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Filed pursuant to Rule 424(b)(3)
Registration No. 333-14717
PROSPECTUS
$150,000,000
LOGO
7% Senior Notes due 2006
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Interest on the 7% Senior Notes due November 1, 2006 (the "Notes") of
Borg-Warner Automotive, Inc. (the "Company") offered hereby is payable
semiannually on May 1 and November 1 of each year, beginning May 1, 1997. The
Notes are unsecured, not redeemable prior to maturity and not entitled to any
sinking fund.
The Notes are represented by one or more global securities (the "Global
Note") registered in the name of the nominee of The Depository Trust Company
("DTC"), which will act as the Depositary. Interests in the Global Note will be
shown on, and transfers thereof will be effected only through, records
maintained by DTC and its participants. Except as described herein, Notes in
definitive form will not be issued. Settlement for the Notes will be made in
immediately available funds. The Notes will trade in the DTC's Same-Day Funds
Settlement System until maturity, and secondary market trading activity for the
Notes will therefore settle in immediately available funds. All payments of
principal and interest will be made by the Company in immediately available
funds. See "Description of the Notes -- Global Note" and " -- Payments of
Principal and Interest."
The Notes are listed on the New York Stock Exchange, Inc. ("NYSE").
FOR INFORMATION CONCERNING CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS, SEE "RISK FACTORS" COMMENCING ON PAGE 8.
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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.
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This Prospectus is to be used by Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("MLPF&S") in connection with offers and sales of the Notes related
to market-making transactions at negotiated prices related to prevailing market
prices at the time of sale. MLPF&S may act as principal or agent in such
transactions. If MLPF&S conducts any market-making activities, it may be
required to deliver a "market-making prospectus" when effecting offers and sales
in the Notes because of the equity ownership of affiliates of MLPF&S. Certain
affiliates of MLPF&S control, as of September 30, 1996, approximately 22.6% of
the voting power of the Company.
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The date of this Prospectus is October 31, 1996.
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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"). Such reports, proxy
statements and other information may be inspected and copied at the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549; and at the regional offices of the Commission at 7 World Trade Center
(13th Floor), New York, New York 10048; and Suite 1400, Citicorp Center, 500
West Madison Street, Chicago, Illinois 60661. Copies of such material can be
obtained at prescribed rates from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission also
maintains an internet web site at http://www.sec.gov that contains reports,
proxy statements and other information. Additionally, reports, proxy statements
and other information concerning the Company filed pursuant to the Exchange Act
are available for inspection at the NYSE located at 20 Broad Street, New York,
New York 10005.
This Prospectus constitutes a part of a Registration Statement on Form S-3
filed by the Company with the Commission under the Securities Act of 1933, as
amended (the "Securities Act"). This Prospectus omits certain of the information
contained in the Registration Statement in accordance with the rules and
regulations of the Commission. For further information with respect to the
Company and the Notes, reference is hereby made to the Registration Statement
and the exhibits thereto, which may be obtained from the Commission in the
manner set forth above. Statements contained herein concerning the provisions of
any document 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 or otherwise filed with the Commission. Each such statement is
qualified in its entirety by such reference.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
Incorporated herein by reference are (i) the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1995 (including the portions of
the Company's annual report to stockholders incorporated by reference therein),
as amended by the Form 10-K/A (Amendment No. 1) filed on June 28, 1996, as
further amended by the Form 10-K/A (Amendment No. 2) filed on July 1, 1996; (ii)
the Company's proxy statement dated March 22, 1996 for its Annual Meeting of
Stockholders held on April 23, 1996 (other than the sections entitled
"Compensation Committee Report on Executive Compensation" and "Performance
Graph" which shall not be so incorporated); (iii) the Company's Form 10-Qs for
the quarters ended March 31, 1996 and June 30, 1996; and (iv) the Company's
Current Reports on Form 8-K dated January 19, 1996 and June 17, 1996.
All reports and other documents filed by the Company pursuant to Sections
13(a), 13(c), 14 and 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of the offering of the Notes shall be
deemed to be incorporated by reference in this Prospectus and to be a part
hereof from the date of filing such documents. Any statement contained herein or
in a document 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.
The Company will furnish, without charge, to each person to whom a
Prospectus is delivered, upon written or oral request, a copy of any or all of
the foregoing documents incorporated herein by reference other than exhibits to
such documents (unless such exhibits are specifically incorporated by reference
therein). Requests for such documents should be submitted in writing to
Borg-Warner Automotive, Inc., 200 South Michigan Avenue, Chicago, Illinois
60604, Attention: Leslie Cleveland Hague, Director of Communications/Investor
Relations, or by telephone at (312) 322-8607 or (312) 322-8547.
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CERTAIN STATEMENTS CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS ARE "FORWARD LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995 AND ARE THUS PROSPECTIVE. SUCH FORWARD
LOOKING STATEMENTS ARE SUBJECT TO RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH
COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM FUTURE RESULTS EXPRESSED OR
IMPLIED BY SUCH FORWARD LOOKING STATEMENTS. THE MOST SIGNIFICANT OF SUCH RISKS,
UNCERTAINTIES AND OTHER FACTORS ARE DISCUSSED UNDER THE HEADING "RISK FACTORS,"
BEGINNING ON PAGE 8 OF THIS PROSPECTUS, AND PROSPECTIVE INVESTORS ARE URGED TO
CAREFULLY CONSIDER SUCH FACTORS.
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IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES OFFERED
HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH TRANSACTIONS MAY BE EFFECTED ON THE NYSE OR OTHERWISE. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
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SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere or incorporated by reference in this Prospectus. Unless the context
otherwise requires, references in this Prospectus to the "Company" refer to
Borg-Warner Automotive, Inc., a Delaware corporation and its subsidiaries, and
references to the "Notes" refer to the $150,000,000 principal amount of 7%
Senior Notes due 2006 of the Company offered hereby.
THE COMPANY
The Company is a leading, global Tier I supplier of highly engineered
systems and components, primarily for automotive powertrain applications. These
products are manufactured and sold worldwide, primarily to original equipment
manufacturers ("OEMs") of passenger cars, sport utility vehicles and light
trucks. The Company, which operates 36 manufacturing facilities in 12 countries
serving the North American, European and Asian automotive markets, is an
original equipment supplier to every major OEM in the world. The Company has
achieved its current leadership position and is well positioned to benefit from
emerging trends in the global automotive markets as a result of several key
competitive strengths, including: (i) the ability to supply its customers
globally; (ii) demonstrated technological expertise in developing highly
engineered systems and components; (iii) strong relationships with all major
OEMs; (iv) significant market shares in a number of its key products; and (v) a
strong presence in and focus on high-growth vehicle categories and platforms.
The Company's products fall into four operating groups: Powertrain Systems,
Automatic Transmission Systems, Morse TEC and Air/Fluid Systems (formerly known
as Control Systems). The Powertrain Systems group accounted for $544.8 million
(40%) of 1995 consolidated sales before inter-business eliminations. Its primary
products include four-wheel and all-wheel drive transfer cases and manual
transmissions. The Company supplies substantially all of the four-wheel drive
("4WD") transfer cases for Ford Motor Company ("Ford"), including those
installed on the Ford Explorer, the best selling sport utility vehicle in the
United States in 1995, and the Ford F-150 pickup truck. The Company has designed
and developed an exclusive 4WD Torque-On-Demand(TM) ("TOD(TM)") transfer case,
available on the Ford Explorer and on the new Ford Expedition, which allows
vehicles to automatically shift from two-wheel drive to 4WD when electronic
sensors indicate it is necessary.
The Automatic Transmission Systems group accounted for $454.4 million (33%)
of 1995 consolidated sales before inter-business eliminations. Its products
include friction plates, transmission bands, one-way clutches and torque
converters for automatic transmissions. The Company is a supplier to virtually
every major automatic transmission manufacturer in the world. The Company's
50%-owned joint venture in Japan, NSK-Warner Kabushiki Kaisha ("NSK-Warner"),
with 1995 sales of $337 million, is a leading producer of friction plates and
one-way clutches in Japan.
The Morse TEC group accounted for $257.6 million (19%) of 1995 consolidated
sales before inter-business eliminations. Morse TEC manufactures chain and chain
systems including HY-VO(R) front-wheel drive ("FWD") and 4WD chain, MORSE
GEMINI(TM) Transmission Chain Systems, timing chain and timing chain systems,
crankshaft and camshaft sprockets, chain tensioners and snubbers. The Company is
a supplier to every major manufacturer that uses chain for such applications.
