<PAGE> 1
This filing is made pursuant to Rule
424(b)(3) under the Securities Act of
1933 in connection with Registration No.
33-68246.
INFORMATION CONTAINED IN THIS PRELIMINARY PROSPECTUS SUPPLEMENT IS SUBJECT
TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE
SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO
THE TIME THAT A FINAL PROSPECTUS SUPPLEMENT IS DELIVERED. THIS PRELIMINARY
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS SHALL NOT CONSTITUTE
AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE
ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION
OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE
SECURITIES LAWS OF ANY SUCH STATE.
PROSPECTUS SUPPLEMENT (Subject to Completion, Issued June 15, 1995)
(To Prospectus dated January 12, 1994)
$100,000,000
The Lubrizol Corporation
% DEBENTURES DUE 2025
------------------------
Interest payable and
------------------------
THE DEBENTURES WILL NOT BE REDEEMABLE PRIOR TO MATURITY AND WILL NOT BE SUBJECT
TO ANY SINKING FUND. THE DEBENTURES WILL BE REPRESENTED BY A REGISTERED
GLOBAL SECURITY REGISTERED IN THE NAME OF THE DEPOSITORY TRUST COMPANY
(THE "DEPOSITARY") OR ITS NOMINEE. BENEFICIAL INTERESTS IN THE
REGISTERED GLOBAL SECURITY WILL BE SHOWN ON, AND TRANSFERS THEREOF
WILL BE EFFECTED THROUGH, RECORDS MAINTAINED BY THE DEPOSITARY OR
ITS PARTICIPANTS. EXCEPT AS DESCRIBED HEREIN, DEBENTURES
IN DEFINITIVE FORM WILL NOT BE ISSUED. SEE "DESCRIPTION OF
DEBENTURES."
------------------------
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 SUPPLEMENT
OR THE ACCOMPANYING PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------
PRICE % AND ACCRUED INTEREST
------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC(1) COMMISSIONS(2) COMPANY(1)(3)
------------------- ------------------- -------------------
<S> <C> <C> <C>
Per Debenture...................... % % %
Total.............................. $ $ $
<FN>
- ---------------
(1) Plus accrued interest from , 1995.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended.
(3) Before deducting expenses payable by the Company estimated at $ .
</TABLE>
------------------------
The Debentures are offered, subject to prior sale, when, as and if accepted
by the Underwriters and subject to approval of certain legal matters by Davis
Polk & Wardwell, counsel for the Underwriters. It is expected that delivery of
the Debentures will be made on or about , 1995 through the
book-entry facilities of the Depositary against payment therefor in immediately
available funds.
------------------------
MORGAN STANLEY & CO. J.P. MORGAN SECURITIES INC.
Incorporated
June , 1995
<PAGE> 2
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS.
THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS DO NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY DEBENTURES BY ANYONE 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.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
The Company........................................................................... S-3
Use of Proceeds....................................................................... S-3
Business.............................................................................. S-3
Capitalization........................................................................ S-5
Selected Financial Data............................................................... S-6
Management's Discussion and Analysis of Financial Condition and Results of
Operations.......................................................................... S-7
Description of Debentures............................................................. S-15
Underwriters.......................................................................... S-16
</TABLE>
PROSPECTUS
<TABLE>
<S> <C>
Available Information................................................................. 2
Incorporation of Certain Information by Reference..................................... 2
The Company........................................................................... 3
Use of Proceeds....................................................................... 3
Ratio of Earnings to Fixed Charges.................................................... 3
Description of Debt Securities........................................................ 4
Plan of Distribution.................................................................. 10
Legal Matters......................................................................... 12
Experts............................................................................... 12
</TABLE>
------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE DEBENTURES
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
S-2
<PAGE> 3
THE COMPANY
The Company began business as a compounder of special-purpose lubricants
and in the early 1930's was among the first to commence research in the field of
lubricant additives. Today, the Company is a full service supplier of
performance chemicals to diverse markets worldwide. These specialty chemical
products are created through the application of advanced chemical, mechanical
and biological technologies to enhance the performance and quality of the
customer products in which they are used. The Company develops, produces and
sells specialty additive systems for gasoline and diesel engine lubricating
oils, for automatic transmission fluids and for gear oils, and marine and
tractor lubricants. The Company also supplies specialty products for industrial
lubricants and functional fluids, fuel additives and diversified specialty
chemical products. In addition, the Company sells specialty vegetable oils,
primarily high oleic sunflower oil and safflower oil, and operates an oilseed
crushing and refining facility.
USE OF PROCEEDS
The net proceeds received by the Company from the sale of the Debentures,
estimated at $ million, will be used to repay outstanding commercial paper of
various maturities and with interest rates ranging from 5.8% to 6.1%. As of June
13, 1995, the Company had approximately $130 million of outstanding commercial
paper borrowings.
BUSINESS
The Company is a full service supplier of performance chemicals to diverse
markets worldwide. The Company's principal products are additive systems for
gasoline and diesel engine oils, automatic transmission fluids, gear oils,
industrial fluids, metalworking compounds and fuels. Additives for engine oils
accounted for 51% of consolidated revenues in 1994, 50% in 1993, and 48% in
1992. Additives for driveline oils accounted for 24%, 19% and 18% of
consolidated revenues for these respective periods.
Additives improve the lubricants and fuels used in cars, trucks, buses,
off-highway equipment, marine engines and industrial applications. In
lubricants, additives enable oil to withstand a broader range of temperatures,
limit the buildup of sludge and varnish deposits, reduce wear, inhibit the
formation of foam, rust and corrosion, and retard oxidation. In fuels, additives
help maintain efficient operation of the fuel delivery system, help control
deposits and corrosion, improve combustion and assist in preventing
decomposition during storage.
Due to the variety in the properties and applications of oils, a number of
different chemicals are used to formulate the Company's products. Each additive
combination is designed to fit the characteristics of the customer's base oil
and the level of performance specified. Engine oils for passenger cars contain a
combination of chemical additives which usually includes one or more detergents,
dispersants, oxidation inhibitors and wear inhibitors, pour point depressants
and viscosity improvers. Other chemical combinations are used in heavy duty
engine oils for trucks and off-highway equipment and in formulations for gear
oils, automatic transmission fluids, industrial oils, metalworking fluids, and
gasoline, diesel and residual fuels. The Company utilizes a broad variety of
chemical raw materials in the manufacture of its additives and uses oil in
processing and blending additives. These materials are obtainable from several
sources, and for the most part are derived from petroleum.
The Company's additive customers consist primarily of oil refiners and
independent oil blenders and are located in more than 100 countries.
Approximately 60% of the Company's sales are made to customers outside of North
America. The Company supplies its additive customers abroad from overseas
manufacturing plants and through export from the United States. The Company owns
three additive manufacturing plants in the United States; one located in the
Cleveland, Ohio area, at Painesville, and two near Houston, Texas, at Deer Park
and Bayport. Outside the United States, the Company owns additive manufacturing
plants in Australia, Brazil, Canada, England, France (three locations), Japan,
South Africa and Singapore. Additive manufacturing plants in India, Mexico,
Saudi Arabia and Venezuela are owned and operated by joint venture companies
licensed by the Company.
S-3
<PAGE> 4
The Company historically has emphasized research and has developed a large
percentage of the additives it manufactures and sells. Technological
developments in the design of engines and other automotive equipment, combined
with rising demands for environmental protection and fuel economy, require
increasingly sophisticated chemical additives to meet industry performance
standards. These standards change periodically and the frequency of these
performance upgrades compresses the time cycles for new product development and
affects the Company's technical spending patterns.
Research and development expenditures were $90.7 in 1994, $88.5 million in
1993 and $76.2 million for 1992. These amounts were equivalent to 5.7%, 5.8% and
5.3% of the respective revenues for such years. These amounts include
expenditures for the performance evaluation of additive developments in engines
and other types of mechanical equipment as well as expenditures for the
development of specialty chemicals for industrial applications. In addition,
$74.8 million, $83.0 million and $63.6 million was spent in 1994, 1993 and 1992,
respectively, for technical service activities, principally for evaluation in
mechanical equipment of specific lubricant formulations designed for the needs
of petroleum industry customers throughout the world. In addition to its
internal technical facilities, the Company makes extensive use of independent
contract research firms and conducts extensive field testing through various
arrangements with fleet operators and others.
The Company's principal competitors, both in the United States and
overseas, are four major petroleum companies and one chemical company. The
petroleum companies produce lubricant and fuel additives for their own use, and
also sell additives to others. These competing companies are also customers of
the Company. Excluding viscosity improvers, management believes, based on volume
sold, that the Company is the largest supplier to the petroleum industry of
performance chemicals for lubricants.
The Company owns certain United States patents relating to lubricant and
fuel additives, lubricants, chemical compositions and processes, and protective
coating materials and processes. It also owns similar patents in foreign
countries. Although the Company believes that, in the aggregate, its patents
constitute an important asset, it does not regard its business as being
materially dependent upon any single patent or any group of related patents.
The Company has filed claims against Exxon Corporation and its affiliates
("Exxon") alleging infringements by Exxon of certain of the Company's patents.
These suits are pending in the United States and Canada, France and the United
Kingdom, and are at various stages. The international suits allege infringement
of patents that correspond to United States patents admitted as valid by Exxon
in a settlement in 1988. In a suit in Canada, a determination of liability has
been made by the courts against Exxon and in favor of the Company, has been
upheld on appeal, and the case has been returned to the trial court for an
assessment of damages. On October 4, 1994, the trial court judge awarded the
Company $15 million (Canadian) in special penalty damages, plus attorneys' fees,
against Imperial Oil, Exxon's Canadian affiliate, for disregarding an earlier
injunction concerning infringement. The penalty damages, which remain subject to
appeal, are in addition to compensation damages, as to which no date has been
set for a determination.
In another patent infringement suit, instituted by Exxon in the United
States, liability and damages determinations (which are currently in the appeal
process) have been made against the Company and in favor of Exxon. In 1993, the
jury in that case awarded Exxon $48 million in damages. The trial court judge
doubled the damages amount and awarded prejudgment interest, court costs and
additional attorneys' fees to Exxon. The total amount of the judgment, including
previously awarded attorneys' fees, is $129 million. The Company has obtained a
bond to stay enforcement of the judgment pending the Company's appeal of both
the liability findings and the award of damages. Based on the advice of counsel,
management believes that the trial court judgment will not be upheld on appeal.
