 10, 2009 of $20.33 in accordance with ASC
Topic 718.
|
|||||||||||||||||||||||||||||||||||||||||
|
(4)
Pro-rated portion for 2008 and 2007 Performance Share Grant: Value of
grant = number of target shares times the closing stock price on grant
date of $19.68.
|
|||||||||||||||||||||||||||||||||||||||||
|
(5)
2009 Stock Unit Grant: Granted same day as approved by Compensation
Committee of the Board of Directors. Stock units are granted outside the
U.S. for tax purposes.
|
|||||||||||||||||||||||||||||||||||||||||
|
FMV
at grant date = number of restricted shares times the average of the high
and low stock price on February 10, 2009 of $20.33 in accordance with ASC
Topic 718.
|
|||||||||||||||||||||||||||||||||||||||||
|
(6)
Pro-rated portion for 2008 and 2007 Performance Share Grant: Value of
grant = number of target shares times the closing stock price on grant
date of $17.70.
|
|||||||||||||||||||||||||||||||||||||||||
|
(7)
2009 Restricted Stock Grant: Value of grant = number of target shares
times the average of the high and low stock price on the day of grant of
$17.74.
|
|||||||||||||||||||||||||||||||||||||||||
|
(8)
Grant forfeited on August 7, 2009 in connection with the resignation of
Dr. Matthes as disclosed in a current report on Form 8-K filed on August
13, 2009.
|
|||||||||||||||||||||||||||||||||||||||||
The
equity awards reflected in the Grants of Plan-Based Awards table are granted
under the SIP. Further details regarding our incentive plans can be found in our
Compensation Discussion and Analysis on pages 19-23.
The peer
group for the performance share grants includes publicly traded companies in the
automotive supplier industry with at least $1 billion in sales that compete for
stockholder investment dollars. For the performance periods from January 1, 2007
to December 31, 2009, January 1, 2008 to December 31, 2010, and January 1, 2009
to December 31, 2011, the peer group includes the following companies (the “Peer
Group Companies”):
|
American
Axle
|
Johnson
Controls Inc.
|
Tenneco
Automotive Inc.
|
|
ArvinMeritor
Inc.
|
Lear
Corporation
|
TRW
Automotive Inc.
|
|
Autoliv
Inc.
|
Magna
International Inc.
|
Visteon
Corporation
|
|
Gentex
Corporation
|
Modine
Manufacturing Co.
|
|
Outstanding
Equity Awards at Fiscal Year-End
|
||||||||||||||||||||||||||||||||||||
|
Option
Awards
|
Stock
Awards
|
|||||||||||||||||||||||||||||||||||
|
Number
of Securities Underlying Unexercised Options Exercisable
|
Number
of Securities Underlying Unexercised Options Unexercisable
|
Equity
Incentive Plan Awards: Number of Securities Underlying Unexercised
Unearned Options
|
Option
Exercise Price
|
Option
Expiration Date (1)
|
Number
of Shares or Units of Stock That Have Not Vested (2)
|
Market
Value of Shares or Units of Stock That Have Not Vested (2)
|
Equity
Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights
That Have Not Vested (3)
|
Equity
Incentive Plan Awards: Market or Payout of Unearned Shares, Units or Other
Rights That Have Not Vested (3)
|
||||||||||||||||||||||||||||
|
Name
|
(#) | (#) | (#) | ($) | (#) |
($)
|
(#) |
($)
|
||||||||||||||||||||||||||||
|
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
(g)
|
(h)
|
(i)
|
(j)
|
|||||||||||||||||||||||||||
|
Timothy
M. Manganello
|
57,420 | 57,420 | - | 34.95 |
02/06/2017
|
|||||||||||||||||||||||||||||||
| 100,000 | 29.09 |
07/26/2016
|
||||||||||||||||||||||||||||||||||
| 124,000 | 29.04 |
07/27/2015
|
||||||||||||||||||||||||||||||||||
| 25,072 | 22.28 |
07/28/2014
|
||||||||||||||||||||||||||||||||||
| 23,064 | 12.66 |
07/24/2012
|
||||||||||||||||||||||||||||||||||
| 2,304 | 12.07 |
07/25/2011
|
||||||||||||||||||||||||||||||||||
| 228,059 | 7,576,120 | |||||||||||||||||||||||||||||||||||
| 448,025 | 14,883,391 | |||||||||||||||||||||||||||||||||||
|
Robin
J. Adams
|
21,730 | 21,730 | - | 34.95 |
02/06/2017
|
|||||||||||||||||||||||||||||||
| 40,000 | 29.09 |
07/26/2016
|
||||||||||||||||||||||||||||||||||
| 30,000 | 29.04 |
07/27/2015
|
||||||||||||||||||||||||||||||||||
| 25,926 | 22.28 |
07/28/2014
|
||||||||||||||||||||||||||||||||||
| 40,000 | 22.15 |
04/26/2014
|
||||||||||||||||||||||||||||||||||
| 35,666 | 1,184,825 | |||||||||||||||||||||||||||||||||||
| 162,100 | 5,384,962 | |||||||||||||||||||||||||||||||||||
|
Roger
J. Wood
|
13,530 | 13,530 | - | 34.95 |
02/06/2017
|
|||||||||||||||||||||||||||||||
| 28,000 | 29.09 |
07/26/2016
|
||||||||||||||||||||||||||||||||||
| 20,000 | 29.04 |
07/27/2015
|
||||||||||||||||||||||||||||||||||
| 14,686 | 22.28 |
07/28/2014
|
||||||||||||||||||||||||||||||||||
| 14,732 | 16.52 |
07/23/2013
|
||||||||||||||||||||||||||||||||||
| 22,438 | 745,390 | |||||||||||||||||||||||||||||||||||
| 101,425 | 3,369,339 | |||||||||||||||||||||||||||||||||||
|
Thomas
Waldhier
|
12,980 | 431,196 | ||||||||||||||||||||||||||||||||||
| - | - | - | - | - | 69,775 | 2,317,926 | ||||||||||||||||||||||||||||||
|
John
G. Sanderson
|
13,210 | 438,836 | ||||||||||||||||||||||||||||||||||
| - | - | - | - | - | 85,875 | 2,852,768 | ||||||||||||||||||||||||||||||
|
Bernd
W. Matthes
|
9,850 | 34.95 |
08/07/2012
|
|||||||||||||||||||||||||||||||||
| 21,000 | 29.09 |
08/07/2012
|
||||||||||||||||||||||||||||||||||
| 16,000 | - | - | 29.04 |
08/07/2012
|
- | - | - | - | ||||||||||||||||||||||||||||
| 6,840 | 22.28 |
08/07/2012
|
||||||||||||||||||||||||||||||||||
|
(1)
The stock options noted with expiration dates of 2011, 2012, 2013, 2014,
2015 and 2016 are fully vested. Stock options with an expiration date of
2017 are 50% vested, with the other 50% vesting on February 6, 2010. Stock
options were not granted in 2008 or 2009.