The Air/Fluid Systems group accounted for $107.6 million (8%) of 1995
consolidated sales before inter-business eliminations. The Company's air and
fluid management products include mechanical, electromechanical and electronic
components and systems used for engine and emission control, fuel and vapor
management, electronically controlled automatic transmissions and steering and
suspension systems. The Air/Fluid Systems group is the Company's fastest growing
group and has grown from $52.1 million of consolidated sales in 1991 to $107.6
million in 1995 (a compound annual growth rate of 20%). On June 17, 1996, the
Company acquired the operations and substantially all of the operating assets of
the Holley Automotive, Coltec Automotive and Performance Friction Products
divisions (collectively, the "Coltec Divisions") of Coltec Industries Inc. for
$283 million in cash (the "Coltec Acquisition"). The Coltec Divisions have a
broad base of air and fluid management products, established OEM relationships,
and three
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technologically advanced manufacturing facilities. These operations produced
combined sales of $255 million in 1995. As a result of the Coltec Acquisition,
the Air/Fluid Systems group will comprise a significantly greater portion of the
Company's revenues. The Coltec Acquisition was financed with borrowings under
the Company's revolving credit facility.
The Company believes that it is a leading supplier to major OEMs worldwide
in each of its four product groups. For Powertrain Systems, the Company believes
that it is the world's leading independent manufacturer of 4WD transfer cases,
manufacturing approximately 847,000 transfer cases in 1995, principally for
Ford. The Company also believes that, including its NSK-Warner joint venture,
the Automatic Transmission Systems group is a leading manufacturer and supplier
of friction elements and one-way clutches in North America, Europe and Asia.
Similarly, the Morse TEC group manufactures transmission chains for FWD
transmissions and 4WD transfer cases for every major OEM who uses chain for such
applications. Finally, the Coltec Acquisition will position the Air/Fluid
Systems group to become a leading supplier of air and fluid management systems
with over 80% of its 1995 pro forma sales to the three largest North American
OEMs -- Ford, General Motors Corporation ("GM") and Chrysler Corporation
("Chrysler"). As a result of the Coltec Acquisition, the Air/Fluid Systems group
will almost double the Company's sales to Chrysler.
The Company's business objective is to maintain its position as one of the
leading independent suppliers of highly engineered systems and components for
automotive powertrain applications. The Company pursues this objective in
several ways. First, the Company seeks to maintain its position and reputation
as a technological leader in its product groups. Second, the Company seeks to
maintain its price competitiveness by continuing to improve the efficiency of
its operations, including its production processes. Third, the Company believes
that it is well positioned to take advantage of certain trends within the global
automotive market. The Company believes that these trends include (i) a growing
demand for automatic transmissions with a greater number of speeds (the
Company's component content in an automatic transmission rises as the number of
speeds increases), (ii) a growing demand for 4WD vehicles, (iii) an increasing
demand for overhead cam engines, (iv) a growing demand for automatic
transmissions and air and fluid management systems in Europe and in Asia, (v)
the increasing tendency of OEMs to purchase integrated systems rather than
individual components, and (vi) demand in markets outside the United States for
air and fluid management products, particularly emission controls. Fourth, the
Company continues to pursue strategic joint ventures and selected acquisitions
within its existing or related lines of business. The Company continues to
maintain its strong presence in Europe and Asia as a result of its recent
acquisitions and joint ventures. The Company believes its global presence will
enable it to better withstand the effect of cyclical downturns in the United
States automotive market, while serving its OEM customers as a global supplier.
Over the past several years, the Company has remained focused on and
committed to achieving its business objective. Sales have increased from $820
million in 1991 to $1.33 billion in 1995, reflecting a 12.8% compound annual
growth rate and outperforming the approximately 4% compound annual growth rate
of North American vehicle sales. The Company's sales outside the United States
are increasing and in 1995 represented 16% of consolidated sales. Including
unconsolidated joint ventures, 1995 sales outside the United States constituted
33% of total sales. The Company's sales have increased at a greater rate than
market growth as a result of higher content per vehicle and higher market share.
The Company's emphasis on providing systems and introduction of new technologies
has enabled it to substantially increase its content per vehicle. For example,
the timing system on the Ford modular engine consists of up to four chains as
well as sprockets, snubbers and tensioners as compared with a single timing
chain on the previous generation pushrod engine. The Company's market share
gains have been achieved during a period of OEM supplier consolidation which has
benefited the Company. Such growth in sales has been accompanied by growth in
profitability. Over the same period, earnings before interest and taxes ("EBIT")
increased from $22 million in 1991 to $125 million in 1995, with EBIT margins
rising from 2.6% in 1991 to 9.4% in 1995, and sales per employee rising from
$128,000 in 1991 to $163,000 in 1995.
The Company's executive offices are located at 200 South Michigan Avenue,
Chicago, Illinois 60604, telephone (312) 322-8500.
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RECENT DEVELOPMENTS
On October 21, 1996, the Company entered into an agreement to sell its
North American manual transmission manufacturing business located in Muncie,
Indiana, to Transmisiones Y Equipos Mecanicos S.A. De C.V. (Tremec). Under the
terms of the agreement, the Company will receive $20 million in cash at closing
for certain assets of its North American manual transmission business plus
approximately $20 million during the transition period (which is expected to
last 18 months) for the value of inventory and certain services to be provided.
Consummation of the transaction is subject to the expiration or termination of
the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, as well as satisfaction of certain other customary conditions.
As a result of the transaction, the Company currently expects to take a one-time
charge of $35 million, or $1.50 per share, in the fourth quarter of 1996. This
charge includes costs associated with the sale of the assets, costs necessary to
supply existing customers while the business is transferred to its new location,
and costs related to restructuring the Company's Muncie, Indiana operation. The
Company expects that a substantial portion of the proceeds from the sale will be
reinvested in the Muncie plant's remaining 4WD transfer case manufacturing
operation. See "Risk Factors -- Sale of Manual Transmission Business."
On October 23, 1996, the Company reported that its third quarter 1996 net
income was $18.8 million, or $0.80 per share, an increase of 42% compared with
$13.2 million, or $0.56 per share, reported in the third quarter of 1995. The
Company's sales for the third quarter of 1996 increased 30% to $387.7 million
compared with $298.5 million in the third quarter of 1995. The Company also
reported that net income for the first nine months of 1996 was $52.9 million, or
$2.25 per share, compared with net income of $51.8 million, or $2.20 per share
for the first nine months of 1995. The Company's sales for the first nine months
of 1996 increased 14% to $1,118.4 million compared with sales of $982.3 million
in the first nine months of 1995. With respect to the Company's quarterly sales
increase, $55 million was contributed by the Coltec Divisions acquired in June
1996 and $3.7 million was contributed by France's Societe de l'Usine de la
Marque ("SUM") acquired in 1995. For the third quarter of 1996, the Company
announced that Air/Fluid Systems' sales increased 240% to $87.0 million (an
increase of 10% excluding the Coltec Acquisition and the SUM acquisition);
Automatic Transmission Systems' sales increased 10% to $116.9 million; Morse
TEC's sales increased 22% to $68.1 million; and Powertrain Systems' sales
increased 5% to $125.1 million (an increase of 14% without manual
transmissions).
THE OFFERING
Notes...................... $150,000,000 principal amount of 7% Senior Notes
due 2006.
Maturity Date.............. November 1, 2006.
Interest Payment Dates..... May 1 and November 1, beginning May 1, 1997.
Ranking.................... The Notes will be senior unsecured obligations of
the Company, ranking pari passu with all other
senior unsecured obligations of the Company.
Certain Covenants.......... The Indenture (as defined) will contain certain
covenants including, but not limited to, covenants
with respect to the following matters: (i)
limitation on liens; (ii) limitation on
sale/leaseback transactions; and (iii) restrictions
on consolidation, merger and sale of all or
substantially all of the assets of the Company to
another person.
Listing.................... The Notes are listed on the NYSE.
Use of Proceeds............ The Company will use the net proceeds from the
offering of the Notes to reduce amounts outstanding
under the Company's revolving credit facility.
Risk Factors............... For information concerning certain factors that
should be considered by prospective investors, see
"Risk Factors" beginning on page 8 of this
Prospectus.
For additional information with respect to the Notes, see "Description of the
Notes."
