Filed Pursuant to Rule 424(b)(5)
Registration Nos. 33-62665 and 33-62665-01
SUBJECT TO COMPLETION, DATED MAY 14, 1996
PROSPECTUS SUPPLEMENT
(To Prospectus dated May 14, 1996)
COLLINS & AIKMAN PRODUCTS CO.
[LOGO]
$400,000,000 % SENIOR SUBORDINATED NOTES DUE 2006
GUARANTEED ON A SENIOR SUBORDINATED BASIS BY
COLLINS & AIKMAN CORPORATION
The Notes are offered by Collins & Aikman Products Co. (the "Company"), a
direct wholly owned subsidiary of Collins & Aikman Corporation ("C&A Co.").
Interest on the Notes will be payable semi-annually on and of each
year, commencing , 1996. The Notes will be redeemable at the option
of the Company, in whole or in part, at any time on or after , 2001
at the redemption prices set forth herein plus accrued interest to the date of
redemption. At the option of the Company, on or prior to , 1999, up
to 40% of the original principal amount of the Notes will be redeemable in part
from the proceeds of one or more Equity Offerings at the redemption prices set
forth herein, plus accrued interest to the date of redemption, provided that at
least 60% of the original aggregate principal amount of the Notes remains
outstanding after each such redemption.
Upon the occurrence of a Change of Control, (i) the Company will have the
option to redeem the Notes in whole but not in part at a redemption price equal
to 100% of the principal amount thereof plus the Applicable Premium set forth
herein, plus accrued interest to the date of redemption, and (ii) unless the
Company has elected to redeem all the outstanding Notes prior to the date of
such offer, the Company will be required to make an offer to repurchase the
Notes at a price equal to 101% of the principal amount thereof, together with
accrued interest to the date of repurchase. There can be no assurance that the
Company will have the financial ability or will be permitted by its other
financing instruments to repurchase or redeem the Notes upon the occurrence of
such a Change of Control.
The Notes will be subordinated in right of payment to all existing and future
Senior Indebtedness of the Company. As of January 27, 1996, Senior Indebtedness
of the Company, as adjusted to give effect to this Offering, would have been
approximately $422.8 million. The Notes will be fully and unconditionally
guaranteed on an unsecured senior subordinated basis by C&A Co., the direct
parent of the Company. C&A Co. is a holding company that derives all its
operating income and cash flow from the Company, the common stock of which
presently constitutes C&A Co.'s only material asset. The Guarantee will be
subordinated in right of payment to all Senior Guarantor Indebtedness of C&A Co.
As of January 27, 1996, Senior Guarantor Indebtedness of C&A Co., as adjusted to
give effect to this Offering, would have been approximately $394.8 million, all
of which would have represented guarantees of Senior Indebtedness of the
Company. None of the subsidiaries of the Company will guarantee the Notes, and
the Notes will be effectively subordinated to all liabilities of the Company's
subsidiaries, including trade payables. As of January 27, 1996, the Company's
continuing subsidiaries would have had approximately $56.4 million of
indebtedness for borrowed money (excluding intercompany balances), trade and
other liabilities substantially in excess of such amount and approximately
$349.8 million of guarantees of Senior Indebtedness of the Company.
-------------------
SEE "RISK FACTORS" AT PAGE 3 OF THE ACCOMPANYING PROSPECTUS FOR A DISCUSSION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
NOTES.
-------------------
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.
<TABLE><CAPTION>
PRICE TO UNDERWRITING DISCOUNTS PROCEEDS TO
PUBLIC (1) AND COMMISSIONS (2) THE COMPANY (3)
---------------- ----------------------- ----------------
<S> <C> <C> <C>
Per Note............................................. % % %
Total................................................ $ $ $
</TABLE>
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(1) Plus interest, if any, on the Notes from , 1996.
(2) See "Underwriting" for indemnification arrangements with the Underwriters.
(3) Before deducting expenses payable by the Company and C&A Co. estimated at
$ .
-------------------
The Notes are offered, subject to prior sale, when, as and if delivered to
and accepted by the Underwriters, and to certain other conditions. The
Underwriters reserve the right to withdraw, cancel or modify such offer and to
reject orders in whole or in part. It is expected that delivery of the Notes
will be made through the facilities of The Depository Trust Company on or about
, 1996, against payment therefor in immediately available funds.
-------------------
WASSERSTEIN PERELLA SECURITIES, INC. CHASE SECURITIES INC.
BA SECURITIES, INC.
, 1996
<PAGE>
INFORMATION CONTAINED IN THIS PRELIMINARY PROSPECTUS SUPPLEMENT IS SUBJECT TO
COMPLETION OR AMENDMENT. THIS 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.
<PAGE>
[LOGO] Collins & Aikman
- --------------------------------------------------------------------------------
The table below shows all the North American-produced vehicle lines for which
Collins & Aikman supplied at least one of its automotive products in 1995. At
least one of the Company's products was used on 110, or 83%, of the 132 vehicle
lines made in North America in 1995. An asterisk ("*") identifies vehicle lines
or models in which the Company had content in 1995 but not in the prior year.
VEHICLE LINES SUPPLIED
<TABLE><CAPTION>
COMPANY MODELS
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<S> <C> <C> <C> <C>
GENERAL MOTORS Achieva C-K Truck 10-30 Lumina-Car Saturn
Astro C-K Truck 15-30 Lumina-Van Seville
Aurora Corsica Monte Carlo Silhouette
Beretta Corvette Ninety Eight Skylark
Bonneville Deville/Concours Park Avenue Sonoma
Bravada Eighty-Eight Rally/Vandura Sport Van
Brougham Eldorado Regal Chevy Suburban
Camaro Firebird Riviera GMC Suburban
Caprice GMT 420/820* S-10* Supreme
Cavalier Grand Am S-10 Blazer Tahoe
Century Grand Prix S-15 Jimmy TransSport
Ciera LeSabre Safari Yukon
FORD Aerostar Escort Mustang Sable*
Contour Explorer Mystique Taurus
Cougar F-Series Probe Thunderbird
Crown Victoria Grand Marquis Quest Villager
Econoline Mark VIII Ranger
CHRYSLER Avenger* Concorde* LHS Town & Country
Breeze* Dakota Plymouth Neon T-300 Pickup
Caravan Dodge Neon* Sebring* Vision
Cherokee* Grand Cherokee Stratus Viper
Cirrus Intrepid Talon Voyager
TRANSPLANTS Geo Metro Isuzu Rodeo Nissan 200SX* Toyota Avalon
Geo Prizm Mazda Pickup Nissan Pickup Toyota Camry
Geo Tracker Mazda 626 Nissan Sentra Toyota Corolla
Honda Accord Mazda MX6 Subaru Legacy Toyota Pickup
Honda Civic Mitsubishi Eclipse Suzuki Sidekick Volvo 850
Honda Passport Mitsubishi Galant Suzuki Swift
</TABLE>
- --------------------------------------------------------------------------------
IN CONNECTION WITH THE OFFERING OF THE NOTES HEREBY, THE UNDERWRITERS MAY
OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE
OF THE NOTES OFFERED HEREBY AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL
IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY
TIME.
S-2
<PAGE>
PROSPECTUS SUPPLEMENT SUMMARY
The following is a summary of certain information contained elsewhere in
this Prospectus Supplement and is qualified in its entirety by the more detailed
information contained elsewhere in this Prospectus Supplement or the
accompanying Prospectus or incorporated herein or therein by reference. The
capitalized terms used herein and not otherwise defined have the meanings
ascribed to them elsewhere in the accompanying Prospectus. As used in this
Prospectus Supplement (other than in the presentation of the Consolidated
Financial Statements--see Note 1 to the Consolidated Financial Statements), the
term the "Company" refers to Collins & Aikman Products Co., its direct and
indirect subsidiaries and their predecessors, as appropriate. All financial
information presented herein is that of C&A Co., the direct parent of the
Company and the guarantor of the Notes. Except where otherwise indicated, (i)
references to a year with respect to the Company refer to the fiscal year of the
Company which ends on the last Saturday of January of the following year, (ii)
references to the North American automotive industry refer to products
manufactured in the United States, Canada and Mexico and (iii) with respect to
competitive information, references to the Company as "a leader" or "one of the
leading" manufacturers in a particular product category mean that the Company
believes that it is one of the principal manufacturers in that product category
and references to the Company as "the leader", "the largest" or "the leading"
manufacturer in a particular product category mean that the Company believes
that it has the largest dollar sales volume in that product category.
THE COMPANY
The Company is a major supplier of textile and plastic interior trim
products and convertible top systems to the North American automotive industry,
with leading positions in five of its six major automotive product lines. The
Company is also a leading manufacturer of residential upholstery fabric, as well
as a major provider of commercial carpet products. The Company's operations are
organized into two segments: Automotive Products and Interior Furnishings. In
the latter part of 1995 and early 1996, Automotive Products completed three
acquisitions as described below. On April 9, 1996, C&A Co. announced a plan to
spin off the Company's Imperial Wallcoverings subsidiary ("Wallcoverings") to
the stockholders of C&A Co. in the form of a stock dividend. C&A Co. has
accounted for the financial results and net assets of Wallcoverings as a
discontinued operation. Accordingly, previously reported financial results for
all periods have been restated to reflect Wallcoverings as a discontinued
operation.
AUTOMOTIVE PRODUCTS
Automotive Products, with 1995 net sales of $906.9 million, is a leading
designer and manufacturer of products for U.S. automotive manufacturers ("U.S.
OEMs") and foreign owned North American automotive manufacturers ("Transplants",
and, together with U.S. OEMs, "OEMs"). The Company has leading positions in five
of this segment's primary products--automotive seat fabric, molded floor carpet,
accessory floor mats, luggage compartment trim and convertible top systems.
Management estimates that in 1995 Automotive Products' five leading products had
North American shares of approximately 46% at General Motors, 47% at Chrysler,
30% at Ford and 37% among the Transplants. At least one of the Company's
products is used on 83% of all North American-produced vehicles lines.
The Company has recently completed three acquisitions in Automotive
Products. In October 1995 the Company acquired the business of Amco
Manufacturing Corporation and its Mexican affiliate (collectively, "Amco"), a
manufacturer of trim sets and accessories for convertible top systems; in
January 1996 the Company acquired Manchester Plastics, Inc. ("Manchester
Plastics"), a manufacturer of automotive door panels, headrests, floor console
systems and instrument panel components; and in May 1996 the Company acquired
the business of BTR Fatati Limited ("Fatati"), a U.K. manufacturer of molded
floor carpets and luggage compartment trim for the European automotive market.
Through these acquisitions the Company has further solidified its position as an
integrated systems supplier, enhanced its engineering and design capabilities
and extended its global reach.
S-3
<PAGE>
Automotive Products' business objective is to achieve strong growth in sales
and earnings by: (i) further strengthening and broadening its role as a supplier
of integrated interior trim systems, (ii) extending its position as a preferred
supplier to OEMs, (iii) developing its international production capabilities and
further expanding domestically, (iv) continuing to lead in product innovation
and (v) maintaining its low cost position. The Company intends to achieve this
objective through internal growth as well as through selected acquisitions and
strategic alliances.
The Company currently supplies convertible top systems, molded floor systems
and door panel systems, and it intends to leverage its experience in these
integrated systems and its extensive product line to further strengthen and
broaden its role as an integrated systems supplier. The Company believes that
this will provide it with the opportunity to improve its margins by leveraging
its fixed costs and by offering increasingly higher value-added products and
services to OEMs. The Company believes that while it has made major strides in
implementing this strategy through internal growth and the acquisition of
Manchester Plastics and Amco, other opportunities exist for internal and
external growth within the industry.
Automobile manufacturers designate suppliers as "preferred suppliers" based
on factors such as product quality, product innovation, service and price. The
Company is currently a preferred supplier of its five leading products and
certain of its other products to Ford, General Motors, Chrysler, Toyota, Nissan
and Mazda. The Company believes that as automobile manufacturers continue to
consolidate their supplier base, they will increasingly depend on their
preferred suppliers for their requirements. Therefore, the Company seeks to (i)
preserve its status as a preferred supplier with its existing customers, (ii)
increase the number of automobile manufacturers, particularly internationally,
which designate the Company as a preferred supplier and (iii) broaden the
product offerings that it provides to automobile manufacturers on a preferred
supplier basis.
The Company intends to continue to expand its presence worldwide through
acquisitions, partnerships, joint ventures and joint bids to support its
existing customers' global manufacturing operations and to further develop its
international customer base. Currently, the Company has four Automotive Products
operations in Mexico, one in Austria and one in the U.K. These facilities have
enabled the Company to begin serving its customers' global needs while
positioning itself as a supplier to international automakers. In turn, having a
greater international presence may increase opportunities with overseas
automakers who are expanding in North America. As the Company expands its
operations globally, it will be able to compete more effectively for the global
platforms being developed by both domestic and international automakers.
Another element of the Company's strategy is to increase unit volume and
selling prices of automotive products by developing increasingly higher
value-added products through innovations in materials construction, product
design and styling.
The Company is focused on maintaining its low-cost position and flexible
manufacturing capabilities to protect operating margins from competitive pricing
pressures and economic downturns, while maximizing the benefit from cyclical
upturns. The Company has established its low-cost position through a systematic
long-term focus on improving materials yields and labor productivity and
reducing overhead expenses.
INTERIOR FURNISHINGS
Interior Furnishings, which is comprised of the Decorative Fabrics and
Floorcoverings groups, had 1995 net sales of $384.5 million. Decorative Fabrics,
with 1995 net sales of $262.4 million, is a leading designer and manufacturer of
upholstery fabric in the United States. Its largest division, Mastercraft, is
the leading U.S. manufacturer of flat-woven upholstery fabric. Floorcoverings,
with 1995 net sales of $122.2 million, is a major supplier of commercial carpet
products in the United States and is the leading manufacturer of six-foot wide
commercial carpet in the United States.
S-4
<PAGE>
The Decorative Fabrics group's strategy is to grow by broadening its product
offerings and improving customer service. In addition, Decorative Fabrics
believes there is substantial growth opportunity in export markets and it has
positioned itself to aggressively pursue these markets. The Floorcoverings
group's strategy is to continue to increase sales by creating specialists within
its sales force to target specific types of end-users, exploiting selective
export opportunities and leading in product innovation such as its Powerbond(R)
RS adhesive system and its advanced recycling program.
THE OFFERING
<TABLE>
<S> <C>
Securities Offered.................. $400,000,000 aggregate principal amount of %
Senior Subordinated Notes Due 2006 (the "Notes").
Guarantee........................... The Notes are fully and unconditionally guaranteed on
an unsecured senior subordinated basis (the
"Guarantee") by C&A Co., the direct parent of the
Company. C&A Co. is a holding company that derives
all its operating income and cash flow from the
Company, the common stock of which presently
constitutes C&A Co.'s only material asset. The
Guarantee will be subordinated in right of payment to
all Senior Guarantor Indebtedness (as defined) of C&A
Co. As of January 27, 1996, Senior Guarantor
Indebtedness of C&A Co., after giving effect to sale
of the Notes, would have been approximately $394.8
million, all of which would have represented
guarantees of Senior Indebtedness of the Company.
Maturity Date....................... , 2006.
Interest Payment Dates.............. and , commencing , 1996.
Ranking............................. The Notes will be unsecured obligations of the
Company, subordinated in right of payment to all
existing and future Senior Indebtedness (as defined)
of the Company. The Notes will rank pari passu in
right of payment with any future senior subordinated
indebtedness of the Company and will be senior in
right of payment to any future subordinated
indebtedness of the Company. As of January 27, 1996,
Senior Indebtedness of the Company, as adjusted to
give effect to this Offering, would have been
approximately $422.8 million. In addition, the Notes
will be effectively subordinated to all liabilities
of the Company's subsidiaries, including trade
payables. As of January 27, 1996 the Company's
continuing subsidiaries would have had approximately
$56.4 million of indebtedness for borrowed money
(excluding intercompany balances), trade and other
liabilities substantially in excess of such amount
and approximately $349.8 million of guarantees of
Senior Indebtedness of the Company.
Optional Redemption................. The Notes are subject to redemption at the option of
the Company, in whole or in part, at any time on or
after , 2001 at the redemption prices set forth
herein, plus accrued interest to the date of
redemption. In addition, at the option of the
Company, on or prior to
</TABLE>
S-5
<PAGE>
<TABLE>
<S> <C>
, 1999, up to 40% of the original principal
amount of the Notes will be redeemable in part from the
proceeds of one or more Equity Offerings (as
defined), at the redemption price set forth herein,
plus accrued interest to the date of redemption,
provided that at least 60% of the original aggregate
principal amount of the Notes remains outstanding
after each such redemption.
Change of Control................... Upon the occurrence of a Change of Control (as
defined), (i) the Company will have the option to
redeem the Notes in whole but not in part at a
redemption price equal to 100% of the principal
amount thereof plus the Applicable Premium set forth
herein, plus accrued interest to the date of redemp-
tion, and (ii) unless the Company has elected to
redeem all the outstanding Notes prior to the date of
such offer, the Company will be required to make an
offer to repurchase the Notes at a price equal to
101% of the principal amount thereof, together with
accrued interest to the date of repurchase. There can
be no assurance that the Company will have the
financial ability or will be permitted by its other
financing instruments to repurchase or redeem the
Notes upon the occurrence of such a Change of
Control. See "Description of the Notes--Optional
Redemption" and "-- Certain Covenants--Change of
Control".
Certain Covenants................... The Indenture contains certain covenants, including,
among others, covenants with respect to the following
matters: (i) limitation on indebtedness; (ii)
limitation on ranking of certain indebtedness; (iii)
limitation on liens securing subordinated
indebtedness; (iv) limitation on restricted payments
and restricted investments; (v) limitation on
dividends and other payment restrictions affecting
subsidiaries; (vi) limitation on disposition of
proceeds of asset sales; and (vii) limitation on
transactions with affiliates. In addition, the
Indenture will restrict the ability of the Company
and C&A Co. to consolidate or merge with or into, or
to transfer their assets substantially as an entirety
to, another person. However, these limitations will
be subject to a number of important qualifications
and exceptions. See "Description of the
Notes--Certain Covenants".
Use of Proceeds..................... To repay approximately $339.0 million principal
amount of outstanding borrowings under the Credit
Agreement Facilities and for general corporate
purposes. See "Use of Proceeds".
Global Securities................... The Notes will be represented by a Global Security
registered in the name of the nominee of The
Depository Trust Company ("DTC"), which will act as
Depositary. Beneficial interests in the Global
Security will be shown on, and transfers thereof will
be effected only through, records maintained by DTC
(with respect to participants' interest) and its
participants. Except as described herein, Notes in
definitive form will not be issued. Beneficial
interests in the Notes may be purchased in
denominations of $1,000 or any integral multiple
thereof. Payments of the principal of and
</TABLE>
S-6
<PAGE>
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premium, if any, and interest on the Notes will be
made directly to DTC for subsequent disbursement to
DTC participants, who are to remit such payments to
the beneficial owners of the Notes. See "Description
of the Debt Securities-Global Securities" in the
accompanying Prospectus.
Settlement.......................... Settlement of the Notes will be made by the
Underwriters in immediately available funds. All
payments of principal and interest will be made by
the Company in immediately available funds or the
equivalent, so long as DTC continues to maintain the
Same-Day Funds Settlement System, and secondary
market trading activity in the Notes will therefore
settle in immediately available funds.
</TABLE>
RISK FACTORS
Investment in the Notes involves significant risks. See "Risk Factors" in
the accompanying Prospectus and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Description of the
Notes--Subordination" herein for a discussion of the risks inherent in the
Company's businesses and the Company's financial performance over the last three
years, competitive factors affecting the Company, the Company's substantial
leverage, contingent liabilities, subordination and other risks inherent in an
investment in the Notes.
S-7
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA OF C&A CO.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------------------------------------------------------
PRO FORMA
JANUARY 25, JANUARY 30, JANUARY 29, JANUARY 28, JANUARY 27, JANUARY 27,
1992 1993(1) 1994 1995 1996 1996(2)
----------- ----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
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STATEMENT OF OPERATIONS DATA:
Net sales.................... $ 947,098 $ 1,035,605 $ 1,085,068 $ 1,319,379 $ 1,291,466 $ 1,473,529
Cost of goods sold........... 754,630 814,681 850,090 1,017,200 1,012,358 1,168,584
Selling, general and
administrative expenses...... 132,422 152,330 134,490 136,378 131,010 148,845
Management equity plan
expense...................... -- -- 26,736 -- -- --
Goodwill amortization and
write-off.................... 2,851 2,851 102,120 -- 270 3,984
Operating income (loss)...... 57,195 65,743 (28,368) 165,801 147,828 152,116
Interest expense, net(3)..... 107,237 110,420 110,962 75,006 47,938 81,023
Loss on sale of
receivables.................. -- -- -- 7,616 8,688 8,688
Income (loss) from continuing
operations before income
taxes........................ (54,557) (49,191) (143,863) 80,921 91,202 62,405
Income tax expense
(benefit).................... 9,842 (4,702) 10,494 11,015 (138,520) (145,364)
Income (loss) from continuing
operations................... (64,399) (44,489) (154,357) 69,906 229,722 207,769
BALANCE SHEET DATA (END OF
PERIOD):
Total assets................. $ 1,253,915 $ 1,096,689 $ 880,797 $ 640,318 $ 1,050,007 $ 1,098,318
Long-term debt, including
current portion............. 938,810 979,920 921,751 565,102 765,022 826,022
OTHER FINANCIAL DATA (FROM
CONTINUING OPERATIONS):
EBITDA(4).................... $ 98,168 $ 108,363 $ 137,130 $ 204,391 $ 189,886 $ 206,248
Depreciation and
amortization(5)............. 38,122 39,769 36,642 38,590 40,273 44,698
Capital expenditures......... 33,835 35,163 41,172 79,063 77,946 N/M
Ratio of EBITDA to interest
expense(6)................... 0.9x 1.0x 1.2x 2.5x 3.4x 2.3x
Ratio of earnings to fixed
charges(7)................... -- -- -- 1.8x 2.3x 1.6x
</TABLE>
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(1) 1992 was a 53-week year.
(2) The pro forma statement of operations data of C&A Co. for the year ended
January 27, 1996 reflect (i) the October 1995 acquisition of Amco and the
January 1996 acquisition of Manchester Plastics and (ii) the issuance of the
Notes offered hereby, the application of the estimated net proceeds
therefrom to pay down indebtedness and the amendments to the Bank Credit
Facilities (as defined), as if the relevant transactions had occurred at the
beginning of fiscal 1995. The pro forma balance sheet data of C&A Co. as of
January 27, 1996 reflect those events as if they had occurred on that date.
The pro forma data do not give effect to the Company's proposed investment
in Wallcoverings in connection with the spin-off of that subsidiary.
(3) Excludes amounts related to discontinued operations.
(4) EBITDA represents earnings before deductions for net interest expense, loss
on sale of receivables, income tax, depreciation, amortization and the
non-cash portion of non-recurring charges attributable to continuing
operations. The Company understands that certain investors believe EBITDA
reflects a company's ability to satisfy principal and interest obligations
with respect to its indebtedness and to utilize cash for other purposes.
EBITDA does not represent and should not be considered as an alternative to
net income or cash flow from operations as determined by generally accepted
accounting principles. Certain covenants in the Bank Credit Facilities are
based upon calculations using EBITDA.
(5) Depreciation and amortization does not include amortization of goodwill and
deferred financing fees.
(6) For the purposes of this calculation, interest expense includes loss on sale
of receivables and net interest expense.
(7) For the purposes of this calculation, earnings are defined as income (loss)
from continuing operations before income taxes plus fixed charges relating
to continuing operations, and fixed charges consist of interest expense on
all indebtedness (including amortization of deferred debt issuance costs),
loss on sale of receivables, preferred stock dividends of subsidiaries and
the portion of operating lease rental expenses that is representative of the
interest factor for C&A Co.'s continuing and discontinued operations.
Earnings were inadequate to cover fixed charges for the fiscal years ended
January 1992, 1993 and 1994 by $92.4 million, $85.2 million and $173.1
million, respectively.
S-8
<PAGE>
USE OF PROCEEDS
The net proceeds from the offering of the Notes (the "Offering") are
estimated to be $ million. The Company will use the net proceeds to
repay approximately $339.0 million principal amount of outstanding borrowings
under the Credit Agreement Facilities, plus accrued interest on such borrowings
and related fees and expenses. The remaining $ million of net proceeds
will be used for general corporate purposes, including working capital, capital
expenditures and acquisitions, and pending such use may be invested temporarily
in short-term interest-bearing obligations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources".
The $339.0 million of outstanding borrowings under the Credit Agreement
Facilities to be repaid with net proceeds of the Offering consist of
approximately $78.8 million of revolving credit borrowings under the Revolving
Facility and approximately $260.2 million of term loans outstanding under the
Term Loan Facility. For a discussion of the interest rates of such indebtedness,
see "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources".
After giving effect to the repayments described above, approximately $195.0
million of loans will be outstanding under the Term Loan Facility. In addition,
$195.8 million of term loans will be outstanding under the Term Loan B Facility.
Amounts repaid under the Revolving Facility may be reborrowed, and after giving
effect to the Revolving Facility repayments described above and the amendment to
the Credit Agreement Facilities and the Term Loan B Facility, the Company will
have borrowing availability of approximately $220 million under the Revolving
Facility. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources" and "Amendment to Credit
Facilities".
S-9
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of C&A Co. and its
subsidiaries (i) as of January 27, 1996 and (ii) as adjusted to give effect to
the issuance of the Notes offered hereby, the application of the estimated net
proceeds therefrom to pay down indebtedness and the write-off of deferred
financing fees as a result of the amendment to the Bank Credit Facilities. This
table should be read in conjunction with the Consolidated Financial Statements
of C&A Co. and related notes thereto included elsewhere in this Prospectus
Supplement. See "Use of Proceeds", "Amendment to Credit Facilities" and "Pro
Forma Consolidated Financial Data".
<TABLE>
<CAPTION>
AS OF JANUARY 27, 1996
------------------------
ACTUAL AS ADJUSTED
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<S> <C> <C>
(IN THOUSANDS)
Current maturities of long-term debt.............................. $ 51,508 $ 27,064(1)
--------- -----------
--------- -----------
Long-term debt (excluding current portion):
Revolving Facility.............................................. $ 75,000 $ 2,806(1)
Term Loan Facility.............................................. 424,862 182,500(1)
Term Loan B Facility............................................ 192,000 192,000
Notes........................................................... -- 400,000(2)
Other........................................................... 21,652 21,652
--------- -----------
Total long-term obligations................................... 713,514 798,958
--------- -----------
Common Stockholders' Deficit:
Common stock.................................................... 705 705
Other paid-in capital........................................... 585,469 585,469
Accumulated deficit............................................. (770,139) (776,718)(3)
Foreign currency translation adjustments........................ (23,719) (23,719)
Pension equity adjustment....................................... (9,090) (9,090)
Treasury stock, at cost......................................... (11,078) (11,078)
--------- -----------
Total common stockholders' deficit............................ (227,852) (234,431)
--------- -----------
Total Capitalization.............................................. $ 485,662 $ 564,527
--------- -----------
--------- -----------
</TABLE>
- ------------
(1) Reflects the use of net proceeds from the Offering to repay $339.0 million
under the Credit Agreement Facilities.
(2) Represents the issuance of the Notes offered hereby.
(3) Represents the write-off of previously incurred deferred financing fees of
$10.8 million net of tax benefits of $4.2 million.
S-10
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial information
at and for the periods indicated and have been derived from the consolidated
financial statements of C&A Co., which have been audited by Arthur Andersen LLP.
The following selected consolidated financial data should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements of C&A Co. and notes
thereto appearing elsewhere in this Prospectus Supplement.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------------------------------------------
JANUARY 25, JANUARY 30, JANUARY 29, JANUARY 28, JANUARY 27,
1992 1993(1) 1994 1995 1996
----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales..................................... $ 947,098 $ 1,035,605 $ 1,085,068 $ 1,319,379 $ 1,291,466
Cost of goods sold............................ 754,630 814,681 850,090 1,017,200 1,012,358
Selling, general and administrative
expenses...................................... 132,422 152,330 134,490 136,378 131,010
Management equity plan expense................ -- -- 26,736 -- --
Goodwill amortization and write-off........... 2,851 2,851 102,120 -- 270
Operating income (loss)....................... 57,195 65,743 (28,368) 165,801 147,828
Interest expense, net(2)...................... 107,237 110,420 110,962 75,006 47,938
Loss on sale of receivables................... -- -- -- 7,616 8,688
Income (loss) from continuing operations
before income taxes......................... (54,557) (49,191) (143,863) 80,921 91,202
Income tax expense (benefit).................. 9,842 (4,702) 10,494 11,015 (138,520)
Income (loss) from continuing operations...... (64,399) (44,489) (154,357) 69,906 229,722
Income (loss) from discontinued operations,
including disposals........................... (25,302) (219,169) (123,307) 5,840 (23,281)
Income (loss) before extraordinary items...... (89,701) (263,658) (277,664) 75,746 206,441
Net income (loss)............................. (133,810) (263,658) (277,664) (30,782) 206,441
BALANCE SHEET DATA (END OF PERIOD):
Total assets.................................. $ 1,253,915 $ 1,096,689 $ 880,797 $ 640,318 $ 1,050,007
Long-term debt, including current portion..... 938,810 979,920 921,751 565,102 765,022
OTHER FINANCIAL DATA (FROM CONTINUING
OPERATIONS):
EBITDA(3)..................................... $ 98,168 $ 108,363 $ 137,130 $ 204,391 $ 189,886
Depreciation and amortization(4).............. 38,122 39,769 36,642 38,590 40,273
Capital expenditures.......................... 33,835 35,163 41,172 79,063 77,946
Ratio of EBITDA to interest expense(5)........ 0.9x 1.0x 1.2x 2.5x 3.4x
Ratio of earnings to fixed charges(6)......... -- -- -- 1.8x 2.3x
</TABLE>
- ------------
(1) 1992 was a 53-week year.
(2) Excludes amounts related to discontinued operations as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------------------------------------------
JANUARY 25, JANUARY 30, JANUARY 29, JANUARY 28, JANUARY 27,
1992 1993 1994 1995 1996
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Wallcoverings................................. $ 737 $ 447 $ 329 $ 677 $ 666
Operations discontinued prior to fiscal
1995.......................................... 25,062 23,010 18,871 -- --
----------- ----------- ----------- ----------- -----------
$ 25,799 $ 23,457 $ 19,200 $ 677 $ 666
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
(3) EBITDA represents earnings before deductions for net interest expense, loss
on sale of receivables, income tax, depreciation, amortization and the
non-cash portion of non-recurring charges attributable to continuing
operations. The Company understands that certain investors believe EBITDA
reflects a company's ability to satisfy principal and interest obligations
with respect to its indebtedness and to utilize cash for other purposes.
EBITDA does not represent and should not be considered as an alternative to
net income or cash flow from operations as determined by generally accepted
accounting principles. Certain covenants in the Bank Credit Facilities are
based upon calculations using EBITDA.
(4) Depreciation and amortization does not include amortization of goodwill and
deferred financing fees.
(5) For the purposes of this calculation, interest expense includes loss on sale
of receivables and net interest expense.
(6) For the purposes of this calculation, earnings are defined as income (loss)
from continuing operations before income taxes plus fixed charges relating
to continuing operations, and fixed charges consist of interest expense on
all indebtedness (including amortization of deferred debt issuance costs),
loss on sale of receivables, preferred stock dividends of subsidiaries and
the portion of operating lease rental expense that is representative of the
interest factor for C&A Co.'s continuing and discontinued operations.
Earnings were inadequate to cover fixed charges for the fiscal years ended
January 1992, 1993 and 1994 by $92.4 million, $85.2 million and $173.1
million, respectively.
S-11
<PAGE>
PRO FORMA CONSOLIDATED
FINANCIAL DATA
The following Pro Forma Consolidated Statement of Operations of C&A Co. for
the year ended January 27, 1996 reflects (i) the October 1995 acquisition of
Amco and the January 1996 acquisition of Manchester Plastics (the "1995
Acquisitions") and (ii) the issuance of the Notes offered hereby, the
application of the estimated net proceeds therefrom to pay down indebtedness and
the amendment to the Bank Credit Facilities, as if the relevant transactions had
occurred at the beginning of fiscal 1995. The following Pro Forma Consolidated
Balance Sheet of C&A Co. as of January 27, 1996 reflects those events as if they
had occurred on that date. The pro forma statements do not give effect to the
Company's proposed investment in Wallcoverings in connection with the spin-off
of that subsidiary. The pro forma statements and accompanying footnotes should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements
of C&A Co. and related notes thereto included elsewhere in this Prospectus
Supplement. The pro forma statements do not purport to represent what C&A Co.'s
financial position or results of operations would actually have been if the
relevant transactions had occurred at the beginning of fiscal 1995 or on January
27, 1996, or to project C&A Co.'s consolidated results of operations or
financial position at any future date or for any future period. See "Use of
Proceeds" and "Amendment to Credit Facilities".
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 27, 1996
------------------------------------------------------------------------------------
ADJUSTMENTS FOR
THE OFFERING AND
THE AMENDMENT
PRO FORMA OF THE BANK
1995 FOR THE 1995 CREDIT
ACTUAL ACQUISITIONS ACQUISITIONS FACILITIES PRO FORMA
---------- ------------ ------------ ---------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales................. $1,291,466 $182,063(1) $1,473,529 $-- $1,473,529
Cost of goods sold........ 1,012,358 156,226(1) 1,168,584 -- 1,168,584
Selling, general and
administrative expenses... 131,280 21,549(1)(2) 152,829 -- 152,829
---------- ------------ ------------ -------- ------------
Operating income.......... 147,828 4,288 152,116 -- 152,116
Interest expense, net..... 47,938 14,900(3) 62,838 18,185(5)(6) 81,023
Loss on the sale of
receivables............... 8,688 -- 8,688 -- 8,688
---------- ------------ ------------ -------- ------------
Income (loss) from
continuing operations
before income taxes...... 91,202 (10,612) 80,590 (18,185) 62,405
Income taxes expense
(benefit)................. (138,520) 248(4) (138,272) (7,092)(7) (145,364)
---------- ------------ ------------ -------- ------------
Income (loss) from
continuing operations.... $ 229,722 $(10,860) $ 218,862 $(11,093) $ 207,769
---------- ------------ ------------ -------- ------------
---------- ------------ ------------ -------- ------------
Other data from continuing
operations:
EBITDA(8)................. $ 189,886 $ 16,362 $ 206,248 $-- $ 206,248
</TABLE>
(Footnotes on following page)
S-12
<PAGE>
(Footnotes for preceding page)
- ------------
(1) Represents the adjustment to add the 1995 operating results for Manchester
Plastics and Amco prior to their respective dates of acquisitions. In the
case of Amco, sales have been adjusted to eliminate intercompany sales to
the Company.
(2) Includes an additional $3.7 million in goodwill amortization for the periods
prior to each acquisition (based on an assumed 40-year life).
(3) Represents interest expense of $14.8 million on the $197.0 million Term Loan
B Facility for the period prior to the acquisition of Manchester Plastics
plus interest expense on $7.2 million of borrowings under the Revolving
Facility for the period prior to the acquisition of Amco. Interest on the
Term Loan B Facility is based on an interest rate of LIBOR plus 2.25%.
Average LIBOR in effect during the period was 5.97%.
(4) Represents income taxes related to the pro forma operating results offset by
tax benefits relating to the increase in pro forma net interest expense.
(5) Represents annual interest of $45.0 million on the Notes at an assumed
interest rate of 11.25% and $1.3 million in amortization of deferred
financing fees on the Notes, partially offset by interest savings of $25.8
million on the repayment of $339.0 million of indebtedness and interest
income of $2.0 million at an assumed rate of 5.3% on the remaining proceeds.
A change of .25% in the assumed interest rate on the Notes would result in
an increase/decrease in pro forma interest expense of $1.0 million annually.
(6) Includes the amortization of (i) the deferred financing fees related to the
partial repayment and amendment of the Bank Credit Facilities and (ii) a
portion of the previously incurred deferred financing fees related to such
facilities prior to their partial repayment and amendment. Excludes the
write-off of $10.8 million of previously incurred deferred financing fees.
(7) Represents a reduction of income taxes related to the pro forma net increase
in interest expense at a 39% effective rate.
