<PAGE> 1
FILED PURSUANT TO RULE 424(b)(3)
REGISTRATION NO. 333-49777
THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE
CHANGED. WE MAY NOT DELIVER THESE SECURITIES UNTIL A FINAL PROSPECTUS SUPPLEMENT
IS DELIVERED. THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS ARE NOT
OFFERS TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
PROSPECTUS SUPPLEMENT Issued February 12, 1999 (Subject to Completion)
(To Prospectus dated June 4, 1998)
$400,000,000
Meritor Automotive, Inc.
% NOTES DUE
------------------------
Interest payable on and
------------------------
MERITOR AUTOMOTIVE, INC. MAY REDEEM THE NOTES, IN WHOLE OR IN PART, AT ANY TIME
PRIOR
TO MATURITY AT REDEMPTION PRICES DESCRIBED IN THIS PROSPECTUS SUPPLEMENT.
------------------------
PRICE % AND ACCRUED INTEREST, IF ANY
------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS COMPANY
-------- ------------- -----------
<S> <C> <C> <C>
Per note................................. % % %
Total.................................... $ $ $
</TABLE>
The Securities and Exchange Commission and state securities regulators have not
approved or disapproved these securities, or determined if this prospectus
supplement or the accompanying prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
Morgan Stanley & Co. Incorporated expects to deliver the notes to purchasers on
, 1999.
------------------------
MORGAN STANLEY DEAN WITTER
BEAR, STEARNS & CO. INC.
J.P. MORGAN & CO.
SALOMON SMITH BARNEY
WARBURG DILLON READ
DEUTSCHE BANK SECURITIES
FIRST CHICAGO CAPITAL MARKETS, INC., a BANKONE Company
SCOTIA CAPITAL MARKETS
February , 1999
<PAGE> 2
You should rely only on the information contained or incorporated by
reference in this Prospectus Supplement and the accompanying Prospectus. We have
not, and the underwriters have not, authorized any other person to provide you
with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriters are not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this Prospectus Supplement and the accompanying
Prospectus is accurate as of the date on the front of the documents only. Our
business, financial condition, results of operations and prospects may have
changed since that date.
------------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Forward-Looking Statements.................................. S-2
Use of Proceeds............................................. S-3
Pro Forma Capitalization.................................... S-3
The Company................................................. S-4
Selected Financial Data..................................... S-14
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. S-16
Ratio of Earnings to Fixed Charges.......................... S-25
Description of the Notes.................................... S-25
Underwriting................................................ S-29
PROSPECTUS
Available Information....................................... 2
Documents Incorporated by Reference......................... 2
The Company................................................. 3
Use of Proceeds............................................. 3
Ratio of Earnings to Fixed Charges.......................... 3
Description of the Debt Securities.......................... 4
Plan of Distribution........................................ 14
Experts..................................................... 15
Legal Matters............................................... 16
</TABLE>
FORWARD-LOOKING STATEMENTS
This Prospectus Supplement contains statements relating to future results
of the Company (including certain projections and business trends) that are
"forward-looking statements" as defined in the Private Securities Litigation
Reform Act of 1995. Actual results may differ materially from those projected as
a result of various risks and uncertainties, including but not limited to global
economic and market conditions; the demand for commercial, specialty and light
vehicles for which the Company supplies products; risks inherent in operating
abroad; original equipment manufacturer program delays; demand for and market
acceptance of new and existing products; successful development of new products;
reliance on major original equipment manufacturer customers; labor relations of
the Company, its customers and suppliers; and competitive product and pricing
pressures, as well as other risks and uncertainties, including those detailed
herein and from time to time in other filings of the Company with the Securities
and Exchange Commission. See also "The Company -- Customers; Sales and
Marketing", "-- Competition", "-- Raw Materials and Supplies", "-- Acquisitions
and Dispositions", "-- Seasonality; Cyclicality" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" herein. These
forward-looking statements are made only as of the date hereof, and the Company
undertakes no obligation to update or revise the forward-looking statements,
whether as a result of new information, future events or otherwise.
S-2
<PAGE> 3
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the %
Notes due (the "Notes") will be applied to repay (1) approximately
$300 million aggregate principal amount of borrowings under a bank credit
agreement entered into in January 1999 to fund a recent acquisition (described
below) and (2) approximately $100 million aggregate principal amount of
borrowings under the Company's bank revolving credit facility, which were
incurred primarily to fund payments to Rockwell International Corporation in
connection with the Distribution (defined below). These borrowings bear interest
at fluctuating rates which, on February 10, 1999, ranged from 5.15% to 6.22%.
Pending application of the funds, the Company will use the net proceeds of the
Notes for short-term investments.
PRO FORMA CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1998 and as adjusted to give effect to the sale of the Notes
offered hereby and the application of the net proceeds therefrom as described
under "Use of Proceeds". This table should be read in conjunction with "Use of
Proceeds", "Selected Financial Data", "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the consolidated financial
statements and related notes of the Company appearing elsewhere or incorporated
by reference herein. The pro forma information may not reflect the cash,
short-term debt and capitalization of the Company in the future.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1998
--------------------------------------
PRO FORMA COMPANY
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Cash....................................................... $ 88 $ -- $ 88
==== ===== ======
Short-term debt*........................................... 44 -- 44
==== ===== ======
Long-term debt:
Bank revolving credit facility........................ 486 (100) 386
Other................................................. 61 -- 61
Notes................................................. -- 400 400
---- ----- ------
Total long-term debt....................................... 547 300 847
Minority interests......................................... 33 -- 33
Shareowners' equity:
Common Stock.......................................... 69 -- 69
Additional paid-in-capital............................ 157 -- 157
Retained earnings..................................... 151 -- 151
Accumulated other comprehensive loss.................. (84) -- (84)
---- ----- ------
Total shareowners' equity.................................. 293 -- 293
---- ----- ------
Total capitalization..................................... $873 $ 300 $1,173
==== ===== ======
</TABLE>
- ---------------
* In January 1999, the Company borrowed $300 million under a one-year $300
million unsecured term credit agreement. A portion of the proceeds from the
sale of the Notes will be applied to repay these borrowings.
S-3
<PAGE> 4
THE COMPANY
The Company, headquartered in Troy, Michigan, is a leading global supplier
of a broad range of components and systems for use in commercial, specialty and
light vehicles. The Company was incorporated in Delaware in May 1997 in
connection with the September 30, 1997 distribution by Rockwell International
Corporation, a Delaware corporation and Meritor's former parent company
("Rockwell"), to Rockwell shareowners on a pro rata basis of all of the issued
and outstanding shares of the Company (the "Distribution"). In the Distribution,
Rockwell shareowners received one share of Company Common Stock for every three
shares of Rockwell Common Stock owned on September 17, 1997, the record date for
the Distribution. Prior to the Distribution, Rockwell transferred substantially
all of its operations, assets and liabilities related to the automotive
businesses then owned and operated by Rockwell (the "Automotive Business")
(including liabilities relating to former operations) to the Company or to
subsidiaries of the Company. As used herein, the terms "Company" or "Meritor"
include subsidiaries and predecessors unless the context indicates otherwise.
References herein to the Company's being a leading supplier or the world's
leading supplier, and other similar statements as to the Company's relative
market position, are based principally on calculations made by the Company based
on information collected by the Company, including Company and industry sales
data obtained from internal and available external sources, as well as Company
estimates. In addition to such quantitative data, the Company's statements are
based on other competitive factors such as the Company's technological
capabilities, its research and development efforts and innovations and the
quality of its products and services, in each case relative to that of its
competitors in its addressed markets.
Meritor serves a broad range of original equipment manufacturer ("OEM")
customers worldwide, including truck OEMs, light vehicle OEMs, semi-trailer
producers and off-highway and specialty vehicle manufacturers. Its ten largest
customers accounted for approximately 60% of total fiscal 1998 sales. The
Company operated 46 manufacturing facilities around the world in fiscal 1998.
Sales outside North America accounted for approximately 38% of total sales in
fiscal 1998.
The Company serves its customers worldwide through Heavy Vehicle Systems
("HVS") and Light Vehicle Systems ("LVS"). HVS, which had fiscal 1998 sales of
approximately $2.36 billion, supplies drivetrain systems and components to OEMs
as well as to the aftermarket, including axles, brakes, transmissions, clutches
and drivelines, for heavy-duty and medium-duty trucks, trailers, off-highway
equipment, buses and coaches, as well as other specialty and military vehicles.
LVS, which had fiscal 1998 sales of approximately $1.48 billion, supplies
electromechanical and other components and systems, including roof, door, access
control, suspension and seat adjusting systems and wheel products for passenger
cars, light trucks and sport utility vehicles.
The Company conducted operations in the United States and in 14 foreign
countries at September 30, 1998. Approximately 44% of Meritor's total assets and
38% of sales for the year ended September 30, 1998, were outside North America,
primarily in France, the United Kingdom, Germany, Brazil and Italy.
S-4
<PAGE> 5
The Company's sales by product class for the three fiscal years ended
September 30, 1998 were as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
-------------------------------
1998 1997 1996
------ ----------- ------
(IN MILLIONS)
<S> <C> <C> <C>
Heavy Vehicle Systems:*
Truck and Trailer Products........................... $1,759 $1,441 $1,360
Off-Highway, Specialty and Military Vehicle
Products.......................................... 602 516 467
Light Vehicle Systems.................................. 1,475 1,352 1,317
------ ------ ------
Total........................................ $3,836 $3,309 $3,144
====== ====== ======
</TABLE>
- ---------------
*HVS sales include aftermarket sales of $313 million in 1998, $290 million in
1997 and $261 million in 1996.
The following tables depict HVS and LVS sales by product and geographic
region for the fiscal year ended September 30, 1998:
1998 SALES BY PRODUCT
<TABLE>
<S> <C>
Heavy Vehicle Systems:
Truck and Trailer Axles and Brakes........................ 39%
Off-Highway, Specialty and Military Vehicle Products...... 16
Transmissions, Clutches, Drivelines and Other............. 6
Light Vehicle Systems:
Door Systems.............................................. 13
Roof Systems.............................................. 10
Access Control Systems.................................... 5
Suspension Systems........................................ 5
Wheel Products............................................ 4
Seat Adjusting Systems.................................... 2
---
Total............................................. 100%
===
</TABLE>
1998 SALES BY GEOGRAPHIC REGION
<TABLE>
<CAPTION>
HEAVY VEHICLE SYSTEMS LIGHT VEHICLE SYSTEMS COMBINED
--------------------- --------------------- --------
<S> <C> <C> <C>
North America.................................. 77% 39% 62%
Europe......................................... 16 48 29
South America.................................. 5 9 6
Asia/Pacific................................... 2 4 3
--- --- ---
Total................................ 100% 100% 100%
=== === ===
</TABLE>
Meritor began operations separate from Rockwell on October 1, 1997 and,
accordingly, does not have an operating history as an independent company prior
to that date. The combined financial information included or incorporated by
reference in this Prospectus Supplement or the accompanying Prospectus as of and
for periods prior to September 30, 1997 may not necessarily be indicative of the
results of operations, financial position and cash flows of the Company had it
been a separate, independent company during these periods. The consolidated
financial statements for periods after September 30, 1997 are those of the
Company and its subsidiaries.
INDUSTRY TRENDS
The automotive industry is experiencing several significant trends that
present opportunities and challenges to industry suppliers. These trends, which
influence the Company's business strategies, include the
S-5
<PAGE> 6
globalization of OEMs and their suppliers, increased outsourcing by OEMs,
increased demand for modules and systems by OEMs and the consolidation of
suppliers worldwide.
As OEMs expand geographically to access new markets, they are able to
achieve significant cost savings and enhanced product quality and consistency by
sourcing from the most capable, full-service global suppliers. OEMs and
suppliers also have the opportunity to take advantage of economies of scale
through global sourcing of components and systems and by designing platforms
that can be used in different geographic markets, but still be adapted to local
preferences.
OEMs are responding to global competitive pressures to improve quality and
reduce manufacturing costs and related capital investments by outsourcing
products which they historically have engineered and manufactured internally.
Outsourcing enables OEMs to focus on their core design, assembly and marketing
capabilities. In markets addressed by LVS, this increased outsourcing trend has
extended not only to components, but to entire modules and systems, requiring
suppliers to provide a higher level of engineering, design, electromechanical
and systems integration expertise in order to remain competitive. Increased
outsourcing by light vehicle OEMs has produced higher overall per vehicle sales
by independent suppliers. Such increased outsourcing can result in supplier
sales growth independent of the overall automotive industry growth trend.
OEMs also are reducing their total number of suppliers and are more
frequently entering into supply arrangements with the most capable global
suppliers. Increasingly, the criteria for selection include not only quality,
cost and responsiveness, but also certain full-service capabilities, including
design and engineering. This trend and the globalization trend described above
have contributed to the consolidation of automotive suppliers into larger, more
efficient and more capable companies.
BUSINESS STRATEGIES
Meritor has developed leadership market positions as it has grown into a
global supplier of a broad range of components and systems for use in
commercial, specialty and light vehicles worldwide. Meritor seeks to enhance its
leadership positions and capitalize on its existing customer, product and
geographic strengths, as well as the industry trends described above, and to
increase its sales, earnings and profitability by employing the following
business strategies:
Continuously Improve Core Business Processes. The Company is continuously
seeking to improve its core business processes through investment in information
technology and capital equipment, rationalization of production among
facilities, deintegration of non-core processes, establishment of flexible
assembly sites and simplification and increased commonality of products. The
goal of these actions is to reduce product costs, improve product quality and
lower required asset investment levels, which should result in reduced product
development times and more flexibility to meet customer needs.
Capitalize on Customer Outsourcing Activities. A significant growth
strategy of the Company is to provide lower cost and higher quality products to
customers in connection with their increasing outsourcing activities. Management
believes truck and trailer OEMs in Europe will increasingly outsource in order
to achieve cost and efficiency advantages. The Company works closely with
current and prospective customers worldwide to identify and implement mutually
beneficial outsourcing opportunities. The Company has sought and will continue
to seek to utilize its broad product line and design, engineering and
manufacturing expertise by expanding its sales of higher value modules and
systems. The Company will seek to utilize its leadership positions in the supply
of electromechanical systems to light vehicle OEMs and its ability to provide
drivetrain systems to truck and specialty vehicle OEMs to capitalize on this
anticipated customer demand.
Leverage Geographic Strengths. Geographic expansion to meet the global
sourcing needs of customers and to address new markets will continue to be an
important element of the Company's growth strategy. Management believes
opportunities exist to increase further the Company's presence in the North
American light vehicle markets, where its sales of light vehicle products
increased from approximately $466 million in fiscal 1997 to approximately $576
million in fiscal 1998. The Company also believes there are opportunities to
increase sales to heavy-duty and medium-duty commercial vehicle OEMs in Europe,
building on established
S-6
<PAGE> 7
customer relationships with their North American affiliates and the Company's
existing manufacturing presence in Europe. Emerging markets such as the
Asia-Pacific region and South America could also present growth opportunities if
demand for commercial, specialty and light vehicles increases in these areas. In
evaluating opportunities in these emerging markets, the Company will continue to
assess the economic situation in these regions and its potential effect on the
Company's businesses and served markets.
Introduce New Systems and Technologies. Meritor plans to continue
investing in new technologies, including electronics, and product development.
Meritor also plans to continue working closely with its customers to develop and
implement design, engineering, manufacturing and quality improvements. The
Company will draw upon the engineering resources of its Technical Center in
Troy, Michigan and its engineering centers of expertise in the United States,
Brazil, Canada, France, Germany and the United Kingdom, as well as its ongoing
relationship with the Rockwell Science Center. See "-- Research and
Development."
Management believes that its strategy of continuing to introduce new and
improved systems and technologies will be an important factor in its efforts to
achieve its growth objectives.
Expand Aftermarket Business. Meritor is pursuing growth of its aftermarket
business, which historically has generated higher profit margins than those
associated with original equipment sales. The Company's fiscal 1998 aftermarket
sales were $313 million, representing sales of components and services
principally to HVS North American customers. The Company will seek to expand its
aftermarket business by utilizing its advanced distribution center in Florence,
Kentucky, and leveraging its existing aftermarket channels with new products,
both those manufactured by the Company and those manufactured by others and sold
by the Company under distribution agreements.
On December 28, 1998, the Company acquired the assets and assumed
substantially all of the liabilities of Euclid Industries. Euclid is a leading
North American supplier and manufacturer of aftermarket replacement parts for a
wide range of medium- and heavy-duty vehicles and has been a major participant
in the North American heavy-duty aftermarket.
Selectively Pursue Strategic Opportunities. The Company regularly
evaluates various strategic and business development opportunities, including
license agreements, marketing arrangements, joint ventures, acquisitions and
dispositions. The Company intends to continue selectively to pursue alliances
and acquisitions that would allow it to gain access to new customers and
technologies, penetrate new geographic markets and enter new product markets,
and to review the prospects of its existing businesses to determine whether any
of them should be modified, restructured, sold or otherwise discontinued. See
"Products -- Heavy Vehicle Systems -- Truck and Trailer Products -- Truck Axles"
and "-- Brakes" below for information on the Company's purchase of the heavy
truck axle manufacturing operations of Volvo Truck Corporation and the Heavy
Vehicle Braking Systems business of LucasVarity plc. See "-- Expand Aftermarket
Business" above for information on the Company's acquisition of Euclid
Industries.
PRODUCTS
Meritor designs, develops, manufactures, markets, distributes, sells,
services and supports a broad range of products for use in commercial, specialty
and light vehicles. In addition to sales to the OEM market, the Company provides
its truck and trailer products and off-highway and specialty products to OEMs,
dealers, distributors, fleets and other end-users in the aftermarket. Principal
products of the Company include the following:
HEAVY VEHICLE SYSTEMS
Truck and Trailer Products
Truck Axles. Meritor is one of the world's leading independent suppliers
of axles for heavy-duty commercial vehicles. The Company's axle manufacturing
facilities located in the United States, Brazil, England and Italy produce axles
for heavy-duty and medium-duty commercial vehicles. The Company's extensive
truck axle product line includes a wide range of drive and non-drive front steer
axles and single and
S-7
<PAGE> 8
tandem rear drive axles, which can include driver-controlled differential lock
for extra traction, aluminum carriers to reduce weight and pressurized filtered
lubrication systems for longer life. The Company's front steer and rear drive
axles can be equipped with the Company's cam, wedge or air disc brakes,
automatic slack adjusters and anti-lock braking systems.