|
||||||||||||||||||||||||||||||||||||
|
(2)
The values in column (g) represent the number of restricted shares of
stock and/or stock units granted in 2008 and 2009, plus reinvested
dividends and/or dividend equivalents. The dollar value in column
(h) is calculated using the closing stock price on December 31,
2009 of $33.22 per share. For Mr. Manganello, this also
includes the remaining unvested shares (129,281) from the August 3,
2007 Recognition and Retention Grant, plus reinvested dividend
equivalents.
|
||||||||||||||||||||||||||||||||||||
|
(3)
The values of columns (i) and (j) are comprised of performance
share grants made under the SIP, issued for the performance periods of
2008-2010 and 2009-2011. Column (i) represents the number of all
outstanding unearned performance shares that would be paid out at the end
of each performance period if maximum TSR performance is achieved. The
maximum value was assumed based on actual performance over the most recent
period at maximum levels. Column (j) represents the number of
performance shares in column (i) times the closing stock price of
$33.22 on December 31, 2009. Actual future payouts will depend on
several factors, including (i) the number of performance shares that
are earned, as determined after the end of the performance period based on
the level at which the applicable performance goals have been achieved, as
described on pages 22
-23; and (ii) the
fair market value of stock, as defined in the SIP.
|
||||||||||||||||||||||||||||||||||||
Due to current global economic conditions and the resultant impact on the stock
market, stock options granted between 2004 and 2007 lost significant
value. In 2008, headcount reductions of over 4,000 employees
occurred.
Further reductions took place in the first half of 2009, which impacted more
senior and long service employees. All outstanding stock option grants to
officers and employees since 2000 had exercise periods of one year in the case
of involuntary separations (without cause) and death, and three years in the
case of retirement and disability. In July 2009, management recommended and our
Compensation Committee approved the extension of these exercise periods as a
tool to encourage retirement for some individuals and to ease the transition of
employees who were subject to involuntary reductions. Therefore, the
exercise period for all vested and unexercised 2001 – 2007 stock options granted
to directors, officers and employees who leave the company due to involuntary
termination (without cause) or death between January 1, 2009 and December 31,
2010 has been extended to 3 years (or the end of the 10 year term of option,
whichever is shorter). For terminations due to retirement or
disability after January 1, 2009 the exercise period has been extended to the
full remaining term of the option. The original strike price of the
grants and the original term of the options (10 years) did not
change. The amended provisions of the SIP allow our Compensation
Committee the flexibility to establish the exercise period applicable to any
future stock option grants.
If
an option-holder incurs a termination of employment due to Cause, any stock
options held by the option-holder will terminate. If termination of employment
is voluntary and without cause, any vested and unexercised stock options may be
exercised for a period of five business days from the date of termination or
until expiration of the stock option, whichever period is shorter.
Our
Compensation Committee may elect to accelerate the exercise date of a stock
option in the event of employment termination, such as due to death, disability,
or retirement. Stock options granted in 2005, 2006, and 2007 provided for
immediate vesting in the event of retirement as defined under the SIP. Stock
options granted in 2007 provided for immediate vesting in the event of death or
disability.
In
the event of a Change of Control, during the sixty day period from and after a
Change of Control, our Compensation Committee may allow the option-holder to
surrender all or part of his or her options to the Company and receive a cash
payment equal to the difference between the Change of Control price and the
exercise price of the option, less appropriate tax withholdings. However, if the
Change of Control is within six months of the date of grant to an officer or
director subject to Section 16(b) of the Exchange Act, then the option-holder is
unable to elect to receive a cash payment until after six months from the date
of grant.
Regarding
adjustments to shares, in the event of any merger, reorganization,
consolidation, recapitalization, stock dividend, stock split, extraordinary
distribution with respect to the stock or other change in corporate structure
affecting the stock, our Compensation Committee or our Board of Directors may
make such substitution or adjustments in the aggregate number, kind and option
price of shares or adjustments in the consideration receivable upon exercise as
it may determine to be appropriate in its sole discretion.
|
|
||||||||||||||||
| The following table summarizes all option exercises and stock vestings by our Named Executive Officers during 2009: | ||||||||||||||||
|
Option
Awards
|
Stock
Awards
|
|||||||||||||||
|
Number
of Shares Acquired on Exercise
|
Value
Realized On Exercise
|
Number
of Shares Acquired on Vesting (1)
|
Value
Realized On Vesting (2)
|
|||||||||||||
|
Name
|
(#) |
($)
|
(#) |
($)
|
||||||||||||
|
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
||||||||||||
|
Timothy
M. Manganello
|
- | - | 218,641 | 7,316,889 | ||||||||||||
|
Robin
J. Adams
|
- | - | 58,450 | 1,941,709 | ||||||||||||
|
Roger
J. Wood
|
- | - | 36,400 | 1,209,208 | ||||||||||||
|
Thomas
Waldhier
|
- | - | 27,300 | 906,906 | ||||||||||||
|
John
G. Sanderson
|
- | - | 19,950 | 662,739 | ||||||||||||
|
Bernd
W. Matthes
|
- | - | 23,644 | 785,454 | ||||||||||||
|
(1)
Number of "shares" disclosed in column (d) represents the total number of
performance shares earned for the 2007-2009 performance period and paid in
2010. The performance shares are actually paid 60% in stock and 40% in
cash. For Mr. Manganello, this also includes 64,641 shares from the 2009
vesting of the August 3, 2007 Recognition and Retention Grant, including
vested dividends. The receipt of all vested shares is deferred until the
termination of Mr. Manganello's employment. Details of this grant were
disclosed in a current report on Form 8-K filed on August 7,
2007.
|
||||||||||||||||
|
(2)
Amount in column (e) is equal to the number of performance shares vested
multiplied by $33.22, which is the closing stock price at the end of the
performance period on December 31, 2009. For Mr. Manganello, this also
includes the 2009 vesting of the August 3, 2007 Recognition and Retention
Grant. The total value, $2,201,009 including dividends, is equal to the
FMV at the time of vesting, which is the average of the high and low stock
price on the date of vesting.
|
||||||||||||||||
As previously stated in the Compensation Discussion
and Analysis, the granting of performance shares is designed to provide
competitive payouts at the end of a three-year period relative to how well the
Company performs against its Peer Group Companies in TSR. At the end
of the 2007 to 2009 performance period, the Company’s TSR was at the
100th percentile relative to the Peer Group Companies’ TSR (see
page 29 for listing of Peer Group Companies). The gross value of the
payouts, before taxes, is reflected above in column (e) of the
table.
|
Number
of Years Credited Service
|
Present
Value of Accumulated Benefit (1)
|
Payment
During Last Fiscal Year
|
|||||||||||
|
Name
|
Plan
Name
|
(#) |
($)
|
($)
|
|||||||||
|
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
|||||||||
|
Timothy
M. Manganello
|
- | - | - | ||||||||||
|
Robin
J. Adams
|
- | - | - | ||||||||||
|
Roger
J. Wood
|
- | - | - | ||||||||||
|
Thomas
Waldhier
|
Vereinbarung
zur betrieblichen Altersversorgung
|
2.3 | 237,848 | - | |||||||||
|
"Agreement
regarding a Company Pension"
|
|||||||||||||
|
John
G. Sanderson
|
- | - | - | ||||||||||
|
Bernd
W. Matthes
|
BorgWarner
Transmission Systems GmbH Pension Plan
|
11.8 | 668,943 | - | |||||||||
|
(1)
Converted from Euro to US Dollar using an exchange rate of 1 Euro = 1.3967
US Dollar, which is a periodic average rate for 2009.