(8) EBITDA represents earnings before deductions for net interest expense, loss
on the sale of receivables, income tax, depreciation, amortization and the
non-cash portion of non-recurring charges attributable to continuing
operations. The Company understands that certain investors believe EBITDA
reflects a company's ability to satisfy principal and interest obligations
with respect to its indebtedness and to utilize cash for other purposes.
EBITDA does not represent and should not be considered as an alternative to
net income or cash flow from operations as determined by generally accepted
accounting principles. Certain covenants in the Bank Credit Facilities are
based upon calculations using EBITDA.
S-13
<PAGE>
PRO FORMA CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
AS OF JANUARY 27, 1996
--------------------------------------------
PRO FORMA
ACTUAL ADJUSTMENTS PRO FORMA
---------- ----------- ----------
<S> <C> <C> <C>
(IN THOUSANDS)
ASSETS
Current Assets:
Cash and cash equivalents.......................... $ 977 $ 37,390(1) $ 38,367
Accounts and notes receivable, net................. 128,595 -- 128,595
Inventories........................................ 147,774 -- 147,774
Net assets of discontinued operations.............. 79,401 -- 79,401
Other.............................................. 74,158 6,715(2) 80,873
---------- ----------- ----------
Total current assets........................... 430,905 44,105 475,010
Property, plant & equipment, net.................... 286,033 -- 286,033
Deferred tax assets................................. 124,395 4,206(3) 128,601
Goodwill, net....................................... 159,347 -- 159,347
Other assets........................................ 49,327 -- 49,327
---------- ----------- ----------
$1,050,007 $ 48,311 $1,098,318
---------- ----------- ----------
---------- ----------- ----------
LIABILITIES AND COMMON STOCKHOLDERS' DEFICIT
Current Liabilities:
Notes payable...................................... $ 2,101 $ -- $ 2,101
Current maturities of long-term debt............... 51,508 (24,444)(4) 27,064
Accounts payable................................... 117,059 -- 117,059
Accrued expenses................................... 97,883 (6,110)(5) 91,773
---------- ----------- ----------
Total current liabilities...................... 268,551 (30,554) 237,997
Long-term debt...................................... 713,514 85,444(4) 798,958
Other............................................... 295,794 -- 295,794
Common stockholders' deficit:
Common stock....................................... 705 -- 705
Other paid-in capital.............................. 585,469 -- 585,469
Accumulated deficit................................ (770,139) (6,579)(6) (776,718)
Foreign currency translation adjustments........... (23,719) -- (23,719)
Pension equity adjustment.......................... (9,090) -- (9,090)
Treasury stock, at cost............................ (11,078) -- (11,078)
---------- ----------- ----------
Total common stockholders' deficit............. (227,852) (6,579) (234,431)
---------- ----------- ----------
$1,050,007 $ 48,311 $1,098,318
---------- ----------- ----------
---------- ----------- ----------
</TABLE>
- ------------
(1) Represents the amount of net proceeds from the sale of the Notes remaining
after repayment of indebtedness, which will be retained for general
corporate purposes.
(2) Represents $17.5 million in deferred financing fees incurred for the sale of
the Notes and the amendment of the Bank Credit Facilities offset by a
partial write-off of previously incurred deferred financing fees related to
the Bank Credit Facilities.
(3) Represent tax benefits related to the write-off of previously incurred
deferred financing fees.
(4) Represents the sale of the Notes and the repayment of $266.8 million under
the Term Loan Facility and $72.2 million under the Revolving Facility.
(5) Reflects repayment of accrued interest under the Bank Credit Facilities as
of January 27, 1996.
(6) Represents the write-off of previously incurred deferred financing fees of
$10.8 million net of tax benefits of $4.2 million.
S-14
<PAGE>
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Company is a direct wholly owned subsidiary of C&A Co., the guarantor of
the Notes. Separate financial statements of the Company are not presented
because they would not be material to prospective holders of the Notes, there
being no material differences between the financial statements of the Company
and C&A Co.
RECENT DEVELOPMENTS
On May 1, 1996, the Company acquired the business of Fatati, a manufacturer
of molded floor carpets and luggage compartment trim for the European automotive
market. Located in Newcastle under Lyme, U.K., Fatati had net sales of
approximately $25 million for its year ended December 31, 1995.
On April 9, 1996, C&A Co. announced a plan to spin off Wallcoverings to the
stockholders of C&A Co. in the form of a stock dividend. The Company expects the
spin-off to occur in the summer of 1996. The spin-off is subject to, among other
things, the approval of the Company's lenders and final approval of C&A Co.'s
Board of Directors. C&A Co. has accounted for the financial results and net
assets of Wallcoverings as a discontinued operation. Accordingly, previously
reported financial results for all periods discussed have been restated to
reflect Wallcoverings as a discontinued operation. See Note 15 to the
Consolidated Financial Statements of C&A Co. included herein for information
regarding discontinued operations.
During March 1996, the Company experienced a decline in sales relating to
the United Auto Workers strike against General Motors. The Company estimates
that the impact of the General Motors strike on the Company's sales in the first
fiscal quarter of 1996 will be approximately $17 million. The strike was settled
on March 22, 1996 and the Company does not expect any adverse effects from the
strike on the Company's 1996 second quarter results.
MANCHESTER PLASTICS ACQUISITION
On January 3, 1996, the Company completed the acquisition of Manchester
Plastics for a purchase price of approximately $184.0 million, which includes
approximately $40.4 million of debt extinguished in connection with the
acquisition. The acquisition, related fees and expenses and estimated Manchester
Plastics working capital requirements were financed by borrowings of $197
million under the Term Loan B Facility. See "--Liquidity and Capital Resources".
Manchester Plastics is a designer and manufacturer of high quality
plastic-based products consisting of automotive door panels, headrests, floor
console systems and instrument panel components used in the interior of
automobiles, light trucks, sport utility vehicles and minivans. It serves the
North American automakers from seven manufacturing plants in the United States
and Canada. Prior to its acquisition, Manchester Plastics had annual net sales
for its years ended December 31, 1995, 1994, and 1993 of $193.7 million, $169.3
million and $148.3 million, respectively.
The Manchester Plastics product line adds a broad range of molded plastic
products to the Company's extensive textile-based automotive trim products. The
Company believes that U.S. OEMs and, to a lesser extent, Transplants, are moving
toward integrated contracts, where one supplier will manage the manufacture
and/or assembly of an integrated vehicle system. The acquisition of Manchester
Plastics positions the Company to offer to its OEM customers enhanced design and
engineering services and more fully integrated interior systems.
C&A Co. has accounted for the acquisition of Manchester Plastics as a
purchase, and it is therefore included in fiscal 1995 results for a period of
approximately three and one-half weeks. The purchase price and related expenses
exceeded the fair value of the net assets acquired by approximately
S-15
<PAGE>
$155 million. The resulting goodwill is being amortized on a straight line basis
over 40 years. See Notes 3 and 5 to the Consolidated Financial Statements of C&A
Co. included herein for further discussion and pro forma financial information.
INITIAL PUBLIC OFFERING AND RECAPITALIZATION
On July 13, 1994, C&A Co. completed an initial public offering of the common
stock of C&A Co. (the "Initial Public Offering") and a recapitalization (the
"Recapitalization"), which reduced C&A Co.'s indebtedness, lowered interest
expense and provided liquidity for operations and other general corporate
purposes. After the Initial Public Offering and Recapitalization, approximately
70.5 million shares of Common Stock were outstanding. Since that time, C&A Co.
has repurchased approximately 1.5 million shares of Common Stock.
GENERAL
The Company's continuing business segments consist of Automotive Products,
which supplies textile and plastic interior trim products and convertible top
systems to the North American and, increasingly, the European automotive
industry, and Interior Furnishings, which manufactures residential upholstery
fabric and commercial carpet products in the United States. C&A Co.'s net sales
in fiscal 1995 were $1,291.5 million, with approximately $906.9 million (70.2%)
in Automotive Products and $384.5 million (29.8%) in Interior Furnishings,
compared to $1,319.4 million in fiscal 1994, with approximately $904.9 million
(68.6%) in Automotive Products and $414.5 million (31.4%) in Interior
Furnishings. All references to a year with respect to the Company refer to the
fiscal year of the Company which ends on the last Saturday of January of the
following year. Capitalized terms that are used in this discussion and not
defined herein have the meanings assigned to such terms in the Notes to
Consolidated Financial Statements of C&A Co. included herein.
The Company intends to pursue a growth-oriented strategy, focused on
extending the breadth of its product offerings, enhancing its systems design
capabilities and expanding geographically to support its automotive customers on
a global basis. In addition to expanding through internal growth, the Company
intends to pursue growth through selected acquisitions, including acquisitions
of other automotive product companies and product lines. The Company intends to
consider the incurrence of additional indebtedness and other capital market
transactions to finance its planned expansion.
The industries in which the Company competes are cyclical. Automotive
Products is primarily influenced by the level of North American vehicle
production. Interior Furnishings' Decorative Fabrics group is directly
influenced by the level of retail furniture sales, which in turn is primarily
influenced by the level of residential construction and renovation and by
consumer confidence. Floorcoverings is primarily influenced by the level of
institutional and commercial construction.
RESULTS OF OPERATIONS OF C&A CO.
<TABLE>
<CAPTION>
AUTOMOTIVE PRODUCTS INTERIOR FURNISHINGS
--------------------------------------- ---------------------------------------
FISCAL YEAR ENDED FISCAL YEAR ENDED
--------------------------------------- ---------------------------------------
JANUARY 27, JANUARY 28, JANUARY 29, JANUARY 27, JANUARY 28, JANUARY 29,
1996 1995 1994 1996 1995 1994
----------- ----------- ----------- ----------- ----------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Net sales........................ $ 906.9 $ 904.9 $ 677.9 $ 384.5 $ 414.5 $ 407.2
Cost of goods sold............... 743.6 730.1 555.4 268.8 287.1 294.7
Gross margin..................... 163.3 174.8 122.5 115.7 127.4 112.5
Selling, general and
administrative expenses........ 63.6 51.5 54.9 67.3 70.0 68.0
Goodwill amortization and
write-off........................ .3 -- 69.9 -- -- 32.3
Segment operating income (loss)
(1).............................. $ 99.4 $ 123.3 $ (2.3) $ 48.4 $ 57.4 $ 12.2
Gross margin percentages......... 18.0% 19.3% 18.1% 30.1% 30.7% 27.6%
Operating margin percentages..... 11.0% 13.6% (.3)% 12.6% 13.8% 3.0%
</TABLE>
- ------------
(1) Excludes $0, $14.9 million and $38.3 million of unallocated corporate
expense in 1995, 1994 and 1993, respectively.
S-16
<PAGE>
1995 COMPARED TO 1994
A discussion of the results of operations for each of the Company's
operating segments follows:
AUTOMOTIVE PRODUCTS
Net Sales: Automotive Products' net sales increased 0.2% to $906.9 million
in 1995, up $2.0 million over 1994. Increased sales in three of the Company's
five high volume products (molded carpet, luggage compartment trim and accessory
mats), as well as the addition of Manchester Plastics on January 3, 1996, were
substantially offset by a decrease in sales of convertible top systems and
automotive bodycloth. The North American automobile and light truck build
declined 1.3% in 1995 from 1994.
Automotive bodycloth sales decreased 3.8% to $327.5 million in 1995, down
$12.8 million from 1994. The decline in sales was primarily due to an 8.2%
decrease in unit shipments, which was partially mitigated by a 4.9% increase in
average selling price due primarily to a shift in product mix. The unit shipment
decline resulted from reduced automotive build in certain high content platforms
which the Company supplies. The overall decrease in automotive bodycloth for the
year was principally related to decreased sales to the Chrysler minivan
platforms, the Ford Thunderbird, Windstar, Ranger and F-Series Truck and the
Chevrolet Caprice and S-10 Truck. These decreases were partially offset by
increased sales to the Chevrolet Lumina, C/K Truck, Cavalier and Blazer, the
Toyota Avalon and Pickup Truck, the Ford Contour and Escort, the Mercury Sable
and the Chrysler Concorde.
Molded floor carpet sales increased 8.7% to $231.8 million, up $18.6 million
over 1994. The increase in sales was due to a 3.0% increase in unit shipments
and a 5.6% increase in average selling price. The increase in average selling
price is partially attributable to a shift in OEM production to higher content
vehicles, such as the Chevrolet C/K truck line and the Ford Explorer. For the
year, the overall increase in molded carpet sales was principally related to
increased sales to the Chrysler Cirrus/Stratus, T300 Truck and Caravan minivan,
the Ford Explorer and the Chevrolet C/K Truck. These increases were partially
offset by decreased sales to the Chrysler Voyager minivan, the Ford Mustang and
Probe, the Cadillac DeVille and the Toyota Camry.
Luggage compartment trim sales increased 15.8% to $52.4 million, up $7.2
million over 1994. The increase in sales was primarily due to a 7.1% increase in
unit shipments and an 8.1% increase in average selling price. The increase in
unit shipments and average selling price reflects the OEMs' continued move to
finished luggage compartments. For the year, the overall increase in luggage
compartment trim sales was principally related to increased sales to the Ford
Explorer, the Chrysler Cirrus/Stratus and the Honda Civic. These increases were
partially offset by decreased sales to the Nissan Sentra, the Chrysler Neon and
the Pontiac Bonneville.
Accessory mat sales increased 7.4% to $80.3 million, up $5.5 million over
1994. The increase in sales was primarily due to increased unit volume. For the
year the overall increase in accessory mat sales was principally related to
increased sales to the Ford Explorer, the Chrysler Cirrus/Stratus, the Toyota
Avalon and the Honda Civic. These increases were partially offset by decreased
sales to the Ford Mustang, Probe, the Mazda 626, Nissan Sentra and Chrysler
Minivan.
Convertible top systems sales decreased 27.5% to $58.2 million, down $22.0
million from 1994. The net decrease in sales resulted from a 46.2% decline in
OEM production of the Ford Mustang convertible and the scheduled discontinuance
of the Chrysler LeBaron convertible, which were partially offset by the
introduction of the new Chrysler Sebring convertible in the latter part of
October and the new Alfa Romeo Spider convertible, which began volume production
in February 1995.
These factors resulted in the Company's average revenue per North
American-produced vehicle of approximately $54 for 1995 compared to
approximately $53 for 1994.
GROSS MARGIN: For 1995, gross margin was 18.0% of sales, down from 19.3% in
1994. The decrease in gross margin was attributable primarily to the decline in
convertible top system sales, which
S-17
<PAGE>
carry higher contribution margins than the segment's average. In addition, gross
margin was impacted by certain manufacturing inefficiencies, commission weaving
costs incurred due to capacity constraints in the production of automotive
bodycloth during the first half of 1995 and charges totaling $2.4 million
related to a plant closing and the write-off of certain assets.
The Company terminated commission weaving during the second quarter of 1995.
Manufacturing inefficiencies which impacted the first and second quarters
resulted from the in-house start-up of fabric lines which had previously been
woven outside on a commission basis. Manufacturing inefficiencies also resulted
to a lesser extent from the reengineering of fabric lines to meet customers'
specifications. For the year, the impact of raw material price increases was
offset by the segment's cost improvement programs and to a lesser extent by
price increases to customers.
During the fourth quarter of 1995, Automotive Products incurred charges of
$2.4 million related to the anticipated closure of a molded carpet plant in
Clinton, Oklahoma, the write-down of spinning equipment previously utilized in
the production of molded carpet for Chrysler in Canada and the decision to
discontinue the Company's automotive aftermarket accessory mat product line. The
closure of the Clinton facility, which impacted 93 employees, and the write-down
of the Canadian molded carpet equipment, resulted from changes in the supply
requirements of certain of the Company's OEM customers.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Automotive Products' selling,
general and administrative expenses increased 23.5% to $63.6 million in 1995, up
$12.1 million over 1994. The increase is attributable to higher styling and
product development costs, the expansion of existing businesses into Mexico and
Austria, the acquisition of Manchester Plastics in January 1996, the allocation
of previously unallocated corporate costs and increased expenses resulting from
divisional reorganizations. Selling, general and administrative expenses as a
percentage of sales increased to 7.0% in 1995 from 5.7% in 1994.
INTERIOR FURNISHINGS
NET SALES: Interior Furnishings' net sales decreased 7.2% to $384.5 million
in 1995, down $30.0 million from 1994.
In Decorative Fabrics, sales decreased 14.4% to $262.4 million, down $44.1
million from 1994. This decline was due to overall softness in the home
furnishings market which the Company's Mastercraft division serves, the sale of
the Warner and Greeff product lines in 1994, and a 29.1% decline in velvet
furniture products. The Mastercraft division sales decline reflects a 6.2%
decrease in unit volume and the impact of a shift in the average selling price
due to increased sales of the division's lower priced Advantage product line. In
1994 the Warner and Greeff product lines generated $13.5 million in sales. The
sales decline in furniture velvets is attributable to lost customers resulting
from the Company's redeployment of manufacturing capacity from velvet furniture
products to automotive seat fabrics in 1994.
In 1995, Floorcoverings' sales increased 13.1% to $122.2 million, up $14.1
million over 1994. This increase is largely attributable to a 15.0% increase in
unit shipments, primarily in six-foot roll sales to all market segments. The
Company attributes Floorcoverings' sales growth to its strategy of increasing
its penetration of market segments through more focused coverage of those
segments and the addition of new sales personnel in 1995.
GROSS MARGIN: Interior Furnishings' gross margin declined to 30.1% of sales
in 1995 from 30.7% in 1994. The decrease reflects the overall reduction in
decorative fabric volume and the impact of raw material price increases. These
factors were partially offset by improvements in manufacturing efficiencies in
the Decorative Fabrics group resulting from Mastercraft's loom modernization
program which was completed in 1995, as well as improved sales volume in
Floorcoverings.
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SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Interior Furnishings' selling,
general and administrative expenses decreased 3.8% to $67.3 million in 1995,
down $2.7 million from 1994. The net decrease is primarily due to the sale of
the Warner and Greeff product lines offset by planned increases in expenses
related to sales growth in Floorcoverings and the allocation of previously
unallocated corporate expenses. The Warner and Greeff product lines incurred
$5.9 million in selling, general and administrative expenses in 1994. Selling,
general and administrative expenses as a percentage of sales increased to 17.5%
in 1995 from 16.9% in 1994.
TOTAL COMPANY
NET SALES: Net sales decreased 2.1% to $1,291.5 million in 1995, down $27.9
million from 1994. The overall net sales decrease reflects decreases in the
Interior Furnishings segment offset by a slight increase in the Company's
Automotive Products segment as discussed above.
GROSS MARGIN: Gross margin decreased to $279.1 million in 1995 or 21.6% of
sales, down from $302.2 million or 22.9% of sales in 1994. The decrease in the
gross margin in 1995 relates primarily to decreased volume in Automotive
Products' convertible top systems business and in Interior Furnishings'
Decorative Fabrics business. Additionally, gross margin was negatively impacted
by charges related to a plant closing and write-down of certain assets as well
as raw material price increases and certain manufacturing inefficiencies in
Automotive Products' bodycloth business during the first half of 1995. The
decrease was partially offset by increased volume in the Floorcoverings business
and increased unit volume and average selling prices in Automotive Products'
molded carpet business.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Selling, general and
administrative expenses of $131.0 million in 1995 were $5.4 million lower than
in 1994. The decrease resulted primarily from a reduction in certain advisory
fees and the sale of the Warner and Greeff product lines in 1994 partially
offset by increased product development, the acquisition of Manchester Plastics
and increased general and administrative costs due to expansion in Mexico and
Austria. Selling, general and administrative expenses as a percentage of sales
decreased to 10.1% in 1995 from 10.3% in 1994.
INTEREST EXPENSE: Interest expense allocated to continuing operations, net
of interest income of $1.6 million in 1995 and $6.4 million in 1994, decreased
to $47.9 million in 1995 from $75.0 million in 1994. In 1995, interest expense,
including amounts allocated to discontinued operations and excluding interest
income, decreased to $50.2 million from $82.1 million in 1994. The overall
decrease in interest expense was due to the Recapitalization, which reduced the
amount of overall outstanding indebtedness and replaced higher fixed rate
indebtedness with variable rate borrowings.
LOSS ON THE SALE OF RECEIVABLES: Beginning with the Recapitalization in July
1994, the Company has sold on a continuous basis, through Carcorp, Inc., its
wholly-owned, bankruptcy-remote subsidiary ("Carcorp"), interests in a pool of
accounts receivable. In connection with the receivables sales, a loss of $8.7
million was incurred in 1995 compared to a loss of $7.6 million in 1994. Of the
$7.6 million loss recorded in 1994, $1.3 million related to one time fees and
expenses related to the Bridge Receivables Facility (as defined).
INCOME TAXES: In 1995, C&A Co. recognized a $138.5 million tax benefit
compared with a $11.0 million provision in 1994. In 1995, the benefit
principally resulted from a reduction of valuation allowances against C&A Co.'s
Federal net operating loss carryforwards and other deferred tax assets, offset
by $11.3 million in current foreign, state, franchise and Federal alternative
minimum taxes. See "--Tax Matters" below. In 1994, income taxes consisted of
foreign, state and franchise taxes and, to a small extent, Federal alternative
minimum tax.
DISCONTINUED OPERATIONS: C&A Co.'s loss from discontinued operations was
$23.3 million in 1995 compared with income of $5.8 million in 1994. In 1995 and
1994 discontinued operations consisted of the Company's Wallcoverings
subsidiary, which was discontinued on April 8, 1996. The loss in 1995 resulted
from charges for a write-down of inventory, the consolidation of all
distribution activities to a
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new state of the art distribution center under construction in Knoxville,
Tennessee, the closure of Wallcoverings' Hammond, Indiana facility and the
reengineering of its production processes.
EXTRAORDINARY LOSS ON THE EXTINGUISHMENT OF DEBT: During 1994, C&A Co. as
part of the Recapitalization, recognized a loss on the extinguishment of debt of
$106.5 million, consisting of $9.6 million of premiums paid to redeem
indebtedness and $96.9 million of unamortized discounts, deferred financing
charges and defeasance costs.
NET INCOME: The combined effect of the foregoing resulted in net income of
$206.4 million in 1995 compared to a net loss of $30.8 million in 1994.
1994 COMPARED TO 1993
A discussion of the results of operations for each of the Company's
operating segments follows:
AUTOMOTIVE PRODUCTS
NET SALES: Automotive Products' net sales increased 33.5% to approximately
$904.9 million in 1994, up $227.0 million over 1993. The increase is
attributable to increased sales volume, which reflects the impact of a 10.6%
increase in North American automobile and light truck build in 1994 from 1993.
Of the net sales increase, 53% related to automotive bodycloth, 20% related to
convertible top and topstack products and 16% related to molded floor carpet.
The remainder related to other automotive products.
The bodycloth increase was primarily due to the Company's jacquard velvets
product line, currently utilized in such high volume models as the General
Motors C/K Truck line, and to other new placements including the Chevrolet Monte
Carlo, the Ford Contour/Mystique, Windstar and F-Series Trucks and the Chrysler
Cirrus/Stratus. Existing product placements which experienced significant
overall increases in volume over 1993 were the Pontiac Grand Am and Bonneville
and the Chrysler Minivans.
The molded floor carpet increase was due to a 17% increase in unit shipments
principally related to increased production of high volume models including
Cadillac DeVille, Oldsmobile Aurora, Chevrolet C/K Truck line, Chrysler
Minivans, Ford Mustang, Toyota Camry, and the Dodge T-300 and Dakota Trucks.
The convertible top and topstack increase resulted from Ford's full
production of the Mustang convertible and increased volume of the Chrysler
LeBaron convertible.
These factors resulted in the Company's average revenue per North
American-produced vehicle of approximately $53 for 1994 compared to
approximately $43 for 1993.
GROSS MARGIN: For 1994, gross margin was 19.3%, up from 18.1% in 1993.
During the third and fourth quarters, the Company incurred premium freight and
commission weaving costs related to capacity constraints for certain automotive
seat fabrics. The premium freight and commission weaving costs offset the
improvements in gross margin which resulted from spreading fixed costs over
higher production volume and from continued benefits of reducing costs of
non-conforming products. The Company terminated commission weaving during the
second quarter of 1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Automotive Products' selling,
general and administrative expenses decreased 6.3% or $3.5 million in 1994 as
compared to 1993. The reduction is attributable to lower styling and product
development costs in the segment's automotive carpet product line and reduced
administrative expenses resulting from reductions in administrative head count
and changes in postretirement plan provisions. Selling, general and
administrative expenses as a percentage of sales decreased to 5.7% in 1994 from
8.1% in 1993.
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INTERIOR FURNISHINGS
NET SALES: Interior Furnishings' net sales increased 1.8% to $414.5 million
in 1994, up $7.3 million over 1993. In Decorative Fabrics, sales declined $7.2
million to $306.5 million. This decline was primarily due to the Company's
redeployment of manufacturing capacity from certain Decorative Fabrics velvet
furniture products to automotive seat fabrics and to softness in the Mastercraft
product line commencing in the third quarter, which was partially offset by
increased sales in the contract fabric lines. Management believes that the sales
decline experienced by Mastercraft in the second half of 1994 primarily reflects
increased competition from lower priced fabrics. In 1994, Floorcoverings' net
sales increased $14.4 million over 1993. This increase is largely attributable
to a 16.3% increase in volume, primarily in six-foot roll sales to the education
and corporate markets and in sales in the southern United States.
GROSS MARGIN: Interior Furnishings' gross margin rose to 30.7% of sales in
1994 from 27.6% in 1993. The increase reflects improvements in manufacturing
efficiencies in the Decorative Fabrics group resulting from Mastercraft's loom
modernization and cost improvement programs, as well as improved sales volumes
and product mix in Floorcoverings.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Interior Furnishings' selling,
general and administrative expenses increased 2.9% or $2.0 million in 1994 from
1993. The increase is primarily due to increased selling expenses related to
sales volume increases in Floorcoverings as well as a planned expansion of that
group's sales staff. Selling, general and administrative expenses as a
percentage of sales increased to 16.9% in 1994 from 16.7% in 1993.
TOTAL COMPANY
NET SALES: Net sales increased 21.6% to $1,319.4 million in 1994, up $234.3
million over 1993. The overall net sales increase reflects increases in the
Company's Automotive Products and Interior Furnishings segments.
GROSS MARGIN: Gross margin increased to $302.2 million in 1994 or 22.9% of
sales, up from $235.0 million or 21.7% of sales in 1993. The increase in the
gross margin in 1994 relates primarily to increased volume in the Company's
Automotive Products segment, which resulted in lower fixed costs per unit, and
manufacturing efficiencies in the Interior Furnishings segment, offset by
premium freight and commission weaving charges in the Automotive Products
segment.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Selling, general and
administrative expenses of $136.4 million in 1994 were $1.9 million higher than
in 1993. The increase resulted from higher unallocated corporate expenses of
$3.4 million and increased selling, general and administrative expenses at
Interior Furnishings of $2.0 million, offset partially by a $3.5 million
reduction of selling, general and administrative expenses at Automotive
Products. In 1994, unallocated corporate expenses of $14.9 million were $3.4
million higher than 1993 expenses. The increase in unallocated corporate
expenses relates to fees for services performed by affiliates of Blackstone
Capital Partners L.P. ("Blackstone Partners") and of Wasserstein Perella
Partners, L.P. ("WP Partners") in connection with the Company's evaluation of
refinancing and strategic alternatives and certain other advisory services.
Selling, general and administrative expenses as a percentage of sales decreased
to 10.3% in 1994 from 12.4% in 1993.
MANAGEMENT EQUITY PLAN: In 1993, C&A Co. incurred a one-time charge of $26.7
million related to C&A Co.'s 1993 Employee Stock Plan.
GOODWILL WRITE-OFF AND AMORTIZATION: During the third quarter ended October
30, 1993, C&A Co. wrote off its remaining goodwill of $129.9 million of which
$100.0 million related to continuing operations. The write-off was based on
management's assessment of C&A Co.'s financial condition given C&A Co.'s capital
structure at that time. Although management of C&A Co., based on the facts known
to it at October 30, 1993, was expecting both cyclical and long-term improvement
in the results
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of operations, an analysis suggested that, given C&A Co.'s capital structure at
that time, a deterioration of the financial condition of C&A Co. had occurred
and cumulative future net income would not be sufficient to recover C&A Co.'s
remaining goodwill balance at October 30, 1993.
Goodwill amortization related to continuing operations was $2.1 million in
1993. No goodwill amortization was recorded in 1994 as a result of the write-off
of goodwill at October 30, 1993.
INTEREST EXPENSE: Interest expense allocated to continuing operations, net
of interest income of $6.4 million in 1994 and $4.4 million in 1993, decreased
to $75.0 million in 1994 from $111.0 million in 1993. In 1994, interest expense,
including amounts allocated to discontinued operations and excluding interest
income, decreased to $82.1 million from $135.1 million in 1993. The overall
decrease in interest expense was principally due to the Recapitalization, which
reduced the amount of outstanding indebtedness and replaced higher fixed rate
indebtedness with variable rate borrowings. No interest was allocated to
discontinued operations in 1994.
LOSS ON THE SALE OF RECEIVABLES: On July 13, 1994, the Company, as part of
the Recapitalization, sold through Carcorp an undivided senior interest in a
pool of accounts receivable to Chemical Bank pursuant to the Bridge Receivables
Facility. In connection with the receivables sale, a loss of $7.6 million was
incurred in 1994. Of this loss, $1.3 million related to fees and expenses
associated with the sale and $6.3 million related to discounts on the
receivables sold.
INCOME TAXES: In 1994, the provision for income taxes was $11.0 million
compared with $10.5 million in 1993. In 1994 and 1993 income tax expense
consisted of foreign, state and franchise taxes.
DISCONTINUED OPERATIONS: C&A Co.'s income from discontinued operations was
$5.8 million in 1994 compared with a loss of $123.3 million in 1993. In 1994,
income from discontinued operations consisted of the Company's Wallcoverings
subsidiary, which was discontinued effective April 8, 1996. C&A Co.'s loss from
discontinued operations in 1993 was principally related to an operating loss in
the Company's Wallcoverings subsidiary, and the accrual of additional reserves
(i) for the significant reduction in estimated proceeds from disposition and
other costs in connection with the sale or disposition of inventory, real estate
and other assets of the Company's Builders Emporium division, (ii) to provide
for employee severance and other costs and (iii) to realize a previously
unrecognized loss as a result of the decision to retain Dura Convertible
Systems. The 1993 loss was partially offset by a $28.1 million gain on the sale
of Kayser-Roth Corporation.
EXTRAORDINARY LOSS ON THE EXTINGUISHMENT OF DEBT: On July 13, 1994, C&A Co.,
as part of the Recapitalization, recognized a loss on the extinguishment of debt
of $106.5 million. This second quarter 1994 loss consisted of $9.6 million of
premiums paid to redeem indebtedness and $96.9 million of unamortized discounts,
deferred financing charges and defeasance costs.
NET INCOME: The combined effect of the foregoing resulted in a net loss of
$30.8 million in 1994 compared to a net loss of $277.7 million in 1993.
LIQUIDITY AND CAPITAL RESOURCES
As part of the Recapitalization, in July 1994 the Company entered into
credit facilities consisting of (i) the Term Loan Facility, (ii) the Revolving
Facility (together with the Term Loan Facility, the "Credit Agreement
Facilities") and (iii) a bridge receivables facility, which was terminated and
replaced with the Receivables Facility described below. On December 22, 1995,
the Company and C&A Co. entered into the Term Loan B Facility to finance the
January 1996 purchase of Manchester Plastics as discussed above. The restrictive
covenants contained in the Term Loan B Facility are identical to those in the
Credit Agreement Facilities.
As a result of the amendment of the Credit Agreement Facilities and the Term
Loan B Facility (the "Bank Credit Facilities") being effected in connection with
the sale of the Notes and the use of proceeds from such sale to repay various
outstanding loans under the Credit Agreement Facilities (see "Amendment to
Credit Facilities"), the Bank Credit Facilities will, upon consummation of the
sale of
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the Notes, consist of (i) the Term Loan Facility, in an aggregate principal
amount of $195 million (including a $45 million facility in Canada), payable in
installments until final maturity on December 31, 2002, (ii) the Term Loan B
Facility, in the principal amount of $195.8 million, payable in installments
until final maturity on December 31, 2002, and (iii) the Revolving Facility,
having an aggregate principal amount of up to $250 million and maturing on July
13, 2001. The Bank Credit Facilities, which are guaranteed by C&A Co. and its
U.S. subsidiaries (subject to certain exceptions), contain (and after their
amendment in connection with the sale of the Notes, will contain) restrictive
covenants including maintenance of EBITDA (i.e. earnings before interest, taxes,
depreciation, amortization and other non-cash charges) and interest coverage
ratios, leverage and liquidity tests and various other restrictive covenants
which are typical for such facilities. In addition, the Company is and will be
generally prohibited from paying dividends or making other distributions to C&A
Co. except (x) to the extent necessary to allow C&A Co. to pay taxes and
ordinary expenses, (y) for permitted repurchases of shares or options from
employees and (z) to make permitted investments in finance, foreign or acquired
subsidiaries. In addition, the Company and C&A Co. are permitted to pay
dividends and repurchase shares of C&A Co. in any fiscal year in an aggregate
amount equal to the greater of (i) $12 million and (ii) if certain financial
ratios are satisfied, 25% of C&A Co.'s consolidated net income for the previous
fiscal year, and, after giving effect to the amendment of the Bank Credit
Facilities in connection with the sale of the Notes, will be permitted to pay
additional dividends and repurchase shares in amounts representing certain net
proceeds from any sale of Wallcoverings in the event the spin-off is not
effected.
At the time of the closing of the sale of the Notes, after giving effect to
the use of proceeds to repay certain borrowings under the Revolving Facility and
to the amendment of the Bank Credit Facilities described below, the Company will
have borrowing availability of approximately $220 million under the Revolving
Facility.
On March 31, 1995, the Company entered, through the Trust formed by Carcorp,
into the Receivables Facility, comprised of (i) term certificates, which were
issued on March 31, 1995, in an aggregate face amount of $110 million and have a
term of five years and (ii) variable funding certificates, which represent
revolving commitments of up to an aggregate of $75 million and have a term of
five years. Carcorp purchases on a revolving basis and transfers to the Trust
virtually all trade receivables generated by the Company and certain of its
subsidiaries (the "Sellers"). The certificates represent the right to receive
payments generated by the receivables held by the Trust.
In connection with the proposed spin-off of Wallcoverings, Wallcoverings
will be terminated as a seller of receivables under the Receivables Facility.
Receivables sold by Wallcoverings prior to such termination will remain in the
Trust. The Company anticipates that the Trust will be required to redeem term
certificates having a face value of approximately $20 million as the Trust
collects the Wallcoverings receivables.
Availability under the variable funding certificates at any time depends
primarily on the amount of receivables generated by the Sellers from sales to
the auto industry, the rate of collection on those receivables and other
characteristics of those receivables that affect their eligibility (such as
bankruptcy or downgrading below investment grade of the obligor, delinquency and
excessive concentration). Based on these criteria, at January 27, 1996
approximately $19.8 million was available under the variable funding
certificates, of which $18.0 million was utilized.
The proceeds received by Carcorp from collections on receivables, after the
payment of expenses and amounts due on the certificates, are used to purchase
new receivables from the Sellers. Collections on receivables are required to
remain in the Trust if at any time the Trust does not contain sufficient
eligible receivables to support the outstanding certificates. At January 27,
1996, cash collateral of $8.7 million was required to be retained in the Trust.
Additionally, the Trust held $15.7 million of cash collections to be distributed
upon the determination of eligibility at January 27, 1996. This amount has been
recorded as a receivable from the Trust. The Receivables Facility contains
certain other restrictions on Carcorp (including maintenance of $25 million net
worth) and on the Sellers (including limitations on liens on receivables,
modifications of the terms of receivables, and changes in credit and
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collection practices) customary for facilities of this type. The commitments
under the Receivables Facility will terminate prior to their term upon the
occurrence of certain events, including payment defaults, breach of covenants,
bankruptcy, insufficient eligible receivables to support the outstanding
certificates, default by the Company in servicing the receivables and, in the
case of the variable funding certificates, failure of the receivables to satisfy
certain performance criteria.