On December 31, 1998, Meritor acquired Volvo Truck Corporation's heavy
truck axle manufacturing operations based in Lindesberg, Sweden for a purchase
price of approximately $135 million in cash, $44 million of which is deferred.
With this acquisition, Meritor became the primary supplier of heavy duty axles
for Volvo's global heavy truck operations. Meritor believes that this
acquisition enhances its position as a global leader in commercial axle
production.
Brakes. The Company is a leading independent supplier of air brakes to
heavy-duty and medium-duty commercial vehicle manufacturers in North America.
Through manufacturing facilities located in the United States, Canada, England
and Italy, the Company manufactures a broad range of foundation air brakes, as
well as automatic slack adjusters for brake systems. The Company's foundation
air brake products include cam drum brakes, which offer improved lining life and
tractor/trailer interchangeability, air disc brakes, which provide fade
resistant braking for demanding applications, and wedge drum brakes, which are
lightweight and provide automatic internal wear adjustment.
Through its 50%-owned joint venture with WABCO Automotive Products, Inc.
("WABCO"), a wholly-owned subsidiary of American Standard, Inc., the Company is
the leading supplier of anti-lock braking systems ("ABS") and a supplier of
other electronic and pneumatic control systems for North American heavy-duty
commercial vehicles. Through the joint venture, the Company also supplies
hydraulic ABS to the North American medium-duty truck market.
In 1995, federal regulations were adopted requiring that new heavy-duty and
medium-duty vehicles sold in the United States be equipped with ABS. Under these
regulations, truck-tractors were required to be ABS equipped effective in March
1997, and ABS was required on all trailers, single-unit trucks and buses with
air brakes manufactured after March 1, 1998. In addition, ABS will be required
on all trucks and buses with hydraulic brakes manufactured after March 1, 1999.
On January 29, 1999, the Company acquired the Heavy Vehicle Braking Systems
("HVBS") business of LucasVarity plc for $390 million in cash. The products of
the HVBS business include air drum and disc brakes, hydraulic brakes, wheel end
components and aftermarket products, which complement the Company's brake system
products. The Company believes that the acquisition enhances its position as a
leading provider of brakes in Europe and will enable it to provide North
American OEM and aftermarket customers with a comprehensive offering of
drivetrain products.
Trailer Products. Meritor believes it is the world's leading manufacturer
of heavy-duty trailer axles, with leadership positions in North America and in
Europe. The Company's trailer axles are available in over forty models in
capacities from 20,000 to 30,000 pounds for virtually all heavy trailer
applications and are available with the Company's broad range of brake products,
including ABS. In addition, the Company supplies trailer air suspension
products, for which it has strong market positions in Europe and growing market
presence in North America.
Transmissions. The Company introduced its transmission product line in
1989, enabling it to supply a complete drivetrain system to heavy-duty
commercial vehicle manufacturers in North America. The Company's range of
transmission models includes its Engine Synchro Shift(TM) transmission for
heavy-duty trucks that is designed to reduce gear shifting effort for drivers
and reduce wear on clutches and other drivetrain components in a cost efficient
manner by synchronizing engine speed to road speed shifts without use of the
clutch. See "-- Legal Proceedings" for information with respect to a patent
infringement lawsuit filed against the Company by Eaton Corporation and an
adverse judgment in the case.
Clutches, Drivelines and Other Products. Meritor also supplies universal
joints and driveline components, as well as clutches, including diaphragm-spring
clutches. The Company believes that its Permalube(TM) universal joint is
currently the only permanently lubricated universal joint used in the high
mileage on-
S-8
<PAGE> 9
highway market. The Company also supplies Tripmaster(R) on-board computers
(which provide trip and vehicle diagnostics) to truck OEMs and fleet operators.
OFF-HIGHWAY, SPECIALTY AND MILITARY VEHICLE PRODUCTS
Off-Highway Vehicle Products. The Company supplies heavy-duty axles,
brakes and drivelines for use in numerous off-highway vehicle applications,
including construction, material handling, agriculture, mining and forestry, in
North America, South America, Europe and China. These products are designed to
tolerate high tonnages and operate under extreme conditions.
Specialty Vehicle Products. The Company supplies axles, brakes and
transfer cases for use in buses, coaches and recreational, fire and other
specialty vehicles in North America and Europe, and is the leading supplier of
bus and coach axles and brakes in North America.
Military Vehicle Products. The Company supplies axles, brakes, brake
system components including ABS, trailer products, transfer cases and drivelines
for use in medium-duty and heavy-duty military tactical wheeled vehicles,
principally in North America.
LIGHT VEHICLE SYSTEMS
Roof Systems. Meritor is one of the world's leading independent suppliers
of sunroofs and roof systems products, including its Golde(R) brand sunroofs,
for use in passenger cars, light trucks and sport utility vehicles. The Company
has roof system manufacturing facilities in North America, Europe and the
Asia-Pacific region. Meritor's North American sunroof sales increased in fiscal
1997 and 1998, reflecting increased demand in North America. However, demand for
sunroofs in the European light vehicle market decreased in fiscal 1997 and 1998
due to increasing popularity of air conditioning. This trend, which may
continue, had a negative impact on the Company's European sales in those
periods.
Door Systems. The Company is the world's leading supplier of manual and
power window regulators and a leading supplier of integrated door modules and
systems. In fiscal 1998, the Company manufactured approximately 29.2 million
window regulators at plants in North America, South America, Europe and the
Asia-Pacific region for light vehicle and heavy-duty commercial vehicle
manufacturers. The Company's wide range of power and manual door system products
utilize numerous technologies and offer the Company's own electric motors, which
are designed for individual applications and to maximize operating efficiency
and reduce noise levels.
Access Control Systems. Meritor supplies manual and power activated latch
systems to light vehicle and heavy-duty commercial vehicle manufacturers, with
leadership market positions in Europe and a growing market presence in North
America and the Asia-Pacific region. The Company's access control products
include modular and integrated door latches, actuators, trunk and hood latches
and fuel flap locking devices. The Company manufactured approximately 22.4
million latches and 23.1 million actuators in fiscal 1998 in access control
systems manufacturing facilities in North America, Europe and the Asia-Pacific
region.
Seat Adjusting Systems. The Company supplies manual and power seat
adjusting systems for passenger cars, light trucks and sport utility vehicles,
principally in North America. The Company's seat adjusting system products,
first introduced in 1994, feature systems with integrated electronic memory and
electric motors manufactured by the Company which are designed with speed and
power capabilities to meet the specific requirements of each vehicle platform.
Suspension Products. Through its 57%-owned joint venture with Mitsubishi
Steel Mfg. Co., the Company is one of the leading independent suppliers of
products used in suspension systems for passenger cars, light trucks and sport
utility vehicles in North America. The Company's suspension system products,
which are manufactured at three facilities in the United States and Canada,
include coil springs, stabilizer bars and torsion bars. This business has
experienced significant sales growth over the past five years as light vehicle
OEMs have increased their outsourcing of suspension system products and the
light vehicle market has grown.
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<PAGE> 10
Wheel Products. Meritor is a leading supplier of wheel products to the
light vehicle OEM market, principally in North and South America. The Company's
wheel manufacturing facilities in Brazil and Mexico produced approximately 13.0
million wheels in fiscal 1998.
CUSTOMERS; SALES AND MARKETING
Meritor has numerous customers worldwide and has developed long-standing
business relationships with many of these customers. The Company markets and
sells its products principally to OEMs. In North America, the Company also
markets its truck and trailer products directly to dealers, fleets and other
end-users, who may designate the components and systems of a particular supplier
for installation in the vehicles they purchase from OEMs. Most of the Company's
sales to OEMs, consistent with industry practice, are made through open purchase
orders, which do not require the purchase of a minimum number of products and
typically may be canceled by the customer on reasonable notice without penalty.
The Company also sells products to certain customers under long-term
arrangements that require the Company to provide annual cost reductions (through
price reductions or other cost benefits for the OEMs) by certain percentages
each year. If the Company were unable to generate sufficient production costs
savings in the future to offset such price reductions, the Company's gross
margins could be adversely affected. In addition to sales to the OEM market, the
Company provides its truck and trailer products and off-highway and specialty
products to OEMs, dealers and distributors in the aftermarket.
The Company is dependent upon large OEM customers with substantial
bargaining power, including with respect to price and other commercial terms.
Although the Company believes that it generally enjoys good relations with its
OEM customers, loss of all or a substantial portion of the Company's sales to
any of its large volume customers for whatever reason (including, but not
limited to, loss of contracts, reduced or delayed customer requirements or
strikes or other work stoppages affecting production by such customers) could
have a significant adverse effect on the Company's financial results.
Daimler-Benz A.G. (which owns Mercedes-Benz A.G. and Freightliner Corporation,
including the heavy truck business formerly owned by Ford Motor Company which
was acquired by Freightliner) accounted for approximately 16% of total sales of
the Company for fiscal 1998. Daimler-Benz A.G. and Chrysler Corporation merged
on November 12, 1998, and together they accounted for approximately 23% of the
Company's total fiscal 1998 sales.
On September 18, 1998, the Company and Freightliner entered into a
multi-year extension of their existing driveline supply agreement. The agreement
provides that the Company's products, which are already standard on some
Freightliner models, will become standard on several additional models. The
agreement includes front steer and rear drive axles, air brakes, automatic slack
adjusters, clutches, transmissions, ABS, on-board diagnostic computing systems
and aftermarket parts. As a result of this contract, the Company expects that
Freightliner will account for more of the Company's sales in fiscal 1999 than it
did in fiscal 1998.
Except as noted above with respect to the North American market for
heavy-duty trucks, the Company generally competes for new business from OEMs
both at the beginning of the development of new vehicle platforms and upon the
redesign of existing platforms. New platform development generally begins two to
four years prior to start-up of production. Once a supplier has been designated
to supply products to a new platform, an OEM will generally continue to purchase
those products from the supplier for the life of the platform, which typically
lasts four to six years.
COMPETITION
The Company operates in a highly competitive environment. Principal
competitive factors are price, quality, service, product performance, design and
engineering capabilities, new product innovation and timely delivery. The
Company competes worldwide with a number of United States and international
manufacturers that are both larger and smaller than the Company in terms of
resources and market shares. In addition, certain OEMs manufacture for their own
use products of the type supplied by the Company. In North America, the major
competitors of HVS are Eaton Corporation and Dana Corporation. LVS has numerous
competitors across its various product lines worldwide.
S-10
<PAGE> 11
RAW MATERIALS AND SUPPLIES
The Company believes it has adequate sources for the supply of raw
materials and components for its manufacturing needs with suppliers located
around the world. The Company does, however, concentrate its purchases of
certain raw materials and parts over a limited number of suppliers and is
dependent upon the ability of its suppliers to meet performance and quality
specifications and delivery schedules. Although the Company historically has not
experienced any significant difficulties in obtaining an adequate supply of raw
materials and components necessary for its manufacturing operations, the loss of
a significant supplier or the inability of a supplier to meet performance and
quality specifications or delivery schedules could have an adverse effect on the
Company.
JOINT VENTURES
As the automotive industry has become more globalized, joint ventures and
other cooperative arrangements have become an important element of the business
strategies of the Company. The Company currently has interests in 13 joint
ventures with operations in the United States, Australia, Brazil, Canada, China,
India, Japan, Mexico and Turkey. In accordance with generally accepted
accounting principles, operating results of the seven joint ventures more than
50% owned are consolidated in the financial statements of the Company. Joint
ventures of the Company include its 50%-owned joint venture with WABCO for the
manufacture and supply of ABS systems for heavy-duty commercial vehicles and its
57%-owned joint venture with Mitsubishi Steel Mfg. Co. for the manufacture and
supply of suspension products for passenger cars, light trucks and sport utility
vehicles.
ACQUISITIONS AND DISPOSITIONS
Meritor regularly considers various strategic and business opportunities,
including license agreements, marketing arrangements and acquisitions, and
reviews the prospects of its existing businesses to determine whether any of
them should be modified, restructured, sold or otherwise discontinued. Although
no assurance can be given as to whether or when any acquisitions or dispositions
will be consummated, if agreement with respect to any acquisitions were to be
reached, the Company could finance such acquisitions by issuance of additional
debt or equity securities. The additional debt from any acquisitions, if
consummated, would increase the Company's debt to capitalization ratio. See
"Products -- Heavy Vehicle Systems -- Truck and Trailer Products -- Truck Axles"
and "-- Brakes" above for information with respect to the recent purchase by the
Company of the heavy truck axle manufacturing operations of Volvo Truck
Corporation and the heavy vehicle braking business of LucasVarity plc. See
"Business Strategies -- Expand Aftermarket Business" above for information on
the Company's recent acquisition of Euclid Industries.
The industry in which the Company operates is experiencing significant
consolidation among suppliers, due in part to globalization and increased
outsourcing of product engineering and manufacturing by OEMs, and in part to
OEMs more frequently awarding long-term, sole-source or preferred supplier
contracts to the most capable global suppliers, thereby reducing the total
number of suppliers from whom components and systems are purchased. The Company
will consider acquisitions as a means of further expansion, but cannot predict
whether its participation, or lack of participation, in industry consolidation
will ultimately be beneficial to the Company.
RESEARCH AND DEVELOPMENT
The Company has significant research, development, engineering and product
design capabilities. The Company spent approximately $54 million, $54 million
and $51 million in fiscal 1998, 1997 and 1996, respectively, on research and
development. At September 30, 1998, the Company employed approximately 608
professional engineers and scientists. Pursuant to a transitional services
agreement entered into with Rockwell in connection with the Distribution,
Rockwell's Science Center continues to provide assistance to the Company in the
development of various technological and product advancements.
S-11
<PAGE> 12
PATENTS AND TRADEMARKS
Numerous United States and foreign patents and patent applications are
owned or licensed by the Company in its manufacturing operations and other
activities. While in the aggregate the patents and licenses of the Company are
considered important to the operation of its business, management does not
consider them of such importance that the loss or termination of any one of them
would materially affect the Company. See "-- Legal Proceedings."
The Company's name, its registered trademark "Meritor" and its symbol are
important to its business. Other significant trademarks owned by the Company
include Golde(R) (sunroofs), Fumagalli(TM) (wheels) and ROR(TM) (trailer axles).
Under the terms of the Distribution Agreement (the "Distribution Agreement")
entered into with Rockwell in connection with the Distribution, the Company may
continue to apply the "Rockwell" brand name to its products until September 30,
2007.
EMPLOYEES
At September 30, 1998, the Company had approximately 16,900 full-time
employees. Approximately 3,688 Company employees in the United States and Canada
are covered by collective bargaining agreements. The Company believes its
relationship with unionized employees is satisfactory. No significant work
stoppages have occurred in the past five years.
ENVIRONMENTAL MATTERS
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Environmental Matters."
LEGAL PROCEEDINGS
On July 17, 1997 Eaton Corporation ("Eaton") filed suit against Rockwell in
the U.S. District Court in Wilmington, Delaware, asserting infringement of
Eaton's U.S. Patent No. 4850236, which covers certain aspects of heavy-duty
truck transmissions, by the Company's Engine Synchro Shift(TM) transmission for
heavy-duty trucks, and seeking damages and injunctive relief. Meritor was joined
as a defendant on June 11, 1998, and trial in this matter began on June 23,
1998. On July 1, 1998, the jury rendered a verdict in favor of Eaton, finding
that Meritor had infringed Eaton's patent and awarded compensatory damages in
the amount of $1.25 million, and a judgment was entered on July 17, 1998.
Because the jury found the infringement to be willful, the judge in the case has
discretion to increase the damages to an amount up to three times the amount of
the award. Eaton's request for a permanent injunction is pending. A separate
trial has been scheduled for mid-April 1999 with respect to the Company's
allegations of inequitable conduct by Eaton in obtaining its patent, and the
judge is not expected to take action with respect to Eaton's request for a
permanent injunction or the damage issue until after this trial is completed.
Meritor is evaluating the jury's verdict and the judgment and is considering
further actions, including post-trial motions and an appeal to the United States
Court of Appeals for the Federal Circuit. Based on advice of M. Lee Murrah,
Esq., Assistant General Counsel of the Company, management believes the
Company's truck transmissions do not infringe Eaton's patent. The Company
intends to continue to defend this suit vigorously.
Various other lawsuits, claims and proceedings have been or may be
instituted or asserted against Rockwell or the Company or their respective
subsidiaries relating to the conduct of the Company's business, including those
pertaining to product liability, intellectual property, environmental, safety
and health, and employment matters.
Although the outcome of litigation cannot be predicted with certainty and
some lawsuits, claims or proceedings may be disposed of unfavorably to the
Company, based on its evaluation of matters which are pending or asserted,
management believes the disposition of such matters will not have a material
adverse effect on the Company's financial statements.
S-12
<PAGE> 13
Pursuant to the terms of the Distribution Agreement, the Company assumed
responsibility for all litigation (including environmental proceedings) against
Rockwell or its subsidiaries in respect of the Automotive Business.
GEOGRAPHIC INFORMATION
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- International Operations."
SEASONALITY; CYCLICALITY
The Company may experience seasonal variations in the demand for its
products to the extent automotive vehicle production fluctuates. Historically,
such demand has been somewhat lower in the Company's first and fourth fiscal
quarters (the fourth and third calendar quarters, respectively) when OEM plants
may close during model changeovers and vacation and holiday periods.