|
|||||||||||||
Our U.S.-based Named Executive Officers are eligible to participate in the
BorgWarner Inc. Retirement Savings Plan (“RSP”). This plan, which is available
to all U.S. salaried and hourly employees, allows our Named Executive Officers
to take advantage of current tax-advantaged opportunities for accumulating
future retirement income. The RSP is comprised of two components: a Company
Retirement Account and a Savings Account with a match feature. In the Company
Retirement Account, the Company makes a contribution to the employee’s account
each pay period based on years of service and eligible pay. For the
majority of employees, this ranges from 4% to 6% of compensation up to the
Social Security wage base and from 8% to 11.5% of compensation above the Social
Security wage base. In the Savings Account, participants may make contributions
to the plan of 1% to 28% of their eligible earnings on a before-tax and/or
after-tax basis (up to the statutorily prescribed annual limit on pre-tax
contributions under the IRC). The Company matches 100% of the first 3% of the
employee’s pre-tax contributions. Participant contributions are held in trust as
required by law. All employee contributions are 100% vested when contributed,
and any employer contributions vest 100% after three years of
service.
Dr.
Waldhier is eligible for a cash balance retirement plan as part of his
employment contract. This plan provides for annual contributions of
20% of pensionable compensation (base salary) to be made by BERU, which is in
line with the competitive market. Dr. Waldhier may also make
voluntary contributions of up to 50% of his annual base salary into the
plan. Further details of this deferral feature are described on page
35. Upon eligible retirement, the accumulated balance is to be paid
in ten installments unless mutually agreed otherwise. The value
reported above, which is fully vested, is based on his 2.3 years of credited
service with BERU.
Dr.
Matthes, formerly an employee of BorgWarner Transmission Systems GmbH in
Germany, was vested in a defined benefit pension plan while an employee in
Germany and is therefore entitled to receive an annual retirement benefit from
the Transmission Systems GmbH pension plan based on 11.8 years of
credited service for the time he was employed in Germany.
|
The
Present Value of the Accumulated Pension Benefits as of December 31, 2009
for Dr. Waldhier and Dr. Matthes are calculated using the following
assumptions:
· Mortality
Tables: Heubeck 2005G
· Discount
Rate: 5.50%
· Retirement
Age: 65
· Annual
Pension Increase: 1.75%
|
| The following table shows then on-qualified deferred compensation activity for our Named Executive Officers during 2009. | ||||||||||||||||||||||
|
Executive
Contributions in Last FY
|
Registrant
Contributions in Last FY
|
Aggregate
Earnings in Last FY
|
Aggregate
Withdrawals/ Distributions
|
Aggregate
Balance at Last FYE
|
||||||||||||||||||
|
Name
|
($)
|
($)
|
($)
|
($)
|
($)
|
|||||||||||||||||
|
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
|||||||||||||||||
|
Timothy
M. Manganello
|
||||||||||||||||||||||
| (1 | ) | - | - | - | - | |||||||||||||||||
| (2 | ) | - | 109,952 | 481,770 | - | 2,003,803 | ||||||||||||||||
| (3 | ) | - | 2,201,009 | 694,434 | - | 4,294,715 | ||||||||||||||||
|
Robin
J. Adams
|
||||||||||||||||||||||
| (1 | ) | - | - | - | - | - | ||||||||||||||||
| (2 | ) | - | 33,718 | 97,217 | - | 500,042 | ||||||||||||||||
|
Roger
J. Wood
|
||||||||||||||||||||||
| (1 | ) | - | - | 47,527 | 43,449 | 173,829 | ||||||||||||||||
| (2 | ) | - | 103,808 | 147,632 | - | 676,486 | ||||||||||||||||
|
Thomas
Waldhier
|
||||||||||||||||||||||
| (4 | ) | - | - | 3,711 | - | 28,730 | ||||||||||||||||
|
John
G. Sanderson
|
||||||||||||||||||||||
| (1 | ) | - | - | - | - | - | ||||||||||||||||
| (2 | )(5) | - | 8,566 | 70 | - | 8,636 | ||||||||||||||||
|
Bernd
W. Matthes
|
||||||||||||||||||||||
| (1 | ) | - | - | - | - | - | ||||||||||||||||
| (2 | ) | - | - | 20,287 | - | 112,371 | ||||||||||||||||
|
(1)
Deferred Compensation Plan. No deferred compensation elections were
made by
|
||||||||||||||||||||||
|
Named
Executive Officers for fiscal year 2009 as the plan was
closed.
|
||||||||||||||||||||||
|
(2)
Excess Plan
|
||||||||||||||||||||||
|
(3)
August 3, 2007 Recognition and Retention Grant. Mr. Manganello is
vested in 50% of the award. However, the actual receipt of the shares will
not occur until termination of his employment as specified under the Award
Agreement.
|
||||||||||||||||||||||
|
(4)
Contractual Trust Agreement for Dr. Waldhier. Converted to US Dollar
using an exchange rate of 1 Euro = 1.3967 USD, which is a periodic average
rate for 2009.
|
||||||||||||||||||||||
|
(5)
All amounts subject to vesting and forfeiture.
|
||||||||||||||||||||||
Due to significant
restrictions placed on deferred compensation by IRC Section 409A (“Section
409A”) and the low participation rates in our plan, management recommended and
our Board approved, freezing the Deferred Compensation Plan as of December 31,
2008. Current balances will remain in the plan, but no future deferral elections
will be allowed. Distribution options include a single lump sum or quarterly
payments over a term of 5 or 10 years.
The Excess Plan is an
unfunded, non-qualified retirement plan, which keeps certain highly
compensated U.S. employees whole with regard to Company contributions that
are otherwise limited under the RSP by IRC provisions. Participation is
automatic once these limits are reached in a plan year. The contributions vest
in the same manner as under the RSP. Distributions are made following a
participant's separation from service, with distributions attributable to
amounts earned or vested before January 1, 2005 distributed within 30 days of
participant’s separation from service and amounts earned or vested after
December 31, 2004 distributed in the seventh month following the month in which
the participant's separation from service occurs. No in-service withdrawals
or loans are available.
Excess Plan balances are
invested in the same investment choices that are selected by the participants
under the RSP. Participants in the Deferred Compensation Plan may
elect to invest their deferrals in the same investment choices that are offered
in the RSP, except for the BorgWarner Stock Units. As the Excess Plan and
the Deferred Compensation Plan are unfunded, no money is actually invested.