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SUMMARY HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The following summary historical consolidated financial information for the
Company for the five years ended December 31, 1995 and for the six-month periods
ended June 30, 1995 and 1996 has been derived from the consolidated financial
statements of the Company for such periods. The information for the years ended
December 31, 1991, 1992, 1993, 1994 and 1995 is derived from the audited
financial statements of the Company. The information for the six-month periods
ended June 30, 1995 and 1996 is not audited, but in the opinion of management is
a fair presentation of such information. This information is qualified by
reference to the historical consolidated financial statements of the Company
incorporated by reference herein. See "Incorporation of Certain Information by
Reference."
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------------------- -------------------
1991 1992 1993 1994 1995 1995 1996
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Net sales.............................. $ 820.3 $ 926.0 $ 985.4 $1,223.4 $1,329.1 $ 683.8 $ 730.7
Cost of sales.......................... 660.4 755.2(a) 769.3 948.4 1,044.9 530.0 575.0
Depreciation........................... 62.0(b) 64.3(a) 57.9 60.9 68.0 35.3 35.9
Selling, general and administrative
expenses............................. 77.7 69.6 83.5 92.1 97.8 52.7 60.0
Minority interest...................... (1.3) (1.3) 0.1 1.4 2.0 1.0 1.2
Goodwill amortization.................. 9.7 9.7 9.7 9.6 9.6 4.7 5.4
Equity in affiliate earnings and other
income............................... (9.9) (6.9) (10.6) (10.6) (18.6) (10.1) (6.9)
Interest expense and finance charges... 53.8(d) 44.8(d) 18.4 13.9 14.2 7.1 7.0
Provision for income taxes............. 3.7 2.7 24.3 43.3 37.0 24.5 19.0
-------- -------- -------- -------- -------- -------- --------
Earnings (loss) before cumulative
effect of accounting change.......... (35.8) (12.1) 32.8 64.4 74.2 38.6 34.1
Cumulative effect of change in
accounting(b)........................ 4.8 -- (130.8) -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net earnings (loss).................... $ (31.0) $ (12.1) $ (98.0) $ 64.4 $ 74.2 $ 38.6 $ 34.1
======== ======== ======== ======== ======== ======== ========
Earnings (loss) per share before
cumulative effect of accounting
change(b)............................ -- $ (0.53) $ 1.41 $ 2.75 $ 3.15 $ 1.65 $ 1.45
Net earnings (loss) per share(c)....... -- $ (0.53) $ (4.21) $ 2.75 $ 3.15 $ 1.65 $ 1.45
Average shares outstanding
(thousands)(c)....................... -- 23,005 23,284 23,424 23,562 23,461 23,519
Cash dividend declared per share....... -- -- $ 0.125 $ 0.45 $ 0.60 $ 0.30 $ 0.30
Ratio of earnings to fixed
charges(e)........................... (d) (d) 3.9 7.9 7.0 7.9 7.0
OTHER FINANCIAL DATA
Research and development............... $ 26.9 $ 26.8 $ 25.2 $ 33.8 $ 36.7 $ 18.7 $ 23.3
Capital expenditures................... 53.9 47.7 65.5 98.8 92.5 37.6 32.0
Number of full-time employees
(thousands).......................... 6.4 6.7 6.6 7.8 8.6 8.5 10.1(f)
Sales per full-time employee
(thousands).......................... $ 128.0 $ 139.0 $ 149.0 $ 158.0 $ 163.0 $ 170.0 $ 164.0(f)
BALANCE SHEET DATA (AT END OF PERIOD)
Net property, plant and equipment...... $ 463.5 $ 412.9 $ 418.3 $ 462.3 $ 523.0 $ 502.7 $ 539.3
Total assets........................... 1,080.0 1,074.2 1,159.4 1,240.3 1,335.2 1,337.1 1,649.9
Total debt............................. --(d) --(d) 159.6 107.3 134.7 168.7 358.4
BW-Security investment(g).............. 743.5 728.2 -- -- -- -- --
Stockholders' equity(g)................ -- -- 459.1 534.9 600.0 586.3 619.9
</TABLE>
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(a) Cost of sales for 1992 included a $28.7 million charge for the write-off of
excess capacity and depreciation included $7.3 million related to such
capacity.
(b) Amounts reflect the adoption of Statement of Financial Accounting Standards
("SFAS") No. 109 in 1991 and SFAS No. 106 in 1993. In 1991, depreciation
increased by $11.2 million because of an adjustment to fixed assets related
to the adoption of SFAS No. 109.
(footnotes continued on following page)
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(c) Earnings per share for 1992 and 1993 have been calculated assuming that the
initial public offering of the Company's Common Stock completed in August
1993 had been completed on January 1, 1992.
(d) Prior to the spin-off of the Company by BW-Security on January 27, 1993 (the
"Spin-Off"), interest was allocated to the Company on the basis of the
Company's relative operating investment compared to BW-Security's overall
capital investment (debt plus equity). Prior to the Spin-Off, all debt was
considered to be part of the BW-Security investment.
(e) For purposes of computing the ratio of earnings to fixed charges, "earnings"
consist of earnings before income taxes, fixed charges and capitalized
interest amortization expense. "Fixed charges" consist of interest expense
excluding the benefit of capitalized interest and including one-third of
rental expense (approximate portion representing interest).
(f) For the six months ended June 30, 1996, number of full-time employees
includes employees from the Coltec Acquisition but sales per full-time
employee excludes such employees because the Coltec Acquisition was
completed near the end of the period.
(g) Prior to the Spin-Off, the Company was wholly owned by BW-Security and its
stockholders' equity is reported as BW-Security investment. After the
Spin-Off, the Company's equity is reported as stockholders' equity.
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RISK FACTORS
The following factors, as well as the information contained elsewhere or
incorporated by reference in this Prospectus, should be carefully considered by
prospective investors before any decision is made to invest in the Notes.
HOLDING COMPANY STRUCTURE
The operations of the Company are conducted through its subsidiaries and,
therefore, the Company is substantially dependent on the earnings and cash flow
of its subsidiaries to meet its debt obligations, including its obligations with
respect to the Notes. Because the assets of its subsidiaries constitute
effectively all of the assets of the Company, and because these subsidiaries do
not guarantee the payment of principal of and interest on the Notes, the claims
of the holders of the Notes effectively will be subordinated to the claims of
creditors of such companies. As of June 30, 1996, total liabilities (other than
intercompany liabilities) of the Company's subsidiaries were approximately
$684.9 million and debt of the Company's subsidiaries was approximately $59.5
million.
AUTOMOTIVE INDUSTRY CYCLICALITY AND CONDITIONS
The Company's principal operations are directly related to domestic and
foreign automotive production. Automotive sales and production are cyclical and
dependent upon general economic conditions and other factors. As compared to
1995, the Company expects automotive production in 1996 to be flat or to decline
slightly in North America and Europe, and to improve slightly in Asia. Any
significant reduction in automotive production would have an adverse effect on
the level of the Company's sales to OEMs and the Company's financial position
and operating results.
One of the Company's primary North American customers, GM, has major
contracts with the United Automobile, Aerospace and Agricultural Implement
Workers of America (the "UAW") which have expired and are currently being
renegotiated. It is possible that, if the UAW and GM do not successfully
renegotiate such contracts, the UAW could call a strike against GM. Ford and
Chrysler have recently entered into agreements with the UAW. Because of the
United States OEMs' dependence on a single union, labor difficulties and work
stoppages at OEMs' facilities have an impact on the Company. For example, a
17-day March 1996 work stoppage in two Dayton, Ohio GM plants resulted in the
concomitant shutdown of the Company's production lines dedicated to the
manufacture of products for GM vehicles. Although the Company took steps to
minimize the consequences of the work stoppage, the Company lost $8.5 million in
revenue as a result of the 17-day strike.
Many of the Company's products are currently used exclusively in sport
utility vehicles and light trucks, the most rapidly growing segment in the
overall automotive market. Any significant reduction in production in this
market segment would have an adverse effect on the level of the Company's sales
to OEMs and the Company's financial position and operating results.
COMPETITION
The Company competes worldwide with a number of other manufacturers and
distributors which produce and sell similar products. Price, quality and
technological innovation are the primary elements of competition. The Company's
competitors include vertically integrated units of the Company's major OEM
customers, as well as a large number of independent domestic and international
suppliers. A number of these companies are larger and have greater resources
than the Company. There can be no assurance that the Company's business will not
be adversely affected by increased competition in the markets in which it
operates.
The competitive environment has also changed dramatically over the past few
years as the Company's traditional United States OEM customers, faced with
intense international competition, have expanded their worldwide sourcing of
components. As a result, the Company has experienced competition from suppliers
in other parts of the world which enjoy economic advantages such as lower labor
costs, lower health care costs, and, in some cases, export subsidies and/or raw
materials subsidies.