In addition, the industry in which the Company operates has been
characterized historically by periodic fluctuations in overall demand for
trucks, passenger cars and other vehicles for which the Company supplies
products, resulting in corresponding fluctuations in demand for products of the
Company. Cycles in the major automotive industry markets of North America and
Europe are not necessarily concurrent or related. The cyclical nature of the
automotive industry is outside the control of the Company and cannot be
predicted with certainty. The Company has sought and will continue to seek to
expand its operations globally to mitigate the effect of periodic fluctuations
in demand of the automotive industry in one or more particular countries.
YEAR 2000 READINESS DISCLOSURE
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Year 2000 Readiness Disclosure."
S-13
<PAGE> 14
SELECTED FINANCIAL DATA
The following selected consolidated financial data have been excerpted or
derived from, and should be read in conjunction with, the consolidated financial
statements and other information and data contained or incorporated by reference
in the Company's Annual Report on Form 10-K for the fiscal year ended September
30, 1998 and the Company's Quarterly Report on Form 10-Q for the quarterly
period ended December 31, 1998. Information as of December 31, 1998 and 1997 and
for the three-month periods then ended is unaudited, but in the opinion of
management of the Company, contains all adjustments, consisting solely of
adjustments of a normal recurring nature, necessary to present fairly the
financial position, results of operations and cash flows for such interim
periods. The results of operations for the three-month period ended December 31,
1998 are not necessarily indicative of the results that may be expected for the
full fiscal year ending September 30, 1999.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
AND AT DECEMBER 31, FISCAL YEAR ENDED AND AT SEPTEMBER 30,
------------------- -----------------------------------------------
1998 1997 1998 1997 1996 1995 1994
-------- -------- ------- ------- ------- ------- -------
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Sales......................................... $ 944(1) $ 911(1) $ 3,836 $ 3,309 $ 3,144 $ 3,125 $ 2,653
Gross margin.................................. 127 120 547 438 397 381 282
Selling, general and administrative........... 58 57 248 228 215 203 191
Operating earnings............................ 69 63 299 181(2) 146(2) 178 91
As a percent of sales:
Gross margin................................ 13.5% 13.2% 14.3% 13.2% 12.6% 12.2% 10.6%
Selling, general and administrative......... 6.1% 6.3% 6.5% 6.9% 6.8% 6.5% 7.2%
Operating earnings.......................... 7.3% 6.9% 7.8% 5.5% 4.6% 5.7% 3.4%
Interest expense.............................. 11 10 43 10 10 11 12
Income before income taxes.................... 66 54 245(3) 186 182 185 88
Net income.................................... 40(1) 32(1) 147(3) 109 114 123 51
Basic and diluted earnings per share(4)....... .58(1) .47(1) 2.13(3) N/A N/A N/A N/A
Cash dividends per share(4)................... .105 .105 .42 N/A N/A N/A N/A
FINANCIAL POSITION
Working capital(5)............................ $ 290 $ 229 $ 162 $ 235 $ 240 $ 216 $ 204
Property -- net............................... 726 626 666 635 643 647 617
Goodwill -- net............................... 155 40 39 42 45 40 30
Total assets.................................. 2,294 1,927 2,086 2,002 1,830 1,766 1,638
Short-term debt............................... 44 57 34 21 8 14 17
Long-term debt................................ 547 434 313 465 24 31 35
Minority interests............................ 33 39 31 37 29 24 21
Equity(6)..................................... 293 157 266 151 599 561 509
OTHER DATA
EBITDA(7)..................................... $ 104 $ 88 $ 390 $ 296 $ 294 $ 293 $ 193
Depreciation and amortization................. 27 24 102 100 102 97 93
Cash provided by operating activities......... 18 65 278 208 197 203 156
Cash used for investing activities............ 199 27 130 134 101 127 99
Cash provided by (used for) financing
activities.................................. 204 (54) (216) (15) (84) (80) (41)
Capital expenditures.......................... 19 23 139 126 144 119 102
Employees at year end......................... 16,900 16,900 15,300 16,700 17,200
Annual sales per employee (in thousands)(8)... $ 228 $ 203 $ 198 $ 182 $ 159
</TABLE>
- ---------------
(1) The Company acquired two businesses in the first quarter of fiscal 1999 (see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview and Outlook" below). The following unaudited pro
forma consolidated results of operations for the quarters ended December 31,
1998 and 1997 assumes the two acquisitions occurred as of the beginning of
each period (in millions except per share amounts):
<TABLE>
<CAPTION>
QUARTER ENDED
DECEMBER 31,
--------------
1998 1997
------ ----
<S> <C> <C>
Net sales................................................... $1,020 $974
Net income.................................................. $ 41 $ 33
Basic and diluted earnings per share........................ $ .59 $.48
</TABLE>
S-14
<PAGE> 15
(2) Operating earnings for fiscal year 1997 and fiscal year 1996 include
restructuring and spin-off costs of $29 million and $36 million,
respectively.
(3) Income before income taxes, net income and basic and diluted earnings per
share for fiscal year 1998 includes a one-time charge of $31 million ($19
million after-tax), or $.27 per share relating to the settlement of interest
rate agreements.
(4) As the Company began operations as a stand-alone entity on September 30,
1997, per share data for years ending prior to September 30, 1998 is not
applicable.
(5) Working capital consists of all current assets and liabilities, including
cash and short-term debt.
(6) Equity amounts for fiscal years ending September 30, 1996, 1995 and 1994
represent the net investment of Rockwell prior to the Distribution.
(7) EBITDA is defined as income before income taxes, plus interest expense,
depreciation and amortization. EBITDA should not be considered as a
substitute for operating earnings, net income, cash flow or other statement
of consolidated income or cash flow data computed in accordance with
generally accepted accounting principles or as a measure of a company's
results of operations or liquidity. Although EBITDA is not defined in
generally accepted accounting principles, it is widely used as a measure of
a company's operating performance and its ability to service its
indebtedness because it assists in comparing performance on a consistent
basis across companies without regard to depreciation and amortization,
which can vary significantly depending on accounting methods (particularly
where acquisitions are involved) or non-operating factors such as historical
cost bases and capital structure.
(8) Annual sales per employee is based on the average of the monthly ending
number of employees during the year.
S-15
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and
Results of Operations should be read in conjunction with the consolidated
financial statements and other information and data contained or incorporated by
reference in the Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1998 and the Company's Quarterly Report on Form 10-Q for the
quarterly period ended December 31, 1998, which are incorporated by reference in
this Prospectus Supplement and the accompanying Prospectus.
OVERVIEW AND OUTLOOK
Meritor's first year as a publicly-held company produced record results and
exceeded expectations. Fiscal 1998 sales were $3.8 billion, a 16 percent
increase over fiscal 1997's sales of $3.3 billion. Net income for the year was
$147 million, or $2.13 per share, an increase of 48 percent as compared with
1997 pro forma net income of $99 million, or $1.44 per share. Operating earnings
of $299 million, reflecting operating margins of 7.8 percent, increased $78
million from fiscal 1997 pro forma operating earnings of $221 million before
restructuring and spin-off costs, or operating margins of 6.7 percent. Cash flow
from operations increased to $278 million, up $70 million or 34 percent from
fiscal 1997.
Sales for the first quarter of fiscal 1999 of $944 million, an increase of
$33 million or 4 percent over the same period in fiscal 1998, generated
operating earnings of $69 million, compared to $63 million in the first quarter
of fiscal 1998, an increase of 10 percent. Net income was $40 million, or $.58
per share, compared to $32 million, or $.47 per share in fiscal 1998,
representing a 23 percent increase in earnings per share.
The trends in the automotive supplier industry present both challenges and
opportunities. OEMs are becoming increasingly global and are expanding their
utilization of outsourcing. In addition, the manufacturing process is moving
towards systems and modules. The supplier base is being consolidated both by
merger and acquisition activity and by the decision of OEMs to reduce the number
of suppliers they utilize. There continue to be opportunities in emerging
markets. As a global manufacturer with diverse products, customers and
geographic base, technical leadership in core products and financial strength,
Meritor is well positioned to take full advantage of these trends. Meritor's
envisioned future is to be the partner of choice for those customers who value
exceptional service and to be an outstanding provider of quality automotive
systems and technology solutions worldwide.
Enhancing the Company's position as an increasingly broad-based supplier in
the global automotive components industry, the Company recently completed three
acquisitions. These acquisitions reflect the Company's efforts to expand its
presence in Europe and to provide HVS OEM and Worldwide Aftermarket customers
with a comprehensive offering of drivetrain systems and components.
The Company acquired the Heavy Vehicle Braking Systems (HVBS) business of
LucasVarity plc for $390 million in cash on January 29, 1999. The LucasVarity
HVBS components include air drum and disc brakes, hydraulic brakes, wheel end
components and aftermarket products. The Company expects the HVBS acquisition to
add annualized sales of approximately $400 million.
On December 31, 1998, the Company acquired Volvo Truck Corporation's heavy
truck axle manufacturing operations based in Lindesberg, Sweden. With this
acquisition, the Company became the primary supplier of heavy duty axles for
Volvo's heavy truck operations. The transaction is expected to add annualized
sales of approximately $200 million with a purchase price of approximately $135
million in cash, $44 million of which is deferred.
On December 28, 1998, the Company acquired the assets of Euclid Industries
("Euclid") and assumed substantially all of Euclid's liabilities. Euclid is a
leading North American supplier and manufacturer of aftermarket replacement
parts for a wide range of medium- and heavy-duty vehicles and has been a premier
participant in the North American heavy duty aftermarket. For its fiscal year
ended August 31, 1998, Euclid generated sales of more than $100 million. The
Euclid transaction is expected to add sales on an annualized basis of
approximately $125 million.
S-16
<PAGE> 17
The Company's stated long-term financial goals are to grow internally, on
an average annual basis, sales by 8 percent and earnings per share by 15
percent, as well as to improve our long-term debt to capitalization ratio to 45
percent, excluding acquisition activities. These long-term goals have been
established with the recognition that the industry in which the Company operates
has been characterized historically by periodic fluctuations in overall demand
for commercial, specialty and light vehicles for which the Company supplies
products, resulting in corresponding fluctuations in demand for products of the
Company. Accordingly, the Company will measure its performance against these
long-term financial goals over a multi-year period.
The Company's markets are currently strong, and looking to the second
quarter of fiscal 1999 the outlook remains the same. However, beyond this
horizon the outlook is less clear and economic uncertainties around the world
may make 1999 a challenging year in many of our global markets. As a result of
the diversity and balance of our product portfolio and served markets, we expect
to perform well in this environment. The Company continues to evaluate the
overall global economic outlook, particularly in the Asian and Brazilian
economies. Sales in the Asia/Pacific region comprised 3 percent and sales in
South America comprised 6 percent of total sales in fiscal 1998.
Meritor began operations separate from Rockwell on September 30, 1997. The
financial information included or incorporated by reference in this Prospectus
Supplement and the attached Prospectus for periods prior to September 30, 1997
may not necessarily be indicative of the results of operations, financial
position and cash flows of the Company had it been a separate, independent
company during such periods.
RESULTS OF OPERATIONS
The following sales, operating earnings and net income of the Company for
the three months ended December 31, 1998 and 1997 and for the years ended
September 30, 1998, 1997 and 1996, as well as pro forma amounts for the year
ended September 30, 1997, have been excerpted or derived from, and should be
read in conjunction with, the consolidated financial statements and other
information and data contained or incorporated by reference in the Company's
Annual Report on Form 10-K for the fiscal year ended September 30, 1998 and the
Company's Quarterly Report on Form 10-Q for the quarterly period ended December
31, 1998. Information as of December 31, 1998 and 1997 and for the three-month
periods then ended is unaudited, but in the opinion of management of the
Company, contains all adjustments, consisting solely of adjustments of a normal
recurring nature, necessary to present fairly the results of operations for the
periods presented. The results of operations for the three-month period ended
December 31, 1998 are not necessarily indicative of the results that may be
expected for the full fiscal year ending September 30, 1999. Dollars are in
millions, except per share amounts.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED PRO FORMA(1) YEAR ENDED
DECEMBER 31, YEAR ENDED YEAR ENDED SEPTEMBER 30,
------------- SEPTEMBER 30, SEPTEMBER 30, ------------------
1998 1997 1998 1997 1997 1996
----- ----- ------------- ------------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Sales
Heavy Vehicle Systems........ $558 $557 $2,361 $1,957 $1,957 $1,827
Light Vehicle Systems........ 386 354 1,475 1,352 1,352 1,317
---- ---- ------ ------ ------ ------
Total sales.................... $944 $911 $3,836 $3,309 $3,309 $3,144
==== ==== ====== ====== ====== ======
Gross margin................... $127 $120 $ 547 $ 438 $ 438 $ 397
==== ==== ====== ====== ====== ======
Operating earnings............. $ 69 63 $ 299 $ 192(2) 181(2) $ 146(2)
Other income -- net............ 8 1 20 15 15 46
Interest rate settlement
cost......................... -- -- (31) -- -- --
Interest expense............... (11) (10) (43) (38) (10) (10)
Provision for income taxes..... (26) (22) (98) (70) (77) (68)
---- ---- ------ ------ ------ ------
Net income..................... $ 40 $ 32 $ 147 $ 99 $ 109 $ 114
==== ==== ====== ====== ====== ======
</TABLE>
S-17
<PAGE> 18
<TABLE>
<CAPTION>
THREE MONTHS
ENDED PRO FORMA(1) YEAR ENDED
DECEMBER 31, YEAR ENDED YEAR ENDED SEPTEMBER 30,
------------- SEPTEMBER 30, SEPTEMBER 30, ------------------
1998 1997 1998 1997 1997 1996
----- ----- ------------- ------------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Basic and Diluted Earnings Per
Share(3)..................... $.58 $.47 $ 2.13 $ 1.44(2) N/A N/A
==== ====
Basic and Diluted Earnings Per
Share Before Special
Items(3)(4).................. $.58 $.47 $ 2.40 $ 1.74 N/A N/A
==== ====
Shares Outstanding (in
millions).................... 69.1 69.0 69.0 68.9
==== ====
</TABLE>
- ---------------
(1) Pro forma information reflects (a) the 68.9 million shares of common stock
issued at the date of the Distribution, (b) management's estimate that
corporate costs would have been $11 million lower on a stand-alone basis for
the year ended September 30, 1997 than those allocated by Rockwell to its
automotive businesses, and (c) $28 million of interest expense at 6 percent
for the year ended September 30, 1997 related to the debt incurred by the
Company in connection with a $445 million pre-Distribution payment to
Rockwell.
(2) Operating earnings for pro forma and actual fiscal 1997 include
restructuring and spin-off costs of $29 million ($21 million after-tax or
$.30 per share on a pro forma basis) and for fiscal 1996 include
restructuring costs of $36 million ($24 million after-tax).
(3) As the Company began operations as a stand-alone entity on September 30,
1997, per share data for years ending prior to September 30, 1998 is not
applicable.
(4) Special items include the interest rate settlement cost of $31 million ($19
million after-tax or $.27 per share) recorded in the fourth quarter of
fiscal 1998 and restructuring and spin-off costs of $29 million ($21 million
after-tax or $.30 per share on a pro forma basis) recorded in the fourth
quarter of fiscal 1997.
1999 FIRST QUARTER COMPARED TO 1998 FIRST QUARTER
Sales of $944 million for the 1999 first quarter were up $33 million, or 4
percent, from the 1998 first quarter. The sales growth for the quarter was
primarily driven by market penetration gains from new Light Vehicle Systems
product introductions and by continued strong demand in the Company's primary
Heavy Vehicle Systems markets. This growth was offset, in part, by a decline in
government products sales driven by government program changeovers and weaker
sales in Brazil.
Net income for the 1999 first quarter was $40 million, or 58 cents per
share, compared to $32 million, or 47 cents per share last year. This represents
a 23 percent increase in earnings per share for the first quarter of 1999 as
compared to the same period in 1998. First quarter operating margins improved to
7.3 percent from last year's 6.9 percent, with gross margins improving to 13.5
percent from 13.2 percent in last year's quarter. The improved operating
performance was driven by the ongoing impact of productivity and cost
improvement programs and new business growth initiatives. Selling, general and
administrative expenses, as a percentage of sales, improved from 6.3 percent in
the first quarter of 1998 to 6.1 percent in the first quarter of 1999. Other
income for the first quarter of 1999 was $7 million higher than last year
primarily due to increased equity income from joint ventures pertaining to heavy
truck and trailer markets and a $2.5 million non-recurring asset gain.
The Company's productivity and cost improvement programs relate to (i)
purchasing, which includes outsourcing non-core manufacturing and using lower
cost global sourcing of materials and supply base management; and (ii)
manufacturing, which includes shifting production to lower cost facilities,
consolidating common processes, improving material flow and investing in capital
and systems.
Heavy Vehicle Systems sales in the first quarter of fiscal 1999 and 1998
were $558 million and $557 million, respectively. Sales in fiscal 1999 increased
across all of the Company's core heavy truck products, including axles,
transmissions, clutches, drivelines and brake systems, reflecting the continued
strength of the North American heavy truck market. These increases, however,
were substantially offset by a decline in
S-18
<PAGE> 19
government product sales related to planned government program changeovers and
weaker sales in Brazil due to lower heavy truck volumes.
Light Vehicle Systems sales improved by 9 percent in the first quarter of
1999 to $386 million, an increase of $32 million over the same period in 1998.
Sales growth for this business was driven by penetration gains, principally in
the door and seat adjusting systems product lines due to the Company's new door
module and seat adjusting system products. This growth was partially offset by
lower sales in roof systems due to customer platform launch delays in Mexico,
lower vehicle product sales in Brazil and the adverse impact of currency
translation.
1998 COMPARED TO 1997
Sales for fiscal 1998 were $3.8 billion, up $527 million, or 16 percent,
above fiscal 1997.