During the year ended January 27, 1996, the Company sold and leased back
$32.8 million of machinery and equipment utilized in the Automotive Products and
Interior Furnishings segments under a master lease agreement. At January 27,
1996, the Company had $20.0 million of potential availability under this master
lease for future machinery and equipment requirements of the Company, subject to
the lessor's approval. The Company made lease payments of approximately $6.3
million in 1995 for machinery and equipment sold and leased back under this
master lease. The Company expects lease payments under this master lease to be
approximately $8.2 million in 1996.
The Company makes capital expenditures on a recurring basis for replacements
and improvements. As of January 27, 1996, the Company had approximately $47.9
million in outstanding capital expenditure commitments. During 1995, capital
expenditures for continuing operations aggregated approximately $77.9 million as
compared to $79.1 million in 1994. The Company's capital expenditures in future
years will depend upon demand for the Company's products and changes in
technology. The Company currently anticipates that capital investments for
continuing operations in 1996 will aggregate approximately $60 million to $70
million, a portion of which may be financed through leasing.
The Company estimates that Wallcoverings will experience net cash
requirements for working capital and capital expenditures, principally in
connection with Wallcoverings' reengineering program, of approximately $15
million, prior to the spin-off. Additionally, the Company currently expects to
expend approximately $35 million to make a cash investment in Wallcoverings for
future working capital and capital expenditure requirements and to fund
Wallcoverings' receivables which were previously sold to Carcorp. Amounts
actually required for these purposes could differ from expected amounts due to,
among other things, changes in Wallcoverings' operating results and the
availability of outside financing for Wallcoverings.
As discussed previously, on January 3, 1996, the Company acquired Manchester
Plastics for approximately $184.0 million, which includes approximately $40.4
million of debt that was extinguished in connection with the acquisition. The
acquisition, related fees and expenses and estimated Manchester Plastics working
capital requirements were financed by borrowings of $197 million under the Term
Loan B Facility as discussed above.
The Company's principal sources of funds are cash generated from continuing
operations, borrowings under the Revolving Facility and the sale of receivables
under the Receivables Facility. Net cash provided by the operating activities of
continuing operations was $106.0 million for the year ended January 27, 1996.
Additionally, the Company generated $32.8 million of cash in the sale/leaseback
transactions discussed above.
The Company's principal uses of funds for the next several years will be to
fund interest and principal payments on its indebtedness, net working capital
increases, capital expenditures and acquisitions. At January 27, 1996, the
Company had total outstanding indebtedness of $768.1 million (excluding
approximately $28.1 million of outstanding letters of credit and $.7 million of
indebtedness of the discontinued Wallcovering segment) at an average interest
rate of 7.6% per annum. Of the total outstanding indebtedness, $733.8 million
relates to the Bank Credit Facilities. As noted above, after giving effect to
the use of proceeds from the Offering to repay certain indebtedness under the
Bank Credit Facilities, the outstanding indebtedness at the time of the closing
of the sale of the Notes is expected to be $195 million under the Term Loan
Facility, approximately $196 million under the Term Loan B Facility and
approximately $4 million under the Revolving Facility (excluding approximately
$25 million in outstanding letters of credit).
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During the year ended January 27, 1996, C&A Co. spent an aggregate of $11.7
million to repurchase its shares. C&A Co.'s Board of Directors authorized the
expenditure of up to $12 million in 1996 to repurchase its shares. C&A Co.
believes it has sufficient liquidity to effect the stock repurchase program.
Indebtedness under the Credit Agreement Facilities bears interest at a per
annum rate equal to the Company's choice of (i) Chemical Bank's Alternate Base
Rate (which is the highest of Chemical's announced prime rate, the Federal Funds
Rate plus .5% and Chemical's base certificate of deposit rate plus 1%) plus a
margin ranging from 0% to .75% or (ii) the offered rates for Eurodollar deposits
("LIBOR") of one, two, three, six, nine or twelve months, as selected by the
Company, plus a margin ranging from 1% to 1.75%. After giving effect to the
amendment being effected in connection of the Offering, the margins, which are
subject to adjustment based on changes in the Company's ratios of senior funded
debt to EBITDA and cash interest expense to EBITDA, were 1.75% in the case of
the "LIBOR Margin" and .75% in the case of the "ABR Margin" on the date of this
Prospectus Supplement. Such margins will increase by .25% over the margins then
in effect on July 13, 1999. Indebtedness under the Term Loan B Facility bears
interest at a per annum rate equal to the Company's choice of (i) Chemical
Bank's Alternate Base Rate (as described above) plus a margin of 1.25% or (ii)
LIBOR of one, two, three or six months, as selected by the Company, plus a
margin of 2.25%. The weighted average rate of interest on the Credit Agreement
Facilities and the Term Loan B Facility at January 27, 1996 was 7.7%. The
weighted average interest rate on the sold interests under the Receivables
Facility at January 27, 1996 was 6.1%. Under the Receivables Facility, the term
certificates bear interest at an average rate equal to one-month LIBOR plus .34%
per annum and the variable funding certificates bear interest, at Carcorp's
option, at LIBOR plus .40% per annum or a prime rate. Cash interest paid during
1995 and 1994 was $45.8 million and $77.9 million ($16.0 million of which was
paid in connection with the Recapitalization), respectively.
Due to the variable interest rates under the Bank Credit Facilities and the
Receivables Facility, the Company is sensitive to increases in interest rates.
Accordingly, during September 1994, the Company entered into a program to reduce
its exposure to increases in interest rates through the use of interest rate cap
and corridor agreements. Under these agreements, the Company limited its
exposure on $250 million of notional principal amount from October 17, 1995
through October 17, 1996 at an average LIBOR strike price of 7.50%. Based upon
amounts expected to be outstanding after the application of the net proceeds
from the sale of the Notes, a .5% increase in LIBOR (5.5% at January 27, 1996)
would impact interest costs by approximately $2.0 million annually on the Bank
Credit Facilities and $.6 million annually on the Receivables Facility. In April
1996, the Company limited its exposure through April 2, 1998 on $80 million of
notional principal amount utilizing zero cost collars with 4.75% floors and a
weighted average cap of 7.86%.
The current maturities of long-term debt primarily consist of the current
portion of the Term Loan Facility and the Term Loan B Facility, vendor
financing, industrial revenue bonds and other miscellaneous debt. Repayments of
indebtedness under the Credit Agreement Facilities commenced in the third fiscal
quarter of 1995. Repayments of indebtedness under the Term Loan B Facility
commenced in the first quarter of 1996. After giving effect to the amendment of
the Bank Credit Facilities in connection with the sale of the Notes, the
maturities of long-term debt of the Company's continuing operations during 1996
and for 1997, 1998, 1999 and 2000 are $28.2 million, $36.2 million, $47.0
million, $54.0 million and $58.1 million, respectively. In addition, the Term
Loan Facility and the Term Loan B Facility provide for mandatory prepayments
with certain excess cash flow of the Company, net cash proceeds of certain asset
sales or other dispositions by the Company, net cash proceeds of certain
sale/leaseback transactions and net cash proceeds of certain issuances of debt
obligations.
The Company is sensitive to price movements in its raw material supply base.
During 1995, price trends for many materials continued to increase. The Company
anticipates that price increases in 1996 in its primary raw materials, some of
which have already been announced, could increase the cost of purchased raw
materials by approximately $20 million to $25 million on an annualized basis.
While the Company may not be able to pass on future raw material price increases
to its customers, it believes that
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a significant portion of the increased cost can be offset by continued results
of its value engineering/value analysis and cost improvement programs and by
continued reductions in the cost of nonconformance.
During the fourth quarter of 1995, C&A Co. recorded charges of $26.1
million, which are primarily non-cash and for discontinued operations, to
provide for facility consolidations, employee severance costs, elimination of
excess manufacturing capacity and inventory write-downs related to distribution
inefficiencies and excess quantities in certain product lines. Of these charges,
$23.7 million relates to the discontinued Wallcoverings business. The Company
expects to incur cash costs of approximately $5.2 million relating to the
charges.
The Company currently operates four facilities in Mexico to supply
automotive products primarily to Mexican subsidiaries of U.S.-based automobile
manufacturers. The Company believes that, based on the size of its Mexican
operations, fluctuations in the Mexican peso will not have a material impact on
the Company's financial position or results of operations.
The Company has significant obligations relating to postretirement,
casualty, environmental, lease and other liabilities of discontinued operations.
In connection with the sale and acquisition of certain businesses, the Company
indemnified the purchasers and sellers for certain environmental liabilities,
lease obligations and other matters. In addition, the Company is contingently
liable with respect to certain lease and other obligations assumed by purchasers
and may be required to honor such obligations if such purchasers are unable or
unwilling to do so. Management currently anticipates that the net cash
requirements of its discontinued operations, excluding Wallcoverings, will be
approximately $23 million in 1996. However, because the requirements of the
Company's discontinued operations are largely a function of contingencies, it is
possible that the actual net cash requirements of the Company's discontinued
operations could differ materially from management's estimates. Management
believes that the Company's cash needs relating to discontinued operations can
be provided by operating activities from continuing operations and by borrowings
under the amended Bank Credit Facilities.
TAX MATTERS
In fiscal 1993 and prior years, C&A Co. incurred significant financial
reporting and tax losses principally as a result of a capital structure that
contained a substantial amount of high interest rate debt. In addition, losses
were incurred as C&A Co. exited businesses which it did not consider to be
consistent with its long-term strategy. Although substantial net deferred tax
assets were generated during these periods, a valuation allowance was
established because in management's assessment the historical operating trends
made it uncertain whether the net deferred tax assets would be realized.
During July 1994, C&A Co. completed the Initial Public Offering and
Recapitalization, which reduced C&A Co.'s indebtedness, lowered interest expense
and provided liquidity for operations and other general corporate purposes. As a
result of the Recapitalization, C&A Co.'s annual financing costs were reduced
from $115 million in fiscal 1993 to $57 million in fiscal 1995. In fiscal 1994,
C&A Co. reported taxable income and had net income before an extraordinary loss
on the Recapitalization for financial reporting purposes; however, management
determined, largely because of C&A Co.'s prior losses, that it remained
uncertain whether the net deferred tax assets would be realized.
In fiscal 1995, C&A Co.'s continuing business segments generated substantial
operating income, consistent with historical trends, that, when combined with
the post-Recapitalization capital structure, resulted in income for both tax and
financial reporting purposes. The spin-off of the Wallcoverings segment that was
announced in April 1996 further clarified management's assessment of C&A Co.'s
likely future performance. Management considered these factors as well as the
future outlook for its continuing businesses in concluding that it is more
likely than not that net deferred tax assets of $156.8 million at January 27,
1996 will be realized. While continued operating performance at current levels
is sufficient to realize these assets, C&A Co.'s ability to generate future
taxable income is dependent on numerous factors, including general economic
conditions, the state of the automotive and interior
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furnishings industries and other factors beyond management's control. Therefore,
there can be no assurance that C&A Co. will meet its expectation of future
taxable income.
The valuation allowance at January 27, 1996 provides for certain deferred
tax assets that in management's assessment will not be realized due to tax
limitations on the use of such amounts or that relate to tax attributes that are
subject to uncertainty due to the long-term nature of their realization.
At January 27, 1996, C&A Co. had outstanding net operating loss
carryforwards ("NOLs") of approximately $286.5 million for Federal income tax
purposes, which excludes $9 million related to the discontinued Wallcoverings
business. Substantially all of these NOLs expire over the period from 2000 to
2008. C&A Co. also has unused Federal tax credits of approximately $15.6
million, $6.9 million of which expire during the period 1996 to 2003. C&A Co.
estimates that it will generate tax deductions of approximately $40.2 million in
connection with the ultimate disposition of assets and liabilities of its
discontinued businesses during the period 1996 to 1998, which were previously
accrued for financial reporting purposes. C&A Co. anticipates that utilization
of these NOLs, tax credits and deductions will result in the payment of minimal
Federal income taxes until these NOLs and tax credits are exhausted.
Approximately $79.8 million of C&A Co.'s NOLs and $6.9 million of C&A Co.'s
unused Federal tax credits may be used only against the income and apportioned
tax liability of the specific corporate entity that generated such losses or
credits or its successors. The Company believes that a substantial portion of
these tax benefits will be realized in the future. Future sales of common stock
by C&A Co. or its principal shareholders, or changes in the composition of its
principal shareholders, could constitute a "change in control" that would result
in annual limitations on C&A Co.'s use of its NOLs and unused tax credits.
Management cannot predict whether such a "change in control" will occur. If such
a "change in control" were to occur, the resulting annual limitations on the use
of NOLs and tax credits would depend on the value of the equity of C&A Co. and
the amount of "built-in gain" or "built-in loss" in C&A Co.'s assets at the time
of the "change in control", which cannot be known at this time.
C&A Co. previously reported that its Federal income tax returns for the
period 1988 through 1991 were under examination and that the IRS had proposed
adjustments that could have resulted in the loss of a material amount of the
NOLs otherwise available to C&A Co. in future years. During 1995 the IRS
withdrew substantially all of the proposed adjustments. C&A Co. agreed to pay
tax and interest of $1.4 million and its NOLs were reduced by $6.1 million.
The California Franchise Tax Board has challenged the treatment of the sale
of certain foreign subsidiaries during 1987 and has issued a notice of tax
assessment, which C&A Co. received in November 1995, for approximately $11.8
million. C&A Co. disputes the assessment and has filed a protest with the
Franchise Tax Board. If the Franchise Tax Board were to maintain its position
and such position were to be upheld in litigation, C&A Co. would also become
liable for the payment of interest which is currently estimated to be $13.9
million. In the opinion of management, the final determination of any additional
tax and interest liability will not have a material adverse effect on C&A Co.'s
consolidated financial condition or results of operations.
ENVIRONMENTAL MATTERS
The Company is subject to Federal, state and local environmental laws and
regulations that (i) affect ongoing operations and may increase capital costs
and operating expenses and (ii) impose liability for the costs of investigation
and remediation and otherwise related to on-site and off-site soil and
groundwater contamination. The Company's management believes that it has
obtained, and is in material compliance with, all material environmental permits
and approvals necessary to conduct its various businesses. Environmental
compliance costs for continuing businesses currently are accounted for as normal
operating expenses or capital expenditures of such business units. In the
opinion of management, based on the facts presently known to it, such
environmental compliance costs will not have a material adverse effect on the
Company's consolidated financial condition or results of operations.
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The Company is legally or contractually responsible or alleged to be
responsible for the investigation and remediation of contamination at various
sites. It also has received notices that it is a potentially responsible party
("PRP") in a number of proceedings. The Company may be named as a PRP at other
sites in the future, including with respect to divested and acquired businesses.
The Company is currently engaged in investigation or remediation at certain
sites. In estimating the total cost of investigation and remediation, the
Company has considered, among other things, the Company's prior experience in
remediating contaminated sites, remediation efforts by other parties, data
released by the United States Environmental Protection Agency, the professional
judgment of the Company's environmental experts, outside environmental
specialists and other experts, and the likelihood that other parties which have
been named as PRPs will have the financial resources to fulfill their
obligations at sites where they and the Company may be jointly and severally
liable. Under the theory of joint and several liability, the Company could be
liable for the full costs of investigation and remediation even if additional
parties are found to be responsible under the applicable laws. It is difficult
to estimate the total cost of investigation and remediation due to various
factors including incomplete information regarding particular sites and other
PRPs, uncertainty regarding the extent of environmental problems and the
Company's share, if any, of liability for such problems, the selection of
alternative compliance approaches, the complexity of environmental laws and
regulations and changes in cleanup standards and techniques. When it has been
possible to provide reasonable estimates of the Company's liability with respect
to environmental sites, provisions have been made in accordance with generally
accepted accounting principles. As of January 27, 1996, including sites relating
to the acquisition of Manchester Plastics and excluding sites at which the
Company's participation is anticipated to be de minimis or otherwise
insignificant or where the Company is being indemnified by a third party for the
liability, there are 16 sites where the Company is participating in the
investigation or remediation of the site, either directly or through financial
contribution, and 10 additional sites where the Company is alleged to be
responsible for costs of investigation or remediation. As of January 27, 1996,
the Company's estimate of its liability for these 26 sites, which exclude sites
related to Wallcoverings, is approximately $31.3 million. As of January 27,
1996, C&A Co. has established reserves of approximately $38.9 million for the
estimated future costs related to all the Company's known environmental sites,
excluding sites related to Wallcoverings. In the opinion of management, based on
the facts presently known to it, the environmental costs and contingencies will
not have a material adverse effect on C&A Co.'s consolidated financial condition
or results of operations. However, there can be no assurance that the Company
has identified or properly assessed all potential environmental liability
arising from the activities or properties of the Company, its present and former
subsidiaries and their corporate predecessors.
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<PAGE>
BUSINESS
The Company's continuing business segments consist of Automotive Products,
which supplies textile and plastic interior trim products and convertible top
systems to the North American and, increasingly, the European automotive
industry and Interior Furnishings, which manufactures residential upholstery
fabric and commercial carpet products in the United States. The Company believes
that it has leading positions in seven major product lines in North America.
[FLOWCHART]
AUTOMOTIVE PRODUCTS
GENERAL
Automotive Products, with 1995 net sales of $906.9 million, is a leading
designer and manufacturer of products for OEMs. The Company has leading
positions in five of this segment's primary products-- automotive seat fabric,
molded floor carpet, accessory floor mats, luggage compartment trim and
convertible top systems. Management estimates that in 1995 Automotive Products'
five leading products had North American shares of approximately 46% at General
Motors, 47% at Chrysler, 30% at Ford and 37% among the Transplants. At least one
of the Company's products is used on 83% of all North American-produced vehicle
lines.
The Company has recently completed three acquisitions in Automotive
Products. In October 1995 the Company acquired the business of Amco, a
manufacturer of trim sets and accessories for convertible top systems; in
January 1996 the Company acquired Manchester Plastics, a manufacturer of
automotive door panels, headrests, floor console systems and instrument panel
components; and in May 1996 the Company acquired the business of Fatati, a U.K.
manufacturer of molded floor carpets and luggage compartment trim for the
European automotive market. Through these acquisitions the Company has further
solidified its position as an integrated systems supplier, enhanced its
engineering and design capabilities and extended its global reach.
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INDUSTRY TRENDS
The Company believes that the automotive supply industry has been impacted
by recent fundamental changes in the OEMs' sourcing strategies. Principal among
these changes has been an increased outsourcing of engineering and design,
consolidation in the number of suppliers, globalization of production and, more
recently, a movement toward purchasing integrated systems, where the supplier
provides the design, engineering, manufacturing and project management support
for a complete package of integrated products.
OEMs are increasingly outsourcing key component and system production to
attain a greater degree of operational flexibility and a cost effective
alternative to internal production. The trend toward outsourcing has created
substantial growth opportunities in certain segments of the automotive supply
industry, and the Company believes that further increases in outsourcing are
likely to occur in other selected supply segments, including automotive
interiors.
OEMs have consolidated their supplier base, demanding from their suppliers
broader product lines, greater support and project management capabilities,
just-in-time ("JIT") sequenced delivery and lower system costs. As a result,
OEMs have established a core group of "preferred" suppliers.
As automakers continue to expand internationally and to increase platform
standardization across markets, they increasingly require their preferred
suppliers to establish global production capabilities that meet the automakers'
global needs.
The Company believes OEMs will increasingly purchase integrated systems to
reduce internal labor and overhead costs and to compress lead times associated
with purchasing individual parts from multiple suppliers. Through systems
sourcing, OEMs are able to shift engineering, design and product development to
fewer and more capable preferred suppliers; diminish disparities in color,
finish, pattern and fit of the interior; and minimize assembly interface
discrepancies. By designing and supplying integrated systems, a supplier is able
to increase the value of its services to an OEM by improving system quality
while reducing costs.
PRODUCTS
Automotive Products manufactures six principal automotive products:
automotive seat fabric ("bodycloth"), molded floor carpets, accessory floor
mats, luggage compartment trim, convertible top systems and, through the recent
acquisition of Manchester Plastics, molded plastic interior systems. Automotive
Products also produces a variety of other automotive and non-automotive
products.
AUTOMOTIVE SEAT FABRIC. Automotive Products manufactures a wide variety of
bodycloth, including flat-wovens, velvets and knits. Automotive Products also
laminates foam to bodycloth. In 1995, 1994 and 1993, Automotive Products had net
sales of $327.5 million, $340.3 million and $221.2 million, respectively. The
Company believes that in 1995 Automotive Products was the largest producer of
automotive seat fabrics for OEMs with an estimated product share of 41%.
MOLDED FLOOR CARPETS. Molded floor carpets include polyethylene,
barrier-backed and molded urethane acoustical backings. In the Company's
automotive molded floor product line, it has developed a "foam-in-place" process
to provide floor carpeting with enhanced acoustical and fit characteristics. By
providing the entire floor system, Automotive Products is able to capture a
larger piece of the supply chain while reducing the total cost to the OEM. In
1995, 1994 and 1993 net sales of molded floor carpets were $231.8 million,
$213.2 million and $181.1 million, respectively. The Company believes that in
1995 Automotive Products was the largest producer of molded floor carpets for
OEMs with an estimated product share of 37%.
ACCESSORY FLOOR MATS. Automotive Products produces carpeted accessory floor
mats for both North American produced and imported vehicles through the
Company's Akro Corporation subsidiary ("Akro"). The Company believes that in
1995 Automotive Products was the largest producer of accessory floor mats for
OEMs with an estimated product share of 49%. In addition, in 1995
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Automotive Products sold approximately $22 million of accessory mats to vehicle
importers. The Company believes that Akro's patented, molded edge mat Akro
Edge(R) enhances mat performance and provides unique styling characteristics,
while reducing cost to the OEM.
LUGGAGE COMPARTMENT TRIM. Luggage compartment trim includes one-piece molded
trunk systems and assemblies, wheelhouse covers and center pan mats, seatbacks,
tireboard covers and other trunk trim products. The Company believes that in
1995 Automotive Products was the largest supplier of luggage compartment trim to
OEMs with an estimated product share of 32%.
CONVERTIBLE TOP SYSTEMS. Automotive Products designs, manufactures and
integrates convertible top systems through the Company's Dura Convertible
Systems subsidiary ("Dura"). In October 1993, Dura began shipping its
Top-in-a-BoxTM system, in which it designs, manufactures and integrates a
convertible top, including the framework, trim set, backlight and power
actuating system. The Company believes that in 1995 Dura was the low-cost
producer and the largest supplier of convertible top systems to OEMs with an
estimated product share of 62%.
MOLDED PLASTIC INTERIOR SYSTEMS. In January 1996, the Company acquired
Manchester Plastics, a manufacturer of automotive door panels, headrests, floor
console systems and instrument panel components. The acquisition of Manchester
Plastics adds a broad range of plastic-based systems to the Company's extensive
line of textile-based interior trim products. Prior to its acquisition,
Manchester Plastics had annual net sales for its years ended December 31, 1995,
1994 and 1993 of $193.7 million, $169.3 million and $148.3 million,
respectively. In 1995 Manchester Plastics was owned by the Company for
approximately three and a half weeks during which it contributed $10.8 million
in sales.
OTHER. Automotive Products also produces a variety of other automotive
products, including carpet die cuts, headliner fabric and carpet roll goods for
both export and domestic consumption. In addition, the Company manufactures
small volumes of certain other products, such as residential floor mats, casket
liners, necktie liners and sliver knits, for various commercial and industrial
markets.
The table below shows all the North American-produced vehicle lines for
which Automotive Products supplied at least one of its products in 1995. At
least one of the Company's products was used on 110, or 83%, of the 132 vehicle
lines made in North America in 1995. An asterisk ("*") identifies vehicle lines
or models in which the Company had content in 1995 but not in the prior year.
VEHICLE LINES SUPPLIED
<TABLE>
<CAPTION>
GENERAL MOTORS FORD CHRYSLER TRANSPLANTS
- ------------------------------------ --------------- --------------- -------------------
<S> <C> <C> <C> <C>
Achieva Lumina-Car Aerostar Avenger* Geo Metro
Astro Lumina-Van Contour Breeze* Geo Prizm
Aurora Monte Carlo Cougar Caravan Geo Tracker
Beretta Ninety Eight Crown Victoria Cherokee* Honda Accord
Bonneville Park Avenue Econoline Cirrus Honda Civic
Bravada Rally/Vandura Escort Concorde* Honda Passport
Brougham Regal Explorer Dakota Isuzu Rodeo
Camaro Riviera F-Series Dodge Neon* Mazda Pickup
Caprice S-10* Grand Marquis Grand-Cherokee Mazda 626
Cavalier S-10 Blazer Mark VIII Intrepid Mazda MX6
Century S-15 Jimmy Mustang LHS Mitsubishi Eclipse
Ciera Safari Mystique Plymouth-Neon Mitsubishi Galant
C-K Truck-10-30 Saturn Probe Sebring* Nissan 200SX*
C-K Truck-15-30 Seville Quest Stratus Nissan Pickup
Corsica Sihouette Ranger Talon Nissan Sentra
Corvette Skylark Sable* Town & Country Subaru Legacy
Deville-Concours Sonoma Taurus T-300 Pickup Suzuki Sidekick
Eighty-Eight Sport Van Thunderbird Vision Suzuki Swift
Eldorado Chevy Suburban Villager Viper Toyota Avalon
Firebird GMC Suburban Voyager Toyota Camry
GMT 420/820* Supreme Toyota Corolla
Grand Am Tahoe Toyota Pickup
Grand Prix TransSport Volvo 850
LeSabre Yukon
</TABLE>
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<PAGE>
AUTOMOTIVE PRODUCTS SEGMENT GROWTH STRATEGY
Automotive Products' business objective is to achieve strong growth in sales
and earnings by: (i) further strengthening and broadening its role as a supplier
of integrated interior trim systems, (ii) extending its position as a preferred
supplier to OEMs, (iii) developing its international production capabilities and
further expanding domestically, (iv) continuing to lead in product innovation
and (v) maintaining its low cost position. The Company intends to achieve this
objective through internal growth as well as through selected acquisitions and
strategic alliances.
FURTHER STRENGTHEN AND BROADEN ROLE AS INTEGRATED SYSTEMS SUPPLIER. The
Company currently supplies convertible top systems, molded floor systems and
door panel systems, and it intends to leverage its experience in these
integrated systems and its extensive product line to further strengthen and
broaden its role as an integrated systems supplier. The Company believes that
this will provide it with the opportunity to improve its margins by leveraging
its fixed costs and by offering increasingly higher value-added products and
services to OEMs. The Company believes that while it has made major strides in
implementing this strategy through internal growth and the acquisition of
Manchester Plastics and Amco, other opportunities exist for internal and
external growth within the industry.
The Company was the first supplier to develop and market an integrated
convertible top system, Top-in-a-BoxTM, to OEMs. The Company integrates the
framework, trim set and power actuating system, offering the OEMs a
ready-to-install, cost-effective system. In automotive carpets, the Company was
one of the first to design, manufacture and market a molded floor system. The
Company's floor systems meet OEM standards for materials and construction
related to noise reduction (noise, vibrations, harshness or "NVH"). The Company
believes that a natural extension of its NVH experience is to further integrate
NVH technical expertise and NVH products into its floor systems, consoles and
other interior systems. One successful demonstration of this strategy was the
recent award of a major carpet contract with Mercedes-Benz, which was the result
of a joint bid by the Company and a large NVH provider.
The acquisition of Manchester Plastics enhances the Company's already broad
product offering, adding products that range from injected molded plastic
components to highly complex interior systems including complete door panels and
console systems. In addition, Manchester Plastics augments the Company's
engineering and design expertise and adds program management, design, and
consumer research skills, which enable the Company to offer design interface and
overall system integrity. Finally, the Company believes that it is uniquely
positioned, through its extensive products and material lines (textile and
plastics) to provide a more fully integrated interior system with enhanced
color, finish and pattern matching and an enhanced components fit.
EXTEND PREFERRED SUPPLIER STATUS. Automobile manufacturers designate
component suppliers as preferred suppliers based on factors such as product
quality, product innovation, service and price. The Company is currently a
preferred supplier of its five leading products and certain of its other
products to Ford, General Motors, Chrysler, Toyota, Nissan, and Mazda. The
Company believes that as automobile manufacturers continue to consolidate their
supplier base, they will increasingly depend on their preferred suppliers for
their requirements. Therefore, the Company seeks to (i) preserve its status as a
preferred supplier with its existing customers, (ii) increase the number of
automobile manufacturers, particularly internationally, which designate the
Company as a preferred supplier and (iii) broaden the product offerings that it
provides to automobile manufacturers on a preferred supplier basis.
To maintain its status as a preferred supplier, the Company works with the
OEMs in cost reduction programs which focus on efficient quality manufacturing
with JIT sequenced product delivery, work cells and flexible automation. In
addition, as automakers move to standardize platforms as a means of reducing
design and engineering costs, the Company believes it is well positioned to
provide integrated interior systems across various platforms through its broad
automotive interior product line and systems capabilities.
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EXPAND INTERNATIONALLY AND DOMESTICALLY. The Company intends to continue to
expand its presence worldwide through acquisitions, partnerships, joint ventures
and joint bids to support its existing customers' global manufacturing
operations and to further develop its international customer base. Currently,
the Company has four Automotive Products operations in Mexico, one in Austria
and one in the U.K.. These facilities have enabled the Company to begin serving
its customers' global needs while positioning itself as a supplier to
international automakers. In turn, having a greater international presence may
increase opportunities with overseas automakers who are expanding in North
America. As the Company expands its operations globally, it will be able to
compete more effectively for the global platforms being developed by both
domestic and international automakers.
MAINTAIN PRODUCT INNOVATION AND DESIGN. Another element of the Company's
strategy is to increase unit volume and selling prices of automotive products by
developing increasingly higher value-added products through innovations in
materials construction, product design and styling.
Design and interior styling are key differentiating factors in consumer
purchasing decisions. The Company believes that its product styling and design
capabilities are currently important competitive advantages and intends to
further increase the resources devoted to maintaining its leadership position in
these areas. For example, using state-of-the-art computer software, Automotive
Products designs and manufactures a wide variety of bodycloth for automotive
seats, including flat-wovens, woven velvets and warp knits. The Company recently
launched three new technologies: woven jacquard velvet, circular knit and double
needle bar raschel knit. These innovations, which provide OEMs with a diversity
of pattern and color not available in traditional plain velours, increased sales
to General Motors, Ford, Chrysler and Toyota. In recent years, through these and
other innovations, the Company has realized higher unit sales prices. In
addition, the Company is actively engaged in research and development in areas
such as manufacturing processes, materials technologies and product life cycle
testing.
MAINTAIN LOW-COST POSITION. The Company is focused on maintaining its
low-cost position and flexible manufacturing capabilities to protect operating
margins from competitive pricing pressures and economic downturns, while
maximizing the benefit from cyclical upturns. The Company has established its
low-cost position through a systematic long-term focus on improving materials
yields and labor productivity and reducing overhead expenses.
COMPETITION
The automotive supply business is highly competitive. The Company has
competitors in respect of each of its automotive products, some of which may
have substantially greater financial and other resources than the Company. The
Company's competitors in molded plastic components include subsidiary operations
of certain U.S. OEMs.
The Company principally competes for new business at the design stage of new
models and upon the redesign of existing models. The Company is vulnerable to a
decrease in demand for the models that generate the most sales for the Company,
a failure to obtain purchase orders for new or redesigned models and pricing
pressure from the major automotive companies.
FACILITIES
Automotive Products has 46 manufacturing, warehouse and other facilities
located in the U.S., Canada, Mexico, Austria and the U.K. aggregating
approximately seven million square feet. The majority of these facilities are
located in North Carolina, Ohio and Michigan and in Ontario and Quebec, Canada.
Approximately 90% of the total square footage of these facilities is owned and
the remainder is leased. Many facilities are strategically located to provide
JIT sequenced delivery to the Company's customers. Capacity at any plant depends
on, among other things, the product being produced, the processes and equipment
used and the tooling requirements. This varies periodically, depending on demand
and shifts in production between plants. The Company currently estimates that
its Automotive Products plants generally operate at between 50% and 100% of
capacity. During the
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second half of 1994, the Company experienced capacity constraints with respect
to certain automotive seat fabrics due to the unanticipated popularity of
certain vehicles which utilize those seat fabrics. To meet customer
expectations, the Company utilized outside weaving and redeployed certain
manufacturing capacity from its Decorative Fabrics velvet furniture products.
The Company terminated commission weaving during the second quarter of 1995.
Except for the foregoing constraints, which the Company believes were short
term, the Company's capacity utilization in this segment is generally in line
with its past experience in similar economic situations, and the Company
believes that its facilities are sufficient to meet existing needs.
INTERIOR FURNISHINGS
Interior Furnishings, which is comprised of the Decorative Fabrics and
Floorcoverings groups, had 1995 net sales of $384.5 million. Decorative Fabrics,
with 1995 net sales of $262.4 million, is a leading designer and manufacturer of
upholstery fabrics in the United States. Floorcoverings, with 1995 net sales of
$122.2 million, is a major supplier of commercial carpet products in the United
States.
DECORATIVE FABRICS
GENERAL. Interior Furnishings' Decorative Fabrics group is a leading
designer and manufacturer of upholstery fabric in the United States. This
group's largest division, Mastercraft, is the leading U.S. manufacturer of
flat-woven upholstery fabrics and had 1995 net sales of $240.9 million.
Management believes that Mastercraft has substantially more jacquard looms and
styling capacity dedicated to upholstery fabrics, and offers more patterns
(approximately 12,000) in a greater range of price points, than any of its
competitors. The breadth and size of Mastercraft's manufacturing and design
capabilities provide it with exceptional flexibility to respond to changing
customer demands and to develop innovative product offerings.
To accommodate anticipated growth, in 1993 the Company initiated a loom
modernization program, which was completed in fiscal 1995. As a result of this
program, the Company has created state-of-the-art production facilities with
high-speed looms that increase capacity and productivity, new electronic
jacquard heads that reduce pattern changeover times and computer monitoring
systems that provide better information about the manufacturing processes and
further improve quality and productivity.
INDUSTRY. The three primary types of upholstery fabric are flat-wovens,
velvets and prints. Flat-woven fabrics are made in two major styles: jacquard,
which is generally produced on high-speed computerized looms capable of weaving
intricate designs into the fabric, and dobby, which is a plain fabric produced
on standard looms. Velvets also come in jacquard and dobby styles.
Demand for upholstery fabric generally varies with economic conditions,
particularly sales of new and existing homes, and is directly associated with
sales of upholstered furniture at the retail level. Consumer confidence and
shifts in consumer taste can also affect demand for upholstery fabric.
The Company believes there are three significant trends within the U.S.
furniture marketplace that have affected and may continue to affect Decorative
Fabrics. First, fabric design is being increasingly used by residential
furniture manufacturers as a differentiating characteristic for their products.
Second, the consolidation in both the furniture manufacturing and retailing
industries has resulted in fewer and larger buyers of upholstery fabrics. These
manufacturers and retailers generally are interested in purchasing fabrics from
suppliers that can provide a broad spectrum of their fabric requirements. Third,
management believes that furniture manufacturers and retailers are shifting from
item-by-item selling to complete room presentation, thus creating a demand for
furniture fabric suppliers that offer a broad array of coordinating fabrics.
Management believes that Decorative Fabrics is well positioned to benefit
from these trends because it is one of the few industry participants able to
deliver the breadth of styles and quantity of fabrics needed to satisfy the
increasing demands of furniture manufacturers and retailers.
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<PAGE>
STYLE AND DESIGN. Decorative Fabrics utilizes a combination of in-house
design studios, independent signature designers and consultants to create
innovative product designs and styles. Its product design flexibility also
enables Decorative Fabrics to offer custom fabric designs to its largest
customers. Decorative Fabrics creates approximately 2,000 new designs and styles
per year, which management believes to be substantially more than any of its
competitors.
PRODUCTS. Decorative Fabrics' two operating divisions are Mastercraft and
Cavel. Mastercraft and Cavel design and manufacture jacquards, velvets and other
woven fabrics for the furniture, interior design, commercial, recreational
vehicle and industrial markets. During 1994, the Company sold the Greeff and
Warner product lines through which it had designed and distributed high-end
print fabrics.
Decorative Fabrics serves the diverse furniture industry through the
following six separate product lines, which emphasize different styles and price
points:
Mastercraft Fabrics is the largest product line offered by the Mastercraft
division, currently offering approximately 8,000 designs. Management believes
that this jacquard product line has the most diverse range of styles of any
single product line in the market today. The principal product offerings range
from a wholesale price of $3.50 to $12.00 per yard.