Rather, a notional account is maintained which
mirrors the returns of these investments. The funds available
and their annual rate of return for the calendar year ended December 31, 2009 as
reported by the plan administrator are as follows:
|
|
Blackrock Equity Index
|
26.85%
|
|
|
Blackrock Life Path 2015
|
19.97%
|
|
|
Blackrock Life Path 2020
|
22.44%
|
|
|
Blackrock Life Path 2025
|
24.83%
|
|
|
Blackrock Life Path 2030
|
26.70%
|
|
|
Blackrock Life Path 2035
|
28.74%
|
|
|
Blackrock Life Path 2040
|
30.34%
|
|
|
Blackrock Life Path 2045
|
31.74%
|
|
|
Blackrock Life Path 2050
|
33.66%
|
|
|
Blackrock Life Path Retirement
|
16.49%
|
|
|
BTC US Debt Index
|
5.98%
|
|
|
BorgWarner Company Stock
|
53.61%
|
|
|
Buffalo Small Cap
|
37.49%
|
|
|
Harbor International Fund
|
38.57%
|
|
|
TRP Stable Value Fund, Sched N
|
4.15%
|
|
|
Vanguard Mid Cap Index
|
40.51%
|
Dr. Waldhier is eligible to
participate in a deferred compensation retirement arrangement whereby he has the
option to defer up to 50% of his annual base salary into a Contractual Trust
Agreement (CTA). For the amount that Dr. Waldhier elects to contribute
each year, BERU withholds this part of his salary and pays it into the CTA,
which is then invested. The account balance is payable to Dr. Waldhier upon
normal retirement at age 65, or early retirement at age 63 with deductions or at
age 60 in case of disability. The investment funds are based on a life cycle
model. This model included three funds in 2009 as noted below.
Annual rates of return for the calendar year ended December 31, 2009 as reported
by the plan administrator are as follows:
|
|
DWS Institutional Euroland Equities
|
31.10%
|
|
|
DWS Institutional Euro Government
Bonds
|
3.54%
|
|
|
DWS Institutional Money Plus
|
0.89%
|
The
following table shows the post-employment payments that would be paid to each of
our Named Executive Officers under certain Change of Control (“COC”) related
events. The calculations assume each Named Executive Officer’s employment is
terminated on December 31, 2009. For purposes of the calculations, the closing
stock price on the last business day of 2009 ($33.22) was used to determine the
vested market value of stock options and restricted
stock.
|
|
||||||||||||||||||||
|
|
Payment
Triggering Events In Connection with a CoC
|
|||||||||||||||||||
|
Involuntary
Termination
|
Voluntary
Termination
|
|||||||||||||||||||
|
CoC
only
|
with
Cause
|
without
Cause (1)
|
with
Good Reason (1)
|
without
Good Reason (2)
|
||||||||||||||||
|
Name
|
($)
|
($)
|
($)
|
($)
|
($)
|
|||||||||||||||
|
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
||||||||||||||||
|
Timothy
M. Manganello
|
- | - | 23,471,677 | 23,471,677 | 10,872,653 | |||||||||||||||
|
Robin
J. Adams
|
- | - | 7,803,056 | 7,803,056 | 2,346,417 | |||||||||||||||
|
Roger
J. Wood
|
- | - | 7,113,916 | 7,113,916 | 1,495,055 | |||||||||||||||
|
Thomas
Waldhier
|
- | - | 955,518 | 955,518 | 955,518 | |||||||||||||||
|
John
G. Sanderson
|
- | - | 3,474,116 | 3,474,116 | 1,079,982 | |||||||||||||||
|
Bernd
W. Matthes
|
- | - | - | - | - | |||||||||||||||
|
(1)
For all Named Executive Officers, except Dr. Waldhier, includes cash
severance payment based on three times the average of base plus bonus,
value of unvested stock options, value of unvested restricted stock, value
of unvested August 3, 2007 Recognition and Retention Grant
(Mr. Manganello only), prorated 2008-2010 and 2009-2011 performance
share payments, retirement benefit based on three times the 2009 Company
contributions to the RSP, value of welfare benefits (i.e. health care,
life insurance, and disability insurance coverage for 3 years),
outplacement services, and excise tax and tax gross-up payment (except Mr.
Sanderson). Dr. Waldhier does not have a separate Change of Control
Employment Agreement. Compensation reported for Dr. Waldhier in connection
with a CoC includes value of unvested restricted stock units and prorated
2008-2010 and 2009-2011 performance share payments. Compensation is
converted to US Dollar using an exchange rate of 1 Euro = 1.3967 USD,
which is a periodic average rate for 2009.
|
||||||||||||||||||||
|
(2)
Includes the value of unvested stock options, value of unvested restricted
stock, prorated 2008-2010 and 2009-2011 performance share payments, and
the value of unvested stock units of the August 3, 2007 Recognition and
Retention Grant (Mr. Manganello only).
|
||||||||||||||||||||
Change
of Control Employment Agreements
New
Change of Control Agreements were implemented beginning in 2009 for new and
future officers of the Company, including Mr. Sanderson. The new
Change of Control Agreements eliminate excise tax gross-up provisions, allow a
portion of the benefit to be attributable to a non-compete agreement in order to
reduce the potential for the excise tax, and allow executives to forego a
portion of benefits if the benefit triggers the excise tax.
Below is
a general description of the material terms and conditions of our existing
Change of Control Agreements for U.S.-based executives.
In the
event that a Named Executive Officer terminates employment for Good Reason or
the Company terminates a Named Executive Officer’s employment with the Company
without Cause within two to three years of a Change of Control or in
anticipation of a Change of Control, the Named Executive Officer is entitled to
the following:
|
·
|
a
lump sum cash amount equal to two or three times his or her annual base
salary and average annual bonus for the most recent three
years;
|
|
·
|
a
lump sum cash amount equal to two to three times the Company’s retirement
contributions that would have been made on his or her behalf in the first
year after termination of employment;
|
|
·
|
for
Executives who entered into COC Agreements prior to 2009, a tax gross-up
for any excise taxes imposed pursuant to IRC Section 4999 of the IRC so
that the Named Executive Officer will be in the same after tax position he
or she would have been in had no excise tax been imposed;
|
|
·
|
Executives
who entered into COC Agreements in or after 2009 may elect to forego a
portion of COC payments which could otherwise trigger IRC Section 4999
excise taxes as the tax will not be “grossed-up” under the COC
Agreement;
|
|
·
|
continuation
of medical, dental and life insurance benefits for two to three years;
and
|
|
·
|
outplacement
services at a cost not to exceed
$40,000.
|
“Change of Control” generally means
(a) the acquisition by any party of beneficial ownership of 20% or
more of either (i) the then outstanding shares of our common stock or
(ii) the combined voting power of our then outstanding voting securities
entitled to vote generally in the election of our directors, (b) a change
in the majority of our Board of Directors, (c) a major corporate
transaction, such as a merger or sale of substantially all of our assets, which
results in a change in the majority of our Board of Directors or a majority of
stockholders or (d) a complete liquidation or dissolution of the
Company.