There is also substantial and continuing pressure from the OEMs to reduce
costs, including costs associated with outside suppliers such as the Company.
Although OEMs have indicated that they will continue to rely on outside
suppliers, a number of the Company's major OEM customers manufacture products
for their own use that compete with the Company's products and these OEMs could
elect to manufacture such products for their own use in place of the products
now supplied by the Company. The
8
<PAGE> 9
Company believes that its ability to develop proprietary new products and to
control its own costs will allow it to remain competitive. However, there can be
no assurance that the Company will be able to improve or maintain its gross
margins on product sales to OEMs or that the recent trend by OEMs towards
increased outsourcing will continue.
Annual price reductions to OEM customers appear to have become a permanent
feature of the Company's business environment. Price reductions net of economic
cost increase adjustments granted in 1995 totalled approximately $8 million. To
maintain its profit margins, the Company, among other things, seeks price
reductions from its own suppliers, adopts improved production processes to
increase manufacturing efficiency, updates product designs to reduce costs and
develops new products whose benefits support increased pricing. The Company's
ability to pass through increased raw material costs to its OEM customers is
also limited, with cost recovery less than 100% and often on a delayed basis.
There can be no assurance that the Company will be able to reduce costs in an
amount equal to the annual price reductions and the increase in raw material
costs.
RELIANCE ON MAJOR CUSTOMERS
The Company's worldwide sales in 1995 to Ford and GM constituted
approximately 41% and 25%, respectively, of its 1995 consolidated sales. The
corresponding percentages for 1994 were 39% and 27%. No other customer accounted
for more than 10% of the Company's consolidated sales in either 1995 or 1994.
After giving effect to the Coltec Acquisition, sales to Ford and GM would have
been approximately 40% and 26%, respectively, of 1995 consolidated sales. Sales
to Chrysler constituted approximately 9% of total consolidated sales in 1995,
and pro forma for the Coltec Acquisition, sales to Chrysler would have
constituted approximately 13% of 1995 consolidated sales. The Company's 1995
consolidated sales do not include the approximately $394 million of sales made
by the Company's unconsolidated joint ventures. If sales from unconsolidated
joint ventures were included in 1995 consolidated sales, worldwide sales to
Toyota Motor Corporation and its affiliates ("Toyota") would be approximately
10% of such sales.
Although the Company has had long-standing relationships with each of Ford,
GM, Chrysler and Toyota and sells a wide variety of products to various
divisions of each company globally, if the Company lost any significant portion
of its sales to any of these customers, it would have a material adverse effect
on the financial condition and results of operations of the Company.
LABOR RELATIONS
Approximately 50% of the Company's domestic hourly employees are unionized.
The Company's two most significant domestic collective bargaining agreements
expire in March 1998 for its Muncie, Indiana plant (transfer case and manual
transmissions businesses), and in October 1998 for its Ithaca, New York plant
(Morse TEC group). While the Company believes that its relations with its
employees are good, a prolonged dispute could have a material adverse effect on
the Company.
UNFUNDED PENSION OBLIGATIONS
The Company has a substantial unfunded pension obligation. On December 31,
1995, the present values of the Company's projected benefit obligations and
accumulated benefit obligations with respect to underfunded plans were $221.5
million and $217.7 million, respectively. The fair value of the Company's
pension plan assets with respect to such plans as of December 31, 1995 was
$135.7 million. The resulting unfunded portion of $85.8 million at December 31,
1995 compared with an unfunded portion of $77.5 million at December 31, 1994
(based on the Company's projected benefit obligations on the respective dates).
This increase was due in part to a change in the discount rate from 8.5% in 1994
to 7.25% in 1995. Had the discount rate remained 8.5%, the unfunded portion as
of December 31, 1995 would have been $20.8 million lower, or $65.0 million. Of
the 1995 unfunded portion, approximately $29.4 million relates to pension
obligations for the Company's German subsidiary, which does not require funding.
The Company's long-term objective is to fund its entire pension obligation with
funds that are generated from operations, although there can be no assurance
that this will occur.
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<PAGE> 10
In connection with the Spin-Off, the Company and BW-Security entered into
an agreement with the Pension Benefit Guaranty Corporation (the "PBGC")
resolving certain issues with respect to the Company's pension obligations.
Pursuant to such agreement, the Company paid $17.5 million in 1993 to a
specified underfunded plan of the Company and agreed to pay to such plan, in
each year from 1993 through 2002, $1 million in excess of amounts that the
Company would otherwise be required to contribute under statutory or contractual
obligations. BW-Security also agreed to become the sponsor of two plans covering
certain employees of certain discontinued automotive operations, and the Company
will have no further liability for such plans. In addition, the Company agreed
to file certain reports and financial statements with the PBGC and to give the
PBGC advance notice of certain significant asset sales.
SALE OF MANUAL TRANSMISSION BUSINESS
The Company has entered into an agreement to sell its North American manual
transmission business, which is based in the Company's Muncie, Indiana plant.
See "Summary -- Recent Developments" and "Risk Factors -- Labor Relations."
Although profitable in 1994, this business lost money on an operating basis in
1995 and has continued to lose money during 1996 due to a decline in volume. The
business has a nominal investment of approximately $60 million, including $21
million in working capital. This amount does not reflect any retirement-related
liabilities. As a result of the transaction, the Company currently expects to
take a one-time charge of $35 million, or $1.50 per share, in the fourth quarter
of 1996. This charge includes costs associated with the sale of the assets,
costs necessary to supply existing customers while the business is transferred
to its new location, and costs related to restructuring the Company's Muncie,
Indiana operation. There can be no assurance that the transaction will be
consummated as currently contemplated or that the charge actually taken by the
Company with respect to this transaction will not be greater than the currently
contemplated charge.
ENVIRONMENTAL REGULATION AND PROCEEDINGS
The Company's operations are subject to federal, state, local and foreign
laws and regulations governing, among other things, emissions to air, discharge
to waters and the generation, handling, storage, transportation, treatment and
disposal of waste and other materials. The Company believes that its business,
operations and facilities have been and are being operated in compliance in all
material respects with applicable environmental and health and safety laws and
regulations, many of which provide for substantial fines and criminal sanctions
for violations. However, the operation of automotive parts manufacturing plants
entails risks in these areas, and there can be no assurance that the Company
will not incur material costs or liabilities. In addition, potentially
significant expenditures could be required in order to comply with evolving
environmental and health and safety laws, regulations or requirements that may
be adopted or imposed in the future.
The Company believes that the overall impact of compliance with regulations
and legislation protecting the environment will not have a material adverse
effect on its future financial position or results of operations, although no
assurance can be given. Capital expenditures and expenses in 1995 attributable
to compliance with such regulations and legislation were not material.
The Company and certain of its current and former direct and indirect
corporate predecessors, subsidiaries and divisions have been identified by the
United States Environmental Protection Agency and certain state environmental
agencies and private parties as potentially responsible parties ("PRPs") at 28
hazardous waste disposal sites under the Comprehensive Environmental Response,
Compensation and Liability Act ("Superfund") and equivalent state laws, and, as
such, may be liable for the cost of clean-up and other remedial activities at
these sites. Responsibility for clean-up and other remedial activities at a
Superfund site is typically shared among PRPs based on an allocation formula.
Based on information available to the Company which, in most cases,
includes an estimate of allocation of liability among PRPs; the probability that
other PRPs, many of whom are large, solvent public companies, will fully pay the
costs apportioned to them; currently available information from PRPs and/or
federal or state environmental agencies concerning the scope of contamination
and estimated remediation costs; estimated legal fees; and other factors, the
Company has established a reserve in its financial statements for indicated
environmental liabilities with a balance of approximately $11 million at June
30, 1996. The Company expects this amount to be expended over the next three to
five years.
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<PAGE> 11
In connection with the Spin-Off, the Company and BW-Security entered into a
Distribution and Indemnity Agreement which provided for, among other matters,
certain cross-indemnities designed principally to place financial responsibility
for the liabilities of businesses conducted by BW-Security and its subsidiaries
with BW-Security and financial responsibility for liabilities of the Company or
related to its automotive businesses with the Company. The Company has been
advised that BW-Security believes that the Company is responsible for certain
liabilities relating to environmental matters retained by BW-Security at the
time of the Spin-Off. BW-Security has requested indemnification from the Company
for past costs of approximately $1.6 million and for future costs related to
these environmental matters. At the time of the Spin-Off, BW-Security maintained
a letter of credit for approximately $9 million with respect to the principal
portion of such environmental matters. Although there can be no assurance, based
upon information currently available to the Company, the Company does not
believe that it is required to indemnify BW-Security under the Distribution and
Indemnity Agreement with respect to such liabilities. In addition, the Company
does not currently have information sufficient to determine what its liability
would be if it is ultimately determined that it is required to indemnify
BW-Security with respect to such liabilities.