Home Fabrics is a leading line of traditionally styled jacquard fabrics in
the middle-to-upper wholesale price range of $5.50 to $14.00 per yard. The
products are known for their color, quality and innovation. The design studio is
under the direction of Wesley Mancini, a world-renowned designer of classic,
formal and traditional styles, who designs fabrics exclusively for the Home
Fabrics products line. Mancini's 13-person design staff creates approximately
400 designs per year for Home Fabrics.
Doblin is a jacquard product line renowned for its natural fibers and
elegant designs and constructions with price ranges from $5.95 to $22.00 per
yard. It is targeted at the upper-end of the market. Doblin's studio consists of
twelve design professionals (both in-house and external) who create
approximately 300 designs annually.
Mastercraft Contract serves the wall panel, wallcovering and office seating
markets and features approximately 125 jacquard fabric designs annually. The
eight-member design team focuses on jacquard yarn-dyed and patterned fabrics.
Advantage by MastercraftTM was introduced in late 1994 to satisfy customer
requirements for highly styled, jacquard fabrics at lower price points.
Cavel designs and distributes dobby and jacquard velvets for home
furnishings, recreational vehicles and specialized industrial products. Cavel's
products are manufactured in Automotive Products factories. Cavel's 13-person
design staff produces approximately 250 designs annually for these markets.
DECORATIVE FABRICS GROWTH PLAN. The Decorative Fabrics group intends to grow
by broadening its product offerings to meet increased demand for lower priced
goods, such as those represented by its Advantage line, and by improving
customer service through shortened lead times, quick-ship programs and
custom-tailored designs. Improved technologies allow continual product
introduction, reduced manufacturing lead time and quicker processing of customer
orders. In addition, Decorative Fabrics has positioned itself to aggressively
pursue the substantial growth opportunities that management believes exist in
the export markets. Due to the loom modernization program, which was initiated
in 1993 and completed in 1995, Mastercraft's production capacity has increased:
55% of Mastercraft's weaving equipment now consists of the latest generation,
high-speed jacquard looms with electronic heads. The loom modernization program
has also resulted in substantially improved labor and manufacturing
productivity, reduced materials loss and lower overhead expense.
CUSTOMERS. Decorative Fabrics is a primary fabrics supplier to virtually all
major furniture manufacturers and jobbers in the United States, including
La-Z-Boy, Ethan Allen, Rowe, Flexsteel, Bassett, Sherrill, Thomasville,
Broyhill, Brookwood, Baker, Henredon and Robert Allen. Due to the
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<PAGE>
breadth of its product offerings, strong design capabilities and superior
customer service, Decorative Fabrics has over 1,000 customers.
Nearly all of Decorative Fabrics' products are made to customer order. This
reduces the amount of raw materials and finished goods inventory required and
greatly reduces product returns, thereby improving profit margins.
CUSTOMER SERVICE. Key service-related objectives include providing
custom-tailored design capabilities to large customers, reducing lead time for
orders and providing consistent, on-time delivery. Decorative Fabrics invests
significant capital resources in customer service technology. A computerized
material requirements inventory system has significantly improved inventory
control and enabled the Company to reduce manufacturing lead times. The
implementation of electronic data interchange systems in the second half of 1996
is expected to allow customers to place orders faster and to reduce order
processing time.
MARKETING AND SALES. Fabrics are sold domestically by commissioned sales
representatives who exclusively represent the Mastercraft and Cavel divisions of
Decorative Fabrics. The Mastercraft and Cavel divisions maintain showrooms in
seven key locations throughout the United States.
Mastercraft's 1995 export sales were $31.2 million, or 13% of its net sales.
All export fabrics are sold through commissioned sales representatives and
agents in key countries. Major export regions include the United Kingdom,
Scandinavia, Europe, the Middle East, Australia, New Zealand, the Far East,
Canada and South America.
COMPETITION. The U.S. upholstery fabrics market is highly competitive. The
Company has numerous competitors in respect of each of its Decorative Fabrics
products, some of which have substantially greater financial and other resources
than the Company. Manufacturers compete on the basis of design, quality, price
and customer service. In addition, upholstery fabrics are in competition with
other furniture covers such as leather goods.
FACILITIES. Mastercraft operates four weaving plants and one finishing plant
in North Carolina aggregating 1.0 million square feet, of which 89% is owned and
the remainder leased. Cavel shares manufacturing capacity with Automotive
Products at three plants in Roxboro, North Carolina. Prior to the loom
modernization program, the Company's capacity utilization in the Mastercraft
division of the Decorative Fabrics group consistently averaged nearly 100%. The
Company believes that after taking into account Mastercraft's recently completed
loom modernization program its existing facilities are sufficient to meet the
Decorative Fabrics group's anticipated growth requirements.
FLOORCOVERINGS
GENERAL. The Floorcoverings group of the Interior Furnishings segment is a
major supplier of commercial carpet products in the United States. In 1995,
Floorcoverings had net sales of $122.2 million. Floorcoverings is the leading
manufacturer of six-foot wide commercial carpet and the third-largest supplier
of modular carpeting tiles in the United States. Floorcoverings differentiates
itself from its competitors by its product innovations, including its patented
Powerbond RS(R) adhesive system, its products' durability characteristics and
its advanced recycling program. Floorcoverings produces virtually no product for
inventory or for commodity markets. Floorcoverings' sales force is divided into
specialists who target specific types of end-users.
Since 1990, Floorcoverings has repositioned its product offerings, shedding
those products in which it lacked either a low-cost position or proprietary
product advantage. By focusing on areas of competitive advantage, Floorcoverings
has expanded its sales to new sectors, while significantly improving its
operating margins.
During 1994, Floorcoverings initiated Source Onesm, a turn-key, full-service
supply and installation program, to sell its products directly to end-users on a
national basis.
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Management estimates that 70% of the Company's floorcoverings business is
based on renovation rather than new construction projects. Approximately 59% of
Floorcoverings' 1995 net sales were to institutional customers such as
government, healthcare and education facilities. The balance of Floorcoverings'
sales in 1995 were to corporate offices, stores and export markets. While
Floorcoverings' sales of six-foot wide carpet and modular carpet tiles have
increased by approximately 51% since 1990, management believes that industry
sales during the same period have remained virtually flat.
PRODUCTS. Floorcoverings' key competitive advantage is its patented
Powerbond(R) RS adhesive technology, which has 12 years of patent protection
remaining. Because the Powerbond(R) RS system does not use wet adhesives, it
permits the installation of floorcoverings directly on floor surfaces, including
existing carpeting, with substantially reduced labor costs and without the fumes
of conventional wet adhesives. This allows for less disruptive and less
time-consuming installation and, for this reason, is particularly attractive to
institutions such as schools and hospitals. By contrast, conventional carpet
installation requires a more costly and disruptive removal of old carpet and a
curing period for the wet adhesive before the facility can be returned to use.
In addition to reducing installation downtime for customers, management believes
Floorcoverings' product exhibits demonstrably superior durability and cleaning
characteristics ideally suited for high-traffic areas such as airline terminals,
schools and governmental agencies.
FLOORCOVERINGS GROWTH STRATEGY. The Floorcoverings group's focus continues
to be to increase sales by creating specialists within its sales force to target
specific types of end-users, exploiting selective export opportunities and
leading in product innovation. Floorcoverings is undertaking a facilities
expansion to ensure adequate capacity for its growing business.
COMPETITION. The commercial carpet industry is highly competitive. The
Company has numerous competitors, some of which have substantially greater
financial and other resources than the Company and some of which have
substantial sales in the commodity segments of the industry, segments in which
Floorcoverings does not compete. Floorcoverings' products have demanding
specifications and generally cannot be manufactured using the equipment that
currently supplies most of the industry's commodity products.
FACILITIES. Floorcoverings owns and operates four facilities in Dalton,
Georgia aggregating approximately 630,000 square feet. The Company currently
estimates that Floorcoverings' plants operate at between 55% and 95% of
capacity, depending on the production process involved. The Company has approved
an investment of approximately $3.5 million to expand Floorcoverings' capacity
to meet its expected continuing growth needs. With this new manufacturing
capacity, which is expected to be in place in 1996, the Company does not
anticipate any circumstances that would render its Floorcoverings facilities
inadequate for its projected needs.
EMPLOYEES
As of January 27, 1996, the Company's continuing operations employed
approximately 11,700 persons on a full-time or full-time equivalent basis.
Approximately 2,900 of such employees are represented by labor unions. About
half the Company's unionized employees are in Canada. Management believes that
the Company's relations with its employees and with the unions that represent
certain of them are good.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The executive officers and directors of C&A Co. (after the planned spin-off
of the Company's Wallcoverings subsidiary), and their ages as of April 15, 1996,
are as follows:
<TABLE><CAPTION>
NAME AGE POSITIONS
- -------------------------------------- --- --------------------------------------
<S> <C> <C>
Thomas E. Hannah...................... 57 Chief Executive Officer and Director
Dennis E. Hiller...................... 41 President of Automotive Carpet
Division
John D. Moose......................... 59 President of Automotive Fabrics
Division
Harry F. Schoen III................... 60 President of Mastercraft Division
Elizabeth R. Philipp.................. 39 Executive Vice President, General
Counsel and Secretary
J. Michael Stepp...................... 51 Executive Vice President and Chief
Financial Officer
David A. Stockman..................... 49 Co-Chairman of the Board of Directors
Randall J. Weisenburger............... 37 Co-Chairman of the Board of Directors
Robert C. Clark....................... 52 Director
George L. Majoros, Jr................. 34 Director
James J. Mossman...................... 37 Director
Warren B. Rudman...................... 66 Director
Stephen A. Schwarzman................. 49 Director
W. Townsend Ziebold, Jr............... 34 Director
</TABLE>
Set forth below is certain information about each of C&A Co.'s executive
officers and directors. Pursuant to the Restated Certificate of Incorporation of
C&A Co., the Board of Directors is classified into three classes consisting of
three directors each. Each class of directors of C&A Co. are elected at an
annual meeting of stockholders on staggered three-year terms, such that only one
class of directors will be elected each year.
THOMAS E. HANNAH, 57, has been a director and Chief Executive Officer of C&A
Co. since July 1994. Mr. Hannah was President and Chief Executive Officer of
Collins & Aikman Textile and Wallcoverings Group, a division of the Company,
from November 1991 until July 1994 and was named an executive officer of C&A Co.
in April 1993. Mr. Hannah was President and Chief Executive Officer of the
Collins & Aikman Textile Group from February 1989 to November 1991 and President
of Milliken & Company's Finished Apparel Division prior to that.
DENNIS E. HILLER, 41, has been President of the Automotive Carpet division
since November 1994. Mr. Hiller was President of Akro, a subsidiary of the
Company, from 1992 until November 1994 and Manager, Fabricated Products for the
Company prior to that. Mr. Hiller was named an executive officer of C&A Co. in
April 1996.
JOHN D. MOOSE, 59, has been President of the Automotive Fabrics division
since October 1994 and was President of the North American Auto Group from June
1989 until October 1994. Mr. Moose was named an executive officer of C&A Co. in
April 1994. Mr. Moose joined the Company in 1960.
HARRY F. SCHOEN III, 60, has been President of the Mastercraft division
since January 1993 and was named an executive officer of C&A Co. in April 1994.
Mr. Schoen was Executive Vice President and Chief Operating Officer of the
Mastercraft division from April 1992 to December 1992 and General Manager of
Milliken & Company's Greige Fine Goods Group prior to that.
ELIZABETH R. PHILIPP, 39, has been Executive Vice President, General Counsel
and Secretary of C&A Co. since April 1994. Ms. Philipp was Vice President,
General Counsel and Secretary of C&A Co. from April 1993 to April 1994 and Vice
President and General Counsel from September 1990 to April 1993.
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<PAGE>
J. MICHAEL STEPP, 51, has been Executive Vice President and Chief Financial
Officer of C&A Co. since April 1995. Mr. Stepp was Executive Vice President,
Chief Financial Officer of Purolator Products Company from December 1992 to
January 1995. Prior to that, Mr. Stepp was President of American Corporate
Finance Group, Inc.
DAVID A. STOCKMAN, 49, has been a director of C&A Co. since October 1988 and
has been Co-Chairman of the Board of C&A Co. since July 1993. Mr. Stockman has
been a member of Blackstone Group Holdings L.L.C. ("BGH"), which is under common
control with Blackstone Partners, since March 1996 pursuant to a reorganization
of Blackstone Group Holdings L.P. ("Blackstone Group") and has been a Senior
Managing Director of The Blackstone Group L.P. ("Blackstone") (or has served in
this capacity) since 1988. Mr. Stockman was a general partner of Blackstone
Group from 1988 to February 1996. Prior to joining Blackstone Group, Mr.
Stockman was a Managing Director of Salomon Brothers Inc. Mr. Stockman served as
the Director of the Office of Management and Budget in the Reagan Administration
from 1981 to 1985. Prior to that, Mr. Stockman represented Southern Michigan in
the U.S. House of Representatives. Mr. Stockman is also a director of LaSalle Re
Holdings Ltd.
RANDALL J. WEISENBURGER, 37, has been a director of C&A Co. since August
1989 and has been Co-Chairman of the Board of C&A Co. since June 1995. Mr.
Weisenburger was Vice Chairman of C&A Co. from April 1994 to June 1995, Deputy
Chairman of C&A Co. from July 1992 to April 1994 and Vice President from August
1989 to July 1992. Mr. Weisenburger has been Managing Director of Wasserstein
Perella & Co., Inc. ("WP & Co."), an affiliate of WP Partners, since December
1993. Mr. Weisenburger was a Director of WP & Co. from December 1992 to December
1993 and Vice President of WP & Co. from December 1989 to December 1992. Mr.
Weisenburger is also Chairman of Yardley of London, Ltd.
ROBERT C. CLARK, 52, has been a director of C&A Co. since October 1994. Mr.
Clark is Dean of the Harvard Law School and Royall Professor of Law. Mr. Clark
joined Harvard Law School in 1979 after four years at Yale Law School, where he
was a tenured professor, and became Dean in 1989. Mr. Clark is a corporate law
specialist and author of numerous texts and legal articles. Prior to his
association with academia, he was in private practice with Ropes & Gray.
GEORGE L. MAJOROS, JR., 34, has been a director of C&A Co. since June 1995.
Mr. Majoros has been a Director of WP & Co. since December 1994. Mr. Majoros was
a Vice President of WP & Co. from February 1993 until December 1994. Prior to
that, Mr. Majoros was an attorney in the law firm of Jones, Day, Reavis & Pogue.
Mr. Majoros is also Vice Chairman and a director of Yardley of London, Ltd.
JAMES J. MOSSMAN, 37, has been a director of C&A Co. since January 1995. Mr.
Mossman has been a member of BGH since March 1996 pursuant to a reorganization
of Blackstone Group and has been a Senior Managing Director of Blackstone (or
has served in this capacity) since 1990. Mr. Mossman was a general partner of
Blackstone Group from 1990 to February 1996. Mr. Mossman is also a director of
Great Lakes Dredge & Dock Corporation and Transtar, Inc.
WARREN B. RUDMAN, 66, has been a director of C&A Co. since June 1995. Mr.
Rudman has been a partner in the law firm of Paul, Weiss, Rifkind, Wharton &
Garrison since January 1993. Mr. Rudman served as a United States Senator from
New Hampshire from 1980 through 1992 and as Attorney General of New Hampshire
from 1970 until 1976. Mr. Rudman is also a director of the Chubb Corporation and
the Raytheon Company and an independent trustee of seventeen mutual funds of the
Dreyfus Corporation.
STEPHEN A. SCHWARZMAN, 49, has been a director of C&A Co. since October 1988
and was President of C&A Co. from October 1988 to July 1994. Mr. Schwarzman has
been a Co-Founding member of BGH since March 1996 pursuant to a reorganization
of Blackstone Group and has been President and Chief Executive Officer of
Blackstone since 1985. Mr. Schwarzman was a Co-Founding
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<PAGE>
Partner of Blackstone Group from 1985 to February 1996. Mr. Schwarzman is also a
director of Great Lakes Dredge & Dock Corporation, Transtar, Inc. and UCAR
International Inc.
W. TOWNSEND ZIEBOLD, JR., 34, has been a director of C&A Co. since December
1992. Mr. Ziebold has been a Managing Director of WP & Co. since December 1994
and was a Director of WP & Co. from December 1993 to December 1994. Mr. Ziebold
was Vice-President of WP & Co. from December 1991 to December 1993 and an
Associate of WP & Co. prior to that.
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<PAGE>
PRINCIPAL STOCKHOLDERS AND
SECURITY OWNERSHIP OF MANAGEMENT
Set forth in the table below is certain information as of May 1, 1996,
regarding the beneficial ownership of voting securities of C&A Co. by persons
who are known to C&A Co. to own beneficially more than 5% of C&A Co.'s voting
stock.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
TITLE OF NAME AND ADDRESS BENEFICIAL PERCENT
CLASS OF BENEFICIAL OWNER OWNERSHIP OF CLASS
- ------------- ------------------------------------- ---------- --------
<S> <C> <C> <C>
Common Blackstone Capital Partners L.P. 26,131,107(1) 37.8%
Stock........ 118 North Bedford Road, Suite 300
Mount Kisco, New York 10549
Wasserstein/C&A Holdings, L.L.C. 27,629,573(2) 40.0%
31 West 52nd Street
New York, New York 10019
J.P. Morgan & Co. Incorporated 5,678,550(3) 8.2%
60 Wall Street
New York, New York 10260
</TABLE>
- ------------
(1) Of these shares (i) 20,571,403 shares are held directly by Blackstone
Partners, a Delaware limited partnership, the sole general partner of which
is Blackstone Management Associates L.P. ("Blackstone Associates"), (ii)
1,061,413 shares are held directly by Blackstone Family Investment
Partnership I L.P., a Delaware limited partnership ("BFIP"), the sole
general partner of which is Blackstone Associates, (iii) 93,291 shares are
held directly by Blackstone Advisory Directors Partnership L.P., a Delaware
limited partnership ("BADP"), the sole general partner of which is
Blackstone Associates, and (iv) 4,405,000 shares are held directly by
Blackstone Capital Company II, L.L.C., a Delaware limited liability company,
all the ownership interest of which is owned directly and indirectly by
Blackstone Partners, BFIP and BADP.
(2) These shares are held directly by Wasserstein/C&A Holdings, L.L.C. (the
"Wasserstein L.L.C."), which is controlled by WP Partners, the sole general
partner of which is Wasserstein Perella Management Partners, Inc. ("WP
Management").
(3) Based on a Form 13-G filed by J.P. Morgan & Co. Incorporated ("Morgan"), the
number shown includes (i) 3,944,500 shares over which Morgan has sole power
to vote, (ii) 5,648,250 shares over which Morgan has sole power to dispose
and (iii) 30,300 shares over which Morgan has shared power to dispose.
Certain Relationships. Blackstone Partners is a Delaware limited partnership
formed in 1987 for the purpose of, among other things, (i) committing capital to
facilitate corporate restructurings, leveraged buyouts, bridge financings and
other investments and (ii) capitalizing affiliates that will engage in
investment and merchant banking activities. The sole general partner of
Blackstone Partners is Blackstone Associates, a Delaware limited partnership,
whose general partners include Messrs. Mossman, Schwarzman and Stockman. At
present, the business of Blackstone Associates consists of performing the
function of, and serving as, the general partner of certain limited
partnerships, including Blackstone Partners. Messrs. Mossman, Schwarzman and
Stockman are also members of Blackstone Management Partners L.L.P., which is the
general partner of Blackstone Management Partners L.P. ("Blackstone
Management").
WP Partners is a Delaware limited partnership, the general partner of which
is WP Management. WP Partners was formed by Wasserstein Perella Group, Inc. ("WP
Group") for the purpose of participating in merchant banking activities,
including committing capital to the organization and consummation of leveraged
buyout transactions. WP Management and WP Group are both Delaware corporations.
WP Management serves as the general partner of WP Partners and as such is
engaged in managing WP Partners. WP Group is an international private advisory
and merchant banking firm. The principal subsidiary of WP Group is WP & Co., an
international investment banking firm. Mr. Weisenburger and Mr. Ziebold are
Managing Directors of WP & Co. and Mr. Majoros is a Director of
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<PAGE>
WP & Co. Messrs. Weisenburger and Ziebold are also officers of WP Management and
Mr. Majoros is an employee of WP Management.
Blackstone Partners and its affiliates and the Wasserstein L.L.C., which is
controlled by WP Partners, as of May 1, 1996 beneficially own approximately
37.8% and 40.0%, respectively, of the outstanding common stock of C&A Co. and
are in a position to control C&A Co..
Chemical Bank, an affiliate of Chase Securities Inc., acts as agent and a
lender on a senior loan facility for affiliates of Blackstone Partners and the
Wasserstein L.L.C. pursuant to which such entities have pledged to Chemical Bank
all of the common stock of C&A Co. held by them or their affiliates.
Certain Transactions. Pursuant to a stockholders agreement, each of
Blackstone Partners and WP Partners or their affiliates receive a $1 million
annual monitoring fee and the reimbursement of expenses from the Company. Since
the beginning of fiscal 1995, pursuant to such stockholders agreement the
Company has paid to each of Blackstone Partners and WP Partners or their
affiliates $1.5 million plus expenses.
Wasserstein Perella Securities, Inc. ("WP Securities"), a wholly owned
subsidiary of WP Group, has acted, and may in the future act, as agent for C&A
Co. in the repurchase from time to time of its common stock. Since the beginning
of fiscal 1995, approximately $62,000 in fees have been paid or accrued to WP
Securities in connection with such repurchases. In addition, WP Securities is
acting as the lead underwriter in the Offering. See "Underwriting".
For advisory services in connection with the acquisition of Manchester
Plastics in January 1996, the Company paid or accrued to each of Blackstone
Partners and WP Partners or their affiliates approximately $1.2 million plus
expenses.
For a description of the relationships of C&A Co.'s directors with any of
BGH, Blackstone Partners, Blackstone Management, WP Partners, WP & Co. or WP
Management, see "Management" and "--Certain Relationships" above.
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<PAGE>
DESCRIPTION OF THE NOTES
The following description of the particular terms of the Notes offered
hereby (referred to in the accompanying Prospectus as the "Debt Securities")
supplements, and to the extent inconsistent therewith replaces, the description
of the general terms and provisions of the Debt Securities set forth in the
Prospectus, to which description reference is hereby made.
GENERAL
The Notes will be issued under an Indenture, to be dated as of
, 1996 (the "Subordinated Indenture"), as supplemented by the first
Supplemental Indenture dated as of , 1996 (the "First Supplemental
Indenture"), between the Company and , as trustee (the "Trustee") and will
constitute a series of Subordinated Debt Securities described in the
accompanying Prospectus. The statements herein relating to the Notes, the First
Supplemental Indenture and the Subordinated Indenture are summaries and do not
purport to be complete, and are subject to, and are qualified in their entirety
by reference to, all the provisions of the First Supplemental Indenture or the
Subordinated Indenture, including the definitions of certain terms therein.
Where reference is made to particular provisions of the First Supplemental
Indenture or the Subordinated Indenture or to defined terms not otherwise
defined herein, such provisions or defined terms are incorporated herein by
reference. Unless otherwise indicated, references under this caption to the
Subordinated Indenture are references to the Subordinated Indenture as
supplemented by the First Supplemental Indenture. The Subordinated Indenture is
by its terms subject to and governed by the Trust Indenture Act of 1939, as
amended. A form of the Subordinated Indenture has been filed with the Commission
as an exhibit to the Registration Statement of which the accompanying Prospectus
is a part and a form of the First Supplemental Indenture will be filed on a Form
8-K prior to the consummation of the Offering.
The Notes will be unsecured obligations of the Company, will be limited to
$400 million aggregate principal amount and will mature on , 2006.
The Notes will bear interest at the rate per annum shown on the front cover of
this Prospectus Supplement from , 1996 or from the most recent
Interest Payment Date to which interest has been paid or provided for, payable
semi-annually on and of each year, commencing
, 1996, to the Person in whose name the Note (or any predecessor
Note) is registered at the close of business on the preceding or
, as the case may be. Interest on the Notes will be computed on the
basis of a 360-day year of twelve 30-day months.
Principal of, premium (if any) and interest on the Notes will be payable at
the office or agency of the Company maintained for that purpose in the Borough
of Manhattan, the City of New York, provided that at the option of the Company,
payment of interest on the Notes may be made by check mailed to the address of
the Person entitled thereto as it appears in the Security Register. Until
otherwise designated by the Company, such office or agency will be the corporate
trust office of the Trustee, as Paying Agent and Registrar.
BOOK-ENTRY SYSTEM
The Notes will initially be issued in the form of a Global Security held in
book-entry form. Accordingly, The Depository Trust Company ("DTC") or its
nominee will be the sole registered holder of Notes for all purposes under the
First Supplemental Indenture. DTC has advised the Company that DTC is a
limited-purpose trust company organized under the Banking Law 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 under the Exchange Act. DTC was created to hold the
securities of its participants and to facilitate the clearance and settlement of
securities transactions among its participants in such securities through
electronic book-entry changes in accounts of the participants, thereby
eliminating the need for physical movement of securities certificates. DTC's
participants include securities brokers and dealers (including the
Underwriters), banks, trust companies, clearing corporations and certain other
organizations some of whom (and/or
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<PAGE>
their representatives) own DTC. Access to DTC's book-entry system is also
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. See "Description of the Debt Securities--Global
Securities" in the accompanying Prospectus.
SAME-DAY SETTLEMENT AND PAYMENT
Settlement for the Notes will be made by the Underwriters in immediately
available funds. Payments by the Company in respect of the Notes (including
principal, premium, if any, and interest) will be made in immediately available
funds. The Notes will trade in DTC's Same-Day Funds Settlement System, and
secondary market trading activity in the Notes will therefore be required by DTC
to settle in immediately available funds. No assurance can be given as to the
effect, if any, of settlement in immediately available funds on trading activity
in the Notes.
OPTIONAL REDEMPTION
The Notes will be redeemable from time to time prior to , 2001
only in the event that on or before , 1999 the Company receives net
cash proceeds from one or more Equity Offerings, in which case the Company may,
at its option, use all or a portion of any such net cash proceeds to redeem the
Notes in a principal amount of at least $5 million and up to an aggregate
principal amount equal to 40% of the original principal amount of the Notes,
provided, however, that Notes in an aggregate principal amount equal to at least
60% of the original principal amount of the Notes remain outstanding after each
such redemption. Any such redemption must occur within 120 days of any such sale
and upon not less than 30 nor more than 60 days' notice mailed to each holder of
Notes to be redeemed at such holder's address appearing in the Security
Register, in amounts of $1,000 or an integral multiple of $1,000, at a
Redemption Price of % of the principal amount of the Notes plus accrued
interest to but excluding the Redemption Date.
The Notes will be subject to redemption, at the option of the Company, in
whole or in part, at any time on or after , 2001 and prior to
maturity, upon not less than 30 nor more than 60 days' notice mailed to each
holder of Notes to be redeemed at such holder's address appearing in the
Security Register, in amounts of $1,000 or an integral multiple of $1,000, at
the following Redemption Prices (expressed as percentages of the principal
amount) plus accrued interest to but excluding the Redemption Date, if redeemed
during the 12-month period commencing on or after of the years set
forth below:
REDEMPTION
YEAR PRICE
- -------------------------------------------------------- ----------
2001.................................................... %
2002.................................................... %
2003.................................................... %
2004 and thereafter..................................... 100%
The Notes may also be redeemed as a whole at the option of the Company upon
the occurrence of a Change of Control (as defined below), upon not less than 30
nor more than 60 days' notice (but in no event more than 180 days after the
occurrence of such Change of Control) mailed to each holder of Notes at such
holder's address appearing in the Security Register, at a redemption price equal
to 100% of the principal amount thereof plus the Applicable Premium at the time
plus accrued interest to but excluding the Redemption Date. See "--Certain
Covenants--Change of Control". "Applicable Premium" means, with respect to a
Note at any time, the greater of (i) 1.0% of the principal amount of such Note
and (ii) the excess of (a) the present value at such time of the principal
amount of such Note plus all required interest payments due on such Note through
the first date on which the Notes may be redeemed at the option of the Company
plus the amount of any premium due on such date, computed using a discount rate
equal to the Treasury Rate plus 100 basis points, over (b) the then outstanding
principal amount of such Note. "Treasury Rate" means the yield to maturity at
the time of computation of United States Treasury securities with a constant
maturity (as compiled and published in the most
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<PAGE>
recent Federal Reserve Statistical Release H.15(519) which has become publicly
available at least two Business Days prior to the date fixed for repayment (or,
if such Statistical Release is no longer published, any publicly available
source or similar market data)) most nearly equal to the then remaining Weighted
Average Life to Maturity of the Notes (calculated as if the first date on which
the Notes can be redeemed at the option of the Company were the final maturity
of the Notes); provided, however, that if such Weighted Average Life to Maturity
of the Notes is not equal to the constant maturity of a United States Treasury
security for which a weekly average yield is given, the Treasury Rate shall be
obtained by linear interpolation (calculated to the nearest one-twelfth of a
year) from the weekly average yields of United States Treasury securities for
which such yields are given, except that if such Weighted Average Life to
Maturity of the Notes is less than one year, the weekly average yield on
actually traded United States Treasury securities adjusted to a constant
maturity of one year will be used.
If less than all the Notes are to be redeemed, the Trustee will select, in
such manner as it shall deem fair and appropriate, the particular Notes to be
redeemed or any portion thereof that is an integral multiple of $1,000.
The Notes will not have the benefit of any sinking fund.
GUARANTEE
C&A Co., as primary obligor and not as surety, will irrevocably and
unconditionally guarantee on an unsecured senior subordinated basis the
performance and punctual payment when due, whether at stated maturity, by
acceleration or otherwise, of all obligations of the Company under the
Subordinated Indenture and the Notes, whether for principal of or interest on
the Notes, expenses, indemnification or otherwise (all such obligations
guaranteed by C&A Co. being herein called the "Guaranteed Obligations"). C&A Co.
will agree to pay, in addition to the amount stated above, on an unsecured
senior subordinated basis, any and all expenses (including reasonable counsel
fees and expenses) incurred by the Trustee or the holders in enforcing any
rights under the Guarantee with respect to C&A Co. Such Guarantee, however, will
be limited in amount to an amount not to exceed the maximum amount that can be
guaranteed by C&A Co. without rendering the Guarantee, as it relates to C&A Co.,
voidable under applicable law relating to fraudulent conveyance or fraudulent
transfer. C&A Co. presently has no material assets other than the common stock
of the Company.
The Guarantee will be a continuing guarantee and will (i) remain in full
force and effect until payment in full of all the Guaranteed Obligations, (ii)
be binding upon C&A Co. and (iii) enure to the benefit of and be enforceable by
the Trustee, the holders of Notes and their successors, transferees and assigns.
Upon the failure of the Company to pay the principal of or interest on any
Guaranteed Obligation when and as due, whether at maturity, by acceleration, by
redemption or otherwise, or to perform or comply with any other Guaranteed
Obligations, C&A Co. will, upon receipt of written demand by the Trustee, pay or
cause to be paid, in cash, to the holders or the Trustee an amount equal to the
sum of (a) unpaid principal amount of such Guaranteed Obligations, (b) accrued
and unpaid interest on such Guaranteed Obligations (but only to the extent not
prohibited by law) and (c) all other monetary Guaranteed Obligations of the
Company to the holders of Notes and the Trustee.
SUBORDINATION
The Indebtedness evidenced by the Notes and the Guarantee will be unsecured
senior subordinated obligations of the Company and C&A Co., respectively. The
payment of the principal of, premium (if any) and interest on the Notes and
other payment obligations of the Company in respect of the Notes will be
subordinated in right of payment, as set forth in the Subordinated Indenture, to
the prior payment in cash when due of all Senior Indebtedness of the Company.
However, payment from the money or the proceeds of U.S. government obligations
held in any defeasance trust is not subordinate to any Senior Indebtedness or
subject to the restrictions described herein if such money was permitted to be
deposited in such trust at the time of deposit. As of January 27, 1996, Senior
Indebtedness of the Company, as adjusted to give effect to the Offering of the
Notes, would have been approximately $422.8
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million and the Company's continuing subsidiaries would have had approximately
$56.4 million of indebtedness for borrowed money (excluding intercompany
balances), trade and other liabilities substantially in excess of such amount
and approximately $349.8 million of guarantees of Senior Indebtedness of the
Company. Claims of creditors of such Subsidiaries, including trade creditors,
secured creditors and creditors holding guarantees issued by such Subsidiaries,
and claims of preferred stockholders (if any) of such Subsidiaries generally
will have priority with respect to the assets and earnings of such Subsidiaries
over the claims of creditors of the Company, including holders of Notes, even
though such obligations do not constitute Senior Indebtedness. The Notes
therefore will be effectively subordinated to creditors (including trade
creditors) and preferred stockholders (if any) of the Subsidiaries of the
Company. The domestic Subsidiaries of the Company have guaranteed the Company's
obligations pursuant to the Credit Agreement.
Senior Indebtedness is defined in the Subordinated Indenture as (i) all
obligations of the Company, whether direct or by guarantee, to pay principal,
interest (including all interest accruing after the filing of a petition by or
against the Company under any bankruptcy law, in accordance with and at the
rate, including any default rate, specified in the Bank Credit Facilities,
whether or not a claim for such interest is allowed as a claim after such filing
in any proceeding under such bankruptcy law), fees, expenses, reimbursement
obligations, indemnities and other amounts payable under or in connection with
the Bank Credit Facilities, whether outstanding on the date of the Subordinated
Indenture or thereafter created, assumed or incurred, (ii) the principal of,
premium, if any, and interest (including all interest accruing after the filing
of a petition by or against the Company under any bankruptcy law in accordance
with and at the rate, including any default rate, specified with respect to such
indebtedness, whether or not a claim for such interest is allowed as a claim
(after such filing in any proceeding under such bankruptcy law) on, (a) all the
Company's other indebtedness for money borrowed whether outstanding on the Issue
Date or thereafter created, assumed or incurred, except such indebtedness
(including any securities issued under the Subordinated Indenture) as is by its
terms expressly stated to be not superior in right of payment to the Notes and
(b) any deferrals, renewals or extensions of any such Senior Indebtedness and
(iii) all Interest Swap Obligations (as defined in the accompanying Prospectus)
of the Company in respect of Senior Indebtedness, except that Senior
Indebtedness will not include (1) any obligation of the Company to any
Subsidiary, (2) any liability for Federal, state, local or other taxes owed or
owing by the Company, (3) any accounts payable or other liability to trade
creditors arising in the ordinary course of business (including guarantees
thereof or instruments evidencing such liabilities), (4) any indebtedness,
guarantee or obligation of the Company which is expressly subordinate or junior
in right of payment in any respect to any other indebtedness, guarantee or
obligation of the Company, including any Senior Subordinated Indebtedness and
any other subordinated obligations, or (5) any obligations with respect to any
Capital Stock. The term "indebtedness for money borrowed" as used in the
foregoing sentence means any obligation of, or any obligation guaranteed by, the
Company for the repayment of borrowed money, whether or not evidenced by bonds,
debentures, notes or other written instruments, and any deferred obligation for
the payment of the purchase price of property or assets.
The Notes will in all respects rank pari passu with all other Senior
Subordinated Indebtedness of the Company.
Neither the Company nor C&A Co. may directly or indirectly (nor may any
direct payment or distribution be made by or on behalf of the Company or C&A Co.
in respect of the following) pay principal of, premium (if any) or interest on
the Notes and other payment obligations of the Company in respect of the Notes,
make any deposits pursuant to the defeasance provisions in the Indenture or
otherwise purchase, redeem or retire any Notes (collectively, "pay the Notes")
if (i) any Senior Indebtedness is not paid in cash when due or (ii) any other
default on Senior Indebtedness occurs and the maturity of such Senior
Indebtedness is accelerated in accordance with its terms unless, in either case,
the default has been cured or waived and any such acceleration has been
rescinded or such Senior Indebtedness has been paid in full in cash. However,
the Company and C&A Co. may pay the Notes without regard to the foregoing if the
Company, C&A Co. and the Trustee receive written notice
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approving such payment from the Representative (as defined below) of the holders
of Senior Indebtedness with respect to which either of the events set forth in
clause (i) or (ii) of the immediately preceding sentence has occurred and is
continuing. "Representative" of the holders of Senior Indebtedness means a
trustee, agent or other representative (if any) for an issue of such Senior
Indebtedness.