“Cause”
generally means the willful and continued failure of the executive to perform
substantially the executive’s duties or the willful engaging by the executive in
illegal conduct or gross misconduct materially injurious to us.
“Good
Reason” generally means the diminution of responsibilities, authority or duties,
our failure to comply with compensation or benefit provisions, transfer to a new
work location more than 35 miles from the executive’s previous work
location, a purported termination of the Change of Control Employment Agreement
by us other than in accordance with the Change of Control Employment Agreement,
or our failure to require any successor to us to comply with the Change of
Control Employment Agreement.
|
Terminations
Not Related to a COC
|
In the
event of an involuntary or voluntary termination with or without cause not in
connection with a Change of Control, no additional payments are made to Named
Executive Officers with the exception of Mr. Manganello. In the event
of an involuntary termination without cause or a voluntary termination with good
reason, Mr. Manganello would receive $4,294,715 which is the unvested portion of
the August 3, 2007 Recognition and Retention Grant. In connection
with his resignation effective August 7, 2009, Dr. Matthes received $631,079,
which includes a separation payment, consideration for non-competition
agreement, outplacement services, and the potential value of "COBRA" medical
insurance premium payments. The medical insurance payments would cease should
Dr. Matthes become eligible for benefits under another company's plan as
disclosed in a current report on Form 8-K filed on August 13, 2009.
In the
event of termination of employment by retirement not in connection with a Change
of Control, Named Executive Officers would receive the value of unvested stock
options. As of 12/31/2009, unvested stock options had zero value as
the exercise price of the options was higher than the closing stock price on
that date.
In the
event of termination of employment by death or disability not in connection with
a Change of Control, Named Executive Officers would receive the value of the
unvested 2008 restricted stock grant and the value of the unvested August 3,
2007 Recognition and Retention Grant (Mr. Manganello only). Mr. Manganello
would receive a total of $5,229,128, Mr. Adams would receive $304,328, and Mr.
Wood would receive $217,026.
The
stated amounts do not include life or disability insurance benefits or vested
benefits under the qualified RSP or under the TIP, as these benefit plans are
available to all U.S.-based salaried employees. The provisions of each plan
would determine the timing and method of payments made under the above
scenarios.
Director Compensation
The
following table details the compensation earned by each non-employee director
who served on the Board of Directors in 2009. Directors who are employees of
BorgWarner are not compensated for their service on the Board:
|
|
||||||||||||||||||||||||||||||||
|
|
Fees
Earned or Paid in Cash
|
Stock
Awards (1)
|
Option
Awards
|
Non-Equity
Incentive Plan Compensation
|
Changes
in Pension Value and Nonqualified Deferred Compensation
Earnings
|
All
Other Compensation
|
Total
|
Aggregate
Number of Outstanding Stock and Option Awards (2)
|
||||||||||||||||||||||||
|
Name
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
(#) | ||||||||||||||||||||||||
|
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
(g)
|
(h)
|
(i)
|
||||||||||||||||||||||||
|
Phyllis
O. Bonanno
|
64,500 | 258,002 | - | - | - | - | 322,502 | 29,289 | ||||||||||||||||||||||||
|
David
T. Brown
|
64,500 | - | - | - | - | - | 64,500 | 3,472 | ||||||||||||||||||||||||
|
Dennis
C. Cuneo (3)
|
59,813 | 172,011 | - | - | - | - | 231,824 | 6,193 | ||||||||||||||||||||||||
|
Jere
A. Drummond
|
79,000 | - | - | - | - | - | 79,000 | 22,064 | ||||||||||||||||||||||||
|
John
R. McKernan (4)
|
28,125 | - | - | - | - | - | 28,125 | - | ||||||||||||||||||||||||
|
Alexis
P. Michas
|
69,000 | 258,002 | - | - | - | - | 327,002 | 29,289 | ||||||||||||||||||||||||
|
Ernest
J. Novak, Jr.
|
86,000 | - | - | - | - | - | 86,000 | 10,064 | ||||||||||||||||||||||||
|
Richard
O. Schaum
|
65,500 | 258,002 | - | - | - | - | 323,502 | 9,289 | ||||||||||||||||||||||||
|
Thomas
T. Stallkamp
|
64,500 | 258,002 | - | - | - | - | 322,502 | 9,289 | ||||||||||||||||||||||||
|
(1)
The values in column (c) reported for 2009 represent the grant date
fair market value of the restricted stock award granted on April 29,
2009.
|
||||||||||||||||||||||||||||||||
|
FMV
at grant date = number of restricted shares times the average of the high
and low stock price on April 29, 2009 of $27.775.
|
||||||||||||||||||||||||||||||||
|
(2)
Aggregate number of outstanding shares of restricted stock and outstanding
vested and unvested stock options at fiscal year-end only.
|
||||||||||||||||||||||||||||||||
|
(3)
Mr. Cuneo was appointed to the Board of Directors on February 11,
2009.
|
||||||||||||||||||||||||||||||||
|
(4)
Governor McKernan was appointed to the Board of Directors on July 29,
2009.
|
||||||||||||||||||||||||||||||||
Annual
compensation for our non-employee directors for 2009 was comprised of the
following components: annual retainer, Board meeting fees, Committee meeting
fees, and equity compensation, consisting of restricted stock. Our non-employee
directors were not granted any Stock Option Awards and did not receive any
Non-Equity Incentive Plan Compensation for 2009.
As
allowed under the SIP, each non-employee director will receive $258,000 worth of
restricted stock in the initial year of each three-year term. In April 2009,
non-employee directors, Bonanno, Michas, Schaum and Stallkamp were elected for
three-year terms. They were each awarded 9,289 shares of restricted common
stock, determined by dividing the total value of $258,000 by the average of the
high and low of the Company’s stock price at the time of the grant. The
restrictions on the shares of stock will expire over the
three-year term, one third in each year. Director Cuneo was elected to an
initial two-year term as a Class III director and was awarded 6,193 shares of
restricted stock, determined by dividing the total value of $172,000 by the
average of the high and low of the Company’s stock price at the time of the
grant. The restrictions on the shares of stock will expire over the
two-year term, 50% after one year and the remainder on the second anniversary of
the grant. During the period that the restrictions are in place, directors have
all of the rights of a stockholder of the Company holding the same class or
series of stock as the restricted stock, including the right to vote the shares
and the right to receive any cash dividends. Class II non-employee directors
elected to new terms in 2010 will receive $258,000 worth of restricted stock.
The Compensation Committee has authority to accelerate vesting in the event of
retirement.
The
annual retainer for non-employee directors in 2009 was $55,000 for service on
the Board of Directors. In view of conditions in the automotive industry and pay
cuts accepted by the Company’s salaried work force, our non-employee directors
chose to reduce their annual retainer by 10% to $49,500 for an indefinite
period. The amount of the annual retainer was restored to $55,000 on January 1,
2010. The annual retainer is prorated when a new member joins or a current
member leaves our Board. Gov. McKernan was appointed to Class II
by the Board of Directors on July 29, 2009.