Heavy Vehicle Systems sales grew to a record $2.4 billion in fiscal 1998,
an increase of $404 million, or 21 percent over 1997. Sales increased across all
of the Company's heavy truck and trailer products, including axles,
transmissions, clutches, drivelines and brake systems, primarily as a result of
the strong North American heavy truck market, greater market penetration and
improved volumes in the aftermarket. Sales also increased in Heavy Vehicle
Systems off-highway, government and specialty product lines.
Light Vehicle Systems also reported record sales for the year of $1.5
billion, an increase of $123 million, or 9 percent over 1997. The sales growth
was driven by penetration gains in the door, suspension, access control and seat
adjusting systems and wheel product lines and somewhat by higher industry
volumes in Europe. This growth was negatively affected by lower European sunroof
demand and the adverse impact of currency translation on European sales.
Gross margin for fiscal 1998 improved $109 million, or 25 percent, over
fiscal 1997. Fiscal 1998 operating earnings of $299 million were up 56 percent
over pro forma fiscal 1997. Excluding the restructuring and spin-off costs of
$29 million recorded in 1997, operating earnings were up 35 percent over the
prior year's pro forma operating earnings of $221 million. Operating margins for
fiscal 1998 improved to 7.8 percent from last year's pro forma 6.7 percent
excluding restructuring and spin-off costs (5.8 percent in fiscal 1997 including
restructuring and spin-off costs). This growth reflects the ongoing successful
implementation of the Company's productivity and cost improvement programs
(described above), the strength of the Company's global markets and the
penetration gains across nearly all of the Company's product range.
Selling, general and administrative expenses as a percentage of sales
improved slightly from 6.6 percent pro forma in 1997 to 6.5 percent in 1998,
despite planned increased investments in information technology. Other income
for 1998 was up $5 million over last year primarily due to higher equity income
from joint ventures pertaining to the heavy truck and trailer markets.
In the fourth quarter of fiscal 1998, the Company recorded a one-time
charge of $31 million ($19 million after-tax) or $.27 per share in connection
with the settlement of interest rate agreements. These agreements were entered
into in April 1998, concurrent with the filing of the Registration Statement
under which the Notes are being offered, to secure interest rates in
anticipation of offering debt securities. The planned issuance of these debt
securities did not occur, initially due to the consideration of a major
acquisition and, subsequently, the instability in the U.S. corporate bond
market. These agreements were settled and paid in October 1998 resulting in the
charge discussed above.
1997 COMPARED TO 1996
Sales for fiscal 1997 of $3.3 billion were up by $165 million, or 5
percent, above fiscal 1996.
Heavy Vehicle Systems product sales grew to nearly $2 billion in fiscal
1997, an increase of $130 million, or 7 percent, over fiscal 1996. This sales
growth was driven largely by increased sales in North America which benefited
from higher sales in the aftermarket as well as greater market penetration by
the Company's truck drivetrain products and trailer axle and brake products.
Sales also increased in emerging markets including Brazil and China, while sales
declined in Europe, where industry volumes were lower.
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<PAGE> 20
Light Vehicle Systems product sales in fiscal 1997 of $1.4 billion
increased $35 million, or 3 percent, over fiscal 1996. The sales performance was
linked to ongoing growth in North America, offset somewhat by a decline in
European sales, due principally to the currency translation impact of a strong
U.S. dollar in fiscal 1997 and decreased sunroof demand. North American sales
growth of 13 percent in generally flat light vehicle markets was chiefly the
result of stronger market penetration in door, suspension, seat adjusting
systems and wheel products.
Gross margin for fiscal 1997 improved $41 million, or 10 percent, over
fiscal 1996. Operating earnings for fiscal 1997 increased $35 million, or 24
percent, over fiscal 1996. Excluding restructuring and spin-off costs of $29
million recorded in fiscal 1997 and restructuring costs of $36 million recorded
in fiscal 1996, operating earnings for fiscal 1997 increased $28 million, or 15
percent, over fiscal 1996. This growth in gross margin and operating earnings
was due principally to the fiscal 1996 restructuring program as well as other
productivity and cost improvement programs (previously described).
In fiscal 1997, the Company recorded a $21 million ($16 million after-tax)
restructuring charge related to workforce reductions and other manufacturing
cost reduction programs, mostly outside the United States. The provision
included severance and other employee costs of $16 million and other
facility-related costs of $5 million. The Company also recorded an $8 million
($5 million after-tax) charge in fiscal 1997 related to costs associated with
its spin-off from Rockwell including costs for communications, brand
advertising, recruitment and other professional services. Operating margins
before the restructuring and spin-off costs were 6.3 percent in fiscal 1997, as
compared to 5.8 percent in fiscal 1996, principally due to increased sales of
higher margin aftermarket products, continued improvement in production
processes and cost improvements from the 1996 restructuring, which offset
investments in new product development, continuing launch costs related to seat
adjusting systems products and higher engineering costs. Selling, general and
administrative expenses in fiscal 1997 increased $13 million, or 6 percent over
fiscal 1996, due to increased sales volume and increased spending on information
technology projects.
Other income in fiscal 1997 decreased $31 million from fiscal 1996,
primarily due to one-time gains in fiscal 1996 which included a $14 million ($10
million after-tax) gain on the sale of Brazilian assets and $15 million ($9
million after-tax) from the settlement of certain environmental insurance
claims.
FINANCIAL CONDITION
Cash flow from operations for fiscal 1998 was $278 million, an increase of
34 percent over the prior year, reflecting the Company's strong emphasis on cash
generation. Cash flow from operations was $208 million in fiscal 1997 and $197
million in fiscal 1996. Sales growth related to both Heavy Vehicle Systems and
Light Vehicle Systems products resulted in an increase in accounts receivables,
inventories and accounts payables at the end of each fiscal year.
The strong cash flows allowed the Company to fund capital expenditures of
$139 million in fiscal 1998, $126 million in fiscal 1997 and $144 million in
fiscal 1996, as the Company continued to invest in the property, plant and
equipment needed for future business requirements. Capital expenditures in
fiscal 1998 included equipment to support new product introductions, capacity
expansion and new production processes.
Increased cash flow in fiscal 1998 enabled the Company to reduce debt and
improve its long-term debt to capitalization ratio by 20 percentage points, to
51 percent at September 30, 1998, from 71 percent at September 30, 1997. (As
discussed below, this ratio increased at December 31, 1998 due to acquisition
activities.) Pre-tax interest coverage was 7.4x for the year ended September 30,
1998, excluding the interest rate settlement cost of $31 million (see discussion
in Results of Operations -- 1998 Compared to 1997).
In fiscal 1998, net cash used for investing activities consisted of the
capital expenditures described above, $8 million used to acquire sunroof patents
and technologies and to further invest in the Company's Chinese heavy axle joint
venture with Xuzhou Construction Machinery Axle and Case Co., offset by $17
million of proceeds received from the sale of a long-term note receivable and
other property. In fiscal 1997, the $16 million in acquisition of businesses and
investments consisted primarily of investments in the Company's Chinese heavy
axle joint venture. In fiscal 1996, the $101 million of net cash used for
investing activities
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included, in addition to capital expenditures, proceeds of $58 million from the
disposition of property and businesses primarily related to the sale of
Brazilian assets, and $15 million used for investments in joint ventures.
Net cash used for financing activities was $216 million in 1998. This
amount reflects payments of $222 million to reduce debt under the Company's
revolving credit facility, partially offset by a $93 million increase in other
borrowings. In addition, the Company made net payments of $58 million related to
certain Canadian tax obligations incurred in connection with the transfer of
assets prior to the Distribution and payments of $29 million of cash dividends,
or $.42 per share. Net cash used for financing activities for fiscal 1997 was
comprised primarily of $445 million of proceeds from borrowings under the credit
facility used to fund a pre-Distribution payment to Rockwell. In addition, $58
million in cash was provided by Rockwell to fund the Canadian tax obligations
described above and the Company paid $84 million in cash distributions to
Rockwell. Net cash used for financing activities was $84 million in 1996,
primarily related to cash distributions to Rockwell.
Cash provided by operating activities for the fiscal 1999 first quarter was
$18 million, a decrease of $47 million compared to the first quarter of fiscal
1998. The decrease was due primarily to increases in working capital
requirements, principally in accounts payable and accrued compensation and
benefits. This increase was partially offset by a decrease in accounts
receivable.
Capital expenditures of $19 million in the first quarter of fiscal 1999
included equipment for continued new product introductions, capacity expansion
and new production processes. The Company anticipates full year fiscal 1999
capital expenditures of approximately $150 million, excluding the effect of
acquisitions.
The Company has pursued growth initiatives to further strengthen its
position in the global automotive original equipment and aftermarket segments.
As discussed above in Overview and Outlook, in late December 1998, the Company
completed the acquisition of the European heavy truck axle manufacturing
operations of Volvo Truck Corporation and Euclid Industries, a leading supplier
of aftermarket replacement parts for medium- and heavy-duty vehicles. The
Company's long-term debt to capitalization ratio increased to 63 percent at
December 31, 1998 from 51 percent at September 30, 1998, reflecting the impact
of these acquisitions. The Company also completed the acquisition of the Heavy
Vehicle Braking Systems business of LucasVarity plc on January 29, 1999. Meritor
regularly considers various strategic and business opportunities, including
acquisitions. Although no assurance can be given as to whether or when any
additional acquisitions will be consummated, if agreement were to be reached,
the Company could finance such acquisitions by issuance of additional debt or
equity securities. The additional debt from any such acquisitions, if
consummated, would further increase the Company's debt to capitalization ratio.
In the first quarter of fiscal 1999, cash provided by financing activities
includes $242 million net increase in debt, of which $180 million was utilized
to fund acquisitions of businesses. In November 1998, the Board of Directors
declared a $.105 per share quarterly dividend that was paid on December 14,
1998.
On January 15, 1999 the Company entered into a $300 million unsecured term
credit facility with six banks. Interest rates under this credit facility are
based on LIBOR plus 75 basis points. The facility expires in January 2000. The
Company borrowed $300 million under the credit facility during January 1999. A
portion of the proceeds of the sale of the Notes will be used to repay these
borrowings.
Standard & Poor's and Moody's assigned "BBB/Baa2" credit ratings,
respectively, to the Company's debt as of September 30, 1998. After
consideration of the three strategic acquisitions described above, Standard &
Poor's and Moody's reaffirmed these ratings.
See Results of Operations -- 1998 Compared to 1997 above for information
with respect to a one-time charge of $31 million ($19 million after-tax) in
connection with the settlement of interest rate agreements.
The Company has retirement medical and pension plans which cover most of
its United States and certain non-United States employees. Retirement medical
plan payments aggregated $36 million in fiscal 1998, $36 million in fiscal 1997
and $35 million in fiscal 1996 and are expected to approximate $36 million in
fiscal 1999. The Company made pension plan contributions of $28 million in
fiscal 1998, $5 million in fiscal
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1997 and $2 million in fiscal 1996. Management expects to fund at least the
minimum pension plan contributions required by government regulations for the
various plans in fiscal 1999 and anticipates that pension plan funding will be
approximately $25 million.
INCOME TAXES
The Company's effective income tax rate in fiscal 1998 was 40.0 percent
compared to 41.3 percent in fiscal 1997 and 37.6 percent in fiscal 1996. The tax
rate decline in fiscal 1998 was primarily due to changes in the mix of foreign
income. The higher tax rate in fiscal 1997 was due primarily to a lower level of
foreign net operating loss utilization in fiscal 1997 and a refund of certain
foreign income taxes in fiscal 1996.
ENVIRONMENTAL MATTERS
Federal, state and local requirements relating to the discharge of
substances into the environment, the disposal of hazardous wastes and other
activities affecting the environment have had and will continue to have an
impact on the manufacturing operations of the Company. Thus far, compliance with
environmental requirements and resolution of environmental claims have been
accomplished without material effect on the Company's liquidity and capital
resources, competitive position, or financial statements. In connection with the
Distribution, the Company assumed all liabilities in respect of environmental
matters related to current and former operations of Rockwell's automotive
businesses.
The Company has been designated as a potentially responsible party at three
Superfund sites, excluding sites as to which the Company's records disclose no
involvement or as to which the Company's potential liability has been fully
determined. Management estimates the total reasonably possible costs the Company
could incur for the remediation of Superfund sites at September 30, 1998 to be
approximately $16 million, of which $10 million had been accrued.
Various other lawsuits, claims and proceedings have been asserted against
the Company alleging violation of federal, state and local environmental
protection requirements, or seeking remediation of alleged environmental
impairments, principally at previously disposed of properties. For these
matters, management has estimated the total reasonably possible costs the
Company could incur at September 30, 1998 to be approximately $39 million. The
Company has recorded environmental accruals for these matters of $14 million.
At September 30, 1998, there were no receivables recorded from third
parties related to environmental matters.
Management believes that, at December 31, 1998, there had been no material
change to this information.
Based on its assessment and after consulting with Robert L. Schroder, Esq.,
Assistant General Counsel of the Company, management believes that the Company's
expenditures for environmental capital investment and remediation necessary to
comply with present regulations governing environmental protection and other
expenditures for the resolution of environmental claims will not have a material
adverse effect on the Company's liquidity and capital resources, competitive
position or financial statements. Management cannot assess the possible effect
of compliance with future requirements.
INTERNATIONAL OPERATIONS
Nearly one-half of the Company's total assets and 38 percent of sales for
the year ended September 30, 1998 were outside North America, primarily in
France, the United Kingdom, Germany, Brazil and Italy. Borrowings under the
Company's revolving credit facility have been principally in the United States,
Canada, Italy and the United Kingdom. Management believes that international
operations have significantly benefited
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<PAGE> 23
the financial performance of the Company. However, the Company's international
operations are subject to a number of risks inherent in operating abroad. There
can be no assurance that these risks will not have a material adverse impact on
the Company's ability to increase or maintain its foreign sales or on its
financial condition or results of operations.
On January 1, 1999, the Euro became the common currency of eleven countries
of the European Union. During a three-year transition period, the present
national currencies of these eleven countries will become sub-units of the Euro
at fixed exchange rates. The European Union's current plans call for the
transition period to be completed by July 1, 2002, at which time the Euro will
become the sole legal tender in those participating countries.
The Company is engaged in business in some of the countries that
participate in the European Monetary Union, and sales for fiscal 1998 in these
countries were approximately 21 percent of the Company's total sales. In
addition, the Company enters into foreign currency forward exchange contracts
with respect to several of the existing currencies that will be subsumed into
the Euro and has borrowings in participating currencies primarily under its
revolving credit facility. The Company has analyzed the potential effects of the
Euro conversion on competitive conditions, information technology and other
systems, currency risks, financial instruments and contracts, and has examined
the tax and accounting consequences of Euro conversion, and believes that the
conversion has not had and will not have a material adverse effect on its
business, operations and financial condition.
The Company is making the necessary adjustments to accommodate the
conversion, including modifications to its information technology systems and
programs, pricing schedules and financial instruments. The Company expects that
all necessary actions will be completed within budget and in a timely manner,
and that the costs associated with the conversion to the Euro will not be
material.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to foreign currency exchange rate risk inherent in
its sales and assets and liabilities denominated in currencies other than the
U.S. dollar and interest rate risk associated with the Company's debt. The
Company does enter into foreign currency forward exchange contracts to minimize
risk of loss from currency rate fluctuations on firm and identifiable foreign
currency commitments entered into in the ordinary course of business. Also, the
Company may, from time to time, use interest rate agreements in the management
of interest rate exposure on selected debt issuances. It is the policy of the
Company not to enter into derivative financial instruments for speculative
purposes.
The Company has performed a sensitivity analysis assuming a hypothetical 10
percent adverse movement in foreign currency exchange rates and interest rates
applied to the underlying exposures described above. As of December 31, 1998,
the analysis indicated that such market movements would not have a material
effect on the Company's consolidated financial position, results of operations
or cash flows. Actual gains or losses in the future may differ significantly
from that analysis, however, based on changes in the timing and amount of
interest rate and foreign currency exchange rate movements and the Company's
actual exposures.
YEAR 2000 READINESS DISCLOSURE
BACKGROUND
The Company initiated a Company-wide year 2000 project to determine whether
the Company's Information Technology ("IT") and non-IT systems are year 2000
compliant and to identify and implement the remedial actions necessary to effect
compliance. None of the Company's other IT projects have been significantly
delayed due to the year 2000 project. The year 2000 project also includes an
assessment of compliance at the supplier and service provider level in order to
minimize supply disruptions. In addition, certain of the Company's locations are
implementing Enterprise Resource Planning systems. It is anticipated that these
systems will be in place in 1999 and will be year 2000 compliant. Because the
Company's customer base is diverse, fewer resources of the project have been
directed to the area of customer compliance.
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COMPANY'S STATE OF READINESS
The project is divided into four major sections -- business and
engineering, factory floor, IT infrastructure (hardware and software) and supply
chain. Each section involves three phases: phase one -- identification of risks;
phase two -- defining the scope of necessary corrections, preparation of related
plans and cost estimates and development of contingency plans; and phase
three -- implementation of decisions to repair, replace or retire the systems in
question.
The consulting firm of Keane, Inc. was engaged to coordinate the year 2000
project for all four major sections and to provide more direct assistance with
respect to the business and engineering section and the IT infrastructure
section. In addition, the Company engaged outside consultants to assist in risk
identification, analysis and remediation planning for factory floor operations
and to assist in implementing repair and remediation projects at local sites.
The business and engineering section includes manufacturing, financial
applications and remediation projects, critical core business system validation
testing, aftermarket systems and supplemental systems. The factory floor section
includes shop floor controls and facility systems. The IT infrastructure section
includes PC/LAN hardware, software and peripherals; mainframe, midrange and UNIX
systems; engineering workstations; and telecom/global carriers. The supply chain
section includes formal communication with the Company's significant customers,
suppliers and critical service providers. The Company estimates that all four
areas will be year 2000 compliant by June 30, 1999, with follow-up reviews
scheduled through the remainder of 1999.