During the continuance of any default (other than a default described in
clause (i) or (ii) of the preceding paragraph) with respect to any Designated
Senior Indebtedness pursuant to which the maturity thereof may be accelerated
immediately without further notice (except such notice as may be required to
effect such acceleration) or the expiration of any applicable grace periods,
neither the Company nor C&A Co. may pay the Notes for a period (a "Payment
Blockage Period") commencing upon the receipt by the Trustee (with a copy to the
Company and C&A Co.) of written notice (a "Blockage Notice") of such default
from the Representative of the holders of such Designated Senior Indebtedness
specifying an election to effect a Payment Blockage Period and ending 179 days
thereafter (or earlier if such Payment Blockage Period is terminated (i) by
written notice to the Trustee, the Company and C&A Co. from the Person or
Persons who gave such Blockage Notice, (ii) because the default giving rise to
such Blockage Notice is no longer continuing or (iii) because such Senior
Indebtedness has been paid in full in cash). Notwithstanding the provisions
described in the immediately preceding sentence, unless one of the events
described in clause (i) or (ii) of the preceding paragraph is then continuing,
the Company and C&A Co. may resume payments on the Notes after the end of such
Payment Blockage Period. Not more than one Blockage Notice may be given in any
consecutive 360-day period, irrespective of the number of defaults with respect
to Senior Indebtedness during such period.
Upon any payment or distribution of the assets or securities of the Company
or C&A Co. to creditors upon a total or partial liquidation or dissolution or
reorganization of or similar proceeding relating to the Company or C&A Co. or
their property, or in connection with a bankruptcy, insolvency, receivership or
similar proceeding relating to the Company or C&A Co. or their respective
property, or in connection with an assignment for the benefit of creditors or
any marshalling of assets and liabilities of the Company or C&A Co., the holders
of Senior Indebtedness will be entitled to receive payment in full in cash of
the Senior Indebtedness before the holders of Notes are entitled to receive any
payment or distribution, and until the Senior Indebtedness is paid in full in
cash, any payment or distribution to which holders of Notes would be entitled
but for the subordination provisions of the Subordinated Indenture will be made
to holders of the Senior Indebtedness as their interests may appear. If a
payment or distribution is made to holders of Notes that, due to the
subordination provisions, should not have been made to them, such holders of
Notes are required to hold it in trust for the holders of Senior Indebtedness
and pay it over to them as their interests may appear.
If payment of the Notes is accelerated because of an Event of Default, the
Company, C&A Co. or the Trustee will promptly notify the holders of Senior
Indebtedness or the Representatives of such holders of the acceleration. The
Company may not pay the Notes until five Business Days after such holders or the
Representatives of the Senior Indebtedness receive notice of such acceleration
and, thereafter, may pay the Notes only if the subordination provisions of the
Subordinated Indenture otherwise permit payment at that time.
The obligations of C&A Co. under the Guarantee are unsecured senior
subordinated obligations of C&A Co. The Indebtedness of C&A Co. evidenced by the
Guarantee will be subordinated to Senior Guarantor Indebtedness of C&A Co. to
the same extent as the Notes are subordinated to Senior Indebtedness of the
Company and during any period when payment on the Notes is prohibited pursuant
to the subordination provisions of the Subordinated Indenture, payments on the
Guarantee will be similarly prohibited.
By reason of such subordination provisions contained in the Subordinated
Indenture, in the event of insolvency, creditors of the Company or C&A Co. who
are holders of Senior Indebtedness or Senior Guarantor Indebtedness, as the case
may be, may recover more, ratably, than holders of Notes, and creditors of the
Company or C&A Co. who are not holders of Senior Indebtedness or Senior
Guarantor
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Indebtedness, as the case may be, may recover less, ratably, than holders of
Senior Indebtedness and may recover more, ratably, than holders of Notes.
"Senior Guarantor Indebtedness" means, with respect to C&A Co., (i) all
obligations of C&A Co., whether direct or by guarantee, to pay principal,
interest (including all interest accruing after the filing of a petition by or
against the Company or C&A Co. under any bankruptcy law, in accordance with and
at the rate, including any default rate, specified in the Bank Credit
Facilities, whether or not a claim for such interest is allowed as a claim after
such filing in any proceeding under such bankruptcy law), fees, expenses,
reimbursement obligations, indemnities and other amounts payable under or in
connection with the Bank Credit Facilities, whether outstanding on the date of
the Subordinated Indenture or thereafter created, assumed or incurred, (ii) the
principal of, premium, if any, and interest (including all interest accruing
after the filing of a petition by or against the Company or C&A Co. under any
bankruptcy law, in accordance with and at the rate, including any default rate,
specified with respect to such indebtedness, whether or not a claim for such
interest is allowed as a claim after such filing in any proceeding under such
bankruptcy law) on, (a) all C&A Co.'s other indebtedness for money borrowed
(other than guarantees of other subordinated securities issued under the
Subordinated Indenture), whether outstanding on the Issue Date or thereafter
created, assumed or incurred, except such indebtedness as is by its terms
expressly stated to be not superior in right of payment to the Guarantee and (b)
any deferrals, renewals or extensions of any such Senior Guarantor Indebtedness;
and (iii) all guarantees of Interest Swap Obligations of the Company or Collins
& Aikman Canada Inc. in respect of Senior Indebtedness, except that Senior
Indebtedness will not include (1) any obligation of C&A Co. to any Subsidiary of
C&A Co., (2) any liability for Federal, state, local or other taxes owed or
owing by C&A Co., (3) any accounts payable or other liability to trade creditors
arising in the ordinary course of business (including guarantees thereof or
instruments evidencing such liabilities), (4) any indebtedness, guarantee or
obligation of C&A Co. which is expressly subordinate or junior in right of
payment in any respect to any other indebtedness, guarantee or obligation of C&A
Co., including any senior subordinated indebtedness and any other subordinated
obligations, or (5) any obligations with respect to any Capital Stock. The term
"indebtedness for money borrowed" as used in the foregoing sentence means any
obligation of, or any obligation guaranteed by, C&A Co. for the repayment of
borrowed money, whether or not evidenced by bonds, debentures, notes or other
written instruments, and any deferred obligation for the payment of the purchase
price of property or assets.
"Designated Senior Indebtedness" means (i) the Bank Credit Facilities and
(ii) to the extent expressly so designated in the agreement or instrument
evidencing such Senior Indebtedness each series of Senior Indebtedness having an
aggregate principal amount (or available commitments) of at least $25 million.
CERTAIN COVENANTS
The following covenants, in addition to those set forth in the accompanying
Prospectus, are applicable to the Subordinated Indenture and the Notes:
LIMITATION ON INDEBTEDNESS
The Company will not, and will not permit any Restricted Subsidiary to,
Incur any Indebtedness; provided, however, that the Company may Incur
Indebtedness if, after giving pro forma effect to the Incurrence of such
Indebtedness and the receipt and application of the proceeds thereof, the
Consolidated Coverage Ratio would be greater than 2.00 to 1.00, if such
Indebtedness is Incurred on or prior to June 30, 1998, or 2.25 to 1.00 if such
Indebtedness is Incurred thereafter.
Notwithstanding the foregoing, the following Indebtedness may be Incurred
(collectively, "Permitted Indebtedness"):
(i) (a) Indebtedness of the Company or any Restricted Subsidiary under
the Revolving Facility or one or more other revolving credit facilities
(including related Guarantees (as defined herein) and security documents
with respect thereto) in an aggregate principal amount which, when taken
together with all other Indebtedness Incurred pursuant to this clause (a)
and then outstanding, does not exceed
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$250 million, (b) Indebtedness of the Company or any Restricted Subsidiary
under the Term Loan Facility and the Term Loan B Facility (including related
Guarantees and security documents with respect thereto) and under any
agreement or instrument effecting a renewal, extension, refinancing,
replacement or refunding of any Indebtedness permitted to be Incurred
pursuant to this clause (b) in an aggregate principal amount which, when
taken together with all Indebtedness Incurred pursuant to this clause (b)
and then outstanding, does not exceed an amount equal to (x) $391 million
less (y) the aggregate sum as of the date of such Incurrence of (1) the
amount of all scheduled principal amortization payments that, pursuant to
the terms of the Term Loan Facility and the Term Loan B Facility as in
effect on the Issue Date, were required to be made through such date plus
(2) the amount of all mandatory prepayments of principal of Indebtedness
under the Term Loan Facility or the Term Loan B Facility or Indebtedness
otherwise Incurred pursuant to this clause (b) that have been made through
such date with the proceeds of any Asset Dispositions by the Company or its
Restricted Subsidiaries (other than Asset Dispositions of Non-Core
Automotive Assets so long as an amount equal to 100% of the Net Available
Proceeds from such Asset Dispositions was invested within 365 days prior to,
or is invested within 365 days after, the date of such Asset Disposition in
additional Core Automotive Assets) and (c) Indebtedness of the Company or
its Subsidiaries under one or more receivables financing facilities pursuant
to which the Company or any Domestic Subsidiary pledges or otherwise borrows
solely against its Receivables (to the extent Receivables are not being
financed pursuant to a Permitted Receivables Financing Facility) in an
aggregate principal amount which, when taken together with all other
Indebtedness Incurred pursuant to this clause (c) and then outstanding, does
not exceed 80% of the consolidated book value of the accounts receivable of
the Company and its Domestic Subsidiaries then being pledged or otherwise
financed pursuant to this clause (c) (determined at the time of the
respective Incurrence in accordance with generally accepted accounting
principles);
(ii) the original issuance by the Company of the Indebtedness
represented by the Notes;
(iii) any Indebtedness (other than Indebtedness described in another
clause of this paragraph) of the Company and its Restricted Subsidiaries
outstanding on the Issue Date;
(iv) Indebtedness owed by the Company to any Restricted Subsidiary or
Indebtedness owed by a Restricted Subsidiary to the Company or a Restricted
Subsidiary; provided, however, that (a) any such Indebtedness owing by the
Company to a Restricted Subsidiary must be unsecured Indebtedness and (b)
upon either (1) the transfer or other disposition by such Restricted
Subsidiary or the Company of any Indebtedness so permitted to a Person other
than the Company or another Restricted Subsidiary or (2) the issuance (other
than directors' qualifying shares), sale, transfer or other disposition of
shares of Capital Stock (including by consolidation or merger) of such
Restricted Subsidiary to a Person other than the Company or another such
Restricted Subsidiary, the provisions of this clause (iv) will no longer be
applicable to such Indebtedness and such Indebtedness will be deemed to have
been Incurred at the time of such transfer or other disposition; provided
further, however, that Indebtedness under this clause (iv) held by a
Restricted Subsidiary that is not a Wholly Owned Subsidiary of the Company
shall be permitted by this clause (iv) only if no Affiliate of the Company
(other than a Wholly Owned Subsidiary) holds Capital Stock in such
Restricted Subsidiary;
(v) Indebtedness of the Company or any Restricted Subsidiary consisting
of Permitted Interest Rate, Currency or Commodity Price Agreements;
(vi) Indebtedness which is exchanged for or the proceeds of which are
used to refinance or refund, or any extension or renewal of, outstanding
Indebtedness Incurred pursuant to the preceding paragraph or clauses (ii),
(iii) or (ix) of this paragraph (each of the foregoing, a "refinancing", and
including any successive refinancing of such Indebtedness) in an aggregate
principal amount not to exceed the principal amount of the Indebtedness so
refinanced plus the amount of any premium required to be paid in connection
with such refinancing pursuant to the terms of the Indebtedness so
refinanced or the amount of any premium reasonably determined by the Company
as necessary to accomplish such refinancing by means of a tender offer or
privately
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negotiated repurchase, plus the expenses of C&A Co., the Company or any
Restricted Subsidiary, as the case may be, Incurred in connection with such
refinancing; provided, however, that (a) Indebtedness the proceeds of which
are used to refinance the Notes or Indebtedness which is pari passu with or
subordinate in right of payment to the Notes shall only be permitted if (1)
in the case of the refinancing of the Notes or Indebtedness which is pari
passu with the Notes, the refinancing Indebtedness is Incurred by the
Company and made pari passu with the Notes or subordinated to the Notes, and
(2) in the case any refinancing of Indebtedness which is subordinated to the
Notes, the refinancing Indebtedness is Incurred by the Company and is
subordinated to the Notes to the same extent as the Indebtedness being
refinanced; (b) the refinancing Indebtedness by its terms, or by the terms
of any agreement or instrument pursuant to which such Indebtedness is
issued, (1) provides that the Weighted Average Life to Maturity of such
refinancing Indebtedness at the time such refinancing Indebtedness is
Incurred is equal to or greater than the lesser of the Weighted Average Life
to Maturity of either the Notes or the Indebtedness being refinanced and (2)
does not permit redemption or other retirement (including pursuant to an
offer to purchase) of such debt at the option of the holder thereof prior to
the earlier of the Stated Maturity of the Notes and the final stated
maturity of the Indebtedness being refinanced, other than a redemption or
other retirement at the option of the holder of such Indebtedness (including
pursuant to an offer to purchase) which is conditioned upon provisions
substantially similar to those described under "--Change of Control" and
"--Limitation on Asset Dispositions"; and (c) in the case of any refinancing
of Indebtedness Incurred by the Company, the refinancing Indebtedness may be
Incurred only by the Company, and in the case of any refinancing of
Indebtedness Incurred by a Restricted Subsidiary, the refinancing
Indebtedness may be Incurred only by such Restricted Subsidiary or the
Company; provided, further, that Indebtedness Incurred pursuant to this
clause (vi) may not be Incurred more than 60 days prior to the application
of the proceeds to repay the Indebtedness to be refinanced;
(vii) Indebtedness consisting of (a) Guarantees by the Company or a
Restricted Subsidiary of Indebtedness Incurred by a Restricted Subsidiary
without violation of the Subordinated Indenture, (b) Guarantees by a
Restricted Subsidiary (in addition to Guarantees permitted by clause (i)
above) of Senior Indebtedness Incurred by the Company (so long as such
Restricted Subsidiary could have Incurred such Indebtedness directly without
violation of the Subordinated Indenture) without violation of the
Subordinated Indenture, (c) Guarantees by a Restricted Subsidiary of
Indebtedness of any of its Restricted Subsidiaries Incurred without
violation of the Subordinated Indenture; provided, however, that a Guarantee
under this clause (c) of Indebtedness owed by a Restricted Subsidiary that
is not a Wholly Owned Subsidiary of the Company shall be permitted by this
clause (c) only if no Affiliate of the Company (other than a Wholly Owned
Subsidiary) holds Capital Stock in such Restricted Subsidiary and (d)
Guarantees by Restricted Subsidiaries of Senior Subordinated Indebtedness of
the Company so long as such Restricted Subsidiary provides an equal (or
superior) and ratable Guarantee for the benefit of the holders of the Notes.
(viii) Indebtedness of the Company or any Restricted Subsidiary
represented by Capitalized Lease Obligations, rental obligations described
in clause (viii) of the definition of "Indebtedness", mortgage financings or
other purchase money obligations or obligations under other financing
transactions relating to capital expenditures, in each case Incurred for the
purpose of financing all or any part of the purchase price or cost of
construction or improvement of property used in a Related Business ("Capital
Spending") and Incurred no later than 270 days after the date of such
acquisition or the date of completion of such construction or improvement,
or Incurred to renew, extend, refinance or refund any such Indebtedness
then outstanding; provided further, however, that the principal amount of
any Indebtedness Incurred pursuant to this clause (viii) (other than
Indebtedness Incurred to refinance other Indebtedness) at any time during a
single fiscal year shall not exceed 40% of the total Capital Spending of the
Company and its Restricted Subsidiaries made during the period of the most
recently completed four consecutive fiscal quarters;
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(ix) (a) Indebtedness of a Restricted Subsidiary Incurred by a Person
prior to the time (a) such Person became a Restricted Subsidiary, (b) such
Person merged into or consolidated with a Restricted Subsidiary or (c)
another Restricted Subsidiary merged into or consolidated with such Person
(in a transaction in which such Person became a Restricted Subsidiary),
which Indebtedness was not Incurred in anticipation of such transaction and
was outstanding prior to such transaction; provided, however, that to the
extent the principal amount of such Indebtedness in any single transaction
or series of related transactions exceeds $10 million at the time such
Restricted Subsidiary is acquired by the Company, the Company would have
been able to Incur $1.00 of additional Indebtedness pursuant to the
preceding paragraph after giving effect to the Incurrence of such
Indebtedness pursuant to this clause;
(x) (a) Indebtedness of a Foreign Subsidiary Incurred for working
capital purposes if, at the time of Incurrence of such Indebtedness, and
after giving effect thereto, the aggregate principal amount of all
Indebtedness of such Foreign Subsidiary Incurred pursuant to this clause (a)
and then outstanding does not exceed the amount (the "Borrowing Base") equal
to the sum of (x) 80% of the consolidated book value of the accounts
receivable of such Foreign Subsidiary and (y) 60% of the consolidated book
value of the inventories of such Foreign Subsidiary; provided, however, that
at the time such Indebtedness is Incurred, the Company would have been able
to Incur $1.00 of additional Indebtedness pursuant to the preceding
paragraph after giving effect to the Incurrence of such Indebtedness
pursuant to this clause (a); and (b) Indebtedness consisting of working
capital financing of any Foreign Subsidiary, if at the time such
Indebtedness is Incurred the Company would not be able to Incur $1.00 of
additional Indebtedness pursuant to the preceding paragraph after giving
effect to the Incurrence of such Indebtedness, in an aggregate principal
amount which does not exceed such Foreign Subsidiary's Borrowing Base and
which, together with all other Indebtedness Incurred by Foreign Subsidiaries
pursuant to this clause (b) and then outstanding, has an aggregate principal
amount not in excess of $25 million;
(xi) Indebtedness of any Restricted Subsidiary in an aggregate principal
amount which, together with any other Indebtedness Incurred pursuant to this
clause (xi) and then outstanding, does not exceed the sum of $100 million
plus 3% of the Company's Consolidated Assets as of the date of such
Incurrence; provided, however, that at the time such Indebtedness is
Incurred, the Company would have been able to Incur $1.00 of additional
Indebtedness pursuant to the preceding paragraph after giving effect to the
Incurrence of such Indebtedness pursuant to this clause (xi); and
(xii) Indebtedness of the Company, in addition to any Indebtedness
Incurred pursuant to clauses (i) through (xi) above, which, together with
any other Indebtedness Incurred pursuant to this clause (xii) and then
outstanding, has an aggregate principal amount not in excess of $50 million.
C&A Co. may not Incur any Indebtedness; provided, however, that the
foregoing will not prohibit the Incurrence of any of the following Indebtedness:
(i) Guarantees of Indebtedness of the Company or any Restricted Subsidiary
Incurred under the Bank Credit Facilities or otherwise without violation of the
Subordinated Indenture; provided, however, that such Guarantees do not guarantee
(A) any Subordinated Indebtedness except on a subordinated basis or (B) any
Senior Subordinated Indebtedness on a senior basis; and (ii) Indebtedness owing
to and held by the Company or any Wholly Owned Subsidiary of C&A Co.; provided,
however, that any subsequent issuance or transfer of any Capital Stock or any
other event which results in any such Wholly Owned Subsidiary ceasing to be a
Wholly Owned Subsidiary of C&A Co. or any subsequent transfer of any such
Indebtedness (except to C&A Co. or to a Wholly Owned Subsidiary of C&A Co.)
shall be deemed, in each case, to constitute the Incurrence of such Indebtedness
by C&A Co.
LIMITATION ON RANKING OF CERTAIN INDEBTEDNESS
The Company may not Incur any Indebtedness which by its terms is both (i)
subordinate in right of payment to any Senior Indebtedness and (ii) senior in
right of payment to the Notes (it being
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understood that Indebtedness will not be deemed subordinate in right of payment
to other Indebtedness solely by reason of such other Indebtedness having the
benefit of a security interest in property of the Company).
LIMITATION ON LIENS SECURING SUBORDINATED INDEBTEDNESS
The Company may not, and may not permit any Restricted Subsidiary to,
directly or indirectly Incur or suffer to exist any Lien on or with respect to
any property or assets now owned or hereafter acquired to secure any
Indebtedness of the Company that is expressly by its terms subordinate or junior
in right of payment to any other Indebtedness of the Company without making, or
causing such Subsidiary to make, effective provision for securing the Notes (x)
equally and ratably with such Indebtedness as to such property or assets for so
long as such Indebtedness will be so secured or (y) in the event such
Indebtedness is subordinate in right of payment to the Notes, prior to such
Indebtedness as to such property or assets for so long as such Indebtedness will
be so secured.
LIMITATION ON RESTRICTED PAYMENTS AND RESTRICTED INVESTMENTS
Neither the Company nor C&A Co. may, nor may any Restricted Subsidiary be
permitted to, directly or indirectly, (i) declare or pay any dividend or make
any distribution on or in respect of the Capital Stock of the Company or C&A Co.
(including any payment in connection with any merger or consolidation involving
the Company or C&A Co.) except dividends or distributions payable solely in
Capital Stock of the Company, C&A Co. or such Restricted Subsidiary (other than
Redeemable Stock), (ii) purchase, redeem or otherwise retire or acquire for
value any Capital Stock (including any option or warrant to purchase Capital
Stock) of the Company or C&A Co. or any Capital Stock of a Restricted Subsidiary
held by an Affiliate of the Company (other than another Restricted Subsidiary),
(iii) purchase, repurchase, redeem, defease or otherwise acquire or retire for
value, prior to scheduled maturity, scheduled repayment or scheduled sinking
fund payment any Indebtedness of the Company or C&A Co. which is subordinate in
right of payment to the Notes (other than the purchase, repurchase or other
acquisition of Subordinated Indebtedness purchased in anticipation of satisfying
a sinking fund obligation, principal installment or final maturity, in each case
due within one year of the date of acquisition), or (iv) make any Investment in
any Person (other than Permitted Investments) (each of clauses (i) through (iv)
being a "Restricted Payment") if: (a) an Event of Default, or an event that with
the passing of time or the giving of notice, or both, would constitute an Event
of Default, shall have occurred and is continuing or would result from such
Restricted Payment, or (b) after giving pro forma effect to such Restricted
Payment as if such Restricted Payment had been made at the beginning of the
applicable four-fiscal-quarter period, the Company could not Incur at least
$1.00 of additional Indebtedness pursuant to the first paragraph of the covenant
described under "--Limitation on Indebtedness" above, or (c) upon giving effect
to such Restricted Payment, the aggregate of all Restricted Payments from the
Issue Date exceeds the sum of: (1) 50% of cumulative Consolidated Net Income
(or, in the case Consolidated Net Income shall be negative, less 100% of such
deficit) of the Company since the beginning of the fiscal quarter during which
the Notes were originally issued through the last day of the last fiscal quarter
ending immediately preceding the date of such Restricted Payment for which
quarterly or annual financial statements are available (taken as a single
accounting period); plus (2) 100% of the aggregate net proceeds received by the
Company after the Issue Date, including the fair market value of property other
than cash (determined in good faith by the Board of Directors as evidenced by a
resolution of the Board of Directors filed with the Trustee), from contributions
of capital from C&A Co. from the issuance and sale (other than to a Subsidiary
of C&A Co. or the Company) of Capital Stock (other than Redeemable Stock) of C&A
Co. or options, warrants or other rights to acquire Capital Stock (other than
Redeemable Stock) of C&A Co. or the issuance and sale (other than to a
Subsidiary of C&A Co. or the Company) of Capital Stock (other than Redeemable
Stock) of the Company or options, warrants or other rights to acquire Capital
Stock (other than Redeemable Stock) of the Company, provided that any such net
proceeds received, directly or indirectly, by the Company from an employee stock
ownership plan financed by loans from C&A Co., the Company or a Subsidiary of
the Company shall be included only to the extent such loans have been repaid
with cash on or prior to the date of determination; plus (3) the amount by which
Indebtedness of
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the Company or its Restricted Subsidiaries is reduced on the Company's balance
sheet upon the conversion or exchange (other than by a Subsidiary) subsequent to
the Issue Date of any Indebtedness of the Company or its Restricted Subsidiaries
convertible or exchangeable for Capital Stock (other than Redeemable Stock) of
the Company (less the amount of any cash or other property (other than such
Capital Stock) distributed by the Company or any Restricted Subsidiary upon such
conversion or exchange); plus (4) to the extent not included in Consolidated Net
Income, the net reduction (received by the Company or any Restricted Subsidiary
in cash) in Investments (other than Permitted Investments) made by the Company
and its Restricted Subsidiaries since the Issue Date (including if such
reduction occurs by reason of the return of equity capital, the repayment of the
principal of loans or advances or by the redesignation of Unrestricted
Subsidiaries as Restricted Subsidiaries), not to exceed, in the case of any
Investments in any Person, the amount of Investments (other than Permitted
Investments) made by the Company and its Restricted Subsidiaries in such Person
since the Issue Date.
So long as no Event of Default, or event that with the passing of time or
the giving of notice, or both, would constitute an Event of Default, shall have
occurred and is continuing or would result therefrom (except as to clauses (ii)
through (v) below), the foregoing will not prohibit:
(i) dividends paid within 60 days after the date of declaration thereof
if at such date of declaration such dividend would have complied with this
covenant;
(ii) the purchase or redemption of Subordinated Indebtedness made by the
exchange for, or out of the proceeds of the substantially concurrent sale
of, Indebtedness of the Company Incurred pursuant to the first paragraph or
clause (vi) of the second paragraph of "--Limitation on Indebtedness" above
or in exchange for or out of the net proceeds of the substantially
concurrent sale (other than from or to a Subsidiary or from or to an
employee stock ownership plan financed by loans from C&A Co., the Company or
a Subsidiary of the Company) of shares of Capital Stock (other than
Redeemable Stock) of the Company or C&A Co., to the extent the net cash
proceeds thereof are paid to the Company as a capital contribution, provided
that the amount of such purchase or redemption and the amount of net
proceeds from such exchange or sale shall be excluded from the calculation
of the amount available for Restricted Payments pursuant to the preceding
paragraph;
(iii) the purchase, redemption, acquisition or retirement of any shares
of Capital Stock of the Company or C&A Co. solely in exchange for or out of
the net proceeds of the substantially concurrent sale (other than from or to
a Subsidiary or from or to an employee stock ownership plan financed by
loans from C&A Co., the Company or a Subsidiary of the Company) of shares of
Capital Stock (other than Redeemable Stock) of the Company or C&A Co., to
the extent the net cash proceeds thereof are received by the Company or are
paid to the Company by C&A Co. as a capital contribution, provided that the
amount of such purchase, redemption, acquisition or retirement and the
amount of net proceeds from such exchange or sale shall be excluded from the
calculation of the amount available for Restricted Payments pursuant to the
preceding paragraph;
(iv) the purchase or redemption of any Indebtedness from Net Available
Proceeds to the extent permitted under "--Limitation on Asset Dispositions",
provided that such purchase or redemption shall be excluded from the
calculation of the amount available for Restricted Payments pursuant to the
preceding paragraph;
(v) the purchase or redemption of any Indebtedness following a Change of
Control pursuant to provisions of such Indebtedness substantially similar to
those described under "--Change of Control" below after the Company shall
have complied with the provisions under "--Change of Control" below,
including payment of the applicable Purchase Price;
(vi) the repurchase of Capital Stock of C&A Co. from full-time
employees, former full-time employees, directors, or former directors of C&A
Co., the Company or any of its Subsidiaries pursuant to the terms of
agreements (including employment agreements) or plans approved by the Board
of Directors under which such persons purchase or sell or are granted the
option to purchase
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such shares of Capital Stock to the extent that such payments do not exceed
$5 million in any fiscal year which, to the extent not used in any fiscal
year, may be carried forward to the next succeeding fiscal year, provided
that aggregate amount of such payments that may be made pursuant to this
clause (vi) may not exceed $25 million;
(vii) dividends or other Restricted Payments (including tax sharing
payments) to C&A Co. to the extent used by C&A Co. to pay its operating and
administrative expenses incurred in the ordinary course of its business,
including directors' fees, legal and audit expenses, listing fees,
judgments, awards or settlements payable by C&A Co. arising from a Related
Business or C&A Co.'s status as a public company, Commission compliance
expenses and corporate franchise and other taxes; provided that such
dividends or payments will be excluded from the calculation of the amount
available for Restricted Payments pursuant to the preceding paragraph;
(viii) the dividend to C&A Co. for the purpose of enabling it to make a
distribution to its stockholders of the Capital Stock of Wallcoverings
substantially in the manner described in this Prospectus Supplement,
provided that to the extent the amount (the "Net Investment") equal to (a)
the aggregate amount of all Investments made by the Company directly or
indirectly in Wallcoverings since the Issue Date less (b) the aggregate
amount of dividends paid, repayments of loans or advances or other transfers
of assets (valued at their fair market value, as determined in good faith by
the Board of Directors) made, directly or indirectly, to the Company from
Wallcoverings since the Issue Date, exceeds $75 million, then the
distribution described in this clause (viii) will be permitted only to the
extent that the Company at such time is permitted to make a Restricted
Payment pursuant to the first paragraph of this covenant in an amount equal
to the excess of such Net Investment over $75 million; provided further,
however, that no part of the value of such distribution (other than the
amount of Net Investment in excess of $50 million) will be included in the
calculation of the amount available for Restricted Payments pursuant to the
preceding paragraph;
(ix) the dividend to C&A Co. for the purpose of enabling it to make a
dividend or distribution to its stockholders of an amount equal to (a) the
Net Available Proceeds (after repayment of all intercompany Indebtedness
owed by Wallcoverings) from the sale or other disposition of Wallcoverings
less (b) the amount of any tax savings generated by the use of net operating
losses or other tax assets in connection with such sale or other
disposition; provided that no portion of such dividend or distribution
(other than the amount of Net Investment in Wallcoverings in excess of $50
million) will be included in the calculation of the amount available for
Restricted Payments pursuant to the preceding paragraph;
(x) Restricted Payments to C&A Co., to the extent used by C&A Co. within
30 days of such payment to pay dividends in respect of the Capital Stock of
C&A Co. or to purchase or otherwise acquire any Capital Stock of C&A Co. to
the extent that such dividends, purchases and other acquisitions do not
exceed $10 million in any fiscal year or $20 million in the aggregate; and
(xi) Restricted Payments by C&A Co. to the extent dividends are
otherwise permitted to be, and are actually, made pursuant to any paragraph
or clause of this covenant to C&A Co. from the Company; provided that such
Restricted Payments made by C&A Co. will be excluded from the calculation of
the amount available for Restricted Payments pursuant to the preceding
paragraph.
Any payment made pursuant to clause (i), (v), (vi) or (x) of the preceding
paragraph will, without duplication, be a Restricted Payment for purposes of
calculating aggregate Restricted Payments pursuant to the second preceding
paragraph.
LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
The Company may not, and may not permit any Restricted Subsidiary to,
directly or indirectly, create or otherwise cause or suffer to exist or become
effective any consensual encumbrance or restriction on the ability of any
Restricted Subsidiary of the Company (i) to pay dividends (in cash or
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otherwise) or make any other distributions in respect of its Capital Stock owned
by the Company or any other Restricted Subsidiary or pay any Indebtedness or
other obligation owed to the Company or any other Restricted Subsidiary; (ii) to
make loans or advances to the Company or any other Restricted Subsidiary; or
(iii) to transfer any of its property or assets to the Company or any other
Restricted Subsidiary. Notwithstanding the foregoing, the Company may, and may
permit any Restricted Subsidiary to, create or cause or suffer to exist any such
encumbrance or restriction (a) pursuant to any agreement in effect on the Issue
Date (including the Bank Credit Facilities and the Permitted Receivables
Financing Facility); (b) pursuant to an agreement relating to any Indebtedness
Incurred by a Person (other than a Subsidiary of the Company that is a
Subsidiary of the Company on the Issue Date or any Subsidiary carrying on any of
the businesses of any such Subsidiary) prior to the date on which such Person
became a Subsidiary of the Company and outstanding on such date and not Incurred
in anticipation of becoming a Subsidiary, which encumbrance or restriction is
not applicable to any Person, or the properties or assets of any Person, other
than the Person so acquired; (c) pursuant to an agreement effecting a renewal,
refunding or extension of the Permitted Receivables Financing Facility or of
Indebtedness Incurred pursuant to an agreement referred to in clause (a) or (b)
above or this clause (c), provided, however, that the provisions contained in
such renewal, refunding or extension agreement relating to such encumbrance or
restriction are not, in the aggregate, more restrictive in any material respect
than the provisions contained in the agreement the subject thereof, as
determined in good faith by and in the reasonable judgment of the Board of
Directors and evidenced by a resolution of the Board of Directors filed with the
Trustee; (d) in the case of clause (iii) above, restrictions contained in any
mortgage or security agreement (including a capital lease) securing Indebtedness
of a Subsidiary otherwise permitted under the Subordinated Indenture, but only
to the extent such restrictions restrict the transfer of the property subject to
such mortgage or security agreement; (e) in the case of clause (iii) above,
customary nonassignment provisions entered into in the ordinary course of
business consistent with past practice in leases and other contracts to the
extent such provisions restrict the transfer or subletting of any such lease or
the assignment of rights under such contract; (f) any restriction with respect
to a Subsidiary of the Company imposed pursuant to an agreement which has been
entered into for the sale or disposition of all the Capital Stock or assets of
such Subsidiary, provided that consummation of such transaction would not result
in an Event of Default or an event that, with the passing of time or the giving
of notice or both, would constitute an Event of Default, that such restriction
terminates if such transaction is closed or abandoned and that the closing or
abandonment of such transaction occurs within one year of the date such
agreement was entered into; or (g) any encumbrance or restriction with respect
to a Foreign Subsidiary pursuant to an agreement relating to Indebtedness
Incurred by such Foreign Subsidiary which is permitted under clause (x) of the
covenant described under "--Limitation on Indebtedness" above.
LIMITATION ON ASSET DISPOSITIONS
The Company may not, and may not permit any Restricted Subsidiary to, make
any Asset Disposition in one or more related transactions unless: (i) the
Company or the Restricted Subsidiary, as the case may be, receives consideration
for such disposition at least equal to the fair market value for the assets sold
or disposed of as determined by the Board of Directors in good faith and
evidenced by a resolution of the Board of Directors filed with the Trustee; (ii)
at least 75% of the consideration for such disposition consists of cash or Cash
Equivalents or the assumption of Indebtedness of the Company or any Restricted
Subsidiary (other than Indebtedness that is subordinated to the Notes) relating
to such assets and release of the Company and its Restricted Subsidiaries from
all liability on the Indebtedness assumed; and (iii) all Net Available Proceeds,
less any amounts invested within 360 days of such disposition in a Related
Business, are applied within 360 days of such disposition (1) first, to the
permanent repayment or reduction of Senior Indebtedness then outstanding under
any agreements or instruments which would require such application or prohibit
payments pursuant to clause (2) following, and to the extent the Company elects,
any other Senior Indebtedness then outstanding, (2) second, to the extent of
remaining Net Available Proceeds, to make an Offer to Purchase outstanding Notes
at 100% of their principal amount plus accrued interest to the date of purchase
and, to the extent the Company elects or is otherwise required by the terms
thereof, any other Indebtedness of the Company
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that is pari passu with the Notes at a price no greater than 100% of the
principal amount thereof plus accrued interest to the date of purchase, (3)
third, to the extent of any remaining Net Available Proceeds following the
completion of the Offer to Purchase, to the repayment of other Indebtedness of
C&A Co., the Company or Indebtedness of a Subsidiary of the Company, and (4)
fourth, to the extent of any remaining Net Available Proceeds, to any other use
as determined by the Company which is not otherwise prohibited by the
Subordinated Indenture. For purposes of the preceding sentence, in the event of
a sale of Wallcoverings, the term "Net Available Proceeds" shall mean only an
amount equal to the tax savings generated by the use of net operating losses or
other tax assets in connection with such sale. The Company shall not be required
to make an offer for Notes pursuant to this covenant if the Net Available
Proceeds available therefor (after application of the proceeds as provided in
clause (1)) are less than $10 million for any particular Asset Disposition
(which lesser amounts shall be carried forward for purposes of determining
whether an offer is required with respect to the Net Available Proceeds from any
subsequent Asset Disposition). The Company may apply as a credit in satisfaction
of all or any part of the Company's obligation to make an Offer to Purchase
Notes pursuant to clause (2) above the aggregate principal amount of Notes
purchased by the Company in open-market transactions (i.e., excluding Notes
optionally redeemed, or required to be purchased by the Company, pursuant to the
terms of the Subordinated Indenture) within the previous 24 consecutive months.