Each
non-employee director received $1,500 for each Board meeting attended. Each
Committee member also received $1,500 ($3,000 if he or she was the Chairman of
the committee) for each committee meeting attended. In
recognition of greater time commitments, the Chairman of
the Audit Committee received $5,000 for each committee meeting attended.
Beginning January 1, 2010, the Lead Director (Mr. Michas) will receive $10,000
annually in recognition of his additional services to the Company. The Company
pays for the expenses associated with attendance at Board and Committee meetings
and other functions attended at the request of the Company. The Company
maintains a directors’ deferred compensation plan under which directors may
defer receipt of retainer fees only. Three directors deferred fees under the
plan in 2009.
Our non-employee directors are expected to own Company stock
in an amount equivalent to three times the amount of the annual retainer within
five years of joining the Board of Directors. All of our directors
met the requested stock ownership guidelines in 2009.
PROPOSAL 2 —
RATIFICATION OF SELECTION OF
INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
Your
Board of Directors proposes that the stockholders ratify the appointment of
PricewaterhouseCoopers LLP, its member firms, and their respective affiliates
(collectively, “PwC”) as the Company’s independent registered public accounting
firm for the 2010 fiscal year. With respect to Proposal 2, and
stockholder ratification of the selection of our auditors, ratification requires
the affirmative vote of a majority of the votes present or represented at the
meeting. Accordingly, an abstention or a broker nonvote will have the
effect of a vote against this proposal.
If the
appointment of PwC as auditors for 2010 is not ratified by the stockholders, the
adverse vote will be considered a direction to the Audit Committee to consider
other auditors for next year. However, because of the difficulty in
making any substitution of auditors so long after the beginning of the current
year, the appointment for 2010 will stand unless the Audit Committee finds other
good reason for making a change.
The Board
of Directors anticipates that representatives of PwC will be present at the
meeting to respond to appropriate questions, and will have an opportunity, if
they desire, to make a statement.
Recommendation
Your Board of Directors believes that
this proposal is in the best interests of BorgWarner and its stockholders and
unanimously recommends that you vote FOR this proposal.
Required
Vote
To be
approved, this proposal must receive an affirmative majority of the total votes
cast at the Meeting “FOR” and “AGAINST” this proposal.
INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM FEES AND SERVICES
The
aggregate fees including expenses billed to us for the years ended
December 31, 2009 (by PwC) and 2008 (by Deloitte & Touche LLP
(“Deloitte”)) for professional services were as follows:
|
|
2009
|
2008
|
||||||
|
Audit
Fees and
Expenses
|
$ | 3,375,453 | $ | 4,145,888 | ||||
|
Audit-Related
Fees
(1)
|
$ | 121,205 | $ | 372,384 | ||||
|
Tax
Fees (2)
|
$ | 619,300 | $ | 236,652 | ||||
|
All
Other Fees
Totals
|
____ | |||||||
| $ | 4,115,958 | $ | 4,754,924 | |||||
(1)
Includes fees related to assistance in financial due diligence connected with
acquisitions and divestitures, general assistance with implementation of new
financial arrangements, audits of financial statements of employee benefit plans
and various attest services. In 2009, Deloitte was paid $166,720 for the
audits of financial statements of employee benefit plans not reflected
in the table above.
(2)
Includes fees connected with tax compliance, tax planning and
expatriate services. The expatriate services were $547,000 in 2009.
Expatriate services performed in 2008 are not included in the table as they were
not performed by Deloitte. In 2009, tax fees paid to Deloitte were
$317,600 and are not reflected in the table above.
Your
Audit Committee has adopted procedures for pre-approving all audit and non-audit
services provided by the independent registered public accounting firm,
including the fees and terms of such services. These procedures include
reviewing detailed back-up documentation for audit and permitted non-audit
services. The documentation includes a description of, and a budgeted amount
for, particular categories of non-audit services that are recurring in nature
and therefore anticipated at the time that the budget is submitted. Audit
Committee approval is required to exceed the pre-approved amount for a
particular category of non-audit services and to engage the independent
registered public accounting firm for any non-audit services not included in
those pre-approved amounts. For both types of pre-approval, the Audit Committee
considers whether such services are consistent with the rules on auditor
independence promulgated by the SEC and the PCAOB. The Audit Committee also
considers whether the independent registered public accounting firm is best
positioned to provide the most effective and efficient service, based on such
reasons as the auditor’s familiarity with the Company’s business, people,
culture, accounting systems, risk profile, and whether the services enhance the
Company’s ability to manage or control risks and improve audit quality. The
Audit Committee may form and delegate pre-approval authority to subcommittees
consisting of one or more members of the Audit Committee, and such subcommittees
must report any pre-approval decisions to the Audit Committee at its next
scheduled meeting. All of the services provided by the independent registered
public accounting firm were pre-approved by your Audit Committee.
In 2008
the Audit Committee of the Company’s Board of Directors solicited proposals from
the four major accounting firms and conducted an extensive evaluation process in
connection with the selection of the Company’s independent auditor for the
fiscal year ending December 31, 2009. Following this process, on
October 6, 2008, your Audit Committee (i) elected to replace, and thereby
dismissed, Deloitte as its independent auditor for the Company’s fiscal year
ended December 31, 2009, and (ii) appointed PwC to serve as the Company’s
independent auditor for 2009. Deloitte continued as the Company’s
auditor for the fiscal year ended December 31, 2008. With the filing on February
12, 2009 of the Company’s Annual Report on Form 10-K for the year ended December
31, 2008, Deloitte was dismissed as the Company’s independent auditor and the
Company’s auditor – client relationship with Deloitte effectively
ceased.
Deloitte’s
audit report dated February 12, 2009 on the Company’s consolidated financial
statements for the fiscal years ended December 31, 2008 and 2007 did not contain
an adverse opinion or disclaimer of opinion, nor was it qualified or modified as
to uncertainty, audit scope or accounting principles, except that the audit
report included an emphasis of a matter indicating that as discussed in Note 1
to the consolidated financial statements, the Company changed its methods of
accounting in 2007 for income taxes as a result of adopting FASB Interpretation
No. 48, Accounting for
Uncertainty in Income Taxes, and in 2006 for defined benefit pension and
other postretirement plans as a result of adopting SFAS No. 158, Employers’ Accounting for Defined
Benefit Pension and Other Postretirement Plans. The audit
report of Deloitte dated February 12, 2009 on the effectiveness of internal
control over financial reporting as of December 31, 2008 did not contain an
adverse opinion or disclaimer of opinion, nor was it qualified or modified as to
uncertainty, audit scope or accounting principles.
During
the Company’s two most recent fiscal years and the subsequent interim period
from January 1, 2009 through February 12, 2009, (i) there were no disagreements
between the Company and Deloitte on any matters of accounting principles or
practices, financial statement disclosure or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of Deloitte, would have
caused Deloitte to make reference to the subject matter of the disagreement in
its report on the Company’s consolidated financial statements, and (ii) there
were no “reportable events” as that term is defined in Item 304(a)(1)(v) of
Regulation S-K. Deloitte provided us with a letter stating that they
agree that there were no such disagreements during our last two fiscal years and
the subsequent interim period from January 1, 2009 through February 12, 2009 and
we filed a copy of such letter under cover of a Form 8-K/A within the time
period prescribed by the SEC.