The following chart summarizes the status of completion by section for each
phase of the project at December 31, 1998:
<TABLE>
<CAPTION>
APPROXIMATE PERCENTAGE COMPLETED
--------------------------------
PHASE 1 PHASE 2 PHASE 3
-------- -------- --------
<S> <C> <C> <C>
Business and Engineering.................................... 100 75-100* 35-100*
Factory floor............................................... 100 95-100* 15
IT Infrastructure........................................... 100 100 30-85*
Supply Chain................................................ 100 65 10-15*
</TABLE>
- ---------------
* Percentage of completion varies by location and by separate project within
each section
CONTINGENCY PLANS
The Company is in the initial stage of developing contingency plans
designed to minimize any adverse effects that would result if timely compliance
were not achieved, either internally or at the third party level. The planning
process will include identification of the areas of the Company's business and
suppliers with the greatest potential of non-compliance and arrangements for
alternate suppliers, backup systems or stockpiling of components in the affected
areas. The Company expects to complete its analysis and have contingency
arrangements in place by September 30, 1999.
COSTS
The Company currently estimates that the aggregate cost of the year 2000
project will be approximately $26 million. These amounts exclude employee
expense and computer equipment and upgrades that would have been purchased
regardless of the year 2000 project. The Company spent $1.0 million, $10.2
million and $0.7 million during the first quarter of 1999 and fiscal 1998 and
1997, respectively, on the project. In the first quarter of 1999, approximately
$0.7 million of expenditures related to IT infrastructure and approximately $0.3
million related to the factory floor. In fiscal 1998, approximately $6.6 million
of expenditures related to business and engineering systems and IT
infrastructure and approximately $3.6 million related to the factory floor.
These costs are being expensed as incurred and are being funded through
operating cash flows and do not include costs that may be incurred as a result
of the failure of third parties, including suppliers, to become year 2000
compliant or costs to implement contingency plans.
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<PAGE> 25
The Company currently estimates that the costs incurred in connection with
the Enterprise Resource Planning systems will be approximately $35 million,
including costs of internal employees dedicated to the project. The Company
anticipates that approximately $30 million of the total costs will be
capitalized and amortized over five years.
RISKS
Incomplete or untimely resolution of the year 2000 issue by the Company,
key suppliers, customers and other parties could have a material adverse effect
on the Company's results of operations, financial condition and cash flows. The
year 2000 project is expected to reduce significantly the Company's level of
uncertainty about year 2000 issues. The Company believes that completed and
planned modifications and conversions of its internal IT and non-IT systems will
allow it to be year 2000 compliant in a timely manner. However, due to the
general uncertainty inherent with year 2000 compliance, the Company is unable to
determine at this time whether the consequences of year 2000 failures by third
parties will have a material impact on the Company.
As discussed in Overview and Outlook above, the Company completed the
acquisition of three separate businesses in late December 1998 and January 1999.
The Company is currently assessing the year 2000 compliance of the IT and non-IT
systems of the acquired businesses and of their supply chains.
Forward-looking statements contained in this section should be read in
conjunction with the Company's disclosures under the heading "Forward-Looking
Statements" above.
RATIO OF EARNINGS TO FIXED CHARGES
The Company has calculated ratios of earnings to fixed charges of 5.1 for
the three months ended December 31, 1998 and 5.5 for the fiscal year ended
September 30, 1998. "Earnings" are defined as pre-tax income from continuing
operations, adjusted for income or loss attributable to minority interests in
subsidiaries, undistributed earnings of less than majority owned subsidiaries,
and fixed charges excluding capitalized interest. "Fixed charges" are defined as
interest on borrowings (whether expensed or capitalized) and that portion of
rental expense applicable to interest.
DESCRIPTION OF THE NOTES
The Notes offered hereby constitute a single series of Debt Securities
described in the accompanying Prospectus and will be limited to $400,000,000
aggregate principal amount, and will be issued only in registered form in
denominations of $1,000 and any integral multiple thereof. The Indenture is
qualified under the Trust Indenture Act of 1939, as amended (the "1939 Act").
Reference is made to the 1939 Act and the accompanying Prospectus for a detailed
summary of additional provisions of the Notes and of the Indenture under which
the Notes will be issued. The Chase Manhattan Bank is the Trustee under the
Indenture.
INTEREST
The Notes will bear interest from , 1999 at the rate per annum
stated in their title, payable semi-annually on and of
each year, beginning , 1999. Interest is payable to the persons in
whose names the Notes are registered at the close of business on the
or , as the case may be, preceding such interest payment
date, which will be the Regular Record Dates with respect to such series.
OPTIONAL REDEMPTION
The Notes will be redeemable as a whole at any time or in part from time to
time, at the option of the Company, on not less than 30 or more than 60 days'
notice mailed to holders thereof, at a redemption price equal to the greater of
(i) 100% of the principal amount of such Notes being redeemed and (ii) the sum
of the present values of the Remaining Scheduled Payments (as defined below),
discounted to the redemption date on a semiannual basis (assuming a 360-day year
consisting of twelve 30-day months) at the Treasury Rate
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<PAGE> 26
plus basis points together, in each case, with accrued interest on the
principal amount being redeemed to such redemption date.
"Treasury Rate" means, with respect to any redemption date, (i) the yield,
under the heading which represents the average for the immediately preceding
week, appearing in the most recently published statistical release designated
"H.15(519)" or any successor publication which is published weekly by the Board
of Governors of the Federal Reserve System and which establishes yields on
actively traded United States Treasury securities adjusted to constant maturity
under the caption "Treasury Constant Maturities," for the maturity corresponding
to the Comparable Treasury Issue (if no maturity is within three months before
or after the Remaining Life, yields for the two published maturities most
closely corresponding to the Comparable Treasury Issue shall be determined and
the Treasury Rate shall be interpolated or extrapolated from such yields on a
straight line basis, rounding to the nearest month) or (ii) if such release (or
any successor release) is not published during the week preceding the
calculation date or does not contain such yields, the rate per annum equal to
the semi-annual equivalent yield to maturity of the Comparable Treasury Issue,
calculated using a price for the Comparable Treasury Issue (expressed as a
percentage of its principal amount) equal to the Comparable Treasury Price for
such redemption date. The Treasury Rate shall be calculated on the third
Business Day preceding the redemption date.
"Business Day" means any calendar day that is not a Saturday, Sunday or
legal holiday in New York, New York and on which commercial banks are open for
business in New York, New York.
"Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker as having a maturity comparable to
the remaining term ("Remaining Life") of the Notes to be redeemed that would be
utilized, at the time of selection and in accordance with customary financial
practice, in pricing new issues of corporate debt securities of comparable
maturity to the remaining term of such Notes.
"Independent Investment Banker" means Morgan Stanley & Co. Incorporated or,
if such firm is unwilling or unable to select the Comparable Treasury Issue, an
independent investment banking institution of national standing appointed by the
Trustee after consultation with the Company.
"Comparable Treasury Price" means (i) the average of four Reference
Treasury Dealer Quotations for such redemption date, after excluding the highest
and lowest Reference Treasury Dealer Quotations, or (ii) if the Independent
Investment Banker obtains fewer than four such Reference Treasury Dealer
Quotations, the average of all such quotations.
"Reference Treasury Dealer" means (i) Morgan Stanley & Co. Incorporated,
Bear, Stearns & Co. Inc., J.P. Morgan Securities Inc. and Salomon Smith Barney
Inc. and their respective successors, provided, however, that if any of the
foregoing shall cease to be a primary U.S. Government securities dealer in New
York City (a "Primary Treasury Dealer"), the Company shall substitute therefor
another Primary Treasury Dealer and (ii) any other Primary Treasury Dealer
selected by the Company.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any redemption date, the average, as determined by
the Trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the Trustee at 5:00 p.m., New York City time, on the third Business
Day preceding such redemption date.
"Remaining Scheduled Payments" means, with respect to each Note to be
redeemed, the remaining scheduled payments of the principal thereof and interest
thereon that would be due after the related redemption date but for such
redemption; provided, however, that if such redemption date is not an interest
payment date with respect to such Note, the amount of the next succeeding
scheduled interest payment thereon will be reduced by the amount of interest
accrued thereon to such redemption date.
On and after the redemption date, interest will cease to accrue on the
Notes or any portion thereof called for redemption. On or before any redemption
date, the Company shall deposit with a paying agent (or the Trustee) money
sufficient to pay the redemption price of and accrued interest on the Notes to
be redeemed on
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<PAGE> 27
such date. If less than all the Notes are to be redeemed, the Notes to be
redeemed shall be selected by the Trustee by such method as the Trustee shall
deem fair and appropriate.
DEFEASANCE
The provisions of the Indenture relating to defeasance described under
"Description of the Debt Securities -- Defeasance and Covenant Defeasance" in
the accompanying Prospectus apply to the Notes.
BOOK-ENTRY SYSTEM
The Depository Trust Company (the "Depositary" or "DTC") will act as
securities depositary for the Notes. The Notes will be issued as fully
registered securities registered in the name of Cede & Co. (the Depositary's
partnership nominee). One or more fully registered global certificates
representing the Notes (the "Global Securities") will be issued, in the
aggregate principal amount of the Notes, and will be deposited with the
Depositary. The provisions set forth under "Description of the Debt
Securities -- Global Securities" in the accompanying Prospectus will be
applicable to the Notes.
The following is based on information furnished by the Depositary.
The Depositary is a limited-purpose trust company organized under the New
York Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code, and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Securities
Exchange Act of 1934, as amended. The Depositary holds securities that its
participants ("Participants") deposit with the Depositary. The Depositary also
facilitates the settlement among Participants of securities transactions, such
as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in Participants' accounts, thereby eliminating
the need for physical movement of securities certificates. Direct participants
("Direct Participants") include securities brokers and dealers, banks, trust
companies, clearing corporations and certain other organizations. The Depositary
is owned by a number of its Direct Participants and by the New York Stock
Exchange, Inc., the American Stock Exchange, Inc. and the National Association
of Securities Dealers, Inc. Access to the Depositary's system is also available
to others such as securities brokers and dealers, banks and trust companies that
clear through or maintain a custodial relationship with a Direct Participant,
either directly or indirectly ("Indirect Participants"). The rules applicable to
the Depositary and its Participants are on file with the Securities and Exchange
Commission.
Purchases of Notes under the Depositary's system must be made by or through
Direct Participants, which will receive a credit for such Notes on the
Depositary's records. The ownership interest of each actual purchaser of each
Note represented by a Global Security ("Beneficial Owner") is in turn to be
recorded on the Direct and Indirect Participants' records. Beneficial Owners
will not receive written confirmation from the Depositary of their purchase, but
Beneficial Owners are expected to receive written confirmations providing
details of the transaction, as well as periodic statements of their holdings,
from the Direct or Indirect Participants through which such Beneficial Owners
entered into the transaction. Transfers of ownership interests in any Global
Security representing Notes are to be accomplished by entries made on the books
of Participants acting on behalf of Beneficial Owners. Beneficial Owners of any
Global Security representing Notes will not receive Notes in definitive form
representing their ownership interests therein, except in the event that use of
the book-entry system for the Notes is discontinued or upon the occurrence of
certain other events described herein.
To facilitate subsequent transfers, all Global Securities representing
Notes which are deposited with the Depositary are registered in the name of the
Depositary's partnership nominee, Cede & Co. The deposit of Global Securities
with the Depositary and their registration in the name of Cede & Co. effect no
change in beneficial ownership. The Depositary has no knowledge of the actual
Beneficial Owners of the Global Securities representing the Notes; the
Depositary's records reflect only the identity of the Direct Participants to
whose accounts such Notes are credited, which may or may not be the Beneficial
Owners. The Participants will remain responsible for keeping account of their
holdings on behalf of their customers.
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<PAGE> 28
Conveyance of notices and other communications by the Depositary to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements
that may be in effect from time to time.
Neither the Depositary nor Cede & Co. will consent or vote with respect to
the Global Securities representing the Notes. Under its usual procedures, the
Depositary mails an omnibus proxy (an "Omnibus Proxy") to the Company as soon as
possible after the applicable record date. The Omnibus Proxy assigns Cede &
Co.'s consenting or voting rights to those Direct Participants to whose accounts
the Notes are credited on the applicable record date (identified in a listing
attached to the Omnibus Proxy).
Principal and interest payments on the Global Securities representing the
Notes will be made to Cede & Co., as nominee of the Depositary. The Depositary's
practice is to credit Direct Participants' accounts on the applicable payment
date in accordance with their respective holdings shown on the Depositary's
records unless the Depositary has reason to believe that it will not receive
payment on such date. Payments by Participants to Beneficial Owners will be
governed by standing instructions and customary practices, as is the case with
securities held for the account of customers in bearer form or registered in
"street name", and will be the responsibility of such Participants and not of
the Depositary, the Trustee or the Company, subject to any statutory or
regulatory requirements as may be in effect from time to time. Payment of
principal and interest to Cede & Co. is the responsibility of the Company or the
Trustee, disbursement of such payments to Direct Participants shall be the
responsibility of the Depositary, and disbursement of such payments to the
Beneficial Owners shall be the responsibility of Direct and Indirect
Participants. Neither the Company nor the Trustee will have any responsibility
or liability for the disbursements of payments in respect of ownership interests
in the Notes by the Depositary or the Direct or Indirect Participants or for
maintaining or reviewing any records of the Depositary or the Direct or Indirect
Participants relating to ownership interests in the Notes or the disbursement of
payments in respect thereof.
The Depositary may discontinue providing its services as securities
depositary with respect to the Notes at any time by giving reasonable notice to
the Company or the Trustee. Under such circumstances, and in the event that a
successor securities depositary is not obtained, Notes in definitive form are
required to be printed and delivered. The Company may decide to discontinue use
of a system of book-entry transfers through the Depositary (or a successor
securities depositary). In that event, Notes in definitive form will be printed
and delivered.
The information in this section concerning the Depositary and the
Depositary's book-entry system has been obtained from sources that the Company
believes to be reliable. The Company and the Underwriters take no responsibility
for its accuracy. This information is subject to any changes to the arrangements
between the Company and the Depositary and any changes to such procedures that
may be instituted unilaterally by the Depositary.
GENERAL
Other than the protections which may otherwise be afforded holders of the
Notes as a result of the operation of the covenants described under "Covenants"
in the accompanying Prospectus, there are no covenants or other provisions which
may afford holders of the Notes protection in the event of a leveraged buyout or
other highly leveraged transaction involving the Company or any similar
occurrence.
The Notes will not be subject to any sinking fund provisions.
S-28
<PAGE> 29
UNDERWRITING
Under the terms and conditions contained in the underwriting agreement
dated the date hereof (the "Underwriting Agreement"), the underwriters named
below (the "Underwriters") have severally agreed to purchase, and the Company
has agreed to sell to them, the respective amounts of the Notes set forth
opposite their names below.
<TABLE>
<CAPTION>
PRINCIPAL
NAME AMOUNT OF NOTES
- ---- ---------------
<S> <C>
Morgan Stanley & Co. Incorporated..................... $
Bear, Stearns & Co. Inc. .............................
J.P. Morgan Securities Inc. ..........................
Salomon Smith Barney Inc. ............................
Warburg Dillon Read LLC...............................
Deutsche Bank Securities Inc. ........................
First Chicago Capital Markets, Inc. ..................
Scotia Capital Markets (USA) Inc. ....................
--------
Total....................................... $
========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the Notes are subject to, among
other things, the approval of certain legal matters by their counsel and certain
other conditions. The Underwriters are obligated to take and pay for all the
Notes if any are taken.
The Underwriters propose initially to offer the Notes in part to the public
at the public offering price set forth on the cover page of this Prospectus
Supplement and in part to certain dealers at prices that represent a concession
not in excess of . % of the principal amount of the Notes. Any Underwriter
may allow, and such dealers may reallow, a concession not in excess of . %
of the principal amount of the Notes to certain brokers and other dealers. After
the initial offering of the Notes, the offering price and other selling terms
may from time to time be varied by the Underwriters.
There is no public trading market for the Notes and the Company does not
intend to apply for listing of the Notes on any national securities exchange or
for quotation of the Notes on any automated dealer quotation system. The Company
has been advised by the Underwriters that they presently intend to make a market
in the Notes, as permitted by applicable laws and regulations. The Underwriters
are not obligated, however, to make a market in the Notes and any such market
making may be discontinued at the sole discretion of the Underwriters.
Accordingly, no assurance can be given as to the liquidity of, or trading
markets for, the Notes.
In order to facilitate the offering of the Notes, the Underwriters may
engage in transactions that stabilize, maintain or otherwise affect the price of
the Notes. Specifically, the Underwriters may over-allot in connection with this
offering, creating short positions in the Notes for their own account. In
addition, to cover over-allotments or to stabilize the price of the Notes, the
Underwriters may bid for, and purchase, Notes in the open market. Finally, the
Underwriters may reclaim selling concessions allowed to an underwriter or dealer
for distributing Notes in this offering, if the Underwriters repurchase
previously distributed Notes in transactions that cover syndicate short
positions, in stabilization transactions or otherwise. Any of these activities
may stabilize or maintain the market price of the Notes above independent market
levels. The Underwriters are not required to engage in these activities, and may
end any of these activities at any time.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as amended.
Certain of the Underwriters and their affiliates have provided, and may in
the future continue to provide, investment banking and other financial services
to the Company in the ordinary course of business, for which they receive
customary compensation. In the case of affiliates of J.P. Morgan Securities
Inc., Warburg Dillon Read LLC, Deutsche Bank Securities Inc., First Chicago
Capital Markets, Inc. and Scotia Capital Markets
S-29
<PAGE> 30
(USA) Inc., acting as lenders under the Company's bank credit facilities, such
affiliates will receive certain amounts as repayment under these facilities from
the net proceeds of the offering of the Notes. See "Use of Proceeds" in this
Prospectus Supplement. Because more than 10% of the net proceeds of the offering
will be paid to affiliates of members of the National Association of Securities
Dealers, Inc. (the "NASD") who are participating in this offering, the offering
is being made pursuant to Rule 2710(e)(8) of the Conduct Rules of the NASD.