TRANSACTIONS WITH AFFILIATES AND RELATED PERSONS
The Company may not, and may not permit any Restricted Subsidiary to, enter
into any transaction (or series of related transactions) with an Affiliate or
Related Person of the Company (other than C&A Co., the Company or a Restricted
Subsidiary), including any Investment, either directly or indirectly, unless
such transaction is on terms no less favorable to the Company or such Restricted
Subsidiary than those that could be obtained in a comparable arm's-length
transaction with an entity that is not an Affiliate or Related Person; provided,
however, that transactions with a Restricted Subsidiary that is not a Wholly
Owned Subsidiary of the Company will be subject to this covenant unless no
Affiliate of the Company (other than a Wholly Owned Subsidiary) holds Capital
Stock in such Restricted Subsidiary. For any transaction that involves in excess
of $1,000,000, a majority of the disinterested members of the Board of Directors
shall determine that the transaction satisfies the above criteria and shall
evidence such a determination by a Board Resolution. For any transaction that
involves in excess of $25,000,000, the Company shall also obtain an opinion from
a nationally recognized independent investment banking firm or other expert with
experience in evaluating or appraising the terms and conditions of the type of
transaction (or series of related transactions) for which the opinion is
required stating in substance that such transaction (or series of related
transactions) is on terms no less favorable to the Company or such Restricted
Subsidiary than those that could be obtained in a comparable arm's-length
transaction with an entity that is not an Affiliate or Related Person of the
Company.
The foregoing provisions will not apply to: (i) any Permitted Investment or
any Restricted Payment permitted to be paid pursuant to "--Limitation on
Restricted Payments and Restricted Investments" above; (ii) any issuance of
securities, or other payments, awards or grants in cash, securities or otherwise
pursuant to, or the funding of, employment, compensation or indemnification
arrangements, stock options and stock ownership plans in the ordinary course of
business or approved by the Board of Directors; (iii) loans or advances to
employees, the payment of fees and indemnities to directors, officers and
full-time employees and employment agreements entered into in the ordinary
course of business; (iv) monitoring fees paid to Blackstone Partners and WP
Partners not in excess of $2 million in the aggregate in any fiscal year; (v)
payments pursuant to the Tax Sharing Agreement; and (vi) any management,
service, purchase, supply or similar agreement relating to the operations of a
Related Business entered into in the ordinary course of the Company's business
between the Company or any Restricted Subsidiary and any Unrestricted
Subsidiary or any C&A Co. Subsidiary, in each case primarily engaged in a
Related Business, so long as any such agreement is on terms no less favorable
to the Company than those that could have been obtained in a comparable
arm's-length transaction with an entity that is not an Affiliate or a
Related Person.
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CHANGE OF CONTROL
Within 30 days of the occurrence of a Change of Control, unless the Company
has mailed a redemption notice with respect to all of the Outstanding Notes in
connection with such Change of Control, the Company will be required to make an
Offer to Purchase all Outstanding Notes at a purchase price equal to 101% of
their principal amount plus accrued interest to the date of purchase. A "Change
in Control" shall be deemed to have occurred if (i) (a) any "person" (as such
term is used in Sections 13(d) and 14(d) of the Exchange Act), other than one or
more Permitted Holders, is or becomes the beneficial owner (within the meaning
of Rule 13d-3 under the Exchange Act), directly or indirectly, of more than 35%
of the total voting power of the Voting Stock of C&A Co. and (b) the Permitted
Holders beneficially own (as so defined), directly or indirectly, in the
aggregate a lesser percentage of the total voting power of the Voting Stock of
C&A Co. than such other person and do not have the right or ability by voting
power, contract or otherwise to elect or designate for election a majority of
the Board of Directors of C&A Co. (for the purposes of this clause (i), such
other person shall be deemed to beneficially own any Voting Stock of a specified
corporation held by a parent corporation, if such other person beneficially
owns, directly or indirectly, more than 35% of the voting power of the Voting
Stock of such parent corporation and the Permitted Holders beneficially own,
directly or indirectly, in the aggregate a lesser percentage of the voting power
of the Voting Stock of such parent corporation and do not have the right or
ability by voting power, contract or otherwise to elect or designate for
election a majority of the board of directors of such parent corporation); or
(ii) during any period of two consecutive years (or, in the case this event
occurs within the first two years after the Issue Date, such shorter period as
shall have begun on such date), individuals who at the beginning of such period
constituted the Board of Directors of C&A Co. or the Company (together with any
new directors whose election by such Board of Directors or whose nomination for
election by the shareholders of C&A Co. or the Company was approved by a vote of
66 2/3% of the directors of C&A Co. or the Company then still in office who were
either directors at the beginning of such period or whose election or nomination
for election was previously so approved) cease for any reason to constitute a
majority of the Board of Directors of C&A Co. or the Company then in office. The
term "Permitted Holder" shall mean Blackstone Partners, BFIP, BADP and
Blackstone Capital Company II, L.L.C. and any of their Affiliates (the
"Blackstone Entities") and Wasserstein/C&A Holdings, L.L.C. and any of its
Affiliates ("Wasserstein Holdings"). For purposes of clause (b) of this
definition, the term "Permitted Holders" shall be deemed to include any other
holder or holders of shares of C&A Co. having ordinary voting power if any
Blackstone Entity or Wasserstein Holdings shall hold the irrevocable general
proxy of each such holder in respect of the shares held by such holder.
The Bank Credit Facilities will prohibit the Company from purchasing any
Notes prior to repayment in full of the Bank Credit Facilities and will also
provide that certain change of control events with respect to the Company would
constitute a default thereunder. In the event that at the time of such Change of
Control the terms of the Bank Credit Facilities restrict or prohibit the
repurchase of Notes pursuant to this covenant, then prior to the mailing of the
Offer to Purchase but in any event within 30 days following any Change of
Control, the Company shall (i) repay in full all Indebtedness under the Bank
Credit Facilities or offer to repay in full all such Indebtedness and repay the
Indebtedness of each lender who has accepted such offer or (ii) obtain the
requisite consent under the Bank Credit Facilities to permit the repurchase of
the Notes as provided for in this covenant.
Future Senior Indebtedness of the Company may contain prohibitions of
certain events which would constitute a Change of Control or require such Senior
Indebtedness to be repurchased upon a Change of Control. Moreover, the exercise
by the holders of Notes of their right to require the Company to repurchase the
Notes could cause a default under such Senior Indebtedness, even if the Change
of Control itself does not, due to the financial effect of such repurchase on
the Company. Finally, the Company's ability to pay cash to the holders of Notes
upon a repurchase may be limited by the Company's then existing financial
resources. There can be no assurance that sufficient funds will be available
when necessary to make any required repurchases.
In the event that the Company makes an Offer to Purchase the Notes, the
Company intends to comply with any applicable securities laws and regulations,
including any applicable requirements of Section 14(e) of, and Rule 14e-1 under,
the Securities Exchange Act of 1934.
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PROVISION OF FINANCIAL INFORMATION
Whether or not C&A Co. or the Company is required to be subject to Section
13(a) or 15(d) of the Exchange Act, or any successor provision thereto, C&A Co.
or the Company shall file with the Commission the annual reports, quarterly
reports and other documents which C&A Co. or the Company would have been
required to file with the Commission pursuant to such Section 13(a) or 15(d) or
any successor provision thereto if C&A Co. or the Company were so required, such
documents to be filed with the Commission on or prior to the respective dates
(the "Required Filing Dates") by which C&A Co. or the Company would have been
required so to file such documents if C&A Co. or the Company were so required.
C&A Co. or the Company shall also in any event (i) within 15 days of each
Required Filing Date (a) transmit by mail to all holders of Notes, as their
names and addresses appear in the Security Register, without cost to such
holders of Notes, and (b) file with the Trustee, copies of the annual reports,
quarterly reports and other documents which C&A Co. or the Company files with
the Commission pursuant to such Section 13(a) or 15(d) or any successor
provision thereto or would have been required to file with the Commission
pursuant to such Section 13(a) or 15(d) or any successor provisions thereto if
C&A Co. or the Company were required to be subject to such Sections and (ii) if
filing such documents by C&A Co. or the Company with the Commission is not
permitted under the Exchange Act, promptly upon written request of a holder of
Notes supply copies of such documents to any prospective holder of Notes.
UNRESTRICTED SUBSIDIARIES
The Company may designate any Subsidiary of the Company to be an
"Unrestricted Subsidiary" as provided below in which event such Subsidiary and
each other Person that is then or thereafter becomes a Subsidiary of such
Subsidiary will be deemed to be an Unrestricted Subsidiary. "Unrestricted
Subsidiary" means (1) any Subsidiary designated as such by the Board of
Directors as set forth below and (2) any Subsidiary of an Unrestricted
Subsidiary. The Board of Directors may designate any Subsidiary of the Company
(including any newly acquired or newly formed Subsidiary) to be an Unrestricted
Subsidiary unless such Subsidiary owns any Capital Stock of, or owns or holds
any Lien on any property of, any other Subsidiary of the Company which is not a
Subsidiary of the Subsidiary to be so designated or otherwise an Unrestricted
Subsidiary, provided that either (A) the Subsidiary to be so designated has
total assets of $1,000 or less or (B) if such Subsidiary has assets greater than
$1,000, the Investment resulting from such designation would be permitted either
as a Permitted Investment or in compliance with the covenant entitled "--Certain
Covenants--Limitation on Restricted Payments and Restricted Investments". The
Board of Directors may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; provided, however, that immediately after giving effect to such
designation (x) the Company could Incur $1.00 of additional Indebtedness under
the first paragraph of the covenant described under "--Certain
Covenants--Limitation on Indebtedness" and (y) no Default shall have occurred
and be continuing. Any such designation by the Board of Directors shall be
evidenced to the Trustee by promptly filing with the Trustee a copy of the board
resolution giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing provisions.
MERGERS, CONSOLIDATIONS AND CERTAIN SALES OF ASSETS
The Company may not (i) consolidate with or merge into any other Person or
permit any other Person to consolidate with or merge into the Company or (ii)
directly or indirectly, transfer, sell, lease or otherwise dispose of the
Company's assets substantially as an entirety to any Person, unless: (a) in a
transaction in which the Company does not survive or in which the Company sells,
leases or otherwise disposes of its assets substantially as an entirety, the
successor entity to the Company is organized under the laws of the United States
of America or any State thereof or the District of Columbia and shall expressly
assume, by a supplemental indenture executed and delivered to the Trustee in
form satisfactory to the Trustee, all of the Company's obligations under the
Subordinated Indenture; (b) immediately before and after giving effect to such
transaction and treating any Indebtedness which becomes an obligation of the
Company or a Subsidiary as a result of such transaction as having been Incurred
by the Company or such Subsidiary at the time of the transaction, no Event of
Default or event that with the
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passing of time or the giving of notice, or both, would constitute an Event of
Default shall have occurred and be continuing; (c) immediately after giving
effect to such transaction, the Consolidated Net Worth of the Company (or other
successor entity to the Company) is equal to or greater than that of the Company
immediately prior to the transaction; (d) immediately after giving effect to
such transaction and treating any Indebtedness which becomes an obligation of
the Company or a Subsidiary as a result of such transaction as having been
Incurred by the Company or such Subsidiary at the time of such transaction, the
Company (including any successor entity to the Company) could Incur at least
$1.00 of additional Indebtedness pursuant to the provisions of the first
paragraph of the covenant under "--Certain Covenants--Limitation on
Indebtedness" above; and (e) certain other conditions are met.
C&A Co. may not (i) consolidate with or merge into any other Person or (ii)
directly or indirectly, transfer, sell, lease or otherwise dispose of C&A Co.'s
assets substantially as an entirety to any Person, unless: (a) in a transaction
in which C&A Co. does not survive or in which C&A Co. sells or otherwise
disposes of its assets substantially as an entirety, the successor entity to C&A
Co. is organized under the laws of the United States of America or any state
thereof or the District of Columbia and shall expressly assume, by a
supplemental indenture executed and delivered to the Trustee in form
satisfactory to the Trustee, all of C&A Co.'s obligations under the Subordinated
Indenture; (b) immediately before and after giving effect to such transaction
and treating any Indebtedness which becomes an obligation of C&A Co. at the time
of the transaction as having been Incurred by C&A Co. at the time of the
transaction, no Event of Default or event that with the passing of time or the
giving of notice, or both, would constitute an Event of Default shall have
occurred and be continuing; and (c) certain other conditions are met.
In the event of any transaction described in and complying with the
conditions listed in the immediately preceding paragraphs in which the Company
or C&A Co. is not the continuing corporation, the successor Person formed or
remaining will succeed to, and be substituted for, and may exercise every right
and power of, the Company or C&A Co., as the case may be, and the Company or C&A
Co., as the case may be, will be released and discharged from all obligations
and covenants under the Indenture and the Notes.
CERTAIN DEFINITIONS
In addition to the definitions set forth elsewhere in this Prospectus
Supplement or in the accompanying Prospectus, the following is a summary of
certain of the defined terms used in the Subordinated Indenture. Reference is
made to the Subordinated Indenture for the full definition of all such terms, as
well as any other terms used herein for which no definition is provided.
"Affiliate" of any Person means any other Person directly or indirectly
controlling or controlled by or under direct or indirect common control with
such specified Person. For the purposes of this definition, "control" when used
with respect to any Person means the power to direct the management and policies
of such specified Person, directly or indirectly, whether through the ownership
of voting securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Asset Disposition" means any transfer, conveyance, sale, lease or other
disposition (including a consolidation or merger or other sale of a Restricted
Subsidiary with, into or to another Person in a transaction in which such
Restricted Subsidiary ceases to be a Restricted Subsidiary, but excluding
Receivables Sales and a disposition by a Restricted Subsidiary to the Company or
another Restricted Subsidiary or by the Company to a Restricted Subsidiary;
provided, however, that any disposition to a Restricted Subsidiary that is not a
Wholly Owned Subsidiary of the Company shall be an "Asset Disposition" unless no
Affiliate of the Company (other than a Wholly Owned Subsidiary) holds Capital
Stock in such Restricted Subsidiary) of (i) shares of Capital Stock (other than
directors' qualifying shares) or other ownership interests of a Restricted
Subsidiary, (ii) substantially all of the assets of the Company or any of its
Restricted Subsidiaries representing a division or line of business or (iii)
other assets or rights of the Company or any of its Restricted Subsidiaries
outside of the ordinary course of business, provided in each case that the
aggregate consideration for such transfer, conveyance, sale, lease or other
disposition is equal to $10 million or more; provided, however, that (a) for
purposes of the
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covenant described under "--Certain Covenants--Limitation on Asset
Dispositions", the term "Asset Disposition" shall exclude any disposition
constituting a Permitted Investment or permitted by the covenant described under
the heading "Certain Covenants--Limitation on Restricted Payments" and (b) the
term "Asset Disposition" shall exclude transactions permitted under "--Certain
Covenants-- Mergers, Consolidations and Certain Sales of Assets" above.
"C&A Co. Subsidiary" means a Subsidiary of C&A Co. that is not also a
Subsidiary of the Company or any of the Company's Subsidiaries.
"Capital Lease Obligation" of any Person means the obligation to pay rent or
other payment amounts under a lease of (or other Indebtedness arrangements
conveying the right to use) real or personal property of such Person which is
required to be classified and accounted for as a capital lease or a liability on
the face of a balance sheet of such Person in accordance with generally accepted
accounting principles. The stated maturity of such obligation shall be the date
of the last payment of rent or any other amount due under such lease prior to
the first date upon which such lease may be terminated by the lessee without
payment of a penalty. The principal amount of such obligation shall be the
capitalized amount thereof that would appear on the face of a balance sheet of
such Person in accordance with generally accepted accounting principles.
"Capital Stock" of any Person means any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or interests
in (however designated) the equity, including Preferred Stock and partnership
interests, whether general or limited, of such Person.
"Cash Equivalents" means, at any time, (i) any evidence of Indebtedness
issued or directly and fully guaranteed or insured by the United States of
America or any agency or instrumentality thereof (provided that the full faith
and credit of the United States of America is pledged in support thereof), (ii)
certificates of deposit, money market deposit accounts and acceptances with a
maturity of 180 days or less from the date of acquisition of any financial
institution that is a member of the Federal Reserve System or organized under
the laws of the United Kingdom, Canada, France, Germany or Japan having combined
capital and surplus and undivided profits of not less than $250 million, (iii)
commercial paper with a maturity of 180 days or less from the date of
acquisition issued by a corporation that is not an Affiliate of the Company and
is organized under the laws of any state of the United States of America or the
District of Columbia or any foreign country recognized by the United States of
America whose debt rating, at the time as of which such investment is made, is
at least "A-1" by Standard & Poor's Corporation or at least "P-1" by Moody's
Investors Service, Inc. or rated at least an equivalent rating category of
another nationally recognized securities rating agency, (iv) repurchase
agreements and reverse repurchase agreements having a term of not more than 30
days for underlying securities of the types described in clause (i) above
entered into with a financial institution meeting the qualifications described
in clause (ii) above, (v) any security, maturing not more than 180 days after
the date of acquisition, backed by standby or direct pay letters of credit
issued by a bank meeting the qualifications described in clause (ii) above and
(vi) any security, maturing not more than 180 days after the date of
acquisition, issued or fully guaranteed by any state, commonwealth, or territory
of the United States of America, or by any political subdivision thereof, and
rated at least "A" by Standard & Poor's Corporation or at least "A" by Moody's
Investors Service, Inc. or rated at least an equivalent rating category of
another nationally recognized securities rating agency.
"Common Stock" of any Person means Capital Stock of such Person that does
not rank prior, as to the payment of dividends or as to the distribution of
assets upon any voluntary or involuntary liquidation, dissolution or winding up
of such Person, to shares of Capital Stock of any other class of such Person.
"Consolidated Assets" of any Person as of any date of determination means
the total assets of such Person as reflected on the most recently prepared
balance sheet of such Person, determined on a consolidated basis in accordance
with generally accepted accounting principles.
"Consolidated Cash Flow Available for Fixed Charges" for any period means
the Consolidated Net Income for such period increased by the sum of (i)
Consolidated Interest Expense for such period, plus (ii) Consolidated Income Tax
Expense for such period, plus (iii) the consolidated depreciation and
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amortization expense included in the income statement of the Company and its
Subsidiaries for such period plus (iv) all other expenses reducing Consolidated
Net Income for such period that do not represent cash disbursements for such
period (excluding any expense to the extent it represents an accrual of or
reserve for cash disbursements for any subsequent period prior to the Stated
Maturity of the Notes) less, to the extent included in the calculation of
Consolidated Net Income, items of income increasing Consolidated Net Income for
such period that do not represent cash receipts for such period (excluding any
such item to the extent it represents an accrual for cash receipts reasonably
expected to be received prior to the Stated Maturity of the Notes) in each case
for such period; provided, however, that the provision for taxes based on the
income or profits of, the consolidated depreciation and amortization expense and
such items of expense or income attributable to, a Restricted Subsidiary shall
be added to or subtracted from Consolidated Net Income to compute Consolidated
Cash Flow Available for Fixed Charges only to the extent (and in the same
proportion) that the net income of such Restricted Subsidiary was included in
calculating Consolidated Net Income; provided further, however, that the
contribution to Consolidated Cash Flow Available for Fixed Charges of a
Restricted Subsidiary which is restricted in its ability to pay dividends to the
Company for any period shall not exceed the amount that would have been
permitted to be distributed to the Company by such Restricted Subsidiary as a
dividend or other distribution during such period.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (i) Consolidated Cash Flow Available for Fixed Charges for the period
of the most recently completed four consecutive fiscal quarters for which
quarterly or annual financial statements are available to (ii) Consolidated
Interest Expense for such period; provided, however, that (a) if the Company or
any Restricted Subsidiary has Incurred any Indebtedness since the beginning of
such period that remains outstanding (other than Indebtedness to finance
seasonal fluctuations in working capital needs Incurred under a revolving credit
(or similar arrangement) to the extent of the commitment thereunder in effect on
the last day of such period unless any portion of such Indebtedness is projected
in the reasonable judgment of senior management of the Company to remain
outstanding for a period in excess of 12 months from the date of Incurrence of
such Indebtedness) or if the transaction giving rise to the need to calculate
the Consolidated Coverage Ratio is an Incurrence of Indebtedness, or both,
Consolidated Cash Flow Available for Fixed Charges and Consolidated Interest
Expense for such period shall be calculated after giving effect on a pro forma
basis to (1) such Indebtedness as if such Indebtedness had been Incurred on the
first day of such period and (2) the discharge of any other Indebtedness repaid,
repurchased, defeased or otherwise discharged with the proceeds of such new
Indebtedness as if such discharge had occurred on the first day of such period,
(b) if since the beginning of such period any Indebtedness of the Company or any
Restricted Subsidiary has been repaid, repurchased, defeased or otherwise
discharged (other than Indebtedness under a revolving credit or similar
arrangement unless such revolving credit Indebtedness has been permanently
repaid and has not been replaced), Consolidated Interest Expense for such period
shall be calculated after giving effect on a pro forma basis as if such
Indebtedness had been repaid, repurchased, defeased or otherwise discharged on
the first day of such period, (c) if since the beginning of such period the
Company or any Restricted Subsidiary shall have made any Asset Disposition or if
the transaction giving rise to the need to calculate the Consolidated Coverage
Ratio is an Asset Disposition, the Consolidated Cash Flow Available for Fixed
Charges for such period shall be reduced by an amount equal to the Consolidated
Cash Flow Available for Fixed Charges (if positive) attributable to the assets
which are the subject of such Asset Disposition for such period or increased by
an amount equal to the Consolidated Cash Flow Available for Fixed Charges (if
negative) attributable thereto for such period, and Consolidated Interest
Expense for such period shall be reduced by an amount equal to the Consolidated
Interest Expense attributable to any Indebtedness of the Company or any
Restricted Subsidiary repaid, repurchased, defeased or otherwise discharged with
respect to the Company and its continuing Restricted Subsidiaries in connection
with such Asset Disposition for such period (or, if the Capital Stock of any
Restricted Subsidiary is sold, the Consolidated Interest Expense for such period
directly attributable to the Indebtedness of such Restricted Subsidiary to the
extent the Company and its continuing Restricted Subsidiaries are no longer
liable for such Indebtedness after such sale), (d) if since the beginning of
such period the Company or any Restricted Subsidiary (by merger or otherwise)
shall have made an Investment in any Restricted Subsidiary (or any Person which
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becomes a Restricted Subsidiary) or an acquisition of assets, including any
Investment in a Restricted Subsidiary or any acquisition of assets occurring in
connection with a transaction causing a calculation to be made hereunder, which
constitutes all or substantially all of a line of business, Consolidated Cash
Flow Available for Fixed Charges and Consolidated Interest Expense for such
period shall be calculated after giving pro forma effect thereto (including the
Incurrence of any Indebtedness) as if such Investment or acquisition occurred on
the first day of such period and (e) if since the beginning of such period any
Person (that subsequently became a Restricted Subsidiary or was merged with or
into the Company or any Restricted Subsidiary since the beginning of such
period) shall have made any Asset Disposition, Investment or acquisition of
assets that would have required an adjustment pursuant to clause (c) or (d)
above if made by the Company or a Restricted Subsidiary during such period,
Consolidated Cash Flow Available for Fixed Charges and Consolidated Interest
Expense for such period shall be calculated after giving pro forma effect
thereto as if such Asset Disposition, Investment or acquisition occurred on the
first day of such period. For purposes of this definition, whenever pro forma
effect is to be given to an acquisition of assets, the amount of income or
earnings relating thereto and the amount of Consolidated Interest Expense
associated with any Indebtedness Incurred in connection therewith, the pro forma
calculations will be determined in good faith by a responsible financial or
accounting officer of the Company and such calculations may include such pro
forma adjustments for non-recurring items that the Company considers reasonable
in order to reflect the ongoing impact of any such transaction on the Company's
results of operations. If the Indebtedness to be incurred bears a floating rate
of interest, the interest expense on such Indebtedness shall be calculated as if
the rate in effect on the date of determination had been the applicable rate for
the entire period (taking into account any Interest Rate, Currency or Commodity
Price Agreement applicable to such Indebtedness if such Interest Rate, Currency
or Commodity Price Agreement has a remaining term in excess of 12 months).
"Consolidated Income Tax Expense" for any period means the consolidated
provision for income taxes of the Company and its Subsidiaries for such period
calculated on a consolidated basis in accordance with generally accepted
accounting principles.
"Consolidated Interest Expense" means for any period the consolidated
interest expense included in a consolidated income statement (without deduction
of interest income) of the Company and its Restricted Subsidiaries for such
period calculated on a consolidated basis in accordance with generally accepted
accounting principles, including without limitation or duplication (or, to the
extent not so included, with the addition of), (i) the amortization of debt
discounts; (ii) to the extent included in the calculation of net income under
generally accepted accounting principles, any payments or fees with respect to
letters of credit, bankers' acceptances or similar facilities; (iii) to the
extent included in the calculation of net income under generally accepted
accounting principles, net costs with respect to interest rate swap or similar
agreements or, to the extent related to non-U.S. dollar denominated
Indebtedness, foreign currency hedge, exchange or similar agreements; (iv)
Preferred Dividends in respect of all Preferred Stock of Subsidiaries and
Redeemable Stock of the Company held by Persons other than the Company or a
Wholly Owned Subsidiary whether or not declared or paid; (v) interest on
Indebtedness guaranteed by the Company and its Restricted Subsidiaries and
actually paid by the Company or its Restricted Subsidiaries; (vi) capitalized
interest; (vii) the portion of any rental obligation attributable to Capital
Lease Obligations allocable to interest expense and (viii) the loss on
Receivables Sales, and excluding, to the extent included in such consolidated
interest expense, interest expense of any Person acquired by the Company or a
Subsidiary of the Company in a pooling-of-interests transaction for any period
prior to the date of such transaction. Notwithstanding the foregoing, the
Consolidated Interest Expense with respect to any Restricted Subsidiary, not all
the net income of which was included in calculating Consolidated Net Income by
reason of the fact that such Restricted Subsidiary was not a Wholly Owned
Subsidiary, will be included only to the extent (and in the same proportion)
that the net income of such Restricted Subsidiary was included in calculating
Consolidated Net Income.
"Consolidated Net Income" for any period means the consolidated net income
(or loss) of the Company and its Subsidiaries for such period determined on a
consolidated basis in accordance with generally accepted accounting principles;
provided that there will be excluded therefrom (i) the net
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income (or loss) of any Person acquired by the Company or a Subsidiary of the
Company in a pooling-of-interests transaction for any period prior to the date
of such transaction, (ii) the net income (or loss) of any Person that is not a
Restricted Subsidiary except to the extent of the amount of dividends or other
distributions actually paid to the Company or a Restricted Subsidiary by such
Person during such period (subject, in the case of a dividend or distribution to
a Restricted Subsidiary, to the limitations contained in clause (iii) below),
(iii) any net income of any Restricted Subsidiary to the extent such Restricted
Subsidiary is subject to restrictions, directly or indirectly, on the payment of
dividends or the making of distributions by such Restricted Subsidiary, directly
or indirectly, to the Company, except that the Company's equity in a net loss of
any such Restricted Subsidiary for such period shall be included in determining
such Consolidated Net Income, (iv) gains or losses on Asset Dispositions by the
Company or its Subsidiaries, (v) all extraordinary gains and extraordinary
losses, (vi) the cumulative effect of changes in accounting principles, (vii)
non-cash gains or losses resulting from fluctuations in currency exchange rates,
(viii) gains attributable to any decrease in the valuation allowance for the
Company's deferred tax assets relating to the utilization of net operating
losses recognized after the Issue Date, and (ix) the tax effect of any of the
items described in clauses (i) through (viii) above; provided, further, that for
any period an amount equal to the product of (I) the Net Deferred Tax Asset at
January 27, 1996 as reflected in Note 19 to the Consolidated Financial
Statements of C&A Co. at January 27, 1996 and (II) the ratio of (a) the Net
Operating Losses (regular tax) utilized during such period to (b) the total Net
Operating Losses (regular tax) at January 27, 1996 as reflected in Note 19 to
the Consolidated Financial Statements of C&A Co. at January 27, 1996 (such
product, the "Excess Tax Expense") will be added to "Consolidated Net
Income" for such period; provided, however, that the maximum amount of Excess
Tax Expense that may be added to Consolidated Net Income pursuant to this
clause is $20 million in any fiscal year and any Excess Tax Expense recognized
in any fiscal year in excess of such annual limitation may be carried forward
and added to "Consolidated Net Income" in any succeeding fiscal year.
"Consolidated Net Worth" of any Person means the consolidated stockholders'
equity of such Person, determined on a consolidated basis in accordance with
generally accepted accounting principles, less amounts attributable to
Redeemable Stock of such Person; provided that, with respect to the Company,
adjustments following the date of the Subordinated Indenture to the accounting
books and records of the Company in accordance with Accounting Principles Board
Opinions Nos. 16 and 17 (or successor opinions thereto) or otherwise resulting
from the acquisition of control of the Company by another Person shall not be
given effect to.
"Core Automotive Assets" means assets utilized, directly or indirectly, in
the production or sale of products in one of the six primary product lines in
the Company's Automotive Products segment existing on the Issue Date or
otherwise related to interior trim products for consumption by automotive
original equipment manufacturers.
"Domestic Subsidiary" means a Restricted Subsidiary other than a Foreign
Subsidiary.
"Equity Offering" means a primary sale of Common Stock of the Company or, to
the extent the net cash proceeds thereof are paid to the Company as a capital
contribution, Common Stock or Preferred Stock (other than Redeemable Preferred
Stock) of C&A Co., for cash to Persons other than Affiliates or Related Persons
of the Company or C&A Co.
"Foreign Subsidiary" means a Restricted Subsidiary that is organized under
the laws of any country other than the United States and Canada and
substantially all the assets of which are located outside the United States and
Canada.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any other Person and any
obligation, contingent or otherwise, of such Person (i) to purchase or pay (or
advance or supply funds for the purchase or payment of) such Indebtedness of
such Person (whether arising by virtue of partnership arrangements, or by
agreement to keep-well, to purchase assets, goods, securities or services, to
take-or-pay, or to maintain financial statement conditions or otherwise) or (ii)
entered into for purposes of assuring in any other manner the obligee of such
Indebtedness of the payment thereof or to protect such obligee against loss in
respect
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thereof (in whole or in part); provided, however, that the term "Guarantee" will
not include endorsements for collection or deposit in the ordinary course of
business. The term "Guarantee" used as a verb has a corresponding meaning.
"Incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (by conversion, exchange or otherwise), assume,
Guarantee or otherwise become liable in respect of such Indebtedness or other
obligation (including by acquisition of Subsidiaries if such Indebtedness
directly or indirectly becomes an obligation of such Person) or the recording,
as required pursuant to generally accepted accounting principles or otherwise,
of any such Indebtedness or other obligation on the balance sheet of such Person
(and "Incurrence", "Incurred", "Incurrable" and "Incurring" shall have meanings
correlative to the foregoing); provided, however, that a change in generally
accepted accounting principles that results in an obligation of such Person that
exists at such time becoming Indebtedness will not be deemed an Incurrence of
such Indebtedness.
"Indebtedness" means (without duplication), with respect to any Person,
whether recourse is to all or a portion of the assets of such Person and whether
or not contingent, (i) the principal of and premium, if any, in respect of any
indebtedness of such Person for money borrowed, (ii) the principal of and
premium, if any, of such Person with respect to obligations evidenced by bonds,
debentures, notes or other similar instruments, including obligations Incurred
in connection with the acquisition of property, assets or businesses, (iii) all
obligations of such Person in respect of letters of credit or other similar
instruments (including reimbursement obligations with respect thereto) (other
than obligations with respect to letters of credit securing obligations (other
than obligations described in (i), (ii), and (v)) entered into in the ordinary
course of business of such Person to the extent that such letters of credit are
not drawn upon or, if and to the extent drawn upon, such drawing is reimbursed
no later than the third business day following receipt by such Person of a
demand for reimbursement following payment on the letter of credit), (iv) every
obligation of such Person issued or assumed as the deferred purchase price of
property or services (including securities repurchase agreements but excluding
trade accounts payable or accrued liabilities arising in the ordinary course of
business which are not overdue or which are being contested in good faith),
which purchase price is due more than six months after the date of placing such
property in service or taking delivery and title thereto or the completion of
such services, (v) every Capital Lease Obligation of such Person, (vi) the
amount of all obligations of such Person with respect to the redemption,
repayment or other repurchase of any Redeemable Stock or, with respect to any
Subsidiary, any Preferred Stock (but excluding, in each case, any accrued
dividends) but only to the extent such obligations arise on or prior to the
Stated Maturity of the Notes, (vii) all Indebtedness of other Persons secured by
a Lien on any asset of such Person, whether or not such Indebtedness is assumed
by such Person; provided, however, that the amount of such Indebtedness shall be
the lesser of (a) the fair market value of such asset at such date of
determination and (b) the amount of such Indebtedness of such other Persons,
(viii) the present value (discounted using the interest rate on the Notes) as of
the date of determination of every obligation to pay rent or other payment
amounts of such Person with respect to any Sale and Leaseback Transaction to
which such Person is a party, payable through the stated maturity of such Sale
and Leaseback Transaction, (ix) every obligation under Interest Rate, Currency
or Commodity Price Agreements of such Person and (x) every obligation of the
type referred to in clauses (i) through (ix) of another Person the payment of
which, in either case, such Person has Guaranteed or is responsible or liable,
directly or indirectly, as obligor, Guarantor or otherwise. The "amount" or
"principal amount" of Debt at any time of determination as used herein
represented by (a) any contingent Debt, will be the maximum principal amount
thereof, (b) any Debt issued at a price that is less than the principal amount
at maturity thereof, will be the amount of the liability in respect thereof
determined in accordance with generally accepted accounting principles, (c) any
Redeemable Stock, will be the maximum fixed redemption or repurchase price in
respect thereof, and (d) any Preferred Stock, will be the maximum voluntary or
involuntary liquidation preference, in each case as of such time of
determination.
"Interest Rate, Currency or Commodity Price Agreement" of any Person means
any forward contract, futures contract, swap, option or other financial
agreement or arrangement (including caps, floors, collars and similar
agreements) relating to, or the value of which is dependent upon, interest
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rates, currency exchange rates or commodity prices or indices (excluding
contracts for the purchase or sale of goods in the ordinary course of business).
"Issue Date" means the date on which the Notes are originally issued.
"Investment" by any Person means any direct or indirect loan, advance or
other extension of credit or capital contribution (by means of transfers of cash
or other property to others or payments for property or services for the account
or use of others, or otherwise) to, or purchase or acquisition of Capital Stock,
bonds, notes, debentures or other securities or evidence of Indebtedness issued
by, any other Person, including any payment on a Guarantee of any obligation of
such other Person, but will not include trade accounts receivable in the
ordinary course of business. For purposes of the provisions described under
"Unrestricted Subsidiary" and "--Certain Covenants--Limitation on Restricted
Payments" and the definition of "Permitted Investments", (i) with respect to a
Restricted Subsidiary that is designated as an Unrestricted Subsidiary,
"Investment" will include the portion (proportionate to the Company's equity
interest in such Subsidiary) of the fair market value of the net assets of such
Subsidiary at the time that such Subsidiary is designated an Unrestricted
Subsidiary and with respect to a Person that is designated as an Unrestricted
Subsidiary simultaneously with its becoming a Subsidiary of the Company or as a
C&A Co. Subsidiary simultaneously with its becoming a Subsidiary of C&A Co.,
"Investment" will mean the Investment made by the Company and its Restricted
Subsidiaries or C&A Co., as the case may be, to acquire such Subsidiary;
provided, however, that in either case upon a redesignation of such Subsidiary
as a Restricted Subsidiary, or upon the acquisition of the Capital Stock of a
Person such that such Person becomes a Restricted Subsidiary, the Company shall
be deemed to continue to have a permanent "Investment" in an Unrestricted
Subsidiary or such other Person in an amount (if positive) equal to (a) the
Company's "Investment" in such Subsidiary at the time of such redesignation or
in such Person immediately prior to such acquisition less (b) the portion
(proportionate to the Company's interest in such Subsidiary after such
redesignation or acquisition) of the fair market value of the net assets of such
Subsidiary at the time that such Subsidiary is so redesignated a Restricted
Subsidiary or of such Person immediately following such acquisition; and (ii)
any property transferred to or from an Unrestricted Subsidiary will be valued at
its fair market value at the time of such transfer, in each case as determined
in good faith by the Board of Directors.