The Company believes that none of these matters, individually or in the
aggregate, will have a material adverse effect on its financial position or
future operating results, generally either because estimates of the maximum
potential liability at a site are not large or because liability will be shared
with other PRPs, although no assurance can be given with respect to the ultimate
outcome of any such matter.
PRINCIPAL STOCKHOLDER
Certain affiliates of Merrill Lynch Capital Partners, Inc. ("MLCP") control
approximately 22.6% of the voting power of the Company and the executive
officers and directors of the Company (without regard to shares held by
affiliates of MLCP) control in the aggregate approximately 1.08% of the voting
power of the Company. As a result of such stock ownership, if the MLCP
affiliates and the executive officers and directors of the Company were to vote
together, they may be able to influence significantly the election of the Board
of Directors of the Company and votes on all other matters submitted to the
Company's stockholders for approval. In addition, three of the members of the
Company's Board of Directors are associated with MLCP.
USE OF PROCEEDS
The net proceeds from the sale of the Notes will be used to reduce amounts
outstanding under the Company's revolving credit facility, under which the
interest rate on September 30, 1996 was 6.1%. The Coltec Acquisition was
financed with borrowings under the Company's revolving credit facility. The
Company recently replaced and restated its existing revolving credit facility.
Major changes reflected in the new revolving credit facility include increasing
the amount of the facility from $300 million to $350 million, extending the
maturity of the facility from 1999 to 2001, and releasing the subsidiaries'
guaranties of the credit facility.
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<PAGE> 12
CAPITALIZATION
The following table sets forth the capitalization of the Company at June
30, 1996 and as adjusted to reflect the issuance of the Notes offered hereby.
This table should be read in conjunction with "Summary -- Recent Developments,"
"-- Summary Historical Financial Data" and the historical Consolidated Financial
Statements of the Company appearing in the Company's Annual Report on Form 10-K
for the year ended December 31, 1995 (the "Annual Report") and Form 10-Q for the
quarter ended June 30, 1996, which are incorporated by reference herein.
<TABLE>
<CAPTION>
JUNE 30, 1996
-------------------------
HISTORICAL AS ADJUSTED
---------- -----------
<S> <C> <C>
Long-term debt:
7% Senior Notes offered hereby.................................... $ -- $ 150.0
Bank borrowings and other......................................... 244.7 94.7
Bank term loans................................................... 62.6 62.6
Capital lease liabilities......................................... 5.7 5.7
------ ------
Total long-term debt........................................... $313.0 $ 313.0
====== ======
Short-term debt:
Bank borrowings and other......................................... $ 25.3 $ 25.3
Bank term loans................................................... 20.0 20.0
Capital lease liabilities......................................... 0.1 0.1
------ ------
Total short-term debt.......................................... $ 45.4 $ 45.4
====== ======
Stockholders' equity:
Common stock...................................................... $ 0.2 $ 0.2
Other stockholders' equity........................................ 619.7 619.7
------ ------
Total stockholders' equity..................................... $619.9 $ 619.9
====== ======
</TABLE>
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<PAGE> 13
DESCRIPTION OF THE NOTES
The Notes are to be issued under an Indenture dated as of November 1, 1996
(the "Indenture") to be entered into between the Company and The First National
Bank of Chicago, as trustee (the "Trustee"). The Indenture is subject to and
governed by the Trust Indenture Act of 1939, as amended (the "TIA"). The
following summary of certain provisions of the Notes and the Indenture does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, the provisions of the Notes and the Indenture, including the
definitions therein of certain terms. A copy of the Indenture has been filed as
an exhibit to the Registration Statement of which this Prospectus is a part.
Capitalized terms used herein have the meanings attributed to them in the Notes
or the Indenture (unless otherwise defined herein).
GENERAL
The Notes will be limited to $150,000,000 aggregate principal amount and
will mature on November 1, 2006. The Notes will bear interest at the rate of 7%
from November 5, 1996 payable semiannually on May 1 and November 1 of each year,
commencing May 1, 1997 to the registered holders at the close of business on the
April 15 or October 15 preceding such May 1 or November 1, whether or not such
day is a business day. Interest on the Notes will be computed on the basis of a
360-day year of twelve 30-day months.
The certificates representing the Notes will be issued only in registered
form without coupons and in denominations of $1,000 and any integral multiple
thereof. No service charge will be made for any registration of transfer or
exchange of Notes, but the Company may require payment in certain circumstances
of a sum sufficient to cover any tax or other governmental charge payable in
connection therewith.
RANKING
The Notes will be senior unsecured obligations of the Company and will rank
pari passu in right of payment with all other senior unsecured indebtedness of
the Company. On a pro forma basis as of June 30, 1996, after giving effect to
the offering of the Notes and the application of the net proceeds therefrom, the
Company would have had $208.4 million of other senior indebtedness outstanding,
of which $5.8 million would have been secured indebtedness.
OPTIONAL REDEMPTION
The Notes will not be redeemable prior to maturity.
SINKING FUND
There will be no sinking fund payments for the Notes.
CERTAIN DEFINITIONS
"Attributable Indebtedness" means, with respect to any Sale/Leaseback
Transaction as of any particular time, the present value (discounted at the rate
of interest implicit in the terms of the lease) of the obligations of the lessee
under such lease for net rental payments during the remaining term of the lease
(including any period for which such lease has been extended). "Net rental
payments" under any lease for any period means the sum of the rental and other
payments required to be paid in such period by the lessee thereunder, not
including, however, any amounts required to be paid by such lessee (whether or
not designated as rental or additional rental) on account of maintenance and
repairs, insurance, taxes, assessments or similar charges.
"Consolidated Net Tangible Assets" means the total amount of assets (less
applicable reserves and other properly deductible items) after deducting
therefrom (i) all current liabilities (excluding any current liabilities which
are by their terms extendible or renewable at the option of the obligor thereon
to a time more than 12 months after the time as of which the amount thereof is
being computed), (ii) all goodwill, trade names, trademarks, patents,
unamortized debt discount and expense and other like intangibles and (iii)
appropriate adjustments on account of minority interests of other Persons
holding stock of the Company's Subsidiaries, all as set forth on the most recent
balance sheet of the Company and its consolidated Subsidiaries (but, in any
event, as of a date within 150 days of the date of determination) and computed
in accordance with generally accepted accounting principles.
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<PAGE> 14
"Consolidated Net Worth" means the amount of total stockholders' equity
shown in the most recent consolidated statement of financial position of the
Company.
"Current Assets" of any Person includes all assets of such Person that
would in accordance with generally accepted accounting principles be classified
as current assets.
"Current Liabilities" of any Person includes all liabilities of such Person
that would in accordance with generally accepted accounting principles be
classified as current liabilities.
"Non-Recourse Indebtedness" means indebtedness of the Company or any
Subsidiary of the Company in respect of which the recourse of the holder of such
indebtedness, whether direct or indirect and whether contingent or otherwise, is
effectively limited to specified assets, and with respect to which neither the
Company nor any Subsidiary of the Company provides any credit support.
"Principal Property" means any manufacturing plant or warehouse, together
with the land upon which it is erected and fixtures comprising a part thereof,
owned by the Company or any Significant Subsidiary and located in the United
States, the gross book value (without deduction of any reserve for depreciation)
of which on the date as of which the determination is being made is an amount
which exceeds 1% of Consolidated Net Tangible Assets, other than any such
manufacturing plant or warehouse or any portion thereof (together with the land
upon which it is erected and fixtures comprising a part thereof) (i) which is
financed by Industrial Development Bonds or (ii) which, in the opinion of the
Board of Directors, is not of material importance to the total business
conducted by the Company and its Subsidiaries, taken as a whole.
"Sale/Leaseback Transaction" means any arrangement with any Person
providing for the leasing by the Company or any Subsidiary, for a period of more
than three years, of any real or personal property, which property has been or
is to be sold or transferred by the Company or such Subsidiary to such Person in
contemplation of such leasing.