S-30
<PAGE> 31
PROSPECTUS
MERITOR AUTOMOTIVE, INC.
DEBT SECURITIES
------------------------
Meritor Automotive, Inc., a Delaware corporation (the "Company"), may offer
its debt securities ("Debt Securities"), in one or more series from time to
time, in an aggregate principal amount (or, in the case of Debt Securities
issued at an original issue discount, net proceeds) not to exceed $500,000,000,
or the equivalent of that amount in one or more foreign or composite currencies,
on terms to be determined at the time of sale. This Prospectus will be
supplemented by a prospectus supplement (the "Prospectus Supplement") that will
set forth, as applicable, the specific designation, aggregate principal amount,
authorized denominations, purchase price, maturity, interest rate (or manner of
calculation of interest rate) and time of payment of interest, if any, any
redemption terms, the currency or composite currency in which the Debt
Securities or any interest on the Debt Securities will be payable, and other
specific terms, and any listing on a securities exchange, of the series of Debt
Securities in respect of which this Prospectus is being delivered (the "Offered
Debt Securities"), together with the terms of offering of the Offered Debt
Securities.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The Company may sell the Debt Securities through underwriters, dealers or
agents designated from time to time, or directly to one or more purchasers. See
"Plan of Distribution". The Prospectus Supplement will set forth the names of
any underwriters, dealers or agents involved in the sale of the Offered Debt
Securities, any applicable commissions or discounts and the net proceeds to the
Company from any such sale.
------------------------
THE DATE OF THIS PROSPECTUS IS JUNE 4, 1998.
<PAGE> 32
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "SEC"). This Prospectus contains
information concerning the Company, but does not contain all of the information
set forth in the Registration Statement of which this Prospectus is a part, and
exhibits and amendments to the Registration Statement that the Company has filed
or may file with the SEC under the Securities Act of 1933, as amended (the
"Securities Act"). Such reports, proxy statements, Registration Statement,
exhibits and other information filed by the Company can be inspected and copied
at the public reference facilities maintained by the SEC at 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549; 7 World Trade Center, Suite 1300, New
York, New York 10048; and 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of such material can also be obtained at prescribed rates from the
Public Reference Section of the SEC at its principal office at 450 Fifth Street,
N.W., Washington, D.C. 20549. The SEC also maintains a web site that contains
reports, proxy and information statements and other information regarding
registrants (including the Company) that file electronically with the SEC
(http://www.sec.gov).
The Company's Common Stock, par value $1 per share, is listed on the New
York Stock Exchange. Reports, proxy statements and other information concerning
the Company can be inspected at the office of the New York Stock Exchange at 20
Broad Street, New York, New York 10005.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents, or portions of documents, filed with the SEC
pursuant to the Exchange Act (File No. 1-13093), are incorporated in this
Prospectus by reference and made a part hereof:
(a) the Company's Annual Report on Form 10-K for the Fiscal Year Ended
September 30, 1997 (including the portions of the Company's 1997 Annual
Report to Shareowners and the Company's Proxy Statement on Schedule 14A for
the Company's 1998 Annual Meeting of Shareowners that are incorporated
therein by reference);
(b) the Company's Quarterly Report on Form 10-Q for the Quarterly
Period Ended December 31, 1997; and
(c) the Company's Quarterly Report on Form 10-Q for the Quarterly
Period Ended March 31, 1998.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering of the Debt Securities hereunder shall be deemed
to be incorporated by reference in this Prospectus and to be a part hereof from
the date of the filing of such documents (such documents, and the documents
listed above, being referred to as the "Incorporated Documents"). Any statement
contained herein or in an Incorporated Document shall be deemed to be modified
or superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any subsequently filed Incorporated Document, or in an
accompanying Prospectus Supplement, modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
The Company undertakes to provide without charge to each person, including
any beneficial owner, to whom a copy of this Prospectus is delivered, on the
written or oral request of such person, a copy of any or all of the Incorporated
Documents, other than exhibits to such documents, unless such exhibits are
specifically incorporated by reference therein. Requests should be directed to
David W. Greenfield, Senior Vice President, General Counsel and Secretary,
Meritor Automotive, Inc., 2135 West Maple Road, Troy, Michigan, 48084, telephone
number (248) 435-7708.
2
<PAGE> 33
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE DEBT SECURITIES,
INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN SUCH
SECURITIES, AND THE IMPOSITION OF A PENALTY BID IN CONNECTION WITH THE OFFERING.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "PLAN OF DISTRIBUTION".
THE COMPANY
The Company is a leading global supplier of a broad range of components and
systems for use in commercial, specialty and light vehicles and serves its
customers worldwide through Heavy Vehicle Systems ("HVS") and Light Vehicle
Systems ("LVS"). HVS supplies drivetrain systems and components, including
axles, brakes, transmissions, clutches and drivelines, for heavy-duty and
medium-duty trucks, trailers, off-highway equipment, buses and coaches, as well
as other specialty and military vehicles. LVS supplies electromechanical and
other components and systems, including roof, door, access control and seat
adjusting systems, as well as suspension products and steel wheels, for
passenger cars, light trucks and sport utility vehicles.
The Company was incorporated in Delaware in May 1997 in connection with the
September 30, 1997 distribution by Rockwell International Corporation
("Rockwell"), the Company's former parent company, to Rockwell shareowners on a
pro rata basis of all of the issued and outstanding shares of the Company (the
"Distribution"). Prior to the Distribution, Rockwell transferred substantially
all of its operations, assets and liabilities related to the automotive
businesses then owned and operated by Rockwell (including liabilities relating
to former operations) to the Company or to subsidiaries of the Company.
The Company's principal executive offices are located at 2135 West Maple
Road, Troy, Michigan 48084. Its telephone number is (248) 435-1000.
USE OF PROCEEDS
Except as may otherwise be set forth in a Prospectus Supplement, the net
proceeds to be received by the Company from the issuance and sale of the Debt
Securities will be added to the Company's general funds which will be available
for general corporate purposes, including the repayment of existing
indebtedness, working capital needs, capital expenditures and acquisitions.
Pending application of the funds, the Company will use the net proceeds of the
Debt Securities for short-term investments.
RATIO OF EARNINGS TO FIXED CHARGES
The Company has calculated ratios of earnings to fixed charges for the
periods indicated, as follows:
<TABLE>
<CAPTION>
SIX
PRO FORMA MONTHS
YEAR ENDED SEPTEMBER 30,(1) YEAR ENDED ENDED
------------------------------------- SEPTEMBER 30, MARCH 31,
1993 1994 1995 1996 1997 1997(2) 1998
----- ----- ----- ----- ----- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed
Charges(3).......................... 6.8 5.6 10.3 11.7 11.7 4.7 6.1
</TABLE>
- ---------------
(1) The financial information presented for periods prior to September 30, 1997
has been prepared based on the combined historical financial position,
results of operations and cash flows of the ongoing automotive businesses of
Rockwell prior to the Distribution and is not necessarily indicative of what
the financial position, results of operations or cash flows would have been
had the Company been an independent public company during the periods
presented.
(2) Pro forma financial information presented as if the Company was a
stand-alone entity in fiscal 1997. Pro forma information reflects (a) the
68.9 million shares of the Company's common stock issued on the date of the
Distribution, (b) management's estimate that corporate costs would have been
$11 million lower on a stand-alone basis than those allocated to the
automotive businesses by Rockwell and (c) $28 million of interest expense at
6 percent for the year ended September 30, 1997, related to the debt
incurred by the Company in connection with the $445 million pre-Distribution
payment to Rockwell.
(3) "Earnings" are defined as pre-tax income from continuing operations,
adjusted for income or loss attributable to minority interests in
subsidiaries, undistributed earnings of less than majority owned
subsidiaries, and fixed charges excluding capitalized interest. "Fixed
charges" are defined as interest on borrowings (whether expensed or
capitalized) and that portion of rental expense applicable to interest.
3
<PAGE> 34
DESCRIPTION OF THE DEBT SECURITIES
The Debt Securities are to be issued under an Indenture, dated as of April
1, 1998 (the "Indenture"), between the Company and The Chase Manhattan Bank, as
trustee (the "Trustee"). The Indenture is filed as an exhibit to the
Registration Statement, and copies of the Indenture may be obtained from the
Commission in the manner set forth above under "Available Information". Certain
provisions of the Indenture are summarized below. Such summaries are subject to,
and are qualified by reference to, all provisions of the Indenture, including
the definitions therein of certain terms. Numerical references in parentheses
below are to sections of the Indenture. Whenever particular provisions or
sections of the Indenture or terms defined in the Indenture are referred to in
this Prospectus, such provisions, sections or definitions are incorporated by
reference as a part of the statements made, and the statements are qualified by
such reference. Unless otherwise indicated, capitalized terms used in this
section that are defined in the Indenture have the meanings ascribed to such
terms in the Indenture.
The description below sets forth certain general terms and provisions of
the Debt Securities. The specific terms of the Offered Debt Securities, as well
as any modifications of or additions to the general terms of the Debt Securities
set forth below that may be applicable in the case of the Offered Debt
Securities, are described in the Prospectus Supplement. For a description of the
terms of the Offered Debt Securities, reference must be made to both the
Prospectus Supplement and the description of the Debt Securities in this
Prospectus.
GENERAL
The Indenture does not limit the amount of Debt Securities which may be
issued thereunder and provides that Debt Securities may be issued thereunder up
to the aggregate principal amount which may be authorized from time to time by
the Company, in one or more series. Under the Indenture, the Company has the
ability to issue Debt Securities with terms different from those of Debt
Securities previously issued thereunder, and without the consent of the holders
thereof, to issue additional amounts of a series of Debt Securities (with
different dates for payments, different rates of interest and in a different
Currency or Currencies). Reference is made to the Prospectus Supplement for the
following terms of the Offered Debt Securities, as applicable: (1) the title of
the Offered Debt Securities; (2) any limit on the aggregate principal amount of
the Offered Debt Securities and any limit on the aggregate principal amount of
Debt Securities of such series; (3) if other than Dollars, the Currency or
Currencies in which the Offered Debt Securities are to be denominated, the
manner in which the Dollar equivalent of the principal amount is to be
determined upon original issuance and if any payment of principal of (or
premium, if any) or interest, if any, on or any other amount in respect of the
Offered Debt Securities will be payable other than in Dollars, the Currency or
Currencies in which such payment shall be payable; (4) the date or dates, or the
method by which such date or dates will be determined or extended, on which the
principal of (and premium, if any, on) the Offered Debt Securities will be
payable; (5) the rate or rates, or the method of determination thereof, at which
the Offered Debt Securities shall bear interest, if any, the date or dates from
which such interest shall accrue or the method by which such date or dates shall
be determined, the date or dates on which such interest shall be payable and for
any Registered Securities the Regular Record Dates, if any, for such interest
payment dates, or the method by which such date or dates shall be determined,
and the basis on which any interest shall be calculated if other than on the
basis of a 360-day year of twelve 30-day months; (6) the place or places where
principal of (and premium, if any) and interest, if any, on the Offered Debt
Securities may be payable, where any Registered Securities may be surrendered
for registration of transfer and where Offered Debt Securities may be exchanged
and notices and demands may be served or published; (7) the period or periods
within which, the price or prices at which, the Foreign Currency or Foreign
Currencies, if any, in which and the other terms and conditions upon which the
Offered Debt Securities may be redeemed, in whole or in part, at the option of
the Company; (8) the obligation, if any, of the Company to redeem or purchase
the Offered Debt Securities pursuant to any sinking fund or analogous provisions
or at the option of a holder thereof, and the period or periods within which,
the price or prices at which, the Foreign Currency or Foreign Currencies, if
any, in which, and the other terms and conditions upon which Offered Debt
Securities shall be redeemed or purchased, in whole or in part, pursuant to such
obligation; (9) the denomination of any Registered Security (if other than
$1,000 or any integral
4
<PAGE> 35
multiple thereof) and of any Bearer Security (if other than $10,000 or any
integral multiple thereof); (10) the portion of the principal amount of the
Offered Debt Securities, if other than the principal amount thereof, payable
upon acceleration of Maturity thereof or the method by which such portion shall
be determined; (11) whether Offered Debt Securities are to be Registered
Securities, Bearer Securities or both, are to be issuable with or without
coupons or both, and the terms upon which Bearer Securities may be exchanged for
Registered Securities, if other than in the manner provided in the Indenture,
and, in the case of Bearer Securities, the date as of which such Bearer
Securities shall be dated (if other than the date of original issuance of the
first security of like tenor and term to be issued); (12) whether Offered Debt
Securities are to be issued in whole or in part in the form of a Global
Security, and in such case the Depositary, whether such global form is temporary
or permanent, whether beneficial owners of interests in any Permanent Global
Security may exchange such interests for Debt Securities of such series in
certificated form and of like tenor of any authorized form and denomination and
the circumstances under which any such exchanges may occur, if other than in the
manner provided in the Indenture, and any applicable Exchange Date; (13) whether
any additional amounts will be payable by the Company on the Offered Debt
Securities in respect of any tax, assessment or governmental charge and whether
the Company will have the option to redeem the Offered Debt Securities rather
than pay such additional amounts or to redeem the Offered Debt Securities in the
event of the imposition of any certification, documentation, information or
other reporting requirement (and the terms and conditions of any such option);
(14) if the amount of payments of principal of (and premium, if any) or
interest, if any, on the Offered Debt Securities may be determined with
reference to an index, the manner in which such amounts shall be determined;
(15) the person to whom any interest on any Registered Security shall be
payable, if other than the person in whose name such Registered Security (or one
or more Predecessor Securities) is registered at the close of business on the
Regular Record Date, the manner in which, or person to whom, any interest on any
Bearer Security will be payable, if other than upon presentation and surrender
of the coupons appertaining thereto as they mature, and the extent to which any
interest payable on an Interest Payment Date on any temporary Global Security
will be paid if other than in the manner provided in the Indenture; (16) any
additions to or changes in any Events of Default or covenants applicable to the
Offered Debt Securities set forth in the Indenture; (17) the application, if
any, of the defeasance or covenant defeasance provisions of the Indenture to the
Offered Debt Securities; (18) the designation of the initial Exchange Rate
Agent, if applicable; (19) if other than the Trustee, the identity of the
trustee, Authenticating Agent, Security Registrar and/or Paying Agent; and (20)
any other terms of the Offered Debt Securities. (Section 3.01).
Additional provisions of the Indenture, such as interest rate reset and
extension provisions, may be made applicable to the Offered Debt Securities, as
described in the Prospectus Supplement.
If any series of Debt Securities is sold for, is payable in or is
denominated in one or more Foreign Currencies, applicable restrictions,
elections, tax consequences, specific terms and other information with respect
to such series of Debt Securities and such Foreign Currency or Foreign
Currencies shall be set forth in the Prospectus Supplement relating thereto.
If the Debt Securities are being issued as original issue discount
securities (bearing no interest or interest at a rate which at the time of
issuance is below market rates) to be sold at a substantial discount below the
stated principal amount, the United States federal income tax consequences and
other considerations applicable to such original issue discount securities will
be described in the related Prospectus Supplement.
The Debt Securities will be unsecured and will rank on a parity with all
other unsecured and unsubordinated indebtedness of the Company, unless otherwise
indicated in the applicable Prospectus Supplement. Other than the protections
which may otherwise be afforded holders of Debt Securities as a result of the
operation of the covenants described under "Covenants" below or as may be made
applicable to the Offered Debt Securities as described in the Prospectus
Supplement, there are no covenants or other provisions which may afford holders
of Debt Securities protection in the event of a leveraged buyout or other highly
leveraged transaction involving the Company or any similar occurrence.
5
<PAGE> 36
FORM, DENOMINATIONS, REGISTRATION, TRANSFER AND EXCHANGE
Debt Securities of a series may be issuable solely as Registered
Securities, solely as Bearer Securities or as both Registered Securities and
Bearer Securities. Unless otherwise provided in the applicable Prospectus
Supplement, Registered Securities denominated in Dollars (other than Registered
Securities in global form, which may be in any denomination) are issuable in
denominations of $1,000 and any integral multiple thereof and Bearer Securities
denominated in Dollars (other than Bearer Securities in global form, which may
be in any denomination) are issuable in denominations of $10,000 and any
integral multiple thereof. The Indenture provides that Debt Securities of a
series may be issuable in global form. See "Global Securities" below. Unless
otherwise indicated in the applicable Prospectus Supplement, Bearer Securities
(other than Global Securities) will have interest coupons attached. (Sections
2.01 and 3.02).
Registered Securities of any series will be exchangeable for other
Registered Securities of the same series of any authorized denominations, of
like aggregate principal amount, tenor and terms. In addition, if Debt
Securities of any series are issuable as both Registered Securities and Bearer
Securities, at the option of the holder, but subject to applicable laws, upon
request confirmed in writing and subject to the terms of the Indenture, Bearer
Securities (with all unmatured coupons, except as provided below, and all
matured coupons in default) of such series will be exchangeable into Registered
Securities of the same series of any authorized denominations and of like
aggregate principal amount, tenor and terms. Bearer Securities surrendered in
exchange for Registered Securities of the same series between the close of
business on a Regular Record Date or a Special Record Date and the relevant date
for payment of interest shall be surrendered without the coupon relating to such
date for payment of interest, and such interest will not be payable in respect
of the Registered Security issued in exchange for such Bearer Security, but will
be payable only to the holder of such coupon when due in accordance with the
terms of the Indenture. Unless otherwise specified in the applicable Prospectus
Supplement, Bearer Securities will not be issued in exchange for Registered
Securities. (Section 3.05).
In connection with its original issuance, no Bearer Security shall be
mailed or otherwise delivered to any location in the United States (as defined
below under "Limitations on Issuance of Bearer Securities") and, unless
otherwise specified in the applicable Prospectus Supplement, a Bearer Security
may be delivered in connection with its original issuance only if the person
entitled to receive such Bearer Security furnishes written certification, in the
form required by the Indenture.