"Lien" means, with respect to any property or assets, any mortgage or deed
of trust, pledge, hypothecation, assignment, deposit arrangement, security
interest, lien, charge, easement (other than any easement not materially
impairing usefulness or marketability), encumbrance, preference, priority or
other security agreement or preferential arrangement of any kind or nature
whatsoever on or with respect to such property or assets (including, without
limitation, any conditional sale or other title retention agreement having
substantially the same economic effect as any of the foregoing).
"Net Available Proceeds" from any Asset Disposition by any Person means cash
or Cash Equivalents received (including by way of sale or discounting of a note,
instalment receivable or other receivable, but excluding any other consideration
received in the form of assumption by the acquiree of Indebtedness or other
obligations relating to such properties or assets) therefrom by such Person, net
of (i) all legal, accounting, financial advisory, title and recording tax
expenses, commissions and other fees and expenses Incurred and all federal,
state, provincial, foreign and local taxes required to be accrued as a liability
as a consequence of such Asset Disposition, (ii) all payments made by such
Person or its Subsidiaries on any Indebtedness which is secured by such assets
in accordance with the terms of any Lien upon or with respect to such assets or
which must by the terms of such Lien, or in order to obtain a necessary consent
to such Asset Disposition or by applicable law, be repaid out of the proceeds
from such Asset Disposition, (iii) all distributions and other payments made to
minority interest holders in Subsidiaries of such Person or joint ventures as a
result of such Asset Disposition and (iv) appropriate amounts to be provided by
such Person or any Subsidiary thereof, as the case may be, as a reserve in
accordance with generally accepted accounting principles against any liabilities
associated with such assets and retained by such Person or any Subsidiary
thereof, as the case may be, after such Asset Disposition, in each case as
determined by the Board of Directors as evidenced by a resolution of the Board
filed with the Trustee; provided, however, that any reduction in such reserve
within 12 months following the consummation of such Asset Disposition will be
treated for all purposes of the Subordinated Indenture and the Notes as a new
Asset Disposition at the time of such reduction with Net Available Proceeds
equal to the amount of such reduction.
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"Non-Core Automotive Assets" means assets not constituting Core Automotive
Assets.
"Obligor" shall mean, with respect to any Receivable, the party obligated to
make payments with respect to such Receivable, including any guarantor thereof.
"Offer to Purchase" means a written offer (the "Offer") sent by the Company
by first class mail, postage prepaid, to each holder of Notes at his address
appearing in the Security Register on the date of the Offer offering to purchase
up to the principal amount of Notes specified in such Offer at the purchase
price specified in such Offer (as determined pursuant to the Subordinated
Indenture). Unless otherwise required by applicable law, the Offer shall specify
an expiration date (the "Expiration Date") of the Offer to Purchase which shall
be, subject to any contrary requirements of applicable law, not less than 30
days or more than 60 days after the date of such Offer and a settlement date
(the "Purchase Date") for purchase of Notes within five Business Days after the
Expiration Date. The Company shall notify the Trustee at least 15 Business Days
(or such shorter period as is acceptable to the Trustee) prior to the mailing of
the Offer of the Company's obligation to make an Offer to Purchase, and the
Offer shall be mailed by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company. The Offer shall contain
information concerning the business of the Company and its Subsidiaries which
the Company in good faith believes will enable such holders of Notes to make an
informed decision with respect to the Offer to Purchase (which at a minimum will
include (i) the most recent annual and quarterly financial statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained in the documents required to be filed with the Trustee
pursuant to the Subordinated Indenture (which requirements may be satisfied by
delivery of such documents together with the Offer), (ii) a description of
material developments, if any, in the Company's business subsequent to the date
of the latest of such financial statements referred to in clause (i) (including
a description of the events requiring the Company to make the Offer to
Purchase), (iii) if applicable, appropriate pro forma financial information
concerning the Offer to Purchase and the events requiring the Company to make
the Offer to Purchase and (iv) any other information required by applicable law
to be included therein. The Offer shall contain all instructions and materials
necessary to enable such holders of Notes to tender Notes pursuant to the Offer
to Purchase. The Offer shall also state:
(i) the Section of the Subordinated Indenture pursuant to which the
Offer to Purchase is being made;
(ii) the Expiration Date and the Purchase Date;
(iii) the aggregate principal amount of the Outstanding Notes offered to
be purchased by the Company pursuant to the Offer to Purchase (including, if
less than 100%, the manner by which such has been determined pursuant to the
Section hereof requiring the Offer to Purchase) (the "Purchase Amount");
(iv) the purchase price to be paid by the Company for each $1,000
aggregate principal amount of Notes accepted for payment (as specified
pursuant to the Subordinated Indenture) (the "Purchase Price");
(v) that the holder of Notes may tender all or any portion of the Notes
registered in the name of such holder of Notes and that any portion of a
Note tendered must be tendered in an integral multiple of $1,000 principal
amount;
(vi) the place or places where Notes are to be surrendered for tender
pursuant to the Offer to Purchase;
(vii) that interest on any Note not tendered or tendered but not
purchased by the Company pursuant to the Offer to Purchase will continue to
accrue;
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(viii) that on the Purchase Date the Purchase Price will become due and
payable upon each Note being accepted for payment pursuant to the Offer to
Purchase and that interest thereon will cease to accrue on and after the
Purchase Date;
(ix) that each holder of Notes electing to tender a Note pursuant to the
Offer to Purchase will be required to surrender such Note at the place or
places specified in the Offer prior to the close of business on the
Expiration Date (such Note being, if the Company or the Trustee so requires,
duly endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Company and the Trustee duly executed by, the holder of
Notes thereof or his attorney duly authorized in writing);
(x) that holders of Notes will be entitled to withdraw all or any
portion of Notes tendered if the Company (or their Paying Agent) receives,
not later than the close of business on the Expiration Date, a telegram,
telex, facsimile transmission or letter setting forth the name of the
holder, the principal amount of the Note the holder tendered, the
certificate number of the Note the holder tendered and a statement that such
holder of Notes is withdrawing all or a portion of his tender;
(xi) that (a) if Notes in an aggregate principal amount less than or
equal to the Purchase Amount are duly tendered and not withdrawn pursuant to
the Offer to Purchase, the Company will purchase all such Notes and (b) if
Notes in an aggregate principal amount in excess of the Purchase Amount are
tendered and not withdrawn pursuant to the Offer to Purchase, the Company
will purchase Notes having an aggregate principal amount equal to the
Purchase Amount on a pro rata basis (with such adjustments as may be deemed
appropriate so that only Notes in denominations of $1,000 or integral
multiples thereof shall be purchased); and
(xii) that in the case of any holder of Notes whose Note is purchased
only in part, the Company will execute, and the Trustee shall authenticate
and deliver to the holder of such Note without service charge, a new Note or
Notes, of any authorized denomination as requested by such holder, in an
aggregate principal amount equal to and in exchange for the unpurchased
portion of the Note so tendered.
Any Offer to Purchase will be governed by and effected in accordance with the
Offer for such Offer to Purchase.
"Permitted Interest Rate, Currency or Commodity Price Agreement" of any
Person means any Interest Rate, Currency or Commodity Price Agreement entered
into with one or more financial institutions that is designed to protect such
Person (i) against fluctuations in interest rates or currency exchange rates
with respect to Indebtedness of the Company and its Restricted Subsidiaries and
which will have a notional amount no greater than the principal payments due
with respect to the Indebtedness being hedged thereby, or (ii) in the case of
currency or commodity protection agreements, against currency exchange rate or
commodity price fluctuations in the ordinary course of the Company's and its
Restricted Subsidiaries' business relating to then existing financial
obligations or then existing or sold production and not for purposes of
speculation.
"Permitted Investments" means (i) Investments in Cash Equivalents, (ii) any
Investments included in the definition of Permitted Indebtedness (except
Indebtedness incurred pursuant to clause (i) of such definition), (iii)
Investments in existence on the Issue Date, (iv) Investments in any Restricted
Subsidiary by the Company or any Restricted Subsidiary, including any Investment
made to acquire such Restricted Subsidiary; provided that the primary business
of such Restricted Subsidiary is in a Related Business or is to sell Receivables
pursuant to a Permitted Receivables Financing Facility, (v) Investments in the
Company by C&A Co. or any Restricted Subsidiary, (vi) sales of goods or services
on trade credit terms consistent with the Company's and its Subsidiaries' past
practices or otherwise consistent with trade credit terms in common use in the
industry and recorded as accounts receivable on the balance sheet of the Person
making such sale, (vii) loans or advances to employees for purposes of
purchasing common stock of C&A Co. in an aggregate amount outstanding at any one
time not to
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exceed $5 million and other loans and advances to employees of the Company in
the ordinary course of business and on terms consistent with the Company's
practices in effect prior to the Issue Date, including travel, moving and other
like advances, (viii) loans or advances to vendors or contractors of the Company
(other than Affiliates of the Company) in the ordinary course of a Related
Business, (ix) lease, utility and other similar deposits in the ordinary course
of business, (x) stock, obligations or securities received in the ordinary
course of business in settlement of debts owing to the Company or a Subsidiary
thereof as a result of foreclosure, perfection, enforcement of any Lien or in a
bankruptcy proceeding, (xi) Investments in Unrestricted Subsidiaries, C&A Co.
Subsidiaries (including dividends to C&A Co. for the purpose of making such
Investments), partnerships or joint ventures involving the Company or its
Restricted Subsidiaries, in each case primarily engaged in a Related Business,
if the amount of such Investment (after taking into account the amount of all
other Investments made pursuant to this clause (xi), less any return of capital
realized or any repayment of principal received on such Permitted Investments,
or any release or other cancellation of any Guarantee constituting such
Permitted Investment, which has not at such time been reinvested in Permitted
Investments made pursuant to this clause (xi)), does not exceed $75 million,
provided that the aggregate amount of all such Investments in Unrestricted
Subsidiaries and C&A Co. Subsidiaries shall not exceed $50 million at any one
time outstanding, and (xii) Investments in Persons to the extent such Investment
represents the non-cash consideration otherwise permitted to be received by the
Company or its Restricted Subsidiaries in connection with an Asset Disposition.
"Permitted Receivables Financing Facility" means the receivables financing
facility established pursuant to the Amended and Restated Receivables Sales
Agreement dated as of March 30, 1995, as amended from time to time, among the
Company, as master servicer, the Sellers parties thereto and Carcorp, Inc. and
one or more receivables financing facilities pursuant to which the Company or
any of its Subsidiaries sells, transfers, assigns or pledges its Receivables to
a special purpose entity or a trust and in connection therewith such entity or
trust incurs Indebtedness secured by such Receivables with customary limited
repurchase obligations for breaches of certain representations, warranties or
covenants or limited recourse based upon the collectibility of the Receivables
sold.
"Preferred Dividends" for any Person means for any period the quotient
determined by dividing the amount of dividends and distributions paid or accrued
(whether or not declared) on Preferred Stock of such Person during such period
calculated in accordance with generally accepted accounting principles, by 1
minus the actual combined Federal, state, local and foreign income tax rate of
the Company on a consolidated basis (expressed as a decimal) for such period.
"Preferred Stock" of any Person means Capital Stock of such Person of any
class or classes (however designated) that ranks prior, as to the payment of
dividends or as to the distribution of assets upon any voluntary or involuntary
liquidation, dissolution or winding up of such Person, to shares of Capital
Stock of any other class of such Person.
"Receivables" means receivables, chattel paper, instruments, documents or
intangibles evidencing or relating to the right to payment of money.
"Receivables" will include the indebtedness and payment obligations of any
Person to the Company or a Subsidiary arising from a sale of merchandise or
services by the Company or such Subsidiary in the ordinary course of its
business, including any right to payment for goods sold or for services
rendered, and including the right of payment of any interest, finance charges,
returned check or late charges and other obligations of such Person with respect
thereto. Receivables shall also include (a) all of such Person's interest in the
merchandise (including returned merchandise), if any, relating to the sale which
gave rise to such Receivable, (b) all other security interests or Liens and
property subject thereto from time to time purporting to secure payment of such
Receivable, whether pursuant to the contract related to such Receivable or
otherwise, together with all financing statements signed by an Obligor
describing any collateral securing such Receivable, and (c) all guarantees,
insurance, letters of credit and other agreements or arrangements of whatever
character from time to time supporting or securing payment of such Receivable
whether pursuant to the contract related to such Receivable or otherwise.
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"Receivables Sale" of any Person means any sale, transfer, assignment or
pledge of Receivables by such Person (pursuant to a Permitted Receivables
Financing Facility, a purchase facility or otherwise), other than (i) in
connection with a disposition of the business operations of such Person relating
thereto
or (ii) a disposition of defaulted Receivables for purpose of collection and not
as a financing
arrangement.
"Redeemable Stock" of any Person means any Capital Stock of such Person that
by its terms (or by the terms of any security into which it is convertible or
for which it is exchangeable) or otherwise (including upon the occurrence of an
event) (i) matures or (ii) is required to be redeemed (pursuant to any sinking
fund obligation or otherwise) or (iii) is convertible into or exchangeable for
Indebtedness or is redeemable at the option of the holder thereof, in each case
in whole or in part, at any time prior to the final Stated Maturity of the
Notes.
"Related Business" means any business related, ancillary or complementary to
any of the businesses of the Company and the Restricted Subsidiaries on the
Issue Date, as determined by the Company's Board of Directors.
"Related Person" of any Person means any other Person directly or indirectly
owning (i) 10% or more of the Outstanding Common Stock of such Person (or, in
the case of a Person that is not a corporation, 10% or more of the equity
interest in such Person) or (ii) 10% or more of the combined voting power of the
Voting Stock of such Person.
"Restricted Subsidiary" means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
"Sale and Leaseback Transaction" means an arrangement by any Person with any
lender or investor or to which such lender or investor is a party providing for
the leasing by such Person of any property or asset of such Person which has
been or is being sold or transferred by such Person not more than 270 days after
the acquisition thereof or the completion of construction or commencement of
operation thereof to such lender or investor or to any Person to whom funds have
been or are to be advanced by such lender or investor on the security of such
property or asset. The stated maturity of such arrangement will be the date of
the last payment of rent or any other amount due under such arrangement prior to
the first date on which such arrangement may be terminated by the lessee without
payment of a penalty.
"Senior Subordinated Indebtedness" means the Notes and any other
Indebtedness of the Company that specifically provides that such Indebtedness is
to rank pari passu with the Notes in right of payment and is not subordinated by
its terms in right of payment to any Indebtedness or other obligation of the
Company which is not Senior Indebtedness.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"significant subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"Stated Maturity" means, with respect to any security, the date specified in
such security as the fixed date on which the payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision.
"Subordinated Indebtedness" means Indebtedness of the Company as to which
the payment of principal of (and premium, if any) and interest and other payment
obligations in respect of such Indebtedness is subordinate to the prior payment
in full of the Notes.
"Subsidiary" of any Person means any corporation, association, partnership
or other business entity of which more than 50% of the total voting power of
shares of Capital Stock or other interest (including partnership interest)
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by such Person or by one or more
Subsidiaries of such Person, or by such Person and one or more Subsidiaries of
such Person.
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"Tax Sharing Agreement" means the Tax Sharing Agreement dated as of November
1, 1989, as amended, among C&A Co., the Company and the Subsidiaries of the
Company.
"U.S. Government Obligation" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable or redeemable at the issuer's option.
"Voting Stock" of any Person means Capital Stock of such Person which
ordinarily has voting power for the election of directors (or persons performing
similar functions) of such Person, whether at all times or only so long as no
senior class of securities has such voting power by reason of any contingency.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
or Redeemable Stock, as the case may be at any date, the number of years
obtained by dividing (i) the sum of the products obtained by multiplying (a) the
amount of each then remaining installment, sinking fund, serial maturity or
other required payments of principal, including payment at final maturity, in
respect thereof, by (b) the number of years (calculated to the nearest
one-twelfth) that will elapse between such date and the making of such payment,
by (ii) the then outstanding principal amount or liquidation preference, as
applicable, of such Indebtedness or Redeemable Stock, as the case may be.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
all of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
Person or by one or more Wholly Owned Subsidiaries of such Person or by such
Person and one or more Wholly Owned Subsidiaries of such Person.
EVENTS OF DEFAULT
The following will be Events of Default under the Subordinated Indenture:
(a) failure to pay (whether or not prohibited by the subordination provisions of
the Subordinated Indenture) principal of (or premium, if any, on) any Note when
due; (b) failure to pay (whether or not prohibited by the subordination
provisions of the Subordinated Indenture) any interest on any Note when due,
continued for 30 days; (c) default in the payment (whether or not prohibited by
the subordination provisions of the Subordinated Indenture) of principal and
interest on Notes required to be purchased pursuant to an Offer to Purchase as
described under "--Certain Covenants--Change of Control" and "--Certain
Covenants--Limitation on Asset Dispositions" when due and payable; (d) failure
to perform or comply with the provisions described under "Mergers,
Consolidations and Certain Sales of Assets"; (e) failure to perform obligations
under covenants of the Company or C&A Co. under the Subordinated Indenture or
the Notes described above in "--Limitation on Indebtedness", "--Limitation on
Ranking of Certain Indebtedness", "--Limitation on Restricted Payments and
Restricted Investments", "--Limitation on Dividend and Other Payment
Restrictions Affecting Subsidiaries", "--Limitation on Liens Securing
Subordinated Indebtedness", "--Limitation on Asset Dispositions",
"--Transactions with Affiliates and Related Persons", "--Change of Control" or
"--Provision of Financial Information", continued for 30 days after written
notice by the Trustee or the holders of at least 25% in aggregate principal
amount of Outstanding Notes; (f) failure to perform any other covenant or
agreement of the Company or C&A Co. under the Subordinated Indenture or the
Notes continued for 60 days after written notice by the Trustee or the holders
of at least 25% in aggregate principal amount of Outstanding Notes; (g) default
under the terms of any instrument or instruments evidencing or securing
Indebtedness for money borrowed by the Company or any Significant Subsidiary
having an outstanding principal amount of $20 million individually or in the
aggregate which default results in the acceleration of the payment of such
Indebtedness or constitutes the failure to pay such indebtedness when due at
maturity after the lapse of any applicable grace period; (h) the Guarantee shall
for any reason cease to be, or shall be asserted in writing by C&A Co. or the
Company not to be, in full force and effect and enforceable in accordance with
its terms; (i) the rendering of a final judgment or judgments (not subject to
appeal) against C&A Co., the Company or any Significant Subsidiary in an amount
in excess of $20 million (calculated net of
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any insurance available to pay such judgment) which remains undischarged or
unstayed for a period of 60 days after the date on which the right to appeal has
expired; and (j) certain events of bankruptcy, insolvency or reorganization
affecting the Company, C&A Co. or any Significant Subsidiary of the Company.
Subject to the provisions of the Subordinated Indenture relating to the duties
of the Trustee, in case an Event of Default shall occur and be continuing, the
Trustee will be under no obligation to exercise any of its rights or powers
under the Subordinated Indenture at the request or direction of any of the
holders of Notes, unless such holders of Notes shall have offered to the Trustee
reasonable indemnity. Subject to such provisions for the indemnification 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.
If an Event of Default (other than an Event of Default described in Clause
(j) above) shall occur and be continuing, either the Trustee or the holders of
at least 25% in aggregate principal amount of the Outstanding Notes may
accelerate the maturity of all Notes; provided, however, that after such
acceleration, but before a judgment or decree based on acceleration, the holders
of a majority in aggregate principal amount of Outstanding Notes may, under
certain circumstances, rescind and annul such acceleration if all Events of
Default, other than the non-payment of accelerated principal, have been cured or
waived as provided in the Subordinated Indenture. If an Event of Default
specified in clause (j) above occurs, the Outstanding Notes will ipso facto
become immediately due and payable without any declaration or other act on the
part of the Trustee or any holder of Notes. For information as to waiver of
defaults, see "--Modification and Waiver".
No holder of any Note will have any right to institute any proceeding with
respect to the Subordinated Indenture or for any remedy thereunder, unless such
holder shall have previously given to the Trustee written notice of a continuing
Event of Default and unless also the holders of at least 25% in aggregate
principal amount of the Outstanding Notes shall have made written request, and
offered reasonable indemnity, to the Trustee to institute such proceeding as
trustee, and the Trustee shall not have received from the holders of a majority
in aggregate principal amount of the Outstanding Notes a direction inconsistent
with such request and shall have failed to institute such proceeding within 60
days. However, such limitations do not apply to a suit instituted by a holder of
a Note for enforcement of payment of the principal of and premium, if any, or
interest on such Note on or after the respective due dates expressed in such
Note.
The Company will be required to furnish to the Trustee annually a statement
as to the performance by the Company of certain of its obligations under the
Subordinated Indenture and as to any default in such performance.
MODIFICATION AND WAIVER
Modifications and amendments of the Subordinated Indenture may be made by
the Company and the Trustee with the consent of the holders of a majority in
aggregate principal amount of the Outstanding Notes; provided, however, that no
such modification or amendment may, without the consent of the holder of each
Outstanding Note affected thereby, (a) change the Stated Maturity of the
principal of, or any installment of interest on, any Note, (b) reduce the
principal amount of, (or the premium) or interest on, any Note, (c) change the
place or currency of payment of principal of (or premium), or interest on, any
Note, (d) change the subordination provisions as stated in the Subordinated
Indenture as they relate to the Notes in any manner adverse in any material
respect to the Noteholders, (e) reduce the premium redemption of any Note, (f)
reduce the time before which any Note may be redeemed, (g) impair the right to
institute suit for the enforcement of any payment on or with respect to any
Note, (h) reduce the above-stated percentage of Outstanding Notes necessary to
modify or amend the Subordinated Indenture, (i) reduce the percentage of
aggregate principal amount of Outstanding Notes necessary for waiver of
compliance with certain provisions of the Subordinated Indenture or for waiver
of certain defaults, (j) modify any provisions of the Subordinated Indenture
relating to the modification and amendment of the Subordinated Indenture or the
waiver of past
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defaults or covenants, except as otherwise specified, or (k) following the
mailing of any Offer to Purchase, modify any Offer to Purchase for the Notes
required under "--Certain Covenants-- Limitation on Asset Dispositions" and
"--Certain Covenants--Change of Control" in a manner materially adverse to the
holders of Notes.
The holders of a majority in aggregate principal amount of the Outstanding
Notes, on behalf of all holders of Notes, may waive compliance by the Company
with certain restrictive provisions of the Subordinated Indenture. Subject to
certain rights of the Trustee, as provided in the Subordinated Indenture, the
holders of a majority in aggregate principal amount of the Outstanding Notes, on
behalf of all holders of Notes, may waive any past default under the
Subordinated Indenture, except a default in the payment of principal, premium or
interest or a default arising from failure to purchase any Note tendered
pursuant to an Offer to Purchase.
DEFEASANCE
The Company at any time may terminate all its obligations under the Notes
and the Subordinated Indenture ("legal defeasance"), except for certain
obligations, including those respecting the defeasance trust and obligations to
register the transfer or exchange of the Notes, to replace mutilated, destroyed,
lost or stolen Notes and to maintain a registrar and paying agent in respect of
the Notes. The Company at any time may terminate its obligations under the
covenants described under "Certain Covenants" and "Subordination", and C&A Co.'s
obligations described under "Guarantee", the operation of the cross acceleration
provision, the bankruptcy provisions with respect to Significant Subsidiaries
and the judgment default provision described under "Events of Default" above and
the limitations contained in clauses (c) and (d) under "Mergers, Consolidations,
and Certain Sales of Assets" above ("covenant defeasance").
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the Notes may not be accelerated because of
an Event of Default with respect thereto. If the Company exercises its covenant
defeasance option, payment of the Notes may not be accelerated because of an
Event of Default specified in clause (e), (g), (h), (i) or (j) (with respect
only to Significant Subsidiaries), under "Events of Default" above or because of
the failure of the Company to comply with clause (c) or (d) under "Mergers,
Consolidations, and Certain Sales of Assets" above.
In order to exercise either defeasance option, the Company must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal, premium (if any) and
interest on the Notes to redemption or maturity, as the case may be, and must
comply with certain other conditions, including delivery to the Trustee of an
Opinion of Counsel to the effect that holders of the Notes will not recognize
income, gain or loss for Federal income tax purposes as a result of such deposit
and defeasance and will be subject to Federal income tax on the same amount and
in the same manner and at the same times as would have been the case if such
deposit and defeasance had not occurred (and, in the case of legal defeasance
only, such Opinion of Counsel must be based on a ruling of the Internal Revenue
Service or other change in applicable Federal income tax law).
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AMENDMENT TO CREDIT FACILITIES
An amendment (the "Amendment") to the Credit Agreement Facilities and the
Term Loan B Facility will be entered into prior to the closing of the sale of
the Notes. The Amendment, which will take effect at the time of the closing of
the sale of the Notes, will be effected in the form of an amended and restated
credit agreement (the "New Credit Agreement"), which will combine into a single
agreement the terms and provisions of the Credit Agreement Facilities and the
Term Loan B Facility.
Under the New Credit Agreement, after giving effect to the use of net
proceeds of the Offering to repay loans outstanding under the Credit Agreement
Facilities, as described in "Use of Proceeds", the aggregate loans under the
Term Loan Facility will initially be $195 million. The lending commitments under
the Revolving Facility will be increased by $100 million to $250 million. Up to
$200 million of the Revolving Facility will be available for permitted
acquisitions so long as, after giving effect thereto, the Company has unused
availability under the Revolving Facility of at least $50 million. Although the
final maturity of each facility will remain unchanged, the amortization of the
facilities will be adjusted in a manner having the result of a reduction in near
term repayment obligations. Loans under the Term Loan Facility will amortize in
annual amounts approximately equal to (i) $7.0 million in 1996, (ii) $22.0
million in 1997, (iii) $28.0 million in 1998, (iv) $31.0 million in each of 1999
and 2000, (v) $36.0 million in 2001 and (vi) $40.0 million in 2002. Loans under
the Term Loan B Facility will amortize in annual amounts approximately equal to
(i) $3.8 million in 1996, (ii) $10 million in 1997, (iii) $15 million in 1998,
(iv) $20 million in 1999, (v) $25 million in each of 2000 and 2001 and (vi) $97
million in 2002.
The term loans under the New Credit Agreement are subject to mandatory
prepayment with certain excess cash flow of the Company, net cash proceeds of
certain asset sales or other dispositions, net cash proceeds of certain
sale/leaseback transactions and net cash proceeds of certain future issuances of
debt obligations, which mandatory prepayment is described in the accompanying
Prospectus with respect to the Credit Agreement Facilities and the Term Loan B
Facility prior to the Amendment. Mandatory prepayments will generally be applied
to the Term Loan Facility and the Term Loan B Facility ratably in accordance
with the outstanding amounts thereof; however, lenders under the Term Loan B
Facility will have the option of requiring that prepayments of the Term Loan B
Facility be applied instead to the Term Loan Facility. Except for mandatory
prepayments from excess cash flow, which will be applied to amortization
installments in direct order of maturity, mandatory prepayments will be applied
to installments ratably based on the principal amounts thereof.
The New Credit Agreement will also contain certain modifications to the
financial ratios governing the interest rate margins applicable to loans under
the Revolving Facility and the Term Loan Facility. The Alternate Base Rate
margin for such loans will range from 0% to .75% and the LIBOR margin will range
from 1.0% to 1.75%. The margins, which are subject to adjustment based on
changes in the Company's ratios of senior funded debt to EBITDA and cash
interest expense to EBITDA, were 1.75% in the case of the LIBOR Margin and .75%
in the case of the Alternate Base Rate margin on the date of this Prospectus
Supplement. Such margins under the Credit Agreement Facilities will increase by
.25% over the margins then in effect on July 13, 1999. The interest rate
applicable to the loans under the Term Loan B Facility will remain at the
Alternate Base Rate plus a margin of 1.25% or LIBOR plus a margin of 2.25%, as
selected by the Company.
The Amendment will incorporate changes to certain restrictive covenants
contained in the Credit Agreement Facilities and the Term Loan B Facility. These
modifications will consist, among other things, of: provisions permitting the
Company to adopt a December fiscal year-end; increases in baskets (or
availability thereunder) for certain debt, liens, and investments in joint
ventures and unrestricted subsidiaries; increases in permitted intercompany debt
and debt of foreign subsidiaries; and provisions permitting the spin off or sale
of Wallcoverings, the related release of Wallcoverings from its guarantee under
the New Credit Agreement, and the distribution to C&A Co. of certain net
proceeds from a sale of Wallcoverings. The Amendment will also change the
existing financial covenants requiring maintenance of certain ratios of EBITDA
to cash interest expense and certain ratios of funded debt to
S-73
<PAGE>
EBITDA. As of the effective date of the Amendment, C&A Co. and its subsidiaries
(including the Company) on a consolidated basis will be required to maintain,
for each period of four consecutive fiscal quarters, a ratio of EBITDA to cash
interest expense of 2.25 to 1.00 through the end of the 1997 fiscal year, 2.75
to 1.00 through the end of the 1998 fiscal year, and 3.00 to 1.00 thereafter;
and to maintain a ratio of senior funded debt (which will not include the Notes)
to EBITDA for the preceding twelve consecutive months of not more than 2.75 to
1.00 through the end of the 1996 fiscal year, 2.50 to 1.00 through the end of
the 1997 fiscal year, 2.25 to 1.00 through the end of the 1998 fiscal year and
2.00 to 1.00 thereafter. In addition, C&A Co. will be required to have
consolidated EBITDA for each period of twelve consecutive fiscal months ending
on the last day of a fiscal year of at least $175 million.
S-74
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company has agreed to sell to each of the Underwriters named below, and each of
such Underwriters has severally agreed to purchase from the Company, the
principal amount of Notes set forth opposite its name below:
PRINCIPAL
AMOUNT OF
NAME NOTES
- ------------------------------------------------------------ ------------
Wasserstein Perella Securities, Inc.........................
Chase Securities Inc........................................
BA Securities, Inc..........................................
------------
Total................................................. $400,000,000
------------
------------
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the Notes offered hereby,
if any are taken.
The Underwriters propose to offer the Notes in part directly to the public
at the public offering price set forth on the cover page of this Prospectus
Supplement, and in part to certain securities dealers at such price less a
concession not in excess of % of the principal amount of the Notes. The
Underwriters may allow, and such dealers may reallow, a discount not in excess
of % of the principal amount to certain other dealers. After the Notes are
released for sale to the public, the offering price and other selling terms may
from time to time be changed.
The provisions of Schedule E to the By-Laws of the National Association of
Securities Dealers, Inc. apply to the offering because Wasserstein Perella
Securities, Inc. may be deemed to be an affiliate of the Company and C&A Co. for
purposes of Schedule E. Accordingly, the yield of the Notes can be no lower than
that recommended by a "qualified independent underwriter" meeting certain
standards. In accordance with this requirement, Chase Securities Inc. has served
in such role for purposes of the determination of the yield of the Notes and has
performed due diligence investigations and reviewed and participated in the
preparation of this Prospectus Supplement and the accompanying Prospectus in
connection with its responsibilities of acting as a qualified independent
underwriter. The Underwriters have informed the Company that the Underwriters do
not intend to confirm sales to any account over which they exercise
discretionary authority, except in accordance with the provisions of Schedule E.
The Company and C&A Co. have agreed to indemnify the several Underwriters
against certain liabilities, including liabilities under the Securities Act.
The Company and C&A Co. have agreed not to offer, issue, sell or otherwise
dispose of, directly or indirectly, any debt securities with maturities longer
than one year (other than the Notes) without the written consent of the
Underwriters for a period of 60 days after the date of this Prospectus
Supplement.
The Company does not intend to apply for listing of the Notes on any
securities exchange or to seek their admission for trading on the National
Association of Securities Dealers Automated Quotation System. The Underwriters
have informed the Company that they currently intend to make a market in the
Notes; however, the Underwriters are not obligated to do so, may discontinue
such market at any time without notice and can provide no assurance that an
active trading market will develop or be maintained for the Notes.
Employees of affiliates of Wasserstein Perella Securities, Inc. serve on C&A
Co.'s Board of Directors and on its Nominating Committee, which is empowered to
nominate persons for election to C&A Co.'s Board of Directors and, subject to
certain exceptions, exclusively empowered to fill any newly created
directorships or any other vacancies on such Board of Directors. Randall J.
Weisenburger, George L. Majoros, Jr. and W. Townsend Ziebold, Jr., Managing
Director, Director and Managing
S-75
<PAGE>
Director, respectively, of WP&Co. are currently serving as directors of C&A Co.
See "Management". Mr. Weisenburger is also on the Board of Directors of the
Company.
Pursuant to a stockholders agreement, certain affiliates of Wasserstein
Perella Securities, Inc. receive a $1 million annual monitoring fee and the
reimbursement of expenses from the Company. Since the beginning of fiscal 1995,
pursuant to such stockholders agreement the Company has paid $1.5 million plus
expenses to such affiliates. Wasserstein Perella Securities, Inc. has acted, and
may in the future act, as agent for the Company in the repurchase from time to
time of C&A Co.'s Common Stock. Since the beginning of fiscal 1995,
approximately $62,000 in fees have been paid or accrued to Wasserstein Perella
Securities Inc. or its affiliates in connection with such repurchases. For
advisory services in connection with the acquisition of Manchester Plastics in
January 1996, the Company paid or accrued to Wasserstein Perella Securities,
Inc. or its affiliates approximately $1.2 million plus expenses. See "Principal
Stockholders and Security Ownership of Management--Certain Transactions".
In the ordinary course of their respective businesses, affiliates of Chase
Securities Inc. and BA Securities, Inc. have engaged in general financing and
banking transactions with the Company and C&A Co. for which customary
compensation has been received. Affiliates of Chase Securities Inc. and BA
Securities, Inc. are lenders under one or both of the Credit Agreement
Facilities and will receive their proportionate shares of any repayment by the
Company of amounts outstanding under the Credit Agreement Facilities from the
proceeds of the Offering. See "Existing Credit Facilities" in the accompanying
Prospectus.
CERTAIN LEGAL MATTERS
Certain legal matters in connection with the Notes will be passed upon for
the Company by Cravath, Swaine & Moore, Worldwide Plaza, 825 Eighth Ave., New
York, NY 10019. Certain legal matters will be passed upon for the underwriters
by Jones, Day, Reavis & Pogue, 599 Lexington Avenue, New York, New York 10022.
From time to time, Jones, Day, Reavis & Pogue provides legal services to the
Company and other entities in which the principal stockholders of C&A Co. have
equity interests.
EXPERTS
The consolidated financial statements and schedules of C&A Co. included and
incorporated by reference in this Prospectus Supplement, the accompanying
Prospectus and elsewhere in the registration statement to the extent and for the
periods indicated in their reports have been audited by Arthur Andersen LLP,
independent public accountants, and are included and incorporated by reference
herein in reliance upon the authority of said firm as experts in giving said
reports.
S-76
<PAGE>
PROSPECTUS
COLLINS & AIKMAN PRODUCTS CO.
DEBT SECURITIES
UNCONDITIONALLY GUARANTEED BY COLLINS & AIKMAN CORPORATION
Collins & Aikman Products Co. (the "Company") may offer from time to time,
together or separately, unsecured notes, debentures or other evidences of
indebtedness ("Debt Securities"), which may be either senior (the "Senior
Securities") or subordinated (the "Subordinated Securities") in priority of
payment, having an aggregate initial public offering price not to exceed
$400,000,000 (including the U.S. dollar equivalent of securities for which the
initial public offering price is denominated in one or more foreign currencies
or composite currencies). The Debt Securities may be offered in one or more
series, in amounts, at prices and on terms determined at the time of sale and
set forth in a supplement to this Prospectus (a "Prospectus Supplement").
The Senior Securities will rank equally with all other unsubordinated and
unsecured indebtedness of the Company. The Subordinated Securities will be
unsecured and subordinated as described under "Subordinated Securities" and the
Senior Securities and the Subordinated Securities will be effectively
subordinated to all obligations of the subsidiaries of the Company.
The Debt Securities will be irrevocably, fully and unconditionally
guaranteed (the "Guarantee") on an unsecured senior basis, in the event Senior
Securities are issued, or on an unsecured subordinated basis, in the event
Subordinated Securities are issued, by Collins & Aikman Corporation ("C&A Co.").