S-4
<PAGE> 5
CAPITALIZATION
<TABLE>
The following table sets forth the consolidated capitalization of the
Company as of March 31, 1995, and as adjusted to reflect the sale of the
Debentures offered hereby and the application of the estimated proceeds (without
giving effect to the underwriting discount and the Company's estimated offering
expenses) to repay a portion of outstanding commercial paper borrowings.
<CAPTION>
MARCH 31, 1995
(UNAUDITED)
--------------------------------------
ACTUAL ADJUSTMENTS AS ADJUSTED
------ ----------- -----------
(IN MILLIONS)
<S> <C> <C> <C>
Short-term debt (a)
Commercial paper.................................. $ 64 $ (64) $ 0
Other............................................. 11 0 11
Long-term debt (a)
Commercial paper reclassified..................... 57 (36) 21
Other............................................. 61 0 61
Debentures offered hereby.............................. -- 100 100
------ ----------- -----------
Total debt........................................ 193 0 193
Shareholders' equity................................... 867 0 867
------ ----------- -----------
Total capitalization.............................. $1,060 $ 0 $ 1,060
====== =========== ===========
<FN>
- ---------------
(a) At March 31, 1995, the Company had $121 million of outstanding commercial
paper borrowings. The Company has $75 million in committed revolving credit
facilities, which permit the Company to refinance beyond one year debt which
by its terms is due within one year. Accordingly, at March 31, 1995, the
Company had classified $57 million of commercial paper and $18 million of
other debt as long-term that otherwise would be classified as short-term.
</TABLE>
S-5
<PAGE> 6
SELECTED FINANCIAL DATA
<TABLE>
The following table sets forth selected financial data relating to the
Company. The data relating to each of the years in the five-year period ended
December 31, 1994 is derived from the audited consolidated financial statements
of the Company and its subsidiaries. The data should be read in conjunction with
the consolidated financial statements and notes thereto of the Company
incorporated by reference into the Prospectus.
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
(UNAUDITED) YEAR ENDED DECEMBER 31,
--------------- ------------------------------------------
1995 1994 1994 1993 1992(a) 1991(a) 1990(a)
------ ------ ------ ------ ------ ------ ------
(IN MILLIONS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
FROM THE STATEMENTS OF INCOME (FOR
PERIOD INDICATED)
Revenues............................... $ 417 $ 400 $1,599 $1,526 $1,552 $1,476 $1,453
Cost of sales.......................... 278 273 1,072 1,032 1,054 992 1,006
Selling and administrative expenses.... 41 39 159 158 181 173 158
Research, testing and development
expenses............................. 41 40 166 172 155 144 124
Net income before accounting changes... 49 43 176 85(e) 125 124 190(f)
Cumulative effect of accounting
changes.............................. (39)
Net income............................. 49 43 176 46 125 124 190
FROM THE BALANCE SHEETS
(AT END OF PERIOD)
Total assets........................... 1,491 1,301 1,394 1,183 1,127 1,172 1,115
Total debt............................. 193 103 168 70 48 68 67
Shareholders' equity................... 867 797 832 732 819 794 736
OTHER DATA
Capital expenditures................... 55 34 161 128 96 82 77
Common share repurchases............... 16 19 68 67 23 13 89
Ratio of earnings to fixed charges
(unaudited).......................... 25.2(b) 38.4(c) 36.8(d) 22.6(e) 36.9 20.1 38.8(f)
<FN>
- ---------------
Notes to Selected Financial Data:
(a) In December, 1992, the Company transferred substantially all of its
Agribusiness segment, other than the specialty vegetable operations, to
Mycogen Corporation and to a joint venture formed with Mycogen. Further
information is contained in Notes 14 and 16 to the financial statements of
the Company as incorporated by reference in the Company's Annual Report on
Form 10-K for the year ended December 31, 1994.
(b) Included in the three months ended March 31, 1995 is a $13.1 million gain on
the sale of Genentech, Inc. stock held by the Company. Excluding the gain,
the ratio would have been 20.6.
(c) Included in the three months ended March 31, 1994 is a $11.5 million gain on
the sale of Genentech, Inc. stock held by the Company. Excluding the gain,
the ratio would have been 31.1.
(d) Included in 1994 is a $41.2 million gain on the sale of Genentech, Inc.
stock held by the Company. Excluding the gain, the ratio would have been
30.8.
(e) Included in 1993 is (i) a special charge of $86.3 million related to
manufacturing rationalization and organizational realignment initiatives,
and (ii) a $42.2 million gain on the sale of Genentech, Inc. stock held by
the Company. Excluding the special charge and the gain, the ratio would have
been 29.6.
(f) Included in 1990 is (i) a special charge of $9.7 million for the write-off
of the assets in the Company's former agricultural business, and (ii) a
$101.9 million gain on the sale of Genentech, Inc. stock held by the
Company. Excluding the special charge and the gain, the ratio would have
been 25.7.
</TABLE>
S-6
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information set forth below consists of the management's discussion and
analysis contained or incorporated by reference in the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1995 and the Company's
Annual Report on Form 10-K for the year ended December 31, 1994. Such
information is presented in this Prospectus Supplement for convenience of
reference and has not been substantively updated since the date of each
respective document. References in the following discussion to specific notes to
the financial statements are references to notes contained in the identified
Form 10-Q, as relates to the discussion for the three months ended March 31,
1995, and to notes incorporated by reference in the identified Form 10-K, as
relates to the discussion for the annual periods.
The Company is a full service supplier of performance chemicals to diverse
markets worldwide. These specialty chemical products are created through the
application of advanced chemical, mechanical and biological technologies to
enhance the performance, quality and value of the products in which they are
used. The Company develops, produces and sells specialty additive systems for
gasoline and diesel engine lubricating oils, for automatic transmission fluids
and for gear oils, and marine and tractor lubricants. The Company also supplies
specialty products for industrial lubricants and functional fluids, fuel
additives and diversified specialty chemical products.
Prior to December 1, 1992, the Company had a separately reportable
Agribusiness segment. That segment developed, produced and marketed planting
seeds and specialty vegetable oils, and also conducted strategic biotechnology
research and development. As described in Note 16 to the financial statements,
the Company transferred substantially all of its Agribusiness segment, other
than the specialty vegetable oil operations, to Mycogen Corporation and to a
joint venture formed with Mycogen. The transferred assets are referred to in the
following discussion as "Agrigenetics." The agribusiness assets and operations
retained by the Company are not reportable as a separate industry segment after
1992.
In 1993, the Company began initiatives to eliminate its separate business
unit structure and realign activities into one combined organization,
consolidate intermediate production activities, improve the timeliness of
product development, simplify its product offerings and continued the
restructuring of its agribusiness investments.
As discussed in Note 17 to the financial statements, the Company recorded a
special pretax charge of $86.3 million in the third quarter of 1993 primarily
for the manufacturing rationalization and organizational realignment
initiatives. When substantially complete in 1996, the number of intermediate
production units will have been reduced by one-third, and the number of
employees will have been reduced by approximately 5%. Through December 31, 1994,
the Company has completed approximately one-half of the production unit
reductions and two-thirds of the employee reductions. Approximately $22 million
has been expended since the third quarter of 1993 implementing the initiatives,
primarily for employee reductions. Future cash expenditures of $24 million are
estimated to be necessary to complete implementation of the initiatives. These
initiatives reduced the rate of increase in 1994 costs, as compared to
historical trends, which resulted in estimated annual savings in 1994 of $20 to
$25 million. These savings resulted from fewer employees, lower operating costs
and reductions in the number of manufacturing units. When fully implemented,
annual savings are expected to approximate $50 million of which $40 million will
represent cash savings.
THREE MONTHS ENDED MARCH 31, 1995
Results of Operations
Revenue increased 4% in the first quarter of 1995 compared to the first
quarter of 1994. Price increases implemented in the first quarter of 1995 and a
more favorable product mix accounted for a 5% increase in revenues, and the
impact of translating various international currencies into a weakened U.S.
dollar accounted for a 2% increase in revenues. Overall volume in the first
quarter of 1995 declined 3% as compared to the first quarter of 1994. Volume
declined 8% internationally due to unusually high 1994 spot business in the
Middle East that did not recur in 1995, but volume increased 5% in North
America. Management expects volumes to increase during the remainder of 1995
and, for the year, to exceed 1994 levels.
S-7
<PAGE> 8
Gross profit (sales less cost of sales) increased $12.2 million to $137.4
million in the first quarter of 1995 compared to the same period in 1994. Gross
profit as a percentage of sales, increased from 31.5% in the first quarter of
1994 to 33.1% in 1995. This improvement was a result of higher revenues more
than offsetting an 8% increase in average material costs per metric ton and
reflects the absence of the 1994 spot business to the Middle East which had a
relatively low gross profit.
The Company's organizational realignment initiatives, which began in 1993,
have slowed the rate of increase in its cost and expenses. Selling and
administrative expenses increased $1.9 million or 5% compared to the first
quarter of 1994. Research, testing and development expenses (technology
expenses) increased $1.1 million or 3% compared to the first quarter of 1994.
The Company's manufacturing, technology and selling and administrative expenses
increased a total of 4% over the first quarter of 1994. However, excluding the
affects of currency, such expenses increased less than 2%.
During the first quarter of 1995, the Company sold 278,200 shares of
Genentech, Inc. common stock resulting in a pretax gain of $13.1 million which
contributed 13 cents to earnings per share. This compares to a gain of $11.5
million pretax or 11 cents per share in the first quarter of 1994.
Interest expense increased $1.2 million as a result of the higher average
borrowings outstanding.
The Company's financial position and results of operation are affected by
the strengthening or weakening of the U.S. dollar against other currencies in
which the Company transacts business. In the quarter ended March 31, 1995, the
U.S. dollar weakened as compared to the exchange rates in effect at December 31,
1994 and during the first quarter of 1994. The weaker U.S. dollar resulted in
the change in the accumulated translation adjustment amount, a component of
shareholders' equity, and favorably impacted earnings per share in the first
quarter of 1995 by 4 cents.
Excluding gains on sale of Genentech common stock, net income was $40.6
million in the first quarter of 1995 compared to $35.8 million in the first
quarter of 1994 and the related earnings per share amounts improved by 17% to 63
cents from 54 cents, respectively.
Primarily as a result of selling price increases, a weaker U.S. dollar and
a lower rate of spending, consolidated net income increased over the first
quarter of 1994 by $5.8 million, or 13%, to $49.1 million resulting in earnings
per share of 76 cents in the first quarter of 1995.
Working Capital, Liquidity and Capital Resources
Cash provided from operating activities during the first quarter of 1995
was $57.7 million, an increase of $30.2 million over the comparable prior year
quarter. This increase was attributable to higher earnings, and changing working
capital requirements, including an $11.8 million refund of 1994 estimated income
tax payments.
Total debt increased $25.5 million from the prior year end and, as a
percent of capitalization (shareholders' equity plus short-term and long-term
debt), was 18% at March 31, 1995 versus 17% at December 31, 1994. Borrowings,
net of debt repayments, were $20.1 million during the first quarter of 1995 and
were used to help finance capital expenditures and an acquisition. In addition,
translating debt denominated in foreign currencies into U.S. dollars at March
31, 1995 contributed $5.4 million to the increase in debt.
Capital expenditures were $55.3 million in the first quarter of 1995, up
13% over the fourth quarter of 1994 and 64% higher than the first quarter of
1994. These expenditures were primarily in the United States and France, of
which 70% pertained to capital additions at manufacturing plants to enhance or
maintain production capabilities, including maintaining facilities in compliance
with environmental and safety regulations, and the remaining 30% was principally
for construction of new administrative and technical facilities at the Company's
headquarters. Capital expenditures for the 1995 year may exceed the amount spent
in 1994 of $160.5 million as the Company continues with its capital spending
program. At March 31, 1995, the Company acquired Engine Control Systems, Ltd., a
Canadian company for $3.5 million.
S-8
<PAGE> 9
During the first quarter, the Company repurchased 462,000 of its common
shares for $15.7 million. At March 31, 1995, there was authorization remaining
to repurchase .5 million common shares. On April 24, 1995, the Company's board
of directors authorized an additional 4.0 million shares to be repurchased. The
Company intends to continue its share repurchase program during 1995.
As a result of these activities, cash and short-term investments increased
$4.5 million to $40.9 million at March 31, 1995.
The Company's financial position continues to be strong with a ratio of
current assets to current liabilities of 2.1 to 1 at March 31, 1995, and 2.5 to
1 at December 31, 1994. Management believes the Company's internally generated
funds as well as its credit facilities and proceeds available from debt issuable
under its shelf registration will be sufficient to meet its capital needs.
Subsequent to March 31, 1995, the Company sold its remaining shares of
Genentech common stock and realized proceeds of $26.5 million. The Company used
the after-tax proceeds to repurchase its shares.
As discussed in Note 4 to the financial statements, the Company is involved
in patent litigation with Exxon Corporation in various countries. Determinations
of liability against the Company in the U.S., which is subject to appeal, and
against Exxon in Canada have been made by the courts. Management is unable to
predict the eventual outcomes of this litigation and, therefore, the impact on
future cash flows is not known. If Exxon prevails in the U.S., management
believes the Company has sufficient financial resources to meet any resulting
obligation and, other than a potential one-time charge against income, the
litigation would not have a material adverse effect on future results of
operations.
1994 RESULTS OF OPERATIONS
In 1994, the Company achieved record revenues and results of operations. As
discussed below, the primary factors contributing to 1994 results were higher
average selling prices, lower research, testing and development expenses and
better results from agribusiness investments.
In 1994, consolidated revenues were $1.6 billion, an increase of $73.5
million or 5% from 1993. This increase was comprised of 4% higher average
selling prices, including currency, and 1% volume increases. Average selling
prices increased primarily as a result of price increases and new product
introductions. The Company implemented price increases in the first quarter of
1994 to more fully recover the costs of product technology and the costs
resulting from increased requirements of environmental, health and safety
regulations at the Company's facilities. Higher performing products, which carry
higher selling prices, were introduced late in 1993 to meet new passenger car
motor oil standards in the U.S. markets.
Gross profit (sales less cost of sales) increased 7% to $520.7 million in
1994 from $485.4 million in 1993. The improvement in gross profit was primarily
attributable to the positive effects of implementing selling price increases,
new product introductions and growth from business development activities. These
improvements were partially offset by higher material costs in the second half
of the year and higher manufacturing costs. Gross profit as a percentage of
sales increased to 32.7% in 1994 from 32.0% in 1993.
Raw material prices increased during the last half of 1994, and at year-end
were approximately 7% higher than the prior year. Additionally, plant operating
costs to comply with changing environmental, health and safety regulations have
continued to increase. The Company was able to manage the near-term impact of
the higher raw material costs through operating expense control. However, these
higher material costs will impact future earnings if not recovered through
higher prices; therefore, the Company is implementing worldwide price increases
of 5% to 7% in the first quarter of 1995.
Selling and administrative expenses increased less than 1% to $159.5
million in 1994. This increase is significantly lower than the Company's
previous historical cost trend because of lower legal expenses and a decline in
the number of employees as a result of early retirements related to the
Company's realignment initiative.
S-9
<PAGE> 10
Research, testing and development expenses (technology expenses) decreased
$6.1 million or 4% to $165.5 million in 1994. This decrease is primarily
attributable to completion in early 1994 of testing required for passenger car
motor oil specification upgrades, the decline in the number of employees
resulting from realignment and increased efficiencies in the product development
process.
Primarily as a result of the above factors, consolidated revenues increased
$38.8 million more than the increase in total costs and expenses in 1994.
The Company continued its program of selling its investment in Genentech
common stock. During 1994 and 1993, respectively, the Company sold 869,100 and
1,001,776 shares of Genentech common stock resulting in pretax gains of $41.2
million and $42.4 million. The net proceeds of these sales were used to
repurchase common shares of the Company.
Other income-net increased $6.8 million primarily due to improved equity
earnings from the Company's investment in Mycogen, including its agribusiness
joint venture, net of a gain on the sale of an agribusiness investment in 1993.
The Company conducts a significant amount of its business and has a number
of operating facilities in countries outside the United States. As a result, the
Company is subject to business risks inherent in non-U.S. activities, including
political uncertainty, import and export limitations, exchange controls and
currency fluctuations. The Company believes risks related to its foreign
operations are mitigated due to the political and economic stability of the
countries in which its largest foreign operations are located.
While changes in the dollar value of foreign currencies will affect
earnings from time to time, the longer term economic effect of these changes
should not be significant given the Company's net asset exposure, currency mix
and pricing flexibility. Generally, the income statement effect of changes in
the dollar value of foreign currencies is partially or wholly offset by the
Company's ability to make corresponding price changes in local currency. The
Company's consolidated net income will generally benefit as foreign currencies
increase in value compared to the U.S. dollar and will generally decline as
foreign currencies decrease in value. In 1994, there was not a significant net
earnings effect due to foreign currency fluctuations.
As a result of the above factors and a decrease in interest expense,
consolidated income before taxes increased $131.8 million from 1993. Excluding
the gain on the sales of Genentech stock and the 1993 special charge, income
before taxes increased $46.7 million or 29% from 1993.
The Company made donations of Genentech common stock during 1994 (see Note
7 to the financial statements) which reduced the Company's 1994 effective tax
rate by 2%. This benefit is nonrecurring. The Company anticipates its 1995
effective tax rate will approximate 33%.
Excluding gains on the sales of Genentech common stock and the 1993 special
charge and accounting changes (discussed below), net income was $148.8 million
in 1994 compared to $113.5 million in 1993, and the related earnings per share
amounts improved by 35% to $2.26 in 1994 from $1.67 in 1993.
Return on Average Shareholders' Equity
Return on average shareholders' equity was 22% in 1994, 6% in 1993 and 15%
in 1992. Excluding Genentech gains and the 1993 accounting changes and special
charge, return on average shareholders' equity was 19% in 1994 and 14% in 1993.
1993 RESULTS OF OPERATIONS
In 1993, consolidated revenues increased $61.9 million or 4% from 1992
after excluding $88.6 million of Agrigenetics revenue in 1992. Selling prices
increased 4% as a result of price increases implemented in the fourth quarter of
1992 and the introduction late in 1993 of higher performing products to meet new
passenger car motor oil standards in the U.S. market. Favorable product mix
(including sales by Langer & Company acquired early in 1993) of 3% was offset by
unfavorable currency effects of 2% and volume decreases of 1%. North American
volume decreased 9% in 1993 from the record levels of volume in 1992 as a result
of a decrease in market share. The revenue impact of this volume decrease was
offset by an increase in sales of
S-10
<PAGE> 11
more profitable products. International volume increased 6% over 1992 and
accounts for approximately 60% of revenues.
Gross profit increased $30.4 million or 7% from $455.0 million in 1992
(excluding $35.3 million of Agrigenetics gross profit in 1992) primarily as a
result of the higher average selling prices. Gross profit as a percentage of
sales was 32.0% in 1993 compared to 31.2% (excluding Agrigenetics) in 1992.
Excluding Agrigenetics expenses of $29.1 million in 1992, selling and
administrative expenses increased $6.3 million or 4% in 1993 primarily because
of the acquisition of Langer. Technology expenses increased $30.3 million or 21%
in 1993 after excluding Agrigenetics expenses of $13.5 million from 1992. This
increase was a result of higher testing costs associated with customer test
programs to meet new industry performance standards for passenger car and diesel
engine oils and automatic transmission fluids. These standards change
periodically as engine and transmission designs are improved by the equipment
manufacturers to meet new emissions, efficiency, durability and other
performance factors. The frequency of these performance upgrades compressed the
time cycles for new product development and resulted in an increase in the
Company's technology expenses.
As a result of the above factors and increased royalties, after excluding
Agrigenetics from 1992, total cost and expenses increased $5.9 million more than
revenues increased in 1993.
During 1993, the Company recorded a special pretax charge of $86.3 million
and pretax gains of $42.4 million on the sale of Genentech common stock as
discussed above. Other income-net was $.5 million in 1993 compared to $11.9
million in 1992. Other income includes the Company's share of equity losses in
Mycogen and the agribusiness joint venture. Mycogen recorded restructuring
charges and incurred weather-related problems in the Midwest which adversely
affected agribusiness results. The reduction in other income was attributable to
increased equity losses of $18.3 million in Mycogen and the agribusiness joint
venture, partially offset by increased gains on the sale of investments,
excluding Genentech, of $6.7 million.
The equity losses related to Mycogen and the agribusiness joint venture,
net of preferred stock dividends and a gain on the sale of investment, were $4.1
million less in 1993 than the Agrigenetics operating loss and equity losses
recorded in 1992.
Interest income decreased $3.2 million due to lower average balances of
cash and short-term investments. An increase in borrowings resulted in slightly
higher interest expense in 1993.
As discussed previously, the Company conducts a significant amount of its
business outside of the United States and is therefore subject to risks
including currency fluctuations. In 1993, European currencies weakened and the
Japanese yen strengthened resulting in an insignificant net earnings effect.
As a result of the above factors, income before income taxes decreased
$57.5 million in 1993 compared to 1992. Net income in 1993, excluding the
special charge, Genentech gain and the accounting changes discussed below,
decreased 9% to $113.5 million or $1.67 per share, from $124.6 million or $1.81
per share in 1992.
As described in Note 10 to the financial statements, effective January 1,
1993, the Company adopted SFAS 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions." The Company recorded the cumulative effect of
this accounting change of $79.9 million before taxes ($51.5 million or $.76 per
common share after taxes) in the first quarter of 1993. As a result of this
accounting change, postretirement health care and life insurance costs increased
$8.1 million ($.08 per share after taxes) in 1993. This expense is allocated
among the various cost and expense categories in the consolidated statements of
income. SFAS 106 has no effect on cash flows since the Company continues to pay
claims as incurred.
As described in Note 8 to the financial statements, effective January 1,
1993, the Company also adopted SFAS 109, "Accounting for Income Taxes." The
cumulative effect of this accounting change reduced net deferred tax liabilities
and increased net income in 1993 by $12.1 million or $.18 per share. The
positive effect of adopting SFAS 109 was primarily attributable to more
favorable treatment of the deferred income taxes on intercompany profit in
inventory. SFAS 109 has no effect on cash flows.
S-11
<PAGE> 12
1992 RESULTS OF OPERATIONS
Following is a discussion of the results of operations for 1992. The
discussion is presented first on a summary consolidated basis and then on a
historical business segment basis.
In 1992, consolidated revenues increased $75.9 million or 5% compared to
1991 primarily as a result of record volume in the Specialty Chemicals segment.
The increased revenues were partially offset by increased manufacturing costs in
Specialty Chemicals, and higher specialty vegetable oil production costs, with
the result that gross profit increased $14.7 million or 3%. Gross profit as a
percentage of sales was 31.7% in 1992, compared to 32.4% in 1991. Selling,
administrative and technology expenses increased $19.7 million or 6% (all in the
Specialty Chemicals segment), more than offsetting the higher gross profit. As a
result of these factors and reduced royalties, total cost and expenses increased
$5.8 million more than revenues.
Other income-net increased $2.4 million in 1992, primarily as a result of a
gain on sales of investments of $6.5 million, partially offset by the Company's
share of losses related to the agribusiness joint venture formed in December
1992, and expenses related to closing facilities in the mining chemicals market.
Accordingly, combined segment income was $3.4 million lower in 1992 than in
1991. As explained in the segment discussions, this consisted of a $6.0 million
increase in Specialty Chemicals and a $9.4 million decrease in Agribusiness. Net
interest income increased $2.4 million primarily as a result of the repayment of
debt early in the year.
As a result of the above factors, income before income taxes was $1.0
million or 1% lower than 1991. However, due principally to increased tax
benefits from foreign dividends, net income in 1992 increased $1.0 million or 1%
over 1991.
Specialty Chemicals Segment: In 1992, the Specialty Chemicals segment
accounted for 92% of consolidated revenues. The segment's revenues increased
$84.6 million or 6% in 1992 as a volume increase of 8% and favorable currency
effects of 2% were partially offset by unfavorable product and geographic mix of
4%. Volume was at a record level for the year. North American volume was up 21%
for the year as a result of market share gains and a comparatively weak first
half of 1991. International volume was flat for the year. Average selling prices
declined slightly during the first three quarters. In the fourth quarter, the
Company announced price increases which increased revenues for part of the
period.
Gross profit increased $21.1 million or 5% compared to 1991. The increase
in gross profit resulting from higher revenues was partially offset by higher
manufacturing costs that primarily reflected the effects of higher volume,
increased pension and health care costs and environmental costs. As a percentage
of sales, gross profit decreased in 1992 to 31.6% from 32.1% in 1991.
Selling and administrative expenses increased $7.7 million or 6% primarily
due to higher international selling expenses and higher pension and health care
costs. Technology expenses increased $12.1 million or 10% as a result of
increased operating and staffing levels necessary to meet customer and product
development needs relating to new performance standards for gasoline engine oil
effective in July 1993, and diesel engine oils in 1994.
In 1992, the U.S. dollar weakened against other currencies, resulting in a
net favorable effect on the Company when international transactions were
translated into U.S. dollars.
The increase in gross profit was greater than the increase in expenses, and
when combined with a $5.6 million increase in other income-net, Specialty
Chemicals segment income was $6 million or 3% higher than in 1991.
Agribusiness Segment: In 1992, Agribusiness revenues decreased $8.6
million or 7% as a result of lower specialty vegetable oil volume due to more
competition in international markets and a fire at a customer's plant in Asia.
Gross profit decreased $6.4 million or 14% as a result of the lower sales, costs
associated with inventory market adjustments and higher storage costs, all of
which related to specialty vegetable oil operations. Gross profit as a percent
of sales decreased in 1992 to 33.1% compared to 35.9% in 1991.
S-12
<PAGE> 13
Selling, administrative and research expenses were approximately the same
as 1991. Lower specialty vegetable oil selling expenses and lower research
expenses offset costs associated with the Company's partnership with Mycogen.
Agribusiness segment loss increased $9.4 million due to the lower gross profit
and the Company's share of losses in Mycogen and the agribusiness joint venture.
WORKING CAPITAL, LIQUIDITY AND CAPITAL RESOURCES
The Company's cash flows for the years 1992 through 1994 are presented in
the consolidated statements of cash flows. Cash provided from operating
activities during 1994 was $156.8 million, a decrease of $5.7 million compared
to 1993. Cash received from customers increased $69.0 million or 5% due to
higher revenues. However, this increase was more than offset by amounts paid to
suppliers and employees, including payments of $18 million for costs which had
been accrued in the 1993 special charge, and higher income tax payments.
Net cash outflows from investing activities were $117.2 million in 1994
compared to $106.8 million in 1993. Capital expenditures increased $32.7 million
or 26% in 1994, of which one-half was attributable to increases at manufacturing
facilities, and the balance was primarily due to improvements and additions at
the Company's Wickliffe facilities. During 1993, the Company expended $40.3
million to acquire Langer and certain commercial and technology assets of Great
Lakes Chemical, S.A. Cash proceeds from the sale of Genentech common stock were
$43.6 million in 1994 compared to $44.5 million in 1993. In 1993, investment
proceeds also included amounts aggregating $17.0 million from the sale and
redemption of portions of the Company's agribusiness investments.
Throughout 1994, the Company continued its share repurchase program. In
1994 and 1993, the net proceeds from the sale of Genentech common stock as well
as cash generated from operations were used to repurchase common shares of the
company. The Company repurchased 2,007,721, or 3%, of its common shares for
$68.3 million during 1994 compared to the repurchase of 2,075,645 common shares
for $67.1 million in 1993. At December 31, 1994, there was Board authorization
remaining for the repurchase of 1,031,234 million common shares.
As a result of the activities discussed above and the increase in debt
discussed below, cash and short-term investments at December 31, 1994, increased
by $12.2 million compared to December 31, 1993.
As described in Note 3 to the financial statements, effective January 1,
1994, the Company adopted SFAS 115 "Accounting for Certain Investments in Debt
and Equity Securities." SFAS 115 requires that certain of the Company's
marketable equity securities, included in investments in consolidated companies,
be reported at fair value rather than historical cost. The effect at December
31, 1994, of adopting SFAS 115 was to increase investments in nonconsolidated
companies by $35.6 million, increase shareholders' equity by $23.2 million and
increase deferred tax liabilities by $12.4 million. SFAS 115 had no effect on
1994 net income or cash flows.
The Company held 830,900 shares of Genentech common stock as of December
31, 1994. The Company has continued to sell Genentech stock during the first
quarter of 1995 and expects to sell its remaining shares throughout 1995.
The Company's financial position continues to be strong. The ratio of
current assets to current liabilities was 2.5:1 at both December 31, 1994 and
1993. The level of capital spending and the continuation of the Company's share
repurchase program were principal factors in the Company incurring net
borrowings of $92.7 million in 1994. Total debt as a percent of capitalization
(shareholders' equity plus short-term and long-term debt) increased to 17% at
the end of 1994 compared to 9% at the end of 1993. The Company anticipates that,
during 1995, its capital expenditures, primarily for manufacturing, technical
and administrative support, and its share repurchase program will continue at
approximately the same levels as 1994. Total debt is therefore expected to
continue at or above the December 31, 1994 levels throughout 1995. The Company's
strategy of using additional debt to finance capital requirements reflects
management's continuing efforts to enhance shareholder value.
S-13
<PAGE> 14
At December 31, 1994, the Company had unused revolving credit agreements
and other credit lines aggregating $95 million. As described in Note 4 to the
financial statements, the Company has the ability to refinance on a long-term
basis $56.6 million of outstanding commercial paper under its revolving credit
agreements. Management believes the Company's internally generated funds as well
as its credit facilities and shelf registration will be sufficient to meet its
cash requirements.
Implementation of the remaining special charge activities is estimated to
involve future cash outlays aggregating $24 million, primarily in 1995 and 1996.
Offsetting the cash outlays will be cash savings which are expected to grow to
approximately $40 million annually after the plans are fully implemented. The
impact of the special charge on the balance sheet at December 31, 1994, after
recognition of deferred taxes, was to reduce working capital by $6.9 million,
reduce noncurrent assets by $5.9 million and increase noncurrent liabilities by
$13.5 million.
The Company is involved in patent litigation with Exxon Corporation in
various countries. Determinations of liability against the Company in the U.S.,
which is being heard on appeal, and against Exxon in Canada have been made by
the courts. Management is unable to predict the eventual outcomes of this
litigation and, therefore, their impact on future cash flows is not known. If
Exxon prevails in the U.S. case, management believes the Company has sufficient
financial resources to meet any resulting obligation and, other than a potential
one-time charge against income, the litigation would not have a material adverse
effect on future results of operations. Refer to Note 18 for further information
regarding this litigation.
S-14
<PAGE> 15
DESCRIPTION OF DEBENTURES
The following description of the particular terms of the Debentures offered
hereby supplements and, to the extent inconsistent therewith, replaces the
description of the general terms and provisions of Debt Securities set forth in
the accompanying Prospectus, to which description reference is hereby made.
The Debentures will be issued under an Indenture dated as of
, 1995 between the Company and The First National Bank of
Chicago. The Debentures will be limited to $100,000,000 aggregate principal
amount and will be unsecured, senior obligations of the Company.
The Debentures will mature on , 2025. The Debentures
will not be redeemable prior to maturity and will not be entitled to the benefit
of any sinking fund. The Debentures will bear interest from ,
1995 at the rate of % per annum, payable semi-annually on
and of each year, commencing on
, 199 . Interest on the Debentures will be payable to the
persons in whose names the Debentures are registered at the close of business on
the preceding and , respectively.
The Debentures will be issued in the form of and be represented by a
fully registered global security (a "Registered Global Security") registered in
the name of the Depositary or its nominee. The Depositary or nominee will
credit, on its book entry registration and transfer system, participant
accounts with the respective principal amounts of Debentures that are
beneficially owned by such participants and represented by the Registered
Global Security. A description of the depositary arrangements generally
applicable to the Debentures is set forth in the Prospectus under the caption
"Description of Debt Securities -- Registered Global Securities." The
Debentures will not be issued in definitive form except in the circumstances
described under such caption in the Prospectus.
Settlement for the Debentures will be made by the Underwriters in
immediately available or same-day funds. Secondary trading on long-term
debentures of corporate issuers is generally settled in clearinghouse or
next-day funds. In contrast, the Debentures will trade in the Depositary's
Same-Day Funds Settlement System until maturity, and secondary market trading
activity in the Debentures will therefore be required by the Depositary to
settle in same-day funds. No assurance can be given as to the effect, if any, of
settlement in same-day funds on trading activity in the Debentures.
S-15
<PAGE> 16
UNDERWRITERS
<TABLE>
Subject to the terms and conditions contained in an Underwriting Agreement
dated the date hereof, the Company has agreed to sell to each of the
Underwriters named below, severally, and each of the Underwriters has severally
agreed to purchase, the respective principal amount of Debentures set forth
below.
<CAPTION>
PRINCIPAL
AMOUNT OF
NAME DEBENTURES
---- ------------
<S> <C>
Morgan Stanley & Co. Incorporated.............................................. $
J.P. Morgan Securities Inc.....................................................
------------
Total................................................................ $100,000,000
===========
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are obligated to take and pay for all of the Debentures if any are
taken.
The Underwriters initially propose to offer the Debentures directly to the
public at the public offering price set forth on the cover page of this
Prospectus Supplement and to certain dealers at such price less a concession not
in excess of % of the principal amount of the Debentures. The Underwriters
may allow, and such dealers may reallow, a concession not in excess of % of
the principal amount of the Debentures to certain other dealers. After the
initial public offering, the public offering price and such concessions may be
changed by the Underwriters.
The Company does not intend to apply for listing of the Debentures on a
national securities exchange. The Underwriters presently intend to make a market
in the Debentures in the secondary trading market. However, the Underwriters are
not obligated to make a market in the Debentures and any such market making may
be discontinued at any time at the sole discretion of the Underwriters. No
assurance can be given as to the liquidity of, or the trading markets for, the
Debentures.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as amended.
The Underwriters and certain of their affiliates have from time to time
performed various investment banking and commercial banking services for the
Company and its subsidiaries, for which compensation has been received.
S-16
<PAGE> 17
PROSPECTUS
The Lubrizol Corporation
DEBT SECURITIES
------------------------
The Lubrizol Corporation (the "Company") may offer from time to time in one
or more series its debt securities (the "Debt Securities") in amounts, at prices
and on terms to be determined at the time of offering. The aggregate initial
offering price of the Debt Securities to be offered will be limited to
$100,000,000 (or the equivalent if Debt Securities are denominated in foreign
currency or currency units) or, if Debt Securities are issued at an original
issue discount, such greater amount as shall result in aggregate proceeds of
$100,000,000 to the Company. The Debt Securities will be unsecured senior
securities ranking pari passu with all other unsecured senior securities of the
Company. The general terms and conditions of the Debt Securities are described
under "Description of Debt Securities" in this Prospectus.
The accompanying Prospectus Supplement sets forth the specific designation,
aggregate principal amount, designated currency (or currency unit), purchase
price, maturity, interest rate (or manner of calculation thereof), time of
payment of interest (if any), and any other specific terms of the Debt
Securities. The Prospectus Supplement also sets forth the name of and
compensation to each underwriter, dealer or agent (if any) involved in the offer
of the Debt Securities, the other terms and manner of the offer and distribution
of the Debt Securities and the net proceeds to the Company from such offering.
------------------------
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.
Debt Securities may be offered to or through underwriters, dealers or
agents designated from time to time, as set forth in the Prospectus Supplement,
and may be offered to other purchasers directly by the Company. See "Plan of
Distribution" for possible indemnification arrangements for underwriters,
dealers and agents.
------------------------
MORGAN STANLEY & CO.
Incorporated
January 12, 1994
<PAGE> 18
No dealer, salesman or any other person has been authorized to give any
information or to make any representation other than those contained or
incorporated by reference in this Prospectus and any accompanying Prospectus
Supplement in connection with the offering described herein and therein, and, if
given or made, such other information or representation must not be relied upon
as having been authorized by the Company or by any underwriter, dealer or agent.
Neither this Prospectus nor any Prospectus Supplement shall constitute an offer
to sell or a solicitation of an offer to buy Debt Securities 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.
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 "Commission").
Reports, proxy statements and other information, including the documents
incorporated by reference herein, can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549; and at the Commission's regional offices at 7 World
Trade Center, Suite 1300, New York, New York 10048 and Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511.
Copies of such material can also be obtained from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. Such material may also be inspected and copied at the offices
of the New York Stock Exchange, 20 Broad Street, New York, New York 10005, on
which Exchange the common shares of the Company are listed.
The Company has filed a registration statement on Form S-3 (herein,
together with all amendments and exhibits, the "Registration Statement") under
the Securities Act of 1933, as amended (the "Securities Act"), with respect to
the securities offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement, certain portions of which
are omitted in accordance with the rules and regulations of the Commission. For
further information with respect to the Company and the Debt Securities,
reference is made to the Registration Statement and the exhibits filed as a part
thereof. Statements contained herein concerning any document filed as an exhibit
are not necessarily complete and, in each instance, reference is made to the
copy of such document filed as an exhibit to the Registration Statement. Each
such statement is qualified in its entirety by such reference.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed by the Company (Commission File No. 1-5263)
with the Commission are incorporated herein by reference:
(a) the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1992;
(b) the Company's Quarterly Reports on Form 10-Q for the fiscal quarters
ended March 31, 1993 (as amended by Form 10-Q/A filed on November 30,
1993), June 30, 1993 and September 30, 1993; and
(c) the Company's Current Report on Form 8-K dated November 18, 1993, as
amended.
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 shall be deemed to be
incorporated by reference into this Prospectus and to be a part hereof from the
date of filing such documents. Any statement contained herein, or in a document
all or a portion of which is incorporated or deemed to be incorporated by
reference herein, shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein 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.
2
<PAGE> 19
The Company will provide without charge to each person to whom a copy of
this Prospectus has been delivered, upon written or oral request of such person,
a copy of any or all of the documents incorporated herein by reference, other
than exhibits to such documents (unless such exhibits are specifically
incorporated by reference to such documents). Requests for such copies should be
directed to The Lubrizol Corporation, 29400 Lakeland Boulevard, Wickliffe, Ohio
44092, Attention: Chief Financial Officer (telephone: 216/943-4200).
THE COMPANY
The Company is a full-service supplier of specialty chemicals to diverse
markets worldwide. These specialty chemical products are created through the
application of advanced chemical, mechanical and biological technologies to
enhance the performance and quality of the customer products in which they are
used. The Company is a leader in the worldwide markets of additive systems for
oils used in gasoline and diesel engines, automatic transmission fluids, gear
oils, and marine and tractor lubricants. The Company also develops and markets
specialty products for industrial fluids, fuel additives and diversified
specialty chemical products.
The Company was incorporated under the laws of the State of Ohio in 1928.
Its principal executive office is located at 29400 Lakeland Boulevard,
Wickliffe, Ohio 44092 and its telephone number is (216) 943-4200. Unless the
context otherwise requires, as used in this Prospectus, "Company" includes The
Lubrizol Corporation and its consolidated subsidiaries.
USE OF PROCEEDS
Except as otherwise set forth in the applicable Prospectus Supplement, the
Company intends to use the net proceeds from the sale of the Debt Securities for
general corporate purposes, which may include potential acquisitions, capital
expenditures, the repurchase by the Company of its common shares, additions to
working capital and reduction of other indebtedness of the Company. Funds not
required immediately for such purposes may be invested temporarily in short-term
marketable securities.
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
The following table sets forth the consolidated ratio of earnings to fixed
charges for the Company for the periods indicated:
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED DECEMBER 31,
SEPTEMBER 30, ----------------------------------
1993 1992 1991 1990 1989 1988
------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges
(unaudited).............................. 13.6(1) 36.9 20.1 38.7(2) 26.5 30.3(2)
<FN>
- ---------------
(1) Included in the nine months ended September 30, 1993 is (i) a special charge
of $86.3 million in connection with manufacturing rationalization and
organizational realignment initiatives, and (ii) a $20.1 million gain on the
sale of Genentech, Inc. stock held by the Company. Excluding this special
charge and gain, the ratio would have been 26.2.
(2) Included in 1990 is a $101.9 million gain on the sale of Genentech, Inc.
stock held by the Company and a $9.7 million special charge for the
write-off of assets in the Company's former agricultural business. Included
in 1988 is a patent litigation settlement of $81.2 million received by the
Company, as well as a $31.2 million special charge for write-downs of
investments in the venture development area and the discontinuance of
certain agricultural biotechnology research programs. Excluding these items,
the ratios for 1990 and 1988 would have been 25.7 and 22.2 respectively.
</TABLE>
3
<PAGE> 20
For the purposes of computing the ratio of earnings to fixed charges,
"earnings" consist of income before income taxes and fixed charges (adjusted for
capitalized interest), and after certain adjustments relating to earnings,
losses and distributions of minority-owned affiliates. "Fixed charges" consist
of interest on all indebtedness, including both amounts expensed and amounts
capitalized. A statement setting forth the computation of the unaudited ratio of
earnings to fixed charges is filed as an exhibit to the Registration Statement
of which this Prospectus is a part.
DESCRIPTION OF DEBT SECURITIES
The Debt Securities are to be issued under an Indenture (the "Indenture")
between the Company and The First National Bank of Chicago, as Trustee (the
"Trustee"), a copy of which is filed as an exhibit to the Registration Statement
of which this Prospectus is a part. The following summaries of certain
provisions of the Indenture do not purport to be complete and are subject to,
and qualified in their entirety by reference to, the detailed provisions of the
Indenture, including the definitions of certain terms contained in the Indenture
and capitalized in this Prospectus. Wherever particular sections or defined
terms of the Indenture are referred to in this Prospectus, such sections or
defined terms are incorporated herein by reference.
The following sets forth certain general terms and provisions of the Debt
Securities offered hereby. The particular terms of the Debt Securities offered
by any Prospectus Supplement (the "Offered Debt Securities") will be described
in the Prospectus Supplement relating to such Offered Debt Securities (the
"Applicable Prospectus Supplement"). As used under this caption, the term
"Company" means The Lubrizol Corporation.
GENERAL
The Debt Securities offered hereby will be limited to $100 million (or the
equivalent thereof in foreign currencies or currency units) aggregate principal
amount or, if issued at an original issue discount, such greater amount as shall
result in aggregate proceeds of $100 million to the Company. The Indenture does
not limit the amount of Debt Securities that may be issued thereunder and
provides that Debt Securities may be issued thereunder from time to time in one
or more series as from time to time authorized by the Company. The Debt
Securities will be unsecured senior obligations of the Company and will rank
pari passu with other unsecured senior obligations of the Company. As of
September 30, 1993, approximately $56.1 million of debt ($12.4 million of
short-term and $43.7 million of long-term) would rank pari passu with the Debt
Securities.
The Applicable Prospectus Supplement will describe the following terms of
the Offered Debt Securities: (1) the specific designation of the Offered Debt
Securities; (2) any limit on the aggregate principal amount of the Offered Debt
Securities; (3) the price or prices (generally expressed as a percentage of the
aggregate principal amount thereof) at which the Offered Debt Securities will be
issued; (4) the date or dates on which the principal of the Offered Debt
Securities will be payable; (5) the rate or rates at which the Offered Debt
Securities will bear interest, if any (or the method of calculating such rate or
rates), the date or dates from which any such interest will accrue (or the
method by which such date or dates will be determined), the date or dates on
which any such interest will be payable and the record date or dates therefor;
(6) the place or places where the principal of and any premium and interest on
the Offered Debt Securities will be payable; (7) the period or periods within
which, the price or prices at which and the 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, purchase or
repay the Offered Debt Securities pursuant to any mandatory redemption, 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 and the terms and
conditions upon which the Offered Debt Securities shall be redeemed, purchased
or repaid, in whole or in part, pursuant to such obligation; (9) the
denominations in which the Offered Debt Securities will be issuable; (10) if
other than the principal amount thereof, the portion of the principal amount of
the Offered Debt Securities which shall be payable upon declaration of
acceleration of the maturity thereof; (11) the currency, currencies or currency
units in which payment of the principal of and any premium and interest on any
Offered Debt Securities will be payable if other than the currency of the United
States of America, and if the principal of or any premium or
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interest on any Offered Debt Securities is to be payable, at the election of the
Company or a holder thereof, in one or more currencies or currency units other
than that or those in which such securities are stated to be payable, the
currency, currencies or currency units in which payment of the principal of and
any premium and interest on the Offered Debt Securities as to which such
election is made will be payable, and the periods within which and the terms and
conditions upon which such election is to be made; (12) whether the Offered Debt
Securities will be issuable in registered form or unregistered form or both and,
if Offered Debt Securities are issuable in unregistered form, any restrictions
applicable to the exchange of one form for another and to the offer, sale and
delivery of such Debt Securities; (13) the person to whom any interest on the
Offered Debt Securities shall be payable, if other than the person in whose name
such security is registered on the applicable record date; (14) whether the
Offered Debt Securities are to be issued in the form of one or more Registered
Global Securities as described under "Registered Global Securities" below and
the identity of any Depositary with respect to such Debt Securities; and (15)
any other terms of the Offered Debt Securities. (Section 2.3 of the Indenture.)
Unless otherwise indicated in the Applicable Prospectus Supplement, the
Debt Securities will be issued only in fully registered form without coupons in
denominations of $1,000 or integral multiples thereof.
The Debt Securities may be issued as Original Issue Discount Securities to
be offered and sold at a substantial discount below their stated principal
amount. Original Issue Discount Securities provide for an amount less than the
principal amount thereof to be due and payable upon the declaration of
acceleration of the maturity thereof pursuant to the terms of the Indenture.
Federal income tax consequences and other special considerations applicable to
any such Original Issue Discount Securities will be described in the Applicable
Prospectus Supplement.
Unless otherwise provided in the Applicable Prospectus Supplement, payments
in respect of the Debt Securities will be made at the office or agency
maintained by the Company for that purpose as designated by the Company from
time to time, except that at the option of the Company, interest payments, if
any, on Debt Securities in registered form may be made by wire transfer or by
checks mailed to the holders of Debt Securities entitled thereto at their
registered addresses. (Section 3.1 of the Indenture.) Unless otherwise indicated
in an Applicable Prospectus Supplement, payment of any installment of interest
on Debt Securities in registered form will be made to the person in whose name
such Debt Security is registered at the close of business on the regular record
date for such interest payment. (Section 2.7 of the Indenture.)
Unless otherwise provided in the Applicable Prospectus Supplement, Debt
Securities in registered form will be transferable or exchangeable at the agency
maintained by the Company for such purpose as designated by the Company from
time to time. (Section 2.8 of the Indenture.) Debt Securities may be transferred
or exchanged without service charge, other than any tax or other governmental
charge imposed in connection therewith. (Section 2.8 of the Indenture.)
Payment in respect of Debt Securities in unregistered form will be made in
the currency and in the manner designated in the Applicable Prospectus
Supplement, subject to any applicable laws and regulations, including at such
paying agencies outside the United States as the Company may appoint from time
to time. The paying agents outside the United States initially appointed by the
Company for a series of Debt Securities will be named in the Applicable
Prospectus Supplement. Where Debt Securities of any series are issued in
unregistered form, the special restrictions and considerations, including
special offering restrictions and special Federal income tax considerations,
applicable to any such Debt Securities and to payment on and transfer and
exchange of such Debt Securities, will be described in the Applicable Prospectus
Supplement. Unregistered Debt Securities will be transferable by delivery.
(Section 2.8 of the Indenture.)
REGISTERED GLOBAL SECURITIES
The registered Debt Securities of a series may be issued in the form of one
or more Registered Global Securities that will be deposited with and registered
in the name of a Depositary or its nominee identified in the Applicable
Prospectus Supplement. In such case, one or more Registered Global Securities
will be issued in a denomination or aggregate denominations equal to the portion
of the aggregate principal amount of outstanding registered Debt Securities of
the series to be represented by such Registered Global Security or
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Securities. Unless and until it is exchanged in whole or in part for Debt
Securities in definitive registered form, a Registered Global Security may not
be transferred except as a whole by the Depositary for such Registered Global
Security to a nominee of such Depositary, or by such a nominee to such
Depositary or to another nominee of such Depositary, or by such Depositary or
any such nominee to a successor Depositary or a nominee of such successor
Depositary. (Section 2.8 of the Indenture.)
The specific terms of the depositary arrangement with respect to any
portion of a series of Debt Securities to be represented by a Registered Global
Security will be described in the Applicable Prospectus Supplement. The Company
anticipates that the following provisions will apply to all depositary
arrangements.
Ownership of beneficial interests in a Registered Global Security will be
limited to persons that have accounts with the Depositary for such Registered
Global Security ("participants") or persons holding interests through
participants. Upon the issuance of a Registered Global Security, the Depositary
for such Registered Global Security will credit, on its book-entry registration
and transfer system, the participants' accounts with the respective principal
amounts of the Debt Securities represented by such Registered Global Security
beneficially owned by such participants. The accounts to be credited shall be
designated by any dealers, underwriters or agents participating in the
distribution of such Debt Securities. Ownership of beneficial interests in such
Registered Global Security will be shown on, and the transfer of such ownership
interests will be effected only through, records maintained by the Depositary
for such Registered Global Security (with respect to interests of participants)
and on the records of participants (with respect to interests of persons holding
through participants). The laws of some states may require that certain
purchasers of securities take physical delivery of such securities in definitive
form. Such limits and such laws may impair the ability to own, transfer or
pledge beneficial interests in Registered Global Securities.
So long as the Depositary for a Registered Global Security, or its nominee,
is the registered owner of such Registered 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 Registered Global Security for all
purposes under the Indenture. Except as set forth below, owners of beneficial
interests in a Registered Global Security will not be entitled to have the Debt
Securities represented by such Registered Global Security registered in their
names, will not receive or be entitled to receive physical delivery of such Debt
Securities in definitive form and will not be considered the owners or holders
thereof under the Indenture. Accordingly, each person owning a beneficial
interest in a Registered Global Security must rely on the procedures of the
Depositary for such Registered Global Security and, if such person is not a
participant, on the procedures of the participant through which such person owns
its interests, to exercise any rights of a holder under the Indenture. The
Company understands that under existing industry practices, if the Company
requests any action of holders or if an owner of a beneficial interest in a
Registered Global Security desires to give or take any action which a holder is
entitled to give or take under the applicable Indenture, the Depositary for such
Registered Global Security would authorize the participants holding the relevant
beneficial interests to give or take such action, and such participants would
authorize beneficial owners owning through such participants to give or take
such action or would otherwise act upon the instructions of beneficial owners
holding through them.
Principal, premium, if any, and interest payments on Debt Securities
represented by a Registered Global Security registered in the name of a
Depositary or its nominee will be made to such Depositary or its nominee, as the
case may be, as the registered owner of such Registered Global Security. None of
the Company, the Trustee or any other agent of the Company or agent of the
Trustee will have any responsibility or liability for any aspect of the records
relating to or payments made on account of beneficial ownership interests in
such Registered Global Security or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
The Company expects that the Depositary for any Debt Securities represented
by a Registered Global Security, upon receipt of any payment of principal,
premium or interest in respect of such Registered Global Security, will
immediately credit participants' accounts with payments in amounts proportionate
to their respective beneficial interests in such Registered Global Security as
shown on the records of such Depositary. The Company also expects that payments
by participants to owners of beneficial interests in such Registered Global
Security held through such participants will be governed by standing customer
instructions and
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customary practices, as is now the case with the securities held for the
accounts of customers in bearer form or registered in "street name," and will be
the responsibility of such participants.
If the Depositary for any Debt Securities represented by a Registered
Global Security is at any time unwilling or unable to continue as Depositary or
ceases to be a clearing agency registered under the Exchange Act, and a
successor Depositary registered as a clearing agency under the Exchange Act is
not appointed by the Company within 90 days, the Company will issue such Debt
Securities in definitive form in exchange for such Registered Global Security.
In addition, the Company may at any time and in its sole discretion determine
not to have any of the Debt Securities of a series represented by one or more
Registered Global Securities and, in such event, will issue Debt Securities of
such series in definitive form in exchange for all of the Registered Global
Security or Securities representing such Debt Securities. Any Debt Securities
issued in definitive form in exchange for a Registered Global Security will be
registered in such name or names as the Depositary shall instruct the Trustee.
It is expected that such instructions will be based upon directions received by
the Depositary from participants with respect to ownership of beneficial
interests in such Registered Global Security.
CERTAIN COVENANTS OF THE COMPANY
Negative Pledge. If the Company or any Restricted Subsidiary (as defined
below) shall issue, assume, incur or guarantee any debt secured by a Mortgage on
any Principal Manufacturing Property (as defined below) of the Company or any
Restricted Subsidiary or on any shares of capital stock or debt of any
Restricted Subsidiary, the Company will secure, or cause such Restricted
Subsidiary to secure, the outstanding Debt Securities equally and ratably with
such secured debt, unless after giving effect thereto the aggregate amount of
all such secured debt together with all Attributable Debt (as defined below) of
the Company and its Subsidiaries in respect of sale and leaseback transactions
involving Principal Manufacturing Properties would not exceed 10% of the
Consolidated Net Tangible Assets (as defined below) of the Company and its
consolidated Subsidiaries. This restriction will not apply in the case of (a)
the creation of Mortgages on any Principal Manufacturing Property acquired by
the Company or a Restricted Subsidiary after the date of the Indenture to secure
or provide for the payment of financing of all or any part of the purchase price
thereof or construction of fixed improvements thereon (prior to, at the time of
or within 120 days after the latest of the acquisition, completion of
construction or commencement of commercial operation thereof), or existing
Mortgages upon any Principal Manufacturing Property acquired by the Company or a
Restricted Subsidiary (whether or not such Mortgages are assumed), provided the
Mortgage shall not apply to any property theretofore owned by the Company or a
Restricted Subsidiary, other than any theretofore unimproved real property; (b)
the assumption of any Mortgages on any Principal Manufacturing Property of a
corporation which is merged into or consolidated with the Company or a
Restricted Subsidiary or substantially all of the assets of which are acquired
by the Company or a Restricted Subsidiary; (c) Mortgages in favor of
governmental bodies of the United States or any State thereof or any other
country or any political subdivision thereof to secure partial, progress or
advance payments pursuant to any contract or statute, or to secure any debt
incurred or guaranteed for the purpose of financing all or any part of the cost
of acquiring, constructing or improving the property subject to such Mortgages;
(d) Mortgages on particular property (or any proceeds of the sale thereof) to
secure all or any part of the cost of exploration, drilling, mining or
development thereof intended to obtain or materially increase the production and
sale or other disposition of oil, gas, coal, uranium, copper or other minerals
therefrom, or any debt created, issued, assumed or guaranteed to provide funds
for any or all such purposes; (e) Mortgages securing debt of a Restricted
Subsidiary owing to the Company or another Restricted Subsidiary; and (f)
certain extensions, renewals or replacements of Mortgages referred to in the
foregoing clauses. (Section 3.6 of the Indenture.) The Indenture will not
restrict the incurrence of unsecured debt by the Company or its Subsidiaries.
Restrictions on Sale and Leaseback Transactions. Neither the Company nor
any Restricted Subsidiary may, after the effective date of the Indenture, enter
into any sale and leaseback transaction involving any Principal Manufacturing
Property which has been or is to be sold or transferred by the Company or any
Restricted Subsidiary, unless (a) the Company or such Restricted Subsidiary
would be entitled to create debt secured by a Mortgage on such property as
described in clauses (a)-(f) under "Negative Pledge" in an
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amount equal to the Attributable Debt with respect to the sale and leaseback
transaction without equally and ratably securing the outstanding Debt
Securities; (b) during the period commencing 12 months prior to and ending 12
months after a sale and leaseback transaction, the Company or a Restricted
Subsidiary expends for facilities comprising a Principal Manufacturing Property
(or part thereof) all or a part of the net proceeds of such sale and leaseback
transaction and elects to designate such amount as a credit against such sale
and leaseback transaction; or (c) to the extent not credited as described above,
the Company applies to the retirement of long-term indebtedness of the Company
or any Restricted Subsidiary an amount equal to the Attributable Debt with
respect to such sale and leaseback transaction. (Section 3.6 of the Indenture.)
This restriction will not apply to any sale and leaseback transaction (a)
between the Company and a Restricted Subsidiary or between Restricted
Subsidiaries, (b) involving the taking back of a lease for a period of three
years or less, or (c) if after giving effect to a sale and leaseback
transaction, permitted secured debt plus Attributable Debt of the Company and
its Subsidiaries in respect of sale and leaseback transactions involving
Principal Manufacturing Properties would not exceed 10% of the Consolidated Net
Tangible Assets of the Company and its consolidated Subsidiaries.
Except as may be described in a Prospectus Supplement applicable to a
particular series of Debt Securities, there are no covenants or other provisions
in the Indenture providing for a put or increased interest or otherwise that
would afford holders of Debt Securities additional protection in the event of a
recapitalization transaction, a change of control of the Company or a highly
leveraged transaction.
"Principal Manufacturing Property" means any manufacturing plant or any
testing or research and development facility of the Company or a Subsidiary
located in the United States or Puerto Rico unless the Board of Directors of the
Company determines that such plant or facility is not of material importance to
the total business conducted by the Company and its consolidated Subsidiaries.
(Section 1.1 of the Indenture.)
"Attributable Debt" means the total net amount of rent required to be paid
during the remaining term of any lease, discounted at the weighted average rate
per annum then borne by the outstanding Debt Securities. (Section 1.1 of the
Indenture.)
"Consolidated Net Tangible Assets" means the total assets shown on the most
recent audited annual consolidated balance sheet of the Company and its
consolidated Subsidiaries, after deducting the amount of all current liabilities
and intangible assets. (Section 1.1 of the Indenture.)
"Subsidiary" means any corporation, partnership or other entity of which
more than 50% of the outstanding voting stock or interests is directly or
indirectly owned or controlled by the Company. (Section 1.1 of the Indenture.)
"Restricted Subsidiary" means any Subsidiary owning or leasing any
Principal Manufacturing Property or otherwise designated by the Board of
Directors of the Company to be a Restricted Subsidiary. (Section 1.1 of the
Indenture.) As of the date of this Prospectus, no Subsidiary of the Company is a
"Restricted Subsidiary."
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company may not consolidate with or merge into any other person or
transfer or lease substantially all of its assets to any person and may not
permit any person to merge into or consolidate with the Company, unless (i)
either the Company is the continuing entity or the successor or purchaser is a
corporation organized under the laws of the United States, any State thereof or
the District of Columbia and expressly assumes the Company's obligations under
the Debt Securities and the Indenture, and (ii) immediately after giving effect
to the transaction no Event of Default, and no event which, after notice or
lapse of time or both, would become an Event of Default, exists. (Section 9.1 of
the Indenture.) Upon any such consolidation, merger or sale, the successor
corporation formed by such consolidation, or into which the Company is merged or
to which such sale is made, shall succeed to, and be substituted for the Company
under the Indenture and under the Debt Securities. (Section 9.2 of the
Indenture.)
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EVENTS OF DEFAULT
Any one of the following events will constitute an Event of Default under
the Indenture with respect to Debt Securities of any series: (i) failure to pay
any interest on any Debt Security of that series when due and continuance of
such default for 30 days; (ii) failure to pay principal of or any premium on any
Debt Security of that series when due, either at maturity, upon any redemption,
by declaration or otherwise; (iii) failure to observe or perform any other of
the covenants or agreements of the Company in the Indenture (other than a
covenant the default or breach of which is otherwise specifically dealt with in
the Indenture) continued for 60 days after written notice as provided in the
Indenture; (iv) certain events of bankruptcy, insolvency or reorganization of
the Company; or (v) any other Event of Default provided in a supplemental
indenture with respect to Debt Securities of that series. (Section 5.1 of the
Indenture.)
If any Event of Default with respect to the Debt Securities of any series
occurs and is continuing, either the Trustee or the holders of at least 25% in
aggregate principal amount of the outstanding Debt Securities of that series, by
written notice to the Company (and to the Trustee if given by such holders of
Debt Securities), may declare the principal amount (or, if the Debt Securities
of that series are Original Issue Discount Debt Securities, such portion of the
principal amount as may be specified in the Applicable Prospectus Supplement)
and accrued interest of all the Debt Securities of that series to be due and
payable immediately. At any time after a declaration of acceleration with
respect to Debt Securities of any series has been made, but before a judgment or
decree based on such acceleration has been obtained, the holders of a majority
in aggregate principal amount of outstanding Debt Securities of that series may,
under certain circumstances, rescind and annul such acceleration. (Section 5.01
of the Indenture.)
The Indenture provides that the Trustee will, within 90 days after the
occurrence of a default with respect to the Debt Securities of any series, give
to the holders of the Debt Securities of that series notice of all defaults
known to it unless such default shall have been cured or waived; provided that
except in the case of a default in payment on the Debt Securities of that
series, the Trustee may withhold the notice if and so long as it in good faith
determines that withholding such notice is in the interests of the holders of
the Debt Securities of that series. (Section 5.11 of the Indenture.)
The Indenture provides that the holders of a majority in aggregate
principal amount of the outstanding Debt Securities of each series affected
(with each such series voting as a class) may direct the time, method and place
of conducting any proceeding for any remedy available to the Trustee for such
series, or exercising any trust or power conferred on such Trustee. (Section 5.9
of the Indenture.)
The holders of a majority in aggregate principal amount outstanding of any
series of Debt Securities by notice to the Trustee may waive, on behalf of the
holders of all Debt Securities of such series, any past default or Event of
Default with respect to that series and its consequences except in respect of a
covenant or provision of the Indenture which cannot under the terms of the
Indenture be amended or modified without the consent of the holder of each
outstanding Debt Security affected. (Section 5.10 of the Indenture.)
The Indenture includes a covenant that the Company will file annually with
the Trustee a certificate as to the Company's compliance with all conditions and
covenants of the Indenture. (Section 3.5 of the Indenture.)
MODIFICATION OF THE INDENTURE
The Indenture contains provisions permitting the Company and the Trustee to
enter into one or more supplemental indentures without the consent of the
holders of any of the Debt Securities in order (i) to transfer or pledge any
property to the Trustee as security for the Debt Securities of any series; (ii)
to evidence the succession of another corporation to the Company and the
assumption of the covenants of the Company by a successor to the Company; (iii)
to add to the covenants of the Company such further covenants or provisions so
as to further protect the holders of Debt Securities; (iv) to establish the form
or terms of Debt Securities; (v) to evidence and provide for successor Trustees;
or (vi) to cure any ambiguity or correct or supplement any defective provisions
or to make any other provisions as the Company deems necessary or desirable,
provided such action does not adversely affect the interests of any holder of
Debt Securities of any series. (Section 8.1 of the Indenture.)
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The Indenture also contains provisions permitting the Company and the
Trustee, with the consent of the holders of a majority in aggregate principal
amount of the outstanding Debt Securities affected by such supplemental
indenture (voting as one class), to execute supplemental indentures adding any
provisions to or changing or eliminating any of the provisions of the Indenture
or any supplemental indenture or modifying the rights of the holders of Debt
Securities of such series, except that no such supplemental indenture may,
without the consent of the holder of each Debt Security so affected, (i) extend
the time for payment of principal or premium, if any, or interest on any Debt
Security; (ii) reduce the principal of, or the rate of interest on, any Debt
Security; (iii) reduce the amount of premium, if any, payable upon the
redemption of any Debt Security; (iv) reduce the amount of principal payable
upon acceleration of the maturity of any Original Issue Discount Security; (v)
change the currency or currency unit in which any Debt Security or any premium
or interest thereon is payable; (vi) impair the right to institute suit for the
enforcement of any payment on or with respect to any Debt Security; or (vii)
reduce the percentage in principal amount of the outstanding Debt Securities
affected thereby the consent of whose holders is required for modification or
amendment of the Indenture. (Section 8.2 of the Indenture.)
DEFEASANCE AND COVENANT DEFEASANCE
The Indenture provides that the Company, at its option, (a) will be
discharged from any and all obligations in respect of the Debt Securities of any
series (except for certain obligations to register the transfer or exchange of
Debt Securities of such series, replace stolen, lost or mutilated Debt
Securities of such series, maintain paying agencies and hold moneys for payment
in trust) ("defeasance") or (b) need not comply with certain covenants of the
Indenture, including those described under "Certain Covenants of the Company"
and "Consolidation, Merger and Sale of Assets," and the occurrence of an event
described in clause (iii) under "Events of Default" shall no longer be an Event
of Default ("covenant defeasance"), in each case, if the Company deposits, in
trust, with the Trustee money or U.S. Government Obligations (as defined below)
which through the payment of interest and principal in accordance with their
terms will provide money, in an amount sufficient to pay all the principal of
(and premium, if any) and interest on the Debt Securities of such series, and
any mandatory sinking fund or analogous payments, on the dates such payments are
due in accordance with the terms of the Debt Securities of such series. Such
defeasance or covenant defeasance may only be established if, among other
things, (i) no Event of Default or event which with the giving of notice or
lapse of time, or both, would become an Event of Default under the Indenture
shall have occurred and be continuing on the date of such deposit, and (ii) the
Company shall have delivered an opinion of counsel to the effect that the
holders of Debt Securities will not recognize income, gain or loss for Federal
income tax purposes as a result of such deposit or defeasance and will be
subject to Federal income tax on the same amount, in the same manner and at the
same times as if such defeasance had not occurred. In the case of defeasance as
described in clause (a) above, such opinion of counsel must 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. "U.S. Government Obligations"
means obligations issued or guaranteed as to principal and interest by the
United States or by an entity controlled or supervised by or acting as an
instrumentality of the United States Government. (Article Ten)
THE TRUSTEE
The First National Bank of Chicago is the Trustee under the Indenture. The
Company may also maintain banking and other commercial relationships with the
Trustee in the ordinary course of business.
PLAN OF DISTRIBUTION
The Company may sell the Debt Securities being offered hereby through
agents, underwriters and dealers and may sell Debt Securities to other
purchasers directly. The distribution of the Debt Securities may be effected
from time to time in one or more transactions at a fixed price or prices, which
may be changed, at market prices prevailing at the time of sale, at prices
related to such prevailing market prices or at negotiated prices.
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Offers to purchase Debt Securities may be solicited by agents designated by
the Company from time to time. Any such agent (who may be deemed to be an
underwriter, as that term is defined in the Securities Act) involved in the
offer or sale of the Debt Securities in respect of which this Prospectus is
delivered will be named, and any commissions payable by the Company to such
agent set forth, in the Applicable Prospectus Supplement. Unless otherwise
indicated in the Applicable Prospectus Supplement, any such agent will be acting
on a reasonable efforts basis for the period of its appointment.
If any underwriters are utilized in the sale of the Debt Securities in
respect of which this Prospectus is delivered, the Company will enter into an
underwriting agreement with such underwriters at the time of sale to them, and
the names of the underwriters and the terms of the transaction, including
commissions, discounts or other compensation to the underwriters, will be set
forth in the Applicable Prospectus Supplement used by the underwriters to make
resales of the Debt Securities. If underwriters are utilized in the sale of the
Debt Securities in respect of which this Prospectus is delivered, 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 at fixed public offering
prices, at varying prices determined by the underwriter at the time of sale, or
in negotiated transactions. Unless otherwise indicated in the Prospectus
Supplement, the underwriting agreement will provide that the obligations of the
underwriters are subject to certain conditions precedent and that the
underwriters with respect to a sale of Debt Securities will be obligated to
purchase all such Debt Securities if any are purchased.
If dealers are utilized in the sale of the Debt Securities in respect of
which this Prospectus is delivered, the Company will sell such Debt Securities
to such dealers as principal. The dealers may then resell such Debt Securities
to the public at varying prices to be determined by such dealers at the time of
resale. Any such dealer may be deemed to be an underwriter, as such term is
defined in the Securities Act, of the Debt Securities so offered and sold. The
name of any dealer and the terms of the transaction will be set forth in the
Applicable Prospectus Supplement.
Agents, underwriters and dealers may be entitled under relevant agreements
that may be entered into with the Company to indemnification or contribution by
the Company against certain civil liabilities, including liabilities under the
Securities Act. Such agents, underwriters and dealers (or their affiliates) may
be customers of, engage in transactions with or perform services for the Company
in the ordinary course of business.
Debt Securities may also be offered and sold, if so indicated in the
Applicable Prospectus Supplement, in connection with a remarketing upon their
purchase, in accordance with a redemption or repayment pursuant to their terms,
or otherwise, by one or more firms ("remarketing firms"), acting as principals
for their own accounts or as agents for the Company. Any remarketing firm will
be identified and the terms of its agreement, if any, with the Company and its
compensation will be described in the Applicable Prospectus Supplement.
Remarketing firms may be deemed to be underwriters, as such term is defined in
the Securities Act, in connection with the Debt Securities remarketed.
Remarketing firms may be entitled under agreements which may be entered into
with the Company to indemnification or contribution by the Company against
certain civil liabilities, including liabilities under the Securities Act, and
may be customers of, engage in transactions with or perform services for the
Company in the ordinary course of business.
If so indicated in the Applicable Prospectus Supplement, the Company may
authorize agents, underwriters or dealers to solicit offers by certain
institutions to purchase Debt Securities from the Company at the public offering
prices set forth in the Applicable Prospectus Supplement pursuant to delayed
delivery contracts providing for payment and delivery on a specified date or
dates. A commission indicated in the Applicable Prospectus Supplement will be
paid to underwriters, dealers and agents soliciting purchases of Debt Securities
pursuant to delayed delivery contracts accepted by the Company.
The Debt Securities are not proposed to be listed on a securities exchange,
and no underwriters or dealers will be obligated to make a market in the Debt
Securities. The Company cannot predict the activity or liquidity of any trading
in the Debt Securities.
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LEGAL MATTERS
Certain legal matters in connection with the Debt Securities to be offered
hereby, including their validity, will be passed upon for the Company by Squire,
Sanders & Dempsey, Cleveland, Ohio. Unless otherwise specified in the Prospectus
Supplement, certain legal matters in connection with the Debt Securities to be
offered hereby will be passed upon for the underwriters by Davis Polk &
Wardwell, New York, New York.
EXPERTS
The consolidated financial statements and the related consolidated
financial statement schedules incorporated in this prospectus by reference from
the Company's Annual Report on Form 10-K for the year ended December 31, 1992
have been audited by Deloitte & Touche, 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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