Debt Securities may be presented for exchange as provided above, and
Registered Securities may be presented for registration of transfer (duly
endorsed or accompanied by a satisfactory written instrument of transfer), at
the office of the Security Registrar or at the office of any transfer agent
designated by the Company for such purpose with respect to such series of Debt
Securities, without service charge and upon payment of any taxes and other
governmental charges. (Section 3.05). If the Prospectus Supplement refers to any
transfer agent (in addition to the Security Registrar) initially designated by
the Company with respect to any series of Debt Securities, the Company may at
any time rescind the designation of any such transfer agent or approve a change
in the location through which any such transfer agent (or Security Registrar)
acts, except that, if Debt Securities of a series are issuable as Registered
Securities, the Company will be required to maintain a transfer agent in each
Place of Payment for such series and, if Debt Securities of a series are
issuable as Bearer Securities, the Company will be required to maintain (in
addition to the Security Registrar) a transfer agent in a Place of Payment for
such series located outside the United States. The Company may at any time
designate additional transfer agents with respect to any series of Debt
Securities. (Section 10.02).
In the event of any redemption, the Company shall not be required to (i)
issue, register the transfer of or exchange Debt Securities of any series during
a period of 15 days before any selection of Debt Securities of that series to be
redeemed and ending at the close of business on (A) if Debt Securities of the
series are issuable only as Registered Securities, the day of mailing of the
relevant notice of redemption and (B) if Debt Securities of the series are
issuable as Bearer Securities, the day of the first publication of the relevant
notice of redemption or, if Debt Securities of the series are also issuable as
Registered Securities and there is no publication, the mailing of the relevant
notice of redemption; (ii) register the transfer of or exchange any Registered
Security so selected for redemption in whole or in part, except the unredeemed
portion of any
6
<PAGE> 37
Registered Security being redeemed in part; or (iii) exchange any Bearer
Security selected for redemption except that such a Bearer Security may be
exchanged for a Registered Security of like tenor and terms of that series,
provided that such Registered Security shall be simultaneously surrendered for
redemption. (Section 3.05).
GLOBAL SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more Global Securities that will be deposited with, or on behalf
of, a Depositary identified in the Prospectus Supplement relating to such series
and registered in the name of the Depositary or the Depositary's nominee. Global
Securities may be issued in fully registered or bearer form and may be issued in
either temporary or permanent form.
The Company anticipates that the following provisions will generally apply
to depository arrangements. The specific terms of the depository arrangement
with respect to a series of Debt Securities and whether all or any part of the
Offered Debt Securities will be issued in the form of one or more Global
Securities will be described in the Prospectus Supplement relating to such
series.
Unless and until it is exchanged in whole or in part for the individual
Debt Securities represented thereby, a Global Security may not be transferred
except as a whole between the Depositary for such Global Security and its
nominee or by the Depositary or any nominee to a successor of the Depositary or
a nominee of such successor.
Upon the issuance of a Global Security, the Depositary for such Global
Security or its nominee will credit on its book-entry registration and transfer
system the respective principal amounts of the individual Debt Securities
represented by such Global Security to the accounts of persons that have
accounts with such Depositary ("Participants"). Such accounts shall be
designated by the underwriters, dealers or agents with respect to such Debt
Securities or by the Company if such Debt Securities are offered and sold
directly by the Company. Ownership of beneficial interests in a Global Security
will be limited to Participants or persons that may hold interests through
Participants. Ownership of beneficial interests in such Global Security will be
shown on, and the transfer of that ownership will be effected only through,
records maintained by the applicable Depositary or its nominee (with respect to
interests of Participants) and records of Participants (with respect to
interests of persons who hold through Participants). The laws of some states
require that certain purchasers of securities take physical delivery of
securities in definitive form. Such limits and such laws may impair the ability
to own, pledge or transfer beneficial interests in a Global Security.
So long as the Depositary for a Global Security or its nominee is the
registered owner of such Global Security, such Depositary or such nominee, as
the case may be, will be considered the sole owner or holder of the Debt
Securities represented by such Global Security for all purposes under the
Indenture. Except as provided below, owners of beneficial interests in a Global
Security will not be entitled to have any of the individual Debt Securities of
the series represented by such Global Security registered in their names, will
not receive or be entitled to receive physical delivery of any such Debt
Securities of such series in definitive form and will not be considered the
owners or holders thereof under the Indenture.
Payments of principal of (and premium, if any) and interest, if any, on
individual Debt Securities represented by a Global Security registered in the
name of a Depositary or its nominee will be made to the Depositary or its
nominee, as the case may be, as the registered owner of the Global Security
representing such Debt Securities. None of the Company, the Trustee, any Paying
Agent or the Security Registrar for such Debt Securities or any agent,
underwriter or dealer through which such Debt Securities are offered or sold
will have any responsibility or liability for any aspect of the records relating
to or payments made on account of beneficial ownership interests in the Global
Security for such Debt Securities or for maintaining, supervising or reviewing
any records relating to such beneficial ownership interests.
The Company expects that the Depositary for a series of Debt Securities or
its nominee, upon receipt of any payment of principal (or premium, if any) or
interest, if any, in respect of a permanent Global Security representing any of
such Debt Securities, immediately will credit Participants' accounts with
payments in
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amounts proportionate to their respective beneficial interests in the principal
amount of such Global Security for such Debt Securities as shown on the records
of such Depositary or its nominee. The Company also expects that payments by
Participants to owners of beneficial interests in such Global Security held
through such Participants will be governed by standing instructions and
customary practices, as is now the case with securities held for the accounts of
customers in bearer form or registered in "street name". Such payments will be
the responsibility of such Participants.
If a Depositary for a series of Debt Securities is at any time unwilling,
unable or ineligible to continue as depository and a successor depository is not
appointed by the Company within 90 days, the Company will issue individual Debt
Securities of such series to Participants in exchange for the Global Security
representing such series of Debt Securities. In addition, the Company may, at
any time and in its sole discretion, subject to any limitations described in the
Prospectus Supplement relating to such Debt Securities, determine not to have
any Debt Securities of such series represented by one or more Global Securities
and, in such event, will issue individual Debt Securities of such series to
Participants in exchange for the Global Security or Securities representing such
series of Debt Securities. (Section 3.05).
LIMITATIONS ON ISSUANCE OF BEARER SECURITIES
Unless otherwise provided in the applicable Prospectus Supplement, in
compliance with United States federal tax laws and regulations, Bearer
Securities (including Debt Securities in global form) may not be offered, sold,
resold or delivered in connection with their original issuance in the United
States or to United States persons (each as defined below) other than to a
Qualifying Branch of a United States Financial Institution (as defined below) or
a United States person acquiring Bearer Securities through a Qualifying Branch
of a United States Financial Institution and any underwriters, agents and
dealers participating in the offering of Debt Securities must agree that they
will not offer any Bearer Securities for sale or resale in the United States or
to United States persons (other than a Qualifying Branch of a United States
Financial Institution or a United States person acquiring Bearer Securities
through a Qualifying Branch of a United States Financial Institution) or deliver
Bearer Securities within the United States. In addition, any such underwriters,
agents and dealers must agree to send confirmations to each purchaser of a
Bearer Security confirming that such purchaser represents that it is not a
United States person or is a Qualifying Branch of a United States Financial
Institution and, if such person is a dealer, that it will send similar
confirmations to purchasers from it. The term "Qualifying Branch of a United
States Financial Institution" means a branch located outside the United States
of a United States securities clearing organization, bank or other financial
institution listed under Treasury Regulation Section 1.165-12(c)(1)(v) that
agrees to comply with the requirements of Section 165(j)(3)(A), (B) or (C) of
the United States Internal Revenue Code of 1986, as amended (the "Code"), and
the regulations thereunder.
Bearer Securities and any coupons appertaining thereto will bear a legend
substantially to the following effect: "Any United States person who holds this
obligation will be subject to limitations under the United States income tax
laws, including the limitations provided in Sections 165(j) and 1287(a) of the
Internal Revenue Code." Under Sections 165(j) and 1287(a) of the Code, holders
that are United States persons, with certain exceptions, will not be entitled to
deduct any loss on Bearer Securities and must treat as ordinary income any gain
realized on the sale or other disposition (including the receipt of principal)
of Bearer Securities.
The term "United States person" means a citizen or resident of the United
States, a corporation, partnership or other entity created or organized in or
under the laws of the United States or of any political subdivision thereof or
therein (other than a partnership that is not treated as a United States person
under any applicable Treasury Regulation which may be issued), and an estate or
trust the income of which is subject to United States federal income taxation
regardless of its source, and the term "United States" means the United States
of America (including the states and the District of Columbia), its territories,
its possessions and other areas subject to its jurisdiction.
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PAYMENT AND PAYING AGENTS
Unless otherwise provided in the applicable Prospectus Supplement, the
Place of Payment for a series of Debt Securities issuable solely as Registered
Securities will be New York, New York and the Company has initially designated
an office of the Trustee in New York, New York for this purpose. Notwithstanding
the foregoing, at the option of the Company, interest, if any, may be paid on
Registered Securities by (i) check mailed to the address of the person entitled
thereto as such person's address appears in the Security Register or (ii)
transfer to an account located in the United States maintained by the person
entitled thereto as specified in the Security Register. (Sections 3.07, 10.01
and 10.02). Unless otherwise provided in the applicable Prospectus Supplement,
payment of any installment of interest on Registered Securities will be made to
the person in whose name such Registered Security is registered at the close of
business on the Regular Record Date for such interest payment. (Section 3.07).
If Debt Securities of a series are issuable as Bearer Securities, unless
otherwise provided in the applicable Prospectus Supplement, the Company will be
required to maintain an office or agency outside the United States at which,
subject to any applicable laws and regulations, the principal of (and premium,
if any) and interest, if any, on such series will be payable; provided that, if
required in connection with any listing of such Debt Securities on the London
Stock Exchange Limited, the Luxembourg Stock Exchange or any other stock
exchange located outside the United States, the Company will maintain an office
or agency for such Debt Securities in London or Luxembourg or any city located
outside the United States required by such stock exchange. (Section 10.02). The
initial locations of such offices and agencies will be specified in the
applicable Prospectus Supplement. Unless otherwise provided in the applicable
Prospectus Supplement, payment of principal of (and premium, if any) and
interest, if any, on Bearer Securities may be made, at the holder's option, by
(i) check in the Currency designated by the Bearer Security presented or mailed
to an address outside the United States or (ii) transfer to an account in such
Currency maintained by the person entitled thereto with a bank located outside
the United States. (Sections 3.07 and 10.02). Unless otherwise provided in the
applicable Prospectus Supplement, payment of installments of interest on any
Bearer Securities on or before Maturity will be made only against surrender of
coupons for such interest installments as they severally mature. (Section
10.01). Unless otherwise provided in the applicable Prospectus Supplement, no
payment with respect to any Bearer Security will be made at any office or agency
of the Company in the United States or by check mailed to an address in the
United States or by transfer to an account maintained with a bank located in the
United States. Notwithstanding the foregoing, payments of principal of (and
premium, if any) and interest, if any, on Bearer Securities payable in Dollars
may be made at an office of the Company's Paying Agent in the United States if
(but only if) payment of the full amount thereof in Dollars at all offices
outside the United States is illegal or effectively precluded by exchange
controls or other similar restrictions and the Trustee has received an Opinion
of Counsel that such payment within the United States is legal. (Sections 3.07
and 10.02).
The Company may from time to time designate additional offices or agencies
for payment with respect to any Debt Securities, approve a change in the
location of any such office or agency and, except as provided above, rescind the
designation of any such office or agency. (Section 10.02).
Unless otherwise provided in the applicable Prospectus Supplement, all
payments of principal of (and premium, if any) and interest, if any, on any Debt
Security that is payable in a Currency other than Dollars will be made in
Dollars in the event that such Currency (i) ceases to be used both by the
government of the country that issued the Currency and by a central bank or
other public institution of or within the international banking community for
the settlement of transactions, (ii) is the ECU and ceases to be used both
within the European Monetary System and for the settlement of transactions by
public institutions of or within the European Communities or (iii) is any
Currency unit (or composite Currency) other than the ECU and ceases to be used
for the purposes for which it was established. (Section 3.10).
All moneys deposited with the Trustee or any Paying Agent or held for the
payment of principal of (or premium, if any) or interest, if any, on any Debt
Security or any coupon appertaining thereto that remains unclaimed at the end of
two years after such principal, premium or interest shall have become due and
payable
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will, at the request of the Company, be repaid to the Company and the holder of
such Debt Security or any coupon appertaining thereto will thereafter look only
to the Company for payment thereof. (Section 10.03).
CERTAIN DEFINITIONS
"Restricted Subsidiary" means any Subsidiary of the Company other than an
Unrestricted Subsidiary. "Unrestricted Subsidiary" means any Subsidiary
designated as such from time to time by the Company. (Section 1.01). Subject to
various limitations, the Company may from time to time designate any Restricted
Subsidiary as an Unrestricted Subsidiary and any Unrestricted Subsidiary as a
Restricted Subsidiary. (Section 10.07). Unrestricted Subsidiaries will not be
restricted by the various provisions of the Indenture applicable to Restricted
Subsidiaries, and the debt of Unrestricted Subsidiaries will not be consolidated
with that of the Company and its Restricted Subsidiaries in calculating
Consolidated Funded Debt under the Indenture.
"Funded Debt" means (a) indebtedness for money borrowed having a maturity
of more than 12 months, (b) certain obligations in respect of lease rentals and
(c) the higher of the par value or liquidation value of preferred stock of a
Restricted Subsidiary that is not owned by the Company or a Wholly-owned
Restricted Subsidiary, but, in the case of the Company, does not include certain
debt subordinate to the Debt Securities. (Section 1.01).
"Secured Debt" means indebtedness for money borrowed (other than
indebtedness among the Company and Restricted Subsidiaries), which is secured by
a mortgage or other lien on any Principal Property of the Company or a
Restricted Subsidiary or a pledge, lien or other security interest on the stock
or indebtedness of a Restricted Subsidiary. (Section 1.01).
"Principal Property" includes any real property (including buildings and
other improvements) of the Company or any Restricted Subsidiary, owned at the
date of the Indenture or thereafter acquired (other than any pollution control
facility, cogeneration facility or small power production facility acquired
after the date of the Indenture), which (i) has a book value in excess of 2.5%
of Consolidated Net Tangible Assets and (ii) in the opinion of the Board of
Directors is of material importance to the total business conducted by the
Company and its Restricted Subsidiaries as a whole. (Section 1.01).
"Consolidated Net Tangible Assets" means, at any date of computation, the
total amount of consolidated assets of the Company and its consolidated
subsidiaries, less the sum of (a) all current liabilities, except for (i) any
short-term debt, (ii) any current portion of long-term debt and (iii) any
current portion of obligations under capital leases, and (b) all goodwill, trade
names, trademarks, patents, unamortized debt discount and expense (less
unamortized debt premium) and other like intangibles as shown on a balance sheet
of the Company and its consolidated subsidiaries prepared not more than 90 days
prior to the date of computation, in all cases computed in accordance with
generally accepted accounting principles. (Section 1.01).
"Sale and Lease-Back Transaction" means, subject to certain exceptions,
sales or transfers of any Principal Property owned by the Company or any
Restricted Subsidiary which has been in full operation for more than 180 days
prior to such sale or transfer, where the Company or such Restricted Subsidiary
has the intention of leasing back such property for more than 36 months but
discontinuing the use of such property on or before the expiration of the term
of such lease. (Section 10.06).
COVENANTS
Limitations on Liens. The Company and its Restricted Subsidiaries are
prohibited from creating, incurring, assuming or suffering to exist any Secured
Debt without equally and ratably securing the outstanding Debt Securities. The
foregoing restrictions are not applicable to (i) Secured Debt existing at the
date of the Indenture; (ii) liens on property acquired or constructed after the
date of the Indenture by the Company or a Restricted Subsidiary and created
contemporaneously with, or within twelve months after, such acquisition or the
completion of such construction to secure all or any part of the purchase price
of such property or the cost of such construction; (iii) mortgages on property
of the Company or a Restricted Subsidiary created within twelve months of
completion of construction of a new plant or plants on such
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property to secure all or part of the cost of such construction; (iv) liens on
property existing at the time such property is acquired; (v) liens on stock
acquired after the date of the Indenture by the Company or a Restricted
Subsidiary if the aggregate cost thereof does not exceed 15% of Consolidated Net
Tangible Assets; (vi) liens securing indebtedness of a successor corporation to
the Company to the extent permitted by the Indenture; (vii) liens securing
indebtedness of a Restricted Subsidiary outstanding at the time it became a
Restricted Subsidiary; (viii) liens securing indebtedness of any person
outstanding at the time it is merged with or substantially all its properties
are acquired by the Company or any Restricted Subsidiary; (ix) liens on property
or on the outstanding shares or indebtedness of a corporation existing at the
time such corporation becomes a Restricted Subsidiary; (x) liens created,
incurred or assumed in connection with an industrial revenue bond, pollution
control bond or similar financing arrangement between the Company or any
Restricted Subsidiary and any Federal, state or municipal government or other
governmental body or agency; (xi) extensions, renewals or replacements of the
foregoing permitted liens to the extent of the original amounts thereof; (xii)
liens in connection with government and certain other contracts; (xiii) certain
liens in connection with taxes or legal proceedings; (xiv) certain other liens
not related to the borrowing of money; and (xv) liens in connection with Sale
and Lease-Back Transactions as described under "Limitations on Sale and
Lease-Back". (Section 10.05).
In addition, the Company and its Restricted Subsidiaries may have Secured
Debt not otherwise permitted without equally and ratably securing the
outstanding Debt Securities if the sum of (a) the amount of such Secured Debt
plus (b) the aggregate value of Sale and Lease-Back Transactions (subject to
certain exceptions) described below, does not exceed 15% of Consolidated Net
Tangible Assets. (Section 10.05).