During
2007 and 2008 and the subsequent interim period from January 1, 2009 through
February 12, 2009, neither the Company nor anyone acting on behalf of the
Company, consulted PwC regarding any of the matters or events set forth in Item
3.04 (a)(2) of Regulation S-K.
The
Company is not aware of any business to come before this annual meeting other
than the matters described in this proxy statement. However, if any other
matters should properly come before this meeting, votes pursuant to the proxy
will be cast thereon in accordance with the discretion of the persons named in
the accompanying proxy.
Expenses
of Solicitation
The cost
of solicitation of proxies will be borne by the Company. In addition to
solicitation of proxies through the internet and by use of the mails, proxies
may be solicited by directors, officers and regularly engaged employees of the
Company. None of these directors, officers or employees will receive any extra
compensation for doing this. We have also retained Georgeson to assist us in
soliciting proxies for a fee of $8,000 plus reasonable out-of-pocket expenses.
Brokers, nominees and other similar record holders will be requested to forward
solicitation material and will be reimbursed by the Company upon request for
their reasonable out-of-pocket expenses.
Stockholder
Proposals
Stockholder
proposals which are intended to be presented at the 2011 Annual Meeting of
Stockholders pursuant to SEC Rule 14a-8 must be received by the Company on
or before November 22, 2010, for inclusion in the proxy statement relating to
that meeting.
A
stockholder who intends to present business, including the election of a
director, at the 2011 Annual Meeting of Stockholders other than pursuant to
Rule 14a-8, must comply with the requirements set forth in the Company’s
Amended and Restated By-Laws. Among other things, under the Company’s Bylaws to
bring business before an annual meeting a stockholder must give written notice
to the Secretary of the Company not less than 90 days and not more than
120 days prior to the first anniversary of the preceding year’s annual
meeting. Therefore, for stockholder proposals to be presented other than
pursuant to Rule 14a-8, the Company must receive notice no sooner than
December 28, 2010, and no later than January 27, 2011. The notice should
contain (a) as to each person whom the stockholder proposes to nominate for
election as director, all information that is required to be disclosed in
solicitations of proxies for election of directors under the securities laws,
including the person’s written consent to serve as a director if elected, and
(b) as to any other business: the reason for conducting such business; any
material interest in such business the stockholder has; the name and address of
the stockholder proposing such business as it appears in the Company’s books;
and the number of shares of the Company that are beneficially owned by the
stockholder. Stockholders should consult the Company’s Amended and Restated
By-Laws to ensure that all of the specific requirements of such notice are
met.
Available
Information on Corporate Governance and SEC Filings
Through
its website (www.borgwarner.com), the
Company makes available, free of charge, the Annual Report on Form 10-K,
Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, all
amendments to those reports, and other filings with the Securities and Exchange
Commission, as soon as reasonably practicable after they are electronically
filed with, or furnished to, the SEC. The Company also makes the following
documents available on its website: the Audit Committee Charter; the
Compensation Committee Charter; the Corporate Governance Committee Charter; the
Company’s Corporate Governance Guidelines; the Company’s Code of Ethical
Conduct; and the Company’s Code of Ethics for CEO and Senior Financial Officers.
You may also obtain a copy of any of the foregoing documents, free of charge, if
you submit a written request to Investor Relations, 3850 Hamlin Road, Auburn
Hills, Michigan 48326.
No person
is authorized to give any information or make any representation other than that
contained in this proxy statement, and if given or made, such information may
not be relied upon as having been authorized.
ANNEX A
CHARTER
BORGWARNER INC.
AUDIT
COMMITTEE
The
BorgWarner Inc. Audit Committee (the "Committee") is responsible for providing
assistance to the Board of Directors in monitoring (i) the integrity of the
financial statements of the Company, (ii) the independent auditor’s
qualifications and independence (iii) the performance of the Company’s internal
audit function and independent auditors, and (iv) the compliance by the Company
with legal and regulatory requirements.
The
Committee shall be composed of three or more directors who are free of any
relationship that, in the opinion of the Board of Directors, would interfere
with their individual exercise of independent judgment as a Committee member and
who meet the independence and experience requirements of the New York Stock
Exchange and applicable regulations of the Securities and Exchange Commission
(the “Commission”). All members of the Committee shall be generally
knowledgeable in financial and auditing matters and at least one member of the
Committee shall be “an audit committee financial expert” as defined by the
Commission. Committee members shall not simultaneously serve on the
audit committees of more than two other public companies.
The
Committee shall provide assistance to the Board in fulfilling its responsibility
for oversight of the quality and integrity of the accounting, auditing,
financial reporting and risk management practices of the Company. The
Committee shall report regularly to the Board and establish and maintain free
and open communication between the directors, the independent accountants, the
internal auditors and the management of the Company. The Committee
will:
|
|
1.
|
Be
directly responsible for the selection of, and compensation and oversight
of the work of the independent auditor (including resolution of
disagreements between management and the independent auditor regarding
financial reporting) for the purpose of preparing or issuing an audit
report or related work. The independent auditor shall report
directly to the Committee.
|
|
|
2.
|
Preapprove
all auditing services and permitted non-audit services (including the fees
and terms thereof) to be performed for the Company by its independent
auditor, subject to the de minimus exceptions for non-audit services
described in Section 10A(i)(1)(B) of the Exchange Act that are approved by
the Committee prior to the completion of the audit. Discuss and consider
the independence of the independent auditors, including the auditors'
written affirmation of
independence.
|
|
|
3.
|
Discuss
and review with the independent auditors and financial management of the
Company the proposed scope of the audit for the current year and the
nature and thoroughness of the audit process; and at the conclusion
thereof, receive and review audit reports including any comments or
recommendations of the independent
auditors.
|
|
|
4.
|
Review
with the independent auditor any audit problems or difficulties and
management’s response.
|
|
|
5.
|
Adopt
hiring policies for employees or former employees of the independent
auditor who participated in any capacity in the audit of the
Company.
|
|
|
6.
|
Review
with the independent auditors, the Company's Director of Internal Audit
and with the Company's financial and accounting managers, the adequacy and
effectiveness of the Company's internal auditing, accounting and financial
policies, procedures and controls; and elicit any recommendations for the
improvement of existing internal control procedures or the establishment
of controls or procedures. Particular emphasis should be given
to the adequacy of the internal controls to expose payments, transactions
or procedures which might be deemed illegal or otherwise
improper.
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7.
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Review
the internal audit function of the Company including proposed audit plans
for the coming year, the coordination of its programs with the independent
auditors and the results of the internal
programs.
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8.
|
Review
and discuss recurring financial statements (including quarterly reports
and disclosures made in management’s discussion and analysis) to be issued
to the shareholders or the public with management and the independent
auditor and recommend to the Board the inclusion of the Company's audited
financial statements in the Company's Annual Report on Form
10-K.