"Subsidiary" of a Person means (i) any corporation more than 50% of the
outstanding securities having ordinary voting power of which is owned, directly
or indirectly, by such Person or by one or more of its Subsidiaries, or by such
Person and one or more of its Subsidiaries, or (ii) any partnership or similar
business organization more than 50% of the ownership interests having ordinary
voting power of which shall at the time be so owned. For the purposes of this
definition, "securities having ordinary voting power" means securities or other
equity interests that ordinarily have voting power for the election of
directors, or persons having management power with respect to the Person,
whether at all times or only so long as no senior class of securities has such
voting power by reason of any contingency.
LIMITATION ON LIENS
The Indenture provides that the Company will not, and will not permit any
Subsidiary of the Company to, issue, assume or guarantee any indebtedness for
money borrowed ("Debt") if such Debt is secured by a mortgage, pledge, security
interest or lien (a "mortgage" or "mortgages") upon any Principal Property of
the Company or any Subsidiary of the Company or upon any shares of stock or
other stock or other equity interest or indebtedness of any Subsidiary of the
Company (whether such property, shares of stock or other equity interest or
indebtedness is now owned or hereafter acquired) which owns any Principal
Property, without in any such case effectively providing that the Notes shall be
secured equally and ratably with (or prior to) such Debt; provided, however,
that the foregoing restrictions shall not apply to: (a) mortgages existing on
the date the Notes are originally issued or mortgages provided for under the
terms of agreements existing on such date; (b) mortgages on Current Assets
securing Current Liabilities; (c) mortgages on any property acquired,
constructed, altered or improved by the Company or any Subsidiary of the Company
after the date of the Indenture that are created or assumed contemporaneously
with or within one year after such acquisition (or in the case of property
constructed, altered or improved, after the completion and commencement of
commercial operation of such property, whichever is later) to secure or provide
for the payment of the purchase price or cost thereof, provided that in the case
of any such construction, alteration or improvement the mortgages shall not
apply to any property theretofore owned by the Company or any Subsidiary of the
Company other than (i) the property so altered or improved and (ii) any
theretofore unimproved real property on which the property so constructed or
altered, or the improvement, is located; (d) existing mortgages on property
acquired (including mortgages on any property acquired from a Person that is
consolidated with or merged
14
<PAGE> 15
with or into the Company or a Subsidiary of the Company) or mortgages
outstanding at the time any Person becomes a Subsidiary of the Company that are
not incurred in connection with such entity becoming a Subsidiary of the
Company; (e) mortgages in favor of the Company or any Subsidiary of the Company;
(f) mortgages on any property (i) in favor of domestic or foreign governmental
bodies to secure partial, progress, advance or other payments pursuant to any
contract or statute, (ii) securing indebtedness incurred to finance all or any
part of the purchase price or cost of constructing, installing or improving the
property subject to such mortgages including mortgages to secure Debt of the
pollution control or industrial revenue bond type, or (iii) securing
indebtedness issued or guaranteed by the United States, any State, any foreign
country or any department, agency, instrumentality or political subdivision of
any such jurisdiction; and (g) any extension, renewal or replacement (or
successive extensions, renewals or replacements), in whole or in part, of any
mortgage referred to in the foregoing clause (a), (b), (c), (d), (e) or (f);
provided, however, that the principal amount of Debt secured thereby shall not
exceed the principal amount of Debt so secured at the time of such extension,
renewal or replacement, together with the reasonable costs related to such
extension, renewal or replacement, and that such extension, renewal or
replacement shall be limited to all or a part of the property that secured the
mortgage so extended, renewed or replaced (plus improvements on such property).
Notwithstanding the foregoing, the Company and any Subsidiary of the
Company may, without securing the Notes, issue, assume or guarantee secured Debt
(that would otherwise be subject to the foregoing restrictions) in an aggregate
amount that, together with all other such secured Debt and the aggregate amount
of Attributable Indebtedness of the Company and its Subsidiaries deemed to be
outstanding in respect of all Sale/Leaseback Transactions entered into pursuant
to the provisions described below under "-- Limitation on Sale/Leaseback
Transactions" (excluding any such Sale/Leaseback Transactions the proceeds of
which have been applied in accordance with clauses (2) or (3) under the "--
Limitation on Sale/Leaseback Transactions" covenant described below), does not
exceed 10% of the Consolidated Net Worth, as shown on a consolidated balance
sheet as of a date not more than 90 days prior to the proposed transaction
prepared by the Company in accordance with generally accepted accounting
principles.
LIMITATION ON SALE/LEASEBACK TRANSACTIONS
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, enter into any Sale/Leaseback Transaction with any
Person (other than the Company or a Subsidiary of the Company) unless:
(1) at the time of entering into such Sale/Leaseback Transaction, the
Company or such Subsidiary would be entitled to incur Debt, in a principal
amount equal to the Attributable Indebtedness with respect to such
Sale/Leaseback Transaction, secured by a mortgage on the property subject
to such Sale/Leaseback Transaction, pursuant to the provisions of the
covenant described under "-- Limitation on Liens" without equally and
ratably securing the Notes pursuant to such provisions;
(2) after the date on which Notes are first issued and within a period
commencing six months prior to the consummation of such Sale/Leaseback
Transaction and ending six months after the consummation thereof, the
Company or such Subsidiary shall have expended for property used or to be
used in the ordinary course of business of the Company or such Subsidiary
(including amounts expended for additions, expansions, alterations, repairs
and improvements thereto) an amount equal to all or a portion of the net
proceeds of such Sale/Leaseback Transaction, and the Company shall have
elected to designate such amount as a credit against such Sale/Leaseback
Transaction (with any such amount not being so designated to be applied as
set forth in clause (3) below); or
(3) during the 12-month period after the effective date of such
Sale/Leaseback Transaction, the Company shall have applied to the voluntary
defeasance or retirement of Notes or any pari passu indebtedness of the
Company an amount equal to the net proceeds of the sale or transfer of the
property leased in such Sale/Leaseback Transaction, which amount shall not
be less than the fair value of such property at the time of entering into
such Sale/Leaseback Transaction (adjusted to reflect any amount expended by
the Company as set forth in clause (2) above), less an amount equal to the
principal amount of such Notes and pari passu indebtedness voluntarily
defeased or retired by the Company within such 12-month period and not
designated as a credit against any other Sale/Leaseback Transaction entered
into by the Company or any Subsidiary of the Company during such period.
15
<PAGE> 16
EVENTS OF DEFAULT
The Indenture provides that the following shall constitute Events of
Default:
(a) default in the payment of any interest on any Note when it becomes
due and payable, and continuance of such default for a period of 30 days;
(b) default in the payment of the principal of any Note at its
maturity;
(c) default in the performance, or breach, of any covenant or
agreement of the Company in the Indenture, continued for 90 days after
written notice to the Company;
(d) acceleration of or any failure to pay at final maturity any Debt
of the Company or any Subsidiary (other than the Notes or Non-Recourse
Indebtedness) in an aggregate amount in excess of $25 million if such
acceleration is not rescinded or annulled, or such indebtedness shall not
have been discharged, within 15 days after written notice thereof to the
Company; and
(e) certain events in bankruptcy, insolvency or reorganization of the
Company or any Subsidiary which constitutes a "significant subsidiary" as
defined in Rule 1-02 of Regulation S-X of the Securities Exchange Act of
1934, as amended (a "Significant Subsidiary").
If an Event of Default, other than certain events with respect to
bankruptcy, insolvency and reorganization of the Company, shall occur and be
continuing, then the Trustee or the holders of not less than 25% in aggregate
principal amount of the outstanding Notes may, by a notice in writing to the
Company (and to the Trustee if given by the Holders), declare the principal of
the Notes, and all accrued and unpaid interest thereon, to be due and payable
immediately. If an Event of Default with respect to certain events of
bankruptcy, insolvency or reorganization of the Company shall occur and be
continuing, then the principal on the Notes, and all accrued and unpaid interest
thereon, shall be due and payable immediately without any act on the part of the
Trustee or any holder.
The holders of not less than a majority in principal amount of the
outstanding Notes may, on behalf of the holders of all of the Notes, waive any
past default under the Indenture and its consequences, except a default (i) in
respect of the payment of principal of or interest on the Notes or (ii) in
respect of a covenant or provision that cannot be modified or amended without
the consent of each holder.