The Company is a wholly owned subsidiary of C&A Co. None of the subsidiaries of
the Company will guarantee the Debt Securities. C&A Co. is a holding company
that derives all its operating income and cash flow from its subsidiary, the
Company, the common stock of which presently constitutes C&A Co.'s only material
asset.
The specific terms of the Debt Securities in respect of which this
Prospectus is being delivered will be set forth in an accompanying Prospectus
Supplement, including, where applicable, whether they are Senior Securities or
Subordinated Securities, the specific designation, aggregate principal amount,
currency, denomination, maturity (which may be fixed or extendible), priority,
interest rate (or manner of calculation thereof), if any, time of payment of
interest, if any, terms for any redemption, terms for any repayment at the
option of the holder, terms for any sinking fund payments, the initial public
offering price, special provisions relating to Debt Securities in bearer form,
provisions regarding original issue discount securities, additional covenants
including event risk provisions, and any other specific terms of such Debt
Securities.
The Prospectus Supplement will also contain information, where applicable
and material, about certain United States Federal income tax considerations
relating to, and any listing on a securities exchange of, the Debt Securities
covered by the Prospectus Supplement.
FOR A DISCUSSION OF RISKS ASSOCIATED WITH THE DEBT SECURITIES, SEE "RISK
FACTORS" AT PAGE 3.
-------------------
The Debt Securities may be offered directly, through underwriters, dealers
or agents as designated from time to time, or through a combination of such
methods. See "Plan of Distribution". If any agents of the Company or any dealers
or underwriters are involved in the offering of the Debt Securities in respect
of which this Prospectus is being delivered, the names of such agents, dealers
or underwriters and any applicable commissions or discounts will be set forth in
the Prospectus Supplement. The net proceeds to the Company from such sale will
also be set forth in the Prospectus Supplement. The Company may also issue
contracts under which the counterparty may be required to purchase Debt
Securities. Such contracts would be issued with the Debt Securities in amounts,
at prices and on terms to be set forth in the applicable Prospectus Supplement.
-------------------
This Prospectus may not be used to consummate sales of Debt Securities
unless accompanied by a Prospectus Supplement.
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
-------------------
THE DATE OF THIS PROSPECTUS IS MAY 14, 1996.
<PAGE>
AVAILABLE INFORMATION
C&A Co. is subject to the informational requirements of the Securities
Exchange Act of 1934 (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
filed by C&A Co. with the Commission pursuant to the informational requirements
of the Exchange Act may be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, and at the Commission's regional offices located at
Seven World Trade Center, 13th Floor, New York, New York 10048 and Citicorp
Center, 500 West Madison Street (Suite 1400), Chicago, Illinois 60661. Copies of
such material may be obtained from the Public Reference Section of the
Commission, Washington, D.C. 20549 at prescribed rates. Such reports, proxy
statements and other information may also be inspected at the offices of the New
York Stock Exchange, Inc. ("NYSE"), 20 Broad Street, New York, New York, on
which C&A Co.'s Common Stock, par value $.01 per share (the "Common Stock"), is
listed. The Company is not currently subject to the periodic reporting and other
informational requirements of the Exchange Act because management of the Company
believes that the reports and other information, including the summary financial
statements of the Company to be included in the financial statements of C&A Co.
filed therewith, filed by C&A Co. will provide investors with all material
information with regard to the Company. If the Company is not required to
deliver annual reports of C&A Co. to holders of Debt Securities pursuant to the
Securities Exchange Act of 1934, the Company will deliver quarterly and annual
reports of C&A Co. to the holders of Debt Securities at the same time that C&A
Co. delivers such reports to its security holders.
This Prospectus constitutes part of a Registration Statement on Form S-3
(the "Registration Statement") filed by the Company and C&A Co. with the
Commission under the Securities Act of 1933 (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.
Reference is hereby made to the Registration Statement and related exhibits for
further information with respect to the Company and the Debt Securities.
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.
INFORMATION INCORPORATED BY REFERENCE
The Company incorporates herein by reference C&A Co.'s Annual Report on Form
10-K for the fiscal year ended January 27, 1996 filed by C&A Co. with the
Commission (File No. 1-10218) pursuant to the Exchange Act and C&A Co.'s Report
on Form 8-K filed by C&A Co. with the Commission (File No. 1-10218) on April 10,
1996 pursuant to the Exchange Act.
All documents and reports subsequently filed by C&A Co. pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus
and prior to the termination of the offering of the Debt Securities hereunder
shall be deemed to be incorporated herein by reference and to be a part hereof
from the date of filing of 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 or any Prospectus Supplement to the extent that
a statement contained herein or in any other subsequently filed document that
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 or any Prospectus Supplement.
2
<PAGE>
The Company will furnish without charge to each person, including any
beneficial owner, to whom this Prospectus and the accompanying Prospectus
Supplement are delivered, upon the written or oral request of such person, a
copy of any or all the documents incorporated herein by reference other than
exhibits to such documents unless such exhibits are specifically incorporated by
reference in such documents, and any other documents specifically identified
herein as incorporated by reference into the Registration Statement to which
this Prospectus relates or into such other documents. Requests should be
directed to: Collins & Aikman Products Co., 701 McCullough Drive, P.O. Box
32665, Charlotte, NC 28232-2665 (telephone: (704) 548-2370), Attention:
Director-Investor Relations.
RISK FACTORS
In addition to the other information contained in this Prospectus, the
following risk factors should be carefully considered in evaluating an
investment in the Debt Securities.
CYCLICALITY OF INDUSTRIES
The Company's business segments are highly cyclical. Downturns in North
American automotive production, consumer spending, commercial and residential
construction and renovation and by consumer confidence could have a material
adverse effect on the Company.
DEPENDENCE ON SIGNIFICANT AUTOMOTIVE CUSTOMERS AND CAR MODELS
The Company's sales are dependent on certain significant customers. Sales to
General Motors Corporation, Ford Motor Company and Chrysler Corporation
accounted for approximately 23.3%, 11.6% and 12.7%, respectively, of the
Company's 1995 net sales. In addition, certain of the Company's customers are
unionized and have in the past experienced labor disruptions. The loss of one or
more significant customers or a prolonged disruption in their production could
have a material adverse effect on the Company.
The Company principally competes for new business in its Automotive Products
segment at the design stage of new models and upon the redesign of existing
models. There can be no assurance that the Company will continue to be able to
obtain such new business or to improve or maintain its gross margins on such new
business. In addition, the Company may not be able to pass on raw material price
increases to its customers due to pricing pressure from its customers. A
decrease in demand for the models that generate the most sales for the Company,
the failure of the Company to obtain purchase orders for new or redesigned
models and pricing pressure from the major automotive companies could have a
material adverse effect on the Company.
VULNERABILITY TO CHANGES IN CONSUMER TASTES
Consumer tastes in automotive seat fabrics and interior furnishings change
over time. A shift in consumer preferences away from the products that the
Company produces or has the capability to produce could have a material adverse
effect on the Company.
COMPETITION
The industries in which the Company operates are highly competitive. There
can be no assurance that the Company's products will compete successfully with
those of its competitors. Several competitors are larger and may have greater
financial and other resources available to them. There can be no assurance that
the Company will be able to maintain its operating margins if the competitive
environment changes.
3
<PAGE>
SUBSTANTIAL LEVERAGE
The substantial indebtedness of the Company and its subsidiaries could have
important consequences to holders of Debt Securities, including the following:
(i) the ability of the Company and its subsidiaries to obtain additional
financing in the future to refinance maturing debt or for working capital,
capital expenditures, acquisitions and other general corporate purposes could be
impaired; (ii) a substantial portion of the cash flow from operations of the
Company and its subsidiaries must be dedicated to the payment of the principal
of and interest on existing indebtedness, which will have the effect of
decreasing the amount available for working capital, capital expenditures,
acquisitions or other general corporate purposes; (iii) the Company and its
subsidiaries could be more highly leveraged than certain of their competitors,
which may place the Company and its subsidiaries at a competitive disadvantage;
(iv) a significant portion of the borrowings of the Company and its subsidiaries
are at variable rates of interest, and consequently the Company and its
subsidiaries will be vulnerable to increases in interest rates; and (v) the high
degree of leverage of the Company and its subsidiaries may make the Company more
vulnerable to economic downturns. At January 27, 1996 the Company had an
aggregate of approximately $768.1 million of indebtedness outstanding (excluding
approximately $128.0 million in off-balance sheet financing under a receivables
facility, approximately $.7 million of indebtedness of the discontinued
Wallcoverings segment and approximately $28.1 million of outstanding letters of
credit) and unused borrowing availability of approximately $46.9 million under a
revolving credit facility and $5.5 million under a working capital facility for
a Canadian subsidiary. Incurrence of additional indebtedness would increase this
degree of leverage and, therefore, could exacerbate the consequences described
above. The Company intends to pursue a growth-oriented strategy and to consider
the incurrence of additional indebtedness and other capital market transactions
to finance its planned expansion.
SECURITY INTERESTS
The capital stock of the Company's principal subsidiaries and certain real
estate of the Company and its subsidiaries are subject to various security
interests and liens securing certain indebtedness of the Company and its
subsidiaries. In addition, substantially all the receivables of the Company and
its subsidiaries have been transferred to a trust in connection with a
receivables financing. See "Existing Credit Facilities".
LIMITATIONS IMPOSED BY EXISTING CREDIT FACILITIES
The Company's existing credit facilities contain a number of restrictive
covenants which, among other things, limit the ability of the Company and its
subsidiaries to make capital expenditures, to incur other indebtedness, to
create liens and to make certain restricted payments, and which require the
Company to maintain certain specified financial ratios, some of which become
more restrictive over time. A failure by the Company to satisfy such financial
ratios or to comply with the restrictions contained in its credit facilities
could result in a default thereunder, which in turn could result in such
indebtedness being declared immediately due and payable. If the Company were
unable to repay such indebtedness, the lenders under the Company's credit
facilities could proceed against their collateral, which includes 100% of the
common stock of the Company and of its principal subsidiaries. See "Existing
Credit Facilities".
HISTORICAL LOSSES
C&A Co. has experienced net losses in four of the last five fiscal years,
and as of January 27, 1996 had an accumulated deficit of $770.1 million. Even
though C&A Co. is operating with lower interest charges and has been profitable
since its initial public offering and Recapitalization in July 1994 (the
"Recapitalization"), there can be no assurance as to whether C&A Co.'s
operations will remain profitable.
4
<PAGE>
COLLECTIVE BARGAINING AGREEMENTS
The Company is a party to collective bargaining agreements with respect to
hourly employees of its continuing operations at six of its 42 U.S. facilities,
its seven Canadian facilities and its four Mexican facilities. The Company's
continuing operations employ 11,700 persons, approximately 2,900 of which, all
of whom are employed in the Company's Automotive Products segment, are covered
by such agreements. The Company has not experienced any significant labor
disruptions during the past five years. Although management believes that its
relationship with the employees covered by collective bargaining agreements is
good, there can be no assurance that the Company will be able to negotiate new
agreements on favorable terms.
ENVIRONMENTAL MATTERS AND OTHER CONTINGENCIES
The Company is subject to stringent Federal, state, local and foreign laws
and regulations concerning the environment. Changes in environmental laws and
regulations may require the Company to make substantial capital expenditures and
to incur substantial expenses with respect to its ongoing and divested
operations and properties. In addition, the Company has received notices that it
is a potentially responsible party ("PRP") in a number of proceedings for
cleanup of hazardous substances at various sites. The Company may be named as a
PRP at other sites in the future. It is difficult to estimate the total cost of
investigation and remediation due to various factors including incomplete
information regarding particular sites and other PRPs, uncertainty regarding the
extent of environmental problems and the Company's share, if any, of liability
for such problems, the selection of alternative compliance approaches, the
complexity of the environmental laws and regulations and changes in cleanup
standards and techniques. When it has been possible to provide reasonable
estimates of the Company's liability with respect to environmental sites,
provisions have been made in accordance with generally accepted accounting
principles. However, there can be no assurance that the Company has identified
or properly assessed all potential environmental liabilities arising from the
activities or properties of the Company, its present and former subsidiaries and
their corporate predecessors.
The Company has significant financial and legal obligations with respect to
certain divested and acquired businesses. In connection with the sale and
acquisition of certain businesses, the Company has agreed to indemnify the
purchasers and sellers for certain environmental liabilities, lease obligations
and other matters. In addition, the Company is contingently liable with respect
to certain lease and other obligations assumed by certain purchasers and may be
required to honor such obligations if such purchasers are unable or unwilling to
do so.
ABSENCE OF PUBLIC MARKET FOR THE DEBT SECURITIES
The Debt Securities will be a new issue of securities with no established
trading market. Any underwriters to whom Debt Securities are sold by the Company
for public offering and sale may make a market in such Debt Securities, but such
underwriters will not be obligated to do so and may discontinue any market
making at any time without notice. No assurance can be given as to the liquidity
of the secondary market for any Debt Securities.
POTENTIAL APPLICABILITY OF FRAUDULENT TRANSFER LAWS
Management believes that each of the Company and C&A Co., after the issuance
of the Debt Securities, will be solvent, will have sufficient capital for
carrying on its respective businesses and will be able to pay its debts as they
become due. Notwithstanding management's belief, if a court of competent
jurisdiction in a suit by an unpaid creditor or a representative of creditors
(such as a trustee in bankruptcy or a debtor in possession) were to find that
either the Company or C&A Co. did not receive fair consideration or reasonably
equivalent value for issuing the Debt Securities or the Guarantee, respectively,
and, at the time of the incurrence of indebtedness represented by the Debt
Securities or the Guarantee, the Company or C&A Co. was insolvent, was rendered
insolvent by reason of such incurrence, was engaged in a business or transaction
for which its remaining assets constituted unreasonably small capital, intended
to incur, or believed that it would incur, debts beyond its ability to
5
<PAGE>
pay as such debts matured, or intended to hinder, delay or defraud its
creditors, such court could avoid such indebtedness or, quite apart from the
express subordination of such indebtedness of the Company or C&A Co., as
applicable, such court could subordinate such indebtedness to other existing and
future indebtedness of the Company or C&A Co., as applicable. The measure of
insolvency for purposes of the foregoing will vary depending upon the law of the
relevant jurisdiction. Generally, however, a company would be considered
insolvent for purposes of the foregoing if the sum of the company's debts is
greater than all the company's property at a fair valuation, or if the present
fair saleable value of the company's assets is less than the amount that will be
required to pay its probable liability on its existing debts as they become
absolute and matured.
THE COMPANY
The Company is a major supplier of interior textile and plastic trim
products to the North American automotive industry, with leading positions in
five major product lines. The Company is also a leading manufacturer of
residential upholstery, as well as a major provider of contract carpet products
in the United States. On April 9, 1996, the Company announced its intention to
spin off its Imperial Wallcoverings subsidiary ("Wallcoverings") to the
stockholders of C&A Co. The spin-off is subject to, among other things, the
consent of the Company's lenders and final approval of the Company's Board of
Directors. The financial results and net assets of Wallcoverings have been
accounted for as a discontinued operation. Accordingly, previously reported
financial results for all periods have been restated to reflect Wallcoverings as
a discontinued operation.
C&A Co. is a holding company whose only material asset is the common stock
of the Company. The Company's and C&A Co.'s principal executive offices are
located at 701 McCullough Drive, Charlotte, North Carolina 28262 and the
telephone number at that location is (704) 547-8500.
As used in this Prospectus, the term the "Company" refers to Collins &
Aikman Products Co. and its subsidiaries, unless the context otherwise
indicates.
RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges for C&A Co. is set forth below for
the periods indicated. For periods in which earnings before fixed charges were
insufficient to cover charges, the amount of coverage deficiency (in millions),
instead of the ratio is disclosed.
<TABLE>
<CAPTION>
FISCAL YEAR ENDING JANUARY
-------------------------------------------
1992 1993 1994 1995 1996
------ ------ ------- ---- ----
(DOLLAR AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges (or amounts by
which earnings were inadequate to cover fixed
charges).............................................. ($92.4) ($85.2) ($173.1) 1.8x 2.3x
</TABLE>
For purposes of determining the ratio of earnings to fixed charges, earnings
are defined as income (loss) from continuing operations before income taxes,
plus fixed charges relating to continuing operations. Fixed charges consist of
interest expense on all indebtedness (including amortization of deferred debt
issuance costs), loss on sale of receivables, preferred stock dividends of
subsidiaries and the portion of operating lease rental expense that is
representative of the interest factor. Earnings were inadequate to cover fixed
charges for the fiscal years ended January 1992, 1993 and 1994.
On July 13, 1994, the Company effected the Recapitalization in connection
with its initial public offering. Prior to the Recapitalization, fixed charges
were higher due to larger average outstanding amounts, and higher average
interest rates, under C&A Co.'s various debt facilities. Additionally, earnings
from continuing operations for the fiscal years prior to the Recapitalization
were negatively impacted by various charges related to restructuring,
compensation and goodwill. Accordingly, the ratio for the fiscal year ended
January 1995 reflects the benefits of the Recapitalization for a part of the
year and for the fiscal year ended January 1996 reflects the benefits for the
full year.
6
<PAGE>
USE OF PROCEEDS
Except as may otherwise be set forth in the Prospectus Supplement, the net
proceeds from the sale of the Debt Securities will be used for general corporate
purposes, including working capital, capital expenditures and acquisitions.
EXISTING CREDIT FACILITIES
THE CREDIT AGREEMENT FACILITIES
C&A Co. and the Company are parties to a credit agreement dated as of June
22, 1994, as amended (the "Credit Agreement"), with Chemical Bank ("Chemical")
and the lenders named therein providing for (i) an eight-year senior secured
term loan facility in an aggregate principal amount of $475 million (the "Term
Loan Facility"), which was drawn in full on July 13, 1994 to prepay other
indebtedness in connection with the Recapitalization, and (ii) a seven-year
senior secured revolving credit facility (the "Revolving Facility", and together
with the Term Loan Facility, the "Credit Agreement Facilities") in an aggregate
principal amount of up to $150 million. At January 27, 1996, the Company had
unused borrowing availability of approximately $46.9 million under the Revolving
Facility.
On December 22, 1995, C&A Co. and the Company entered into an additional
credit facility (as amended, the "Term Loan B Facility") to finance the January
1996 purchase of Manchester Plastics. The Term Loan B Facility provides for a
term loan in the principal amount $197 million, all of which was outstanding at
January 27, 1996. In conjunction with the Term Loan B Facility, the restrictive
covenants of the Credit Agreement Facilities were amended to permit the purchase
of Manchester Plastics. The restrictive covenants contained in the Term Loan B
Facility are identical to those in the Credit Agreement Facilities.
The Company is the borrower under the Credit Agreement Facilities and the
Term Loan B Facility, although a portion of the Term Loan Facility has been
borrowed by a Canadian subsidiary of the Company. Loans outstanding under the
Credit Agreement Facilities bear interest, due quarterly, at a per annum rate
equal to the Company's choice of (i) Chemical's Alternate Base Rate (which is
the highest of Chemical's announced prime rate, the Federal Funds Rate plus .5%
and Chemical's base certificate of deposit rate plus 1%) plus a margin ranging
from 0% to .75% or (ii) the offered rates for Eurodollar deposits ("LIBOR") of
one, two, three, six, nine or 12 months (as selected by the Company) plus a
margin ranging from 1% to 1.75%. Pursuant to the terms of the Credit Agreement,
at January 27, 1996 the Alternate Base Rate margin was .75% and the LIBOR margin
was 1.75%. Such margins under the Credit Agreement Facilities will increase by
1/4% over the margins then in effect on July 13, 1999. Indebtedness under the
Term Loan B Facility bears interest at a per annum rate equal to the Company's
choice of (i) Chemical Bank's Alternate Base Rate as described above plus a
margin of 1.25% or (ii) LIBOR of one, two, three or six months, as selected by
the Company, plus a margin of 2.25%.
Loans under the Term Loan Facility and the Term Loan B Facility amortize in
annual amounts equal to (i) $41.9 million in 1996, (ii) $68.1 million in 1997,
(iii) $88.9 million in 1998, (iv) $101.8 million in 1999, (v) $109.4 million in
each of 2000 and 2001 and (vi) the remainder in 2002. The Revolving Facility
will mature on July 13, 2001. In addition, the Credit Agreement and the Term
Loan B Facility provide for mandatory prepayments with certain excess cash flow
of the Company, net cash proceeds of certain asset sales or other dispositions
by the Company and its subsidiaries, net cash proceeds of certain sale/leaseback
transactions and net cash proceeds of certain issuances of debt obligations
(which are not expected to include Debt Securities). Mandatory prepayments will
be applied pro rata across remaining scheduled maturities. Loans under the
Credit Agreement Facilities and Term
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Loan B Facility are voluntarily prepayable by the Company at any time without
penalty. Voluntary prepayments will be applied against the most current
scheduled maturities.
The Credit Agreement Facilities and the Term Loan B Facility are guaranteed
by C&A Co. and each existing and subsequently acquired or organized United
States subsidiary of C&A Co., subject to certain exceptions (the "Credit
Agreement Guarantees"). The Credit Agreement Facilities, the Term Loan B
Facility and the Credit Agreement Guarantees are secured by a first priority
pledge of all the capital stock of the Company and each subsidiary (other than
certain unrestricted subsidiaries) of the Company (or, in the case of any
foreign subsidiary, 65% of the capital stock of such subsidiary), subject to
certain exceptions, and certain intercompany indebtedness.
The Credit Agreement and the Term Loan B Facility contain various
restrictive covenants, including limitations on indebtedness of C&A Co. and its
subsidiaries (including the Company); limitations on dividends and on
redemptions and repurchases of capital stock; limitations on prepayments,
redemptions and repurchases of debt; limitations on liens and sale/leaseback
transactions; limitations on loans and investments; limitations on capital
expenditures; a prohibition on C&A Co.'s direct ownership of any subsidiary
other than the Company or certain unrestricted subsidiaries; limitations on
mergers, acquisitions and asset sales; limitations on transactions with
affiliates and stockholders; limitations on fundamental changes in business
conducted; and limitations on the amendment of debt and other material
agreements and licenses. In addition to the foregoing, the Credit Agreement and
Term Loan B Facility contain financial covenants applicable to C&A Co. and its
subsidiaries (including the Company) on a consolidated basis. Under these
covenants C&A Co. and its subsidiaries are required: to maintain, for each
period of four consecutive fiscal quarters, a ratio of EBITDA to cash interest
expense of 3.25 to 1.00 through April 30, 1996 and 3.50 to 1.00 from May 1, 1996
through January 31, 1997 (which ratio increases periodically thereafter, to 4.75
to 1.00 on and after February 1, 1998); to maintain a ratio of funded debt to
EBITDA for the preceding 12 consecutive months of not more than 3.95 to 1.00
until April 30, 1996 and 3.50 to 1.00 from May 1, 1996 through July 31, 1996
(which ratio decreases periodically thereafter, to 2.25 to 1.00 on and after
February 1, 1999); to have a minimum EBITDA of $175 million in each fiscal year;
and to maintain a ratio of current assets to current liabilities at the end of
each fiscal quarter of at least 1.25 to 1.00.
The Credit Agreement and the Term Loan B Facility also contain various
events of default (with customary qualifications and exceptions), including
nonpayment of principal or interest; violation of covenants; material breaches
of representations and warranties; cross default and cross acceleration;
bankruptcy; material undischarged judgments; certain ERISA events; invalidity of
security documents; invalidity of subordination provisions; and Change in
Control. "Change in Control" is defined in the Credit Agreement and Term Loan B
Facility as (a) a majority of the board of directors of C&A Co. ceases to be
comprised of Continuing Directors (defined as any director of C&A Co. who either
(x) was a member of the board of directors on July 13, 1994 or (y) after such
date became a member of the board of directors and whose election was approved
by vote of a majority of the Continuing Directors then on the board of directors
of C&A Co.), (b) a person or group (other than the Company's current principal
stockholders, Wasserstein Perella Partners, L.P. ("WP Partners"), Blackstone
Capital Partners L.P. ("Blackstone Partners"), and additional designated
persons) beneficially owns, directly or indirectly, shares representing more
than 25% of the aggregate ordinary voting power represented by the outstanding
capital stock of C&A Co. at any time that WP Partners, Blackstone Partners and
additional designated persons do not beneficially own shares representing at
least 50% of the aggregate ordinary voting power represented by the outstanding
capital stock of C&A Co. or (c) C&A Co. ceases to maintain direct ownership of
the Company, free of liens and claims (other than liens in connection with a
pledge under the Credit Agreement and Term Loan B Facility).
In addition to the foregoing, the Credit Agreement and the Term Loan B
Facility contain other miscellaneous provisions, including provisions concerning
indemnification by the Company of each
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lender against losses, claims or other expenses and payment by the Company of
certain fees and expenses of the lenders and their respective advisors and
consultants.
The description of the Credit Agreement Facilities and the Term Loan B
Facility set forth above does not purport to be complete and is qualified in its
entirety by reference to the documents which are filed as exhibits and
incorporated by reference into the Registration Statement of which this
Prospectus forms a part.
RECEIVABLES FACILITY
The Company, through a trust (the "Trust") formed by its wholly-owned,
bankruptcy-remote subsidiary, Carcorp, Inc. ("Carcorp"), is a party to a
receivables facility (the "Receivables Facility") comprised of (i) term
certificates, which were issued on March 31, 1995 in an aggregate face amount of
$110 million and (ii) variable funding certificates, which represent revolving
commitments, of up to an aggregate of $75 million. The term certificates and the
variable funding certificates have a term of five years. Carcorp purchases on a
revolving basis and transfers to the Trust virtually all trade receivables
generated by the Company and certain of its subsidiaries (the "Sellers"). The
certificates represent the right to receive payments generated by the
receivables held by the Trust.
Availability under the variable funding certificates at any time depends
primarily on the amount of receivables generated by the Sellers from sales to
the auto industry, the rate of collection on those receivables and other
characteristics of those receivables which affect their eligibility (such as
bankruptcy or downgrading below investment grade of the obligor, delinquency and
excessive concentration). Based on these criteria, at January 27, 1996
approximately $19.8 million was available under the variable funding
certificates, of which approximately $18.0 million was utilized.
The proceeds received by Carcorp from collections on receivables, after the
payment of expenses and amounts due on the certificates, are used to purchase
new receivables from the Sellers. Collections on receivables are required to
remain in the Trust if at any time the Trust does not contain sufficient
eligible receivables to support the outstanding certificates. At January 27,
1996, cash collateral of $8.7 million was required to be retained in the Trust.
Additionally, the Trust held $15.7 million of cash collections to be distributed
upon determination of eligibility. The Receivables Facility contains certain
other restrictions on Carcorp and on the Sellers customary for facilities of
this type and will terminate prior to its term upon the occurrence of certain
events of default. Under the Receivables Facility, the term certificates bear
interest at an average rate equal to the rate on one-month LIBOR deposits plus
34 one-hundredths of one percent per annum and the variable funding certificates
bear interest, at Carcorp's option, at a LIBOR deposit rate plus 40
one-hundredths of one percent per annum or a prime rate.
The description of the Receivables Facility set forth above does not purport
to be complete and is qualified in its entirety by reference to the Receivables
Facility and any amendments thereto which are filed as exhibits and incorporated
by reference into the Registration Statement of which this Prospectus forms a
part.
DESCRIPTION OF THE DEBT SECURITIES
GENERAL
The Debt Securities will constitute either Senior Securities or Subordinated
Securities. The Senior Securities will be issued under an Indenture (the "Senior
Indenture"), between the Company and the trustee named in the applicable
Prospectus Supplement as trustee (the "Senior Trustee"). The Subordinated
Securities will be issued under an Indenture dated as of June , 1996 (the
"Subordinated Indenture"), between the Company and the trustee named in the
applicable Prospectus Supplement as trustee ("the Subordinated Trustee"). The
Senior Indenture and the Subordinated Indenture are
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collectively referred to herein as the "Indentures". References to the "Trustee"
shall mean the Senior Trustee or the Subordinated Trustee, as applicable. The
statements under this caption are brief summaries of certain provisions
contained in the Indentures, do not purport to be complete and are qualified in
their entirety by reference to the applicable Indenture, copies of which are
exhibits to and incorporated in the Registration Statement. Cross references to
Sections of the Indentures relate to both the Senior Indenture and the
Subordinated Indenture, unless otherwise indicated.
The following description of the terms of the Debt Securities sets forth
certain general terms and provisions of the Debt Securities to which any
Prospectus Supplement may relate. The particular terms of any Debt Securities
and the extent, if any, to which such general provisions do not apply to such
Debt Securities will be described in the Prospectus Supplement relating to such
Debt Securities.
Neither of the Indentures limits the amount of Debt Securities which may be
issued thereunder, and each Indenture provides that Debt Securities of any
series may be issued thereunder up to the aggregate principal amount which may
be authorized from time to time by the Company's board of directors or any duly
authorized committee of that board ("Board of Directors") and may be denominated
in any currency or composite currency designated by the Company. (Section 3.01)
Neither the Indentures nor the Debt Securities will limit or otherwise restrict
the amount of other indebtedness which may be incurred or the other securities
which may be issued by the Company or any of its subsidiaries.
Debt Securities of a series may be issuable in registered form with or
without coupons ("Registered Securities"), in bearer form with or without
coupons attached ("Bearer Securities") or in the form of one or more global
securities in registered or bearer form (each a "Global Security"). (Section
3.01) Bearer Securities, if any, will be offered only to non-United States
persons and to offices located outside the United States of certain United
States financial institutions. (Section 3.03) Reference is made to the
Prospectus Supplement for a description of the following terms, where
applicable, of each series of Debt Securities in respect of which this
Prospectus is being delivered: (1) the title of such Debt Securities; (2) the
limit, if any, on the aggregate principal amount or aggregate initial public
offering price of such Debt Securities; (3) the priority of payment of such Debt
Securities; (4) the price or prices (which may be expressed as a percentage of
the aggregate principal amount thereof) at which the Debt Securities will be
issued; (5) the date or dates on which the principal of the Debt Securities will
be payable; (6) the rate or rates (which may be fixed or variable) per annum at
which such Debt Securities will bear interest, if any, or the method of
determining the same; (7) the date or dates from which such interest, if any, on
the Debt Securities will accrue, the date or dates on which such interest, if
any, will be payable, the date or dates on which payment of such interest, if
any, will commence and the date, if any, specified in the Debt Security as the
"Regular Record Date" for such interest payment dates; (8) the extent to which
any of the Debt Securities will be issuable in temporary or permanent global
form, or the manner in which any interest payable on a temporary or permanent
global Debt Security will be paid; (9) each office or agency where, subject to
the terms of the applicable Indenture, the Debt Securities may be presented for
registration of transfer or exchange; (10) the place or places where the
principal of (and premium, if any) and interest, if any, on the Debt Securities
will be payable; (11) the date or dates, if any, after which such Debt
Securities may be redeemed or purchased in whole or in part, at the option of
the Company or mandatorily pursuant to any sinking, purchase or analogous fund
or may be required to be purchased or redeemed at the option of the holder, and
the redemption or repayment price or prices thereof; (12) the denomination or
denominations in which such Debt Securities are authorized to be issued; (13)
the currency, currencies or composite currency (including the European Currency
Unit as defined and revised from time to time by the Council of the European
Communities ("ECU")) based on or related to currencies for which the Debt
Securities may be purchased and the currency, currencies or composite currency
(including ECU) in which the principal of, premium, if any, and any interest on
such Debt Securities may be payable; (14) any index used to determine the amount
of payments of principal of, premium, if any, and interest on the Debt
Securities; (15) whether any of the Debt Securities are to be issuable as Bearer
Securities and/or Registered Securities, and if issuable as Bearer
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Securities, any limitations on issuance of such Bearer Securities and any
provisions regarding the transfer or exchange of such Bearer Securities
(including exchange for registered Debt Securities of the same series); (16) the
payment of any additional amounts with respect to the Debt Securities; (17)
whether any of the Debt Securities will be issued as Original Issue Discount
Securities (as defined below); (18) information with respect to book-entry
procedures, if any; (19) any additional covenants or Events of Default not
currently set forth in the applicable Indenture; and (20) any other terms of
such Debt Securities not inconsistent with the provisions of the applicable
Indenture.
If any of the Debt Securities are sold for one or more foreign currencies or
foreign currency units or if the principal of, premium, if any, or interest on
any series of Debt Securities is payable in one or more foreign currencies or
foreign currency units, the restrictions, elections, tax consequences, specific
terms and other information with respect to such issue of Debt Securities and
such currencies or currency units will be set forth in the Prospectus Supplement
relating thereto. A judgment for money damages by courts in the United States,
including a money judgment based on an obligation expressed in a foreign
currency, will ordinarily be rendered only in U.S. dollars. New York statutory
law provides that a court shall render a judgment or decree in the foreign
currency of the underlying obligation and that the judgment or decree shall be
converted into U.S. dollars at the exchange rate prevailing on the date of entry
of the judgment or decree.
Debt Securities may be issued as original issue discount Debt Securities
(bearing no interest or interest at a rate which at the time of issuance is
below market rates) ("Original Issue Discount Securities"), to be sold at a
substantial discount below the stated principal amount thereof due at the stated
maturity of such Debt Securities. (Section 3.01) There may not be any periodic
payments of interest on Original Issue Discount Securities as defined herein. In
the event of an acceleration of the maturity of any Original Issue Discount
Security, the amount payable to the holder of such Original Issue Discount
Security upon such acceleration will be determined in accordance with the
Prospectus Supplement, the terms of such security and the Indenture, but will be
an amount less than the amount payable at the maturity of the principal of such
Original Issue Discount Security. (Section 7.02) Federal income tax
considerations with respect to Original Issue Discount Securities will be set
forth in the Prospectus Supplement relating thereto.
EVENTS OF DEFAULT, WAIVERS, ETC.
An Event of Default with respect to Debt Securities of any series is defined
in the Indentures as (i) default in the payment of the principal of or premium,
if any, on any Debt Security of such series when due, (ii) default in the
payment of interest upon any Debt Security of such series when due and the
continuance of such default for a period of 30 days, (iii) default in the
observance or performance of any other covenant or agreement of the Company or
C&A Co. in the Debt Securities of such series or the Indenture with respect to
such Debt Securities of such series and continuance of such default for 90 days
after written notice, (iv) certain events of bankruptcy, insolvency or
reorganization of the Company or C&A Co. or (v) any other Event of Default
provided with respect to Debt Securities of any series. (Section 7.01)
If any Event of Default with respect to any series of Debt Securities for
which there are Debt Securities outstanding under the Indentures occurs and is
continuing, either the applicable Trustee or the holders of not less than 25% in
aggregate principal amount of the Debt Securities of such series may declare the
principal amount (or if such Debt Securities are Original Issue Discount
Securities, such portion of the principal amount as may be specified in the
terms of that series) of all Debt Securities of that series to be immediately
due and payable. The holders of a majority in aggregate principal amount of the
Debt Securities of any series outstanding under the Indentures may waive the
consequences of an Event of Default resulting in acceleration of such Debt
Securities, but only if all Events of Default have been remedied and all
payments due (other than those due as a result of acceleration) have been made.
(Section 7.02) If an Event of Default occurs and is continuing, the Trustee may
in its discretion, or at
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the written request of holders of not less than a majority in aggregate
principal amount of the Debt Securities of any series outstanding under the
Indentures and upon reasonable indemnity against the costs, expenses and
liabilities to be incurred in compliance with such request and subject to
certain other conditions set forth in the Indentures, proceed to protect the
rights of the holders of all the Debt Securities of such series. (Sections 7.03
and 7.07) If the Trustee fails within 60 days after its receipt of such a
written request and offer of indemnity to institute any such proceeding, any
holder of a Debt Security who has previously given notice to the Trustee of a
continuing Event of Default may institute such a proceeding. (Section 7.07) The
holders of a majority in aggregate principal amount of Debt Securities of any
series outstanding under the Indentures may waive any past default under the
Indentures except a default in the payment of principal of, premium, if any, or
interest on the Debt Securities of such series and except for the waiver of a
covenant or provision that, pursuant to the Indentures, cannot be modified or
amended without the consent of holders of all such Debt Securities then
outstanding. (Section 7.13)
The Indentures provide that in the event of an Event of Default specified in
clauses (i) or (ii) of the first paragraph under "Events of Default, Waivers,
Etc.", the Company will, upon demand of the applicable Trustee, pay to it, for
the benefit of the holder of any such Debt Security, the whole amount then due
and payable on such