Limitations on Sale and Lease-Back. The Company and its Restricted
Subsidiaries are prohibited from engaging in Sale and Lease-Back Transactions
unless (a) the Company or its Restricted Subsidiaries would be entitled to incur
Secured Debt equal to the amount realizable upon such sale or transfer secured
by a mortgage on the property to be leased without equally and ratably securing
the outstanding Debt Securities; or (b) an amount equal to the greater of net
proceeds of the sale or fair value of the property sold (subject to certain
limitations contained in the Indenture) as determined by the Board of Directors
is applied within 180 days of any such transaction (i) to the retirement (other
than a mandatory retirement) of Consolidated Funded Debt or indebtedness of the
Company or a Restricted Subsidiary that was Funded Debt at the time it was
created (other than Consolidated Funded Debt or indebtedness owned by the
Company or any Restricted Subsidiary) or (ii) to the purchase of other Principal
Property having a value at least equal to the greater of such amounts; or (c)
the Sale and Lease-Back Transaction involved was an industrial revenue bond,
pollution control bond or similar financing arrangement between the Company or
any Restricted Subsidiary and any Federal, state, municipal government or other
governmental body or agency. (Section 10.06).
Certain Limitations on Merger of the Company. The Company may consolidate
with or merge into any other corporation, or convey or transfer its properties
and assets substantially as an entirety to any other Person, provided that (i)
the corporation formed by such consolidation or into which the Company is merged
or which acquires such assets, is organized under the laws of the United States,
any State thereof or the District of Columbia and expressly assumes in a
supplemental indenture the Company's obligations on the Debt Securities and
under the Indenture, (ii) after giving effect to such transaction no Event of
Default, and no event which, after notice or lapse of time or both, would become
an Event of Default, shall have happened and be continuing and (iii) certain
other conditions are met. (Section 8.01). If, upon any consolidation or merger
of the Company with or into any other corporation or upon any conveyance or
transfer of its properties and assets substantially as an entirety to any other
Person, any Principal Property of the Company or a Restricted Subsidiary would
thereupon become subject to any mortgage, security interest, pledge, lien or
encumbrance not otherwise permitted under the Indenture, the Company will, prior
to such transaction, secure the outstanding Debt Securities, equally and ratably
with any other indebtedness of the Company then entitled to be so secured, by a
direct lien on such Principal Property and certain other properties. (Section
8.03). The successor corporation formed by any consolidation or merger, or any
conveyance or transfer of the properties and assets of the Company substantially
as an entirety, shall succeed to and be substituted for the Company under the
Indenture and thereafter the Company shall be relieved of all obligations and
covenants under the Indenture, the Debt Securities and any coupons. (Section
8.02).
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DEFEASANCE AND COVENANT DEFEASANCE
Defeasance. The Indenture provides as to any series of Debt Securities to
which the provisions described in this paragraph are made applicable, that the
Company will be discharged from any and all obligations in respect of the Debt
Securities of such series (except for certain obligations to register the
transfer and exchange of such Debt Securities, to replace mutilated, destroyed,
lost or stolen Debt Securities, to compensate, reimburse and indemnify the
Trustee, to maintain an office or agency with respect to the Debt Securities and
to hold moneys for payment in trust) upon irrevocable deposit with the Trustee,
in trust, of money or U.S. government securities (as described in the Indenture)
or a combination thereof, which through the payment of interest and principal in
respect thereof in accordance with their terms will provide money in an amount
sufficient to pay (without reinvestment) and discharge (i) the principal of (and
premium, if any) and each installment of principal of (and premium, if any) and
interest, if any, on such Debt Securities on the Stated Maturity of such
principal or installment of principal or interest, if any, and (ii) any
mandatory sinking fund payments or analogous payments applicable to Debt
Securities of such series on the day on which such payments are due and payable
in accordance with the terms of the Indenture and such Debt Securities. Such a
trust may only be established if, among other things, the Company has delivered
to the Trustee an Opinion of Counsel (as specified in the Indenture) to the
effect that the holders of such Debt Securities will not recognize income, gain
or loss for Federal income tax purposes as a result of such deposit, defeasance
and discharge and will be subject to Federal income tax on the same amount and
in the same manner and at the same times as would have been the case if such
deposit, defeasance and discharge had not occurred. Such opinion must refer to
or be based upon a ruling of the Internal Revenue Service or a change in
applicable Federal income tax law occurring after the date of the Indenture. In
the event of any such deposit and discharge, the holders of such Debt Securities
would thereafter be entitled to look only to such trust fund for payment of
principal of (and premium, if any) and interest, if any, on the Debt Securities.
(Section 4.03).
Covenant Defeasance. The Indenture provides, as to any series of Debt
Securities to which the provisions described in this paragraph are made
applicable, that (i) the Company may omit to comply with the covenants contained
in Sections 10.05 (Limitations on Liens), 10.06 (Limitations on Sale and Lease-
Back) and 10.07 (Limitations on Change in Subsidiary Status) of the Indenture
and (ii) such noncompliance shall not be deemed to be an Event of Default under
the Indenture and the Debt Securities upon irrevocable deposit with the Trustee,
in trust, of money or U.S. government securities (as described in the Indenture)
or a combination thereof, which through the payment of interest and principal in
respect thereof in accordance with their terms will provide money in an amount
sufficient to pay (without reinvestment) and discharge (x) the principal of (and
premium, if any) and each installment of principal of (and premium, if any) and
interest, if any, on such Debt Securities on the Stated Maturity of such
principal or installment of principal or interest, if any, and (y) any mandatory
sinking fund payments or analogous payments applicable to Debt Securities of
such series on the day on which such payments are due and payable in accordance
with the terms of the Indenture and such Debt Securities. Such a trust may be
established only if, among other things, the Company has delivered to the
Trustee an Opinion of Counsel (as specified in the Indenture) to the effect that
the holders of such Debt Securities will not recognize income, gain or loss for
Federal income tax purposes as a result of such deposit and defeasance of
certain obligations and will be subject to Federal income tax on the same amount
and in the same manner and at the same times as would have been the case if such
deposit and defeasance had not occurred. The obligations of the Company under
the Indenture and Debt Securities other than with respect to the covenants
referred to above and the Events of Default other than the Event of Default
referred to above shall remain in full force and effect. (Section 10.09).
The Prospectus Supplement will state if any defeasance provision will apply
to the Debt Securities.
MODIFICATION OF INDENTURE AND WAIVER OF CERTAIN COVENANTS
With the consent of the holders of at least a majority in principal amount
of the outstanding Debt Securities of each series affected, the Trustee and the
Company may execute a supplemental indenture to change the Indenture or modify
the rights of the holders of Debt Securities of any such series, but, without
the consent of the holder of each outstanding Debt Security so affected, a
supplemental indenture may not, among other things, (i) change (except as
otherwise provided with respect to Debt Securities of any series) the
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Stated Maturity of principal or interest, if any, on any Debt Security, or
reduce the principal amount thereof or the rate of interest, if any, thereon or
any premium payable on redemption, or reduce the amount of principal of an
Original Issue Discount Security that would be due and payable upon a
declaration of acceleration of Maturity pursuant to the Indenture, or change the
Currency in which any Debt Security (or the premium, if any) or the interest, if
any, thereon is payable, or impair the right to institute suit for the
enforcement of any such payment on or after the Stated Maturity thereof (or, in
the case of redemption or repayment, on or after the Redemption Date or
Repayment Date), or (ii) reduce the aforesaid percentage of holders of Debt
Securities of such series whose consent shall be required to authorize any such
supplemental indenture or to waive certain provisions of the Indenture. (Section
9.02).
The holders of a majority in principal amount of the Debt Securities of any
series at the time outstanding may waive compliance by the Company with certain
covenants in the Indenture with respect to Debt Securities of such series.
(Section 10.08).
The Indenture provides that in determining whether the holders of the
requisite principal amount of the Debt Securities of a series then outstanding
have given any request, demand, authorization, direction, notice, consent or
waiver thereunder or whether a quorum is present at a meeting of holders of Debt
Securities, (i) the principal amount of an Original Issue Discount Security that
will be deemed to be outstanding will be the amount of the principal thereof
that would be due and payable as of the date of such determination upon
acceleration of the Maturity thereof, (ii) the principal amount of a Security
denominated in one or more Foreign Currencies shall be deemed to be the Dollar
equivalent, determined on the date of original issuance of such Security, of the
principal amount thereof (or, in the case of an Original Issue Discount Security
or Indexed Security, the Dollar equivalent on the original issuance date of such
Security of the principal amount determined as provided in (i) above or (iii)
below), (iii) the principal amount of any Indexed Security that will be deemed
outstanding will be equal to the principal face amount of such Indexed Security
at original issuance unless otherwise provided with respect to such Security
pursuant to the Indenture, and (iv) Securities owned by the Company or any other
obligor upon the Securities or any Affiliate of the Company or of such obligor
will be disregarded and deemed not to be outstanding. (Section 1.01).
The Indenture contains provisions for convening meetings of the holders of
Debt Securities of a series if Debt Securities of that series are issuable as
Bearer Securities. (Section 13.01). A meeting may be called at any time by the
Trustee for such Debt Securities, and also, upon request, by the Company or the
holders of at least 10% in principal amount of the outstanding Debt Securities
of such series, in any such case upon notice given as provided in the Indenture.
(Section 13.02). Except for any consent that must be given by the holder of each
Debt Security affected thereby, as described above, any resolution presented at
a meeting or adjourned meeting duly reconvened at which a quorum is present may
be adopted by the affirmative vote of the holders of a majority in principal
amount of the outstanding Debt Securities of that series; provided, however,
that any resolution with respect to any request, demand, authorization,
direction, notice, consent, waiver or other action that may be made, given or
taken by the holders of a specified percentage in principal amount of Debt
Securities of a series may be adopted at a meeting or adjourned meeting duly
reconvened at which a quorum is present by the affirmative vote of the holders
of such specified percentage in principal amount of the outstanding Debt
Securities of that series. Any resolution passed or decision taken at any
meeting of holders of Debt Securities of any series duly held in accordance with
the Indenture will be binding on all holders of Debt Securities of that series.
The quorum at any meeting called to adopt a resolution, and at any reconvened
meeting, will be persons holding or representing a majority in principal amount
of the outstanding Debt Securities of a series; provided, however, that if any
action is to be taken at such meeting with respect to a consent or waiver which
may be given by the holders of not less than a specified percentage, which is
greater than a majority, in principal amount of the outstanding Debt Securities
of a series, the persons holding or representing such specified percentage in
principal amount of the Debt Securities of such series will constitute a quorum.
(Section 13.04).
DEFAULTS AND CERTAIN RIGHTS ON DEFAULT
An Event of Default with respect to any series of Debt Securities is
defined as being any of the following events: default for 30 days in payment of
any interest on the Debt Securities of such series; default in payment
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of principal of (and premium, if any, on) the Debt Securities of such series at
Maturity; default for 90 days after notice in performance of any other covenant
in the Indenture; certain events of bankruptcy, insolvency, receivership or
reorganization relating to the Company; or any other Event of Default provided
with respect to Debt Securities of that series. An Event of Default with respect
to Debt Securities of a particular series does not necessarily constitute an
Event of Default with respect to any other series. The Company will be required
to deliver to the Trustee annually a written statement as to the fulfillment of
its obligations under the Indenture. In case an Event of Default should occur
and be continuing with respect to any series of Debt Securities, the Trustee or
the holders of not less than 25% in principal amount of the Debt Securities of
such series then outstanding may declare the principal of all the Debt
Securities of such series to be immediately due and payable. Such declaration
may, under certain circumstances, be rescinded by the holders of a majority in
principal amount of the Debt Securities of such series at the time outstanding.
(Sections 5.01, 5.02 and 10.04).
Subject to the provisions of the Indenture relating to the duties of the
Trustee in case an Event of Default shall occur and be continuing, the Trustee
shall be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the holders of Debt Securities,
unless such holders of Debt Securities shall have offered to the Trustee
security or indemnity. Subject to such provisions for indemnification and
certain limitations contained in the Indenture, the holders of a majority in
principal amount of the Debt Securities of any series at the time outstanding
shall have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee with respect to Debt Securities of such series.
The holders of a majority in principal amount of the Debt Securities of any
series at the time outstanding may, in certain cases, waive any past default
with respect to Debt Securities of such series except a default (i) in payment
of principal of, or premium, if any, or interest on any of the Debt Securities
of such series or (ii) in respect of a covenant or provision which under the
Indenture cannot be modified or amended without the consent of the holder of
each Debt Security of such series affected. (Sections 5.12, 5.13 and 6.03).
GOVERNING LAW
The Indenture and the Debt Securities and any coupons appertaining thereto
will be governed by and construed in accordance with the laws of the State of
New York. (Section 1.12).
CONCERNING THE TRUSTEE
The Trustee is one of a number of banks with which the Company maintains
ordinary banking relationships and with which the Company maintains credit
facilities.
PLAN OF DISTRIBUTION
The Company may sell the Debt Securities: (i) through one or more
underwriters or dealers; (ii) directly to a limited number of purchasers or a
single purchaser; (iii) through one or more agents; or (iv) through a
combination of such methods of sale. The Prospectus Supplement relating to the
Offered Debt Securities will set forth the terms of the offering, including the
name or names of any underwriters or dealers and the respective amounts of the
Offered Debt Securities underwritten or purchased by each of them, the purchase
price of the Offered Debt Securities and the proceeds to the Company from such
sale, any underwriting discounts, commissions and other items constituting
underwriters' compensation from the Company, any initial public offering price,
any discounts or concessions allowed or reallowed or paid to dealers and any
securities exchanges on which the Offered Debt Securities may be listed.
If underwriters are used in the sale, the Debt Securities will be acquired
by the underwriters for their own account and may be resold from time to time in
one or more transactions, including negotiated transactions, at a fixed public
offering price or at varying prices determined at the time of the sale. The Debt
Securities may be offered to the public through underwriting syndicates
represented by managing underwriters or directly by underwriters. Unless
otherwise set forth in the Prospectus Supplement, the obligations of the
underwriters to purchase the Offered Debt Securities will be subject to certain
conditions precedent, and the underwriters will
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be obligated to purchase all the Offered Debt Securities if any are purchased.
Any initial public offering price and any discounts or concessions allowed or
reallowed or paid to dealers may be changed from time to time.
If agents are used in the sale, the Prospectus Supplement will set forth
the name of any agent involved in the offer or sale of the Offered Debt
Securities in respect of which the Prospectus Supplement is delivered as well as
any commissions payable by the Company to such agent. Unless otherwise indicated
in the Prospectus Supplement, any such agent will be acting on a best efforts
basis for the period of its appointment.
If so indicated in the Prospectus Supplement, the Company will authorize
agents, underwriters or dealers to solicit offers by certain specified investors
to purchase Offered Debt Securities from the Company at the public offering
price set forth in the Prospectus Supplement pursuant to delayed delivery
contracts providing for payment and delivery on a specified date in the future.
Such contracts will be subject to those conditions set forth in the Prospectus
Supplement, and the Prospectus Supplement will set forth the commission payable
for solicitation of such contracts and the date or dates in the future for
delivery of the Offered Debt Securities pursuant to such contracts.
In connection with an offering of Debt Securities, the underwriters or
agents, as the case may be, may purchase and sell the Debt Securities in the
open market. These transactions may include over-allotment and stabilizing
transactions and purchases to cover syndicate short positions created in
connection with the offering. Stabilizing transactions consist of certain bids
or purchases for the purpose of preventing or retarding a decline in the market
price of the Debt Securities; and syndicate short positions involve the sale by
underwriters or agents, as the case may be, of a greater number of Debt
Securities than they are required to purchase from the Company in the offering.
The underwriters may also impose a penalty bid, whereby selling concessions
allowed to syndicate members or other broker-dealers in respect of the Debt
Securities sold in the offering for their account may be reclaimed by the
syndicate if such Debt Securities are repurchased by the syndicate in
stabilizing or covering transactions. These activities may stabilize, maintain
or otherwise affect the market price of the Debt Securities, which may be higher
than the price that might otherwise prevail in the open market. Underwriters or
agents are not required to engage in these activities, and may end any of these
activities at any time.
Subject to certain conditions, the Company may agree to indemnify
underwriters, dealers, agents or purchasers and their controlling persons
against certain civil liabilities, including liabilities under the Securities
Act, or to contribute with respect to payments which such persons may be
required to make in respect thereof. Such persons may be customers of, engage in
transactions with, or perform services for the Company in the ordinary course of
business.
EXPERTS
The consolidated financial statements as of September 30, 1997 and 1996 and
for each of the three years in the period ended September 30, 1997 and the
related financial statement schedule incorporated by reference in this
Prospectus from the Company's Annual Report on Form 10-K for the year ended
September 30, 1997 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports, which are incorporated herein by
reference, and have been so incorporated in reliance upon the reports of such
firm given upon their authority as experts in accounting and auditing.
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LEGAL MATTERS
The legality of the Debt Securities offered hereby has been passed upon for
the Company by Chadbourne & Parke LLP, 30 Rockefeller Plaza, New York, New York
10112, and, if the Debt Securities are distributed in an underwritten offering,
will be passed upon for the underwriters by Dewey Ballantine LLP, 1301 Avenue of
the Americas, New York, New York 10019-6092.
------------------------
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN AS CONTAINED IN THIS
PROSPECTUS OR, WITH RESPECT TO ANY OFFERED DEBT SECURITIES, IN THE RELATED
PROSPECTUS SUPPLEMENT, IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND
ANY RELATED PROSPECTUS SUPPLEMENT, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR ANY UNDERWRITER OR AGENT. THIS PROSPECTUS AND ANY RELATED PROSPECTUS
SUPPLEMENT DO NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION IN WHICH SUCH OFFER
OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF
THIS PROSPECTUS OR ANY RELATED PROSPECTUS SUPPLEMENT, NOR ANY SALE MADE
HEREUNDER OR THEREUNDER, SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF OR THEREOF OR THAT THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE
HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
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