The Company is required to file annually with the Trustee an officers'
certificate as to the Company's compliance with all conditions and covenants
under the Indenture. The Indenture will provide that the Trustee may withhold
notice to the holders of the Notes of any default (except payment defaults on
the Notes) if it considers it to be in the interest of such holders to do so.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, when an Event of Default occurs and is continuing, the Trustee will be
under no obligation to exercise any of its rights or powers under the Indenture
at the request or direction of any of the holders, unless such holders shall
have offered to the Trustee reasonable security or indemnity. Subject to such
provisions concerning the rights of the Trustee, the holders of a majority in
aggregate principal amount of the outstanding Notes will have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee or exercising any trust or power conferred on the
Trustee under the Indenture.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Indenture provides that the Company may not consolidate with or merge
into any other corporation, or convey, transfer or lease, or permit one or more
of its Significant Subsidiaries to convey, transfer or lease, all or
substantially all of the property and assets of the Company, on a consolidated
basis, to any Person unless either the Company is the continuing corporation or
such corporation or Person assumes by supplemental indenture all of the
obligations of the Company under the Indenture and the Notes, immediately after
the transaction no Default or Event of Default shall exist, and the surviving
corporation or such Person is a corporation, partnership or trust organized and
validly existing under the laws of the United States of America, any state
thereof or the District of Columbia.
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<PAGE> 17
MODIFICATION OR WAIVER
Modification and amendment of the Indenture may be made by the Company and
the Trustee with the consent of the Holders of not less than a majority in
principal amount of the outstanding Notes; provided that no such modification or
amendment may, without the consent of each holder, among other things: (i)
change the maturity of the principal of, or any installment of interest on, the
Notes; (ii) reduce the principal amount of or the rate of interest on the Notes;
(iii) change the place or currency of payment of principal of or interest on the
Notes; (iv) impair the right to institute suit for the enforcement of any such
payment on or after the maturity thereof; (v) reduce the percentage of holders
necessary to modify or amend the Indenture or to consent to any waiver
thereunder or reduce the requirements for voting or quorum described below; or
(vi) modify the foregoing requirements or reduce the percentage of outstanding
Notes necessary to waive any past default.
Modification and amendment of the Indenture may be made by the Company and
the Trustee without the consent of any holder for any of the following purposes:
(i) to evidence the succession of another Person to the Company and the
assumption by such Person of the covenants of the Company contained in the
Indenture and the Notes; (ii) to add covenants of the Company for the benefit of
the holders or to surrender any right or power conferred upon the Company; (iii)
to add Events of Default; (iv) to secure the Notes; (v) to evidence and provide
for the acceptance of appointment by a successor Trustee; (vi) to cure any
ambiguity, defect or inconsistency in the Indenture; provided such action does
not adversely affect the interests of the holders; (vii) to supplement any of
the provisions of the Indenture to the extent necessary to permit or facilitate
defeasance and discharge of the Notes; provided such action shall not adversely
affect the interests of the holders; or (viii) to conform with the requirements
of the TIA.
DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, terminate the obligations
of the Company with respect to the outstanding Notes ("Defeasance"). Defeasance
means that the Company shall be deemed to have paid and discharged the entire
indebtedness represented by the outstanding Notes, except for (i) the rights of
the holders of outstanding Notes to receive payment in respect of the principal
of and interest on such Notes when such payments are due, (ii) the Company's
obligations to issue temporary Notes, register and transfer or exchange any
Notes, replace mutilated, destroyed, lost or stolen Notes, maintain an office or
agency for payments in respect of the Notes and segregate and hold money in
trust, (iii) the rights, powers, trusts, duties and immunities of the Trustee,
and (iv) the Defeasance provisions of the Indenture. In addition, the Company
may, at its option and at any time, elect to terminate its obligations with
respect to the Notes (being primarily the restrictions described under
"-- Limitation on Liens" and "-- Limitation on Sale/Leaseback Transactions"),
and any omission to comply with such obligations shall not constitute a Default
or an Event of Default with respect to the Notes ("Covenant Defeasance").
In order to exercise either Defeasance or Covenant Defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit of
the holders, cash in United States dollars, U.S. Government Obligations, or a
combination thereof, in such amounts as will be sufficient, in the opinion of a
nationally recognized firm of independent public accountants, to pay the
principal of and interest on the outstanding Notes to maturity; (ii) the Company
shall have delivered to the Trustee an opinion of counsel to the effect that the
holders of the outstanding Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such Defeasance or Covenant
Defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Defeasance
or Covenant Defeasance had not occurred (in the case of Defeasance, such opinion
must refer to and be based upon a ruling of the Internal Revenue Service or a
change in applicable federal income tax laws); (iii) no Default or Event of
Default shall have occurred and be continuing on the date of such deposit or
insofar as clause (e) under the first paragraph under "-- Events of Default"
herein is concerned, at any time during the period ending the 91st day after the
date of deposit (it being understood that this condition shall not be deemed
satisfied until the expiration of such period); (iv) such Defeasance or Covenant
Defeasance shall not cause the Trustee to have a conflicting interest (as
defined by the TIA) with respect to any securities of the Company; (v) such
Defeasance or Covenant Defeasance shall not result in a breach or violation of,
or constitute a default under, the Indenture or any material agreement or
instrument to which the Company is a party or by which it is bound; and (vi) the
Company shall have delivered to the Trustee an
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<PAGE> 18
officers' certificate and an opinion of counsel, each stating that all
conditions precedent under the Indenture to either Defeasance or Covenant
Defeasance, as the case may be, have been complied with and that no violations
under agreements governing any other outstanding Debt would result.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to any surviving rights of registration of transfer or exchange of
the Notes, as expressly provided for in the Indenture) as to all outstanding
Notes when (i) either (a) all the Notes theretofore authenticated and delivered
(except lost, stolen or destroyed Notes which have been replaced or paid and
Notes for whose payment money or certain U.S. Government Obligations has
theretofore been deposited in trust or segregated and held in trust by the
Company and thereafter repaid to the Company or discharged from such trust) have
been delivered to the Trustee for cancellation or (b) all Notes not theretofore
delivered to the Trustee for cancellation have become due and payable or will
become due and payable at maturity within one year and the Company has
irrevocably deposited or caused to be deposited with the Trustee funds in an
amount sufficient to pay and discharge the entire indebtedness on the Notes not
theretofore delivered to the Trustee for cancellation, for principal of and
interest on the Notes to the date of deposit together with irrevocable
instructions from the Company directing the Trustee to apply such funds to the
payment thereof at maturity; (ii) the Company has paid or has caused to be paid
all other sums payable under the Indenture by the Company; and (iii) the Company
has delivered to the Trustee an officers' certificate and an opinion of counsel
stating that all conditions precedent under the Indenture relating to the
satisfaction and discharge of the Indenture have been complied with.
GLOBAL NOTE
The Notes will initially be represented by a single Global Note in fully
registered form without interest coupons and will be deposited with the Trustee
as custodian for DTC, New York, New York and registered in the name of a nominee
of DTC. DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the New
York Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for persons who have accounts with DTC ("participants") and to
facilitate the clearance and settlement of securities transactions among its
participants through electronic book-entry changes in accounts of its
participants, thereby eliminating the need for physical movement of
certificates. Participants include securities brokers and dealers, banks, trust
companies and clearing corporations and may include certain other organizations.
Indirect access to the DTC system is available to others such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly ("indirect
participants").
Upon the issuance of the Global Note, DTC or its custodian will credit, on
its internal system, the respective principal amount of the individual
beneficial interests represented by such Global Note to the accounts of
participants. Ownership of beneficial interests in the Global Note will be
limited to participants or persons who hold interests through participants.
Ownership of beneficial interests in the Global Note will be shown on, and the
transfer of that ownership will be effected only through, records maintained by
DTC or its nominee (with respect to interests of participants) and the records
of participants (with respect to interests of persons other than participants).
Transfers between participants in DTC will be effected in accordance with
DTC's procedures, and will be settled in same-day funds. The laws of some states
require that certain persons take physical delivery of securities in definitive
form; consequently, the ability to transfer beneficial interests in the Global
Note to such persons may be limited. Because DTC can only act on behalf of
participants, who in turn act on behalf of indirect participants and certain
banks, the ability of a person having a beneficial interest in the Global Note
to pledge such interest to persons or entities that do not participate in the
DTC system, or otherwise take actions in respect of such interest, may be
affected by the lack of a physical certificate for such interest.