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9.
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Review
and discuss:
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(a)
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All
critical accounting policies and practices to be
used.
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(b)
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All
alternative treatments of financial information within generally accepted
accounting principles that have been discussed with management,
ramifications of the use of such alternative disclosures and treatments,
and the treatment preferred by the independent
auditor.
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(c)
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Other
material written communication between the independent auditor and
management, such as any management letter or schedule of unadjusted
differences.
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10.
|
Discuss
with management the Company’s earnings press releases, including the use
of “proforma” or “adjusted” non-GAAP information, as well as financial
information and earnings guidance provided to analysts and rating
agencies. Such discussion may be done generally (consisting of
discussing the types of information to be disclosed and the types of
presentations to be made).
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11.
|
Investigate
any matter brought to its attention within the scope of its duties and
retain outside counsel or other experts for this or any other purpose, if,
in its judgment, such retention is appropriate. The Company
shall provide appropriate funding, as determined by the Committee, for
payment of compensation to the independent auditor for the purpose of
rendering or issuing an audit report and to any advisors employed by the
Committee and for other expenses necessary or appropriate in carrying out
its duties.
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12.
|
Report
Committee activities to the full Board and annually issue a summary report
(including appropriate oversight conclusions) suitable for submission to
shareholders.
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13.
|
Review
disclosures made to the Committee by the Company’s CEO and CFO during
their certification process for the Form 10-K and Form 10-Q about any
significant deficiencies in the design or operation of internal controls
or material weaknesses therein and any fraud involving management or other
employees who have a role in the Company’s internal
controls.
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14.
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Ensure
the rotation of the lead (or coordinating) audit partner having primary
responsibility for the audit and the audit partner responsible for
reviewing the audit as required by
law.
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15.
|
Obtain
and review a report from the independent auditor at least annually
regarding (a) the independent auditor’s internal quality-control
procedures, (b) any material issues raised by the most recent internal
quality-control review, or peer review, of the firm, or any inquiry or
investigation by governmental or professional authorities within the
preceding five years respecting one or more independent audits carried out
by the firm, (c) any steps taken to deal with any such issues, and (d) all
relationships between the independent auditor and the Company. Evaluate
the qualifications, performance and independence of the independent
auditor, including considering whether the auditor’s quality controls are
adequate and the provision of permitted non-audit services is compatible
with maintaining the auditor’s independence, taking into account the
opinions of management and internal auditors. The Committee shall present
its conclusions with respect to the independent auditor to the
Board.
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16.
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Establish
and monitor procedures for the receipt, retention and treatment of
complaints received by the Company regarding accounting, internal
accounting controls or auditing matters, and the confidential, anonymous
submission by employees of concerns regarding questionable accounting or
auditing matters.
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17
|
Discuss
with the Company’s General Counsel legal matters that may have a material
impact on the financial statements or the Company’s compliance
policies.
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18.
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Generally
review and discuss with management the Company’s risk assessment and risk
management policies.
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The
Committee's charter, policies and procedures will be reassessed at least
annually to allow reaction to changing conditions and environment and to assure
that the Company's accounting and reporting practices are in accordance with all
requirements and are of the highest quality. The Committee may amend
or repeal its charter,
policies
and procedures, as the Committee deems appropriate. The Committee
shall annually review the Committee’s own performance.
The
Committee shall meet as often as it determines necessary, but not less
frequently than quarterly. The Committee shall meet periodically with
management, the internal auditors and the independent auditor in separate
executive sessions. These meetings shall include the independent
auditors' evaluation of the Company's financial, accounting and auditing
personnel and an assessment of the cooperation the independent auditors received
during the review. The Committee may request any officer or employee
of the Company or the Company’s outside counsel or independent auditor to attend
a meeting of the Committee or to meet with any members of, or consultants to,
the Committee.
The
Committee may form and delegate authority to subcommittees consisting of one or
more members when appropriate, including the authority to grant pre-approvals of
audit and permitted non-audit services, provided that decisions of such
subcommittee shall be presented to the full Committee at its next scheduled
meeting.
The Chair
of the Committee shall establish such rules for the Committee and its members as
may from time to time be necessary and proper for the conduct of the Committee’s
business, in conformity with applicable laws, rules and
regulations.
A-3
| VOTE BY INTERNET — www.proxyvote.com Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time on April 27, 2010. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. BORGWARNER INC. Electronic Delivery of Future PROXY MATERIALS 3850 HAMLIN ROAD If you would like to reduce the costs incurred by our company in mailing proxy AUBURN HILLS, MI 48326 materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years. VOTE BY PHONE — 1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions until 11:59 P.M. Eastern Time on April 27, 2010. Have your proxy card in hand when you call and then follow the instructions. VOTE BY MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: KEEP THIS PORTION FOR YOUR RECORDS DETACH AND RETURN THIS PORTION ONLY THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. For Withhold For All To withhold authority to vote for any All All Except individual nominee(s), mark “For All Except” and write the number(s) of the The Board of Directors recommends that you nominee(s) on the line below. vote FOR the following: 0 0 0 1. Election of Directors Nominees 01 Jere A. Drummond 02 Timothy M. Manganello 03 John R. McKernan, Jr. 04 Ernest J. Novak, Jr. The Board of Directors recommends you vote FOR the following proposal(s): For Against Abstain 2 To ratify the appointment of PricewaterhouseCoopers LLP as Independent Registered Public Accounting Firm for the Company for 0 0 0 2010. NOTE: 3. To transact such other business as may properly come before the meeting or any adjournment or postponement thereof. The undersigned hereby acknowledges receipt of the notice of annual meeting, the proxy statement and the annual report on Form 10-K for the annual period ended December 31, 2009. R2.09.05.010 _1 Please sign exactly as your name(s) appear(s) hereon. When signing as 0000047696 attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name, by authorized officer. Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date |
| Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: The Annual Report on Form 10K, Notice & Proxy Statement is/are available at www.proxyvote.com . BORGWARNER INC. This Proxy is Solicited by the Board of Directors In Connection With the 2010 Annual Meeting of Stockholders 9:00 A.M. (local time) April 28, 2010 PLACE: BorgWarner Inc. 3850 Hamlin Road Auburn Hills, MI 48326 PROXY: JOHN J. GASPAROVIC and LAURENE H. HORISZNY, and each of them individually, are hereby appointed by the undersigned as attorneys and proxies with full power of substitution, to vote all the shares of Common Stock that the undersigned is entitled to vote at the 2010 Annual Meeting of Stockholders of BorgWarner Inc. or at any adjournment(s) or postponement(s) of the meeting. WITH RESPECT TO ANY MATTER THAT SHOULD PROPERLY COME BEFORE THE ANNUAL MEETING THAT IS NOT SPECIFIED HEREIN, THIS PROXY DELEGATES DISCRETIONARY AUTHORITY TO VOTE R2.09.05.010 AND, WILL BE VOTED IN THE DISCRETION OF THE PROXY HOLDER. _2 0000047696 Continued and to be signed on reverse side |