So long as DTC, or its nominee, is the registered holder of the Global
Note, DTC or such nominee, as the case may be, will be considered the sole owner
and holder of the Notes represented by such Global Note for
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<PAGE> 19
all purposes under the Indenture and the Notes. Unless (i) DTC notifies the
Company that it is unwilling or unable to continue as a depositary for the
Global Note and a successor depositary is not appointed by the Company within 90
days of such notice, (ii) an Event of Default has occurred and is continuing
with respect to such Note and the registrar has received a request from DTC, or
(iii) the Company determines not to have the Notes represented by one or more
Global Notes, owners of beneficial interests in the Global Note will not be
entitled to have any portions of such Global Note registered in their names,
will not receive or be entitled to receive physical delivery of Certificated
Notes and will not be considered the owners or holders of such Global Note (or
any Notes represented thereby) under the Indenture or the Notes.
Payment of the principal of and interest on the Global Notes will be made
to DTC or its nominee as the registered owner thereof as described in
"-- Payments of Principal and Interest."
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Note among participants of DTC, they are
under no obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. Neither the Company nor the Trustee
will have any responsibility for the performance by DTC or its participants or
indirect participants of their respective obligations under the rules and
procedures governing their operations.
CERTIFICATED NOTES
If DTC is at any time unwilling or unable to continue as a depositary as
set forth under "-- Global Note," or if the Company determines not to have the
Notes represented by one or more Global Notes as provided therein, the Company
will issue Notes in certificate form ("Certificated Notes") in exchange for the
applicable Global Note. In all cases, Certificated Notes delivered in exchange
for any Global Note or beneficial interests therein will be registered in the
names, and issued in any approved denominations, requested by DTC.
Holders of Certificated Notes may transfer such Notes by surrendering such
Certificated Notes to (i) the office or agency maintained by the Company for
such purpose in The City of New York, which initially will be the principal
corporate trust office of the Trustee, or (ii) any other office or agency
designated by the Company.
Payment of the principal of and interest on the Certificated Notes will be
made to holders thereof as described in "-- Payments of Principal and Interest."
PAYMENTS OF PRINCIPAL AND INTEREST
Payments in respect of principal of and interest on Certificated Notes will
be payable at the office or agency of the Company to be maintained in The City
of New York, initially at the principal corporate trust office of the Trustee
maintained for such purpose at 14 Wall Street, 8th Floor, New York, New York
10005; provided, however, that at the option of the Company interest on
Certificated Notes may be paid by (i) check mailed to the addresses of the
persons entitled thereto at such addresses as shall appear in the register of
holders of Notes or (ii) transfer to an account located in the United States
maintained by the person entitled thereto. Any such payment of interest shall be
made to the person in whose name such Note is registered on the April 15 or
October 15 immediately preceding such interest payment date.
The total amount of payments in respect of principal of or interest on any
Global Note representing one or more Notes on any interest payment date or at
maturity will be made available to the Trustee on such date. As soon as possible
thereafter, the Trustee will make such payments to DTC or its nominee as the
registered owner of the Global Note. None of the Company, the Trustee or any
paying agent will have any responsibility or liability for the payment of such
amounts to beneficial owners of the Notes or for any aspect of the records
relating to, or payments made on account of, beneficial ownership interests in
the Global Notes or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests.
The Company believes that DTC or its nominee, upon receipt of any payment
of principal or interest in respect of a Global Note representing any Notes held
by it or its nominee, will immediately credit participants' accounts with
payments in amounts proportionate to their respective beneficial interests in
the principal amount of such Global Note as shown on the records of DTC or its
nominee. The Company also believes that
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<PAGE> 20
payments by participants to owners of beneficial interests in such Global Note
held through such participants will be governed by standing instructions and
customary practices, as is now the case with securities held for the accounts of
customers registered in street name. Such payments will be the responsibility of
such participants.
THE TRUSTEE
The First National Bank of Chicago is the Trustee under the Indenture. The
Indenture and provisions of the TIA incorporated by reference therein contain
limitations on the rights of the Trustee thereunder, should the Trustee become a
creditor of the Company, to obtain payment of claims in certain cases or to
realize on certain property received by it in respect of any such claims, as
security or otherwise. The Company may from time to time maintain bank accounts
and have other customary banking relationships with and obtain credit facilities
and lines of credit from the Trustee in the ordinary course of business;
provided, however, that if the Trustee acquires any conflicting interest (as
defined in Section 310(b) of the TIA), it must eliminate such conflict or
resign.
The Company will appoint the Trustee at the offices specified in the
Indenture as registrar, principal paying agent and transfer agent for the Notes.
In such capacities, the Trustee will be responsible for, among other things, (i)
maintaining a record of the aggregate holdings of Notes represented by the
Global Note and accepting Notes for exchange and registration of transfer, (ii)
ensuring that payments of principal of and interest on the Global Note and other
Notes received by the Trustee from the Company are duly paid to DTC or its
nominee or the holders thereof, as the case may be, and (iii) transmitting to
the Company any notices from holders of Notes. The Company will cause the
transfer agent to act as a registrar. The Company may vary or terminate the
appointment of the transfer agent or appoint additional or other transfer agents
or approve any change in the office through which any transfer agent acts.
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<PAGE> 21
MARKET-MAKING ACTIVITIES OF MLPF&S
This Prospectus is to be used by MLPF&S in connection with offers and sales
of the Notes in market-making transactions at negotiated prices related to
prevailing market prices at the time of sale. MLPF&S may act as principal or
agent in such transactions. There can be no assurance that MLPF&S will continue
to act in such capacities. MLPF&S has no obligation to make a market in the
Notes and may discontinue its market-making activities at any time without
notice, at its sole discretion.
MLPF&S is affiliated with entities that own capital stock representing
approximately 22.6% of the aggregate voting power of the capital stock of the
Company as of September 30, 1996.
MLPF&S acted as underwriter in connection with the initial offering of the
Notes and received underwriting fees and commissions aggregating less than
$500,000.
The Company will receive no portion of the proceeds of the sales of the
Notes by MLPF&S and will bear the expenses incident to the registration thereof.
The Company has agreed to indemnify MLPF&S against certain liabilities under the
Securities Act or to contribute to payments that MLPF&S may be required to make
in respect of such liabilities.
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<PAGE> 22
LEGAL MATTERS
The validity of the Notes offered hereby and certain other legal matters
relating to the offering of the Notes will be passed upon for the Company by
Wachtell, Lipton, Rosen & Katz, New York, New York. Certain legal matters will
be passed upon for the Underwriters by Shearman & Sterling, New York, New York.
Wachtell, Lipton, Rosen & Katz and Shearman & Sterling occasionally act as
counsel to MLCP and other affiliates of MLPF&S.
EXPERTS
The consolidated financial statements of the Company and its subsidiaries
incorporated in this Prospectus by reference from the Company's Annual Report
for each of the three years in the period ended December 31, 1995 have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report, which is incorporated herein by reference, and have been so incorporated
in reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.
The financial statements of NSK-Warner as of March 31, 1996 and 1995, and
for each of the years in the three-year period ended March 31, 1996, have been
incorporated by reference herein in reliance upon the report of KPMG Peat
Marwick, independent certified public accountants, incorporated by reference
herein, and upon the authority of said firm as experts in accounting and
auditing.
The combined financial statements of the Coltec Automotive OEM Business
Group as of December 31, 1995 and 1994 and for each of the two years in the
period ended December 31, 1995, incorporated by reference in this Prospectus
from the Company's Form 8-K dated June 17, 1996, have been audited by Arthur
Andersen LLP, as indicated by their report, which is incorporated herein by
reference. The audited financial statements incorporated by reference have been
so incorporated in reliance upon the report of Arthur Andersen LLP given upon
the authority of said firm as experts in accounting and auditing.
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NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, NOT CONTAINED IN THIS PROSPECTUS, IN
CONNECTION WITH THE OFFERING MADE HEREBY, AND INFORMATION OR REPRESENTATIONS NOT
HEREIN CONTAINED, IF GIVEN OR MADE, MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THE NOTES OR AN OFFER TO SELL,
OR A SOLICITATION OF AN OFFER TO BUY, NOTES IN ANY JURISDICTION WHERE, OR TO ANY
PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE
FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE
DATE HEREOF.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Available Information................. 2
Incorporation of Certain Information
by Reference........................ 2
Summary............................... 3
Risk Factors.......................... 8
Use of Proceeds....................... 11
Capitalization........................ 12
Description of the Notes.............. 13
Market-Making Activities of MLPF&S.... 21
Legal Matters......................... 22
Experts............................... 22
</TABLE>
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$150,000,000
LOGO
7% SENIOR NOTES DUE 2006
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PROSPECTUS
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OCTOBER 31, 1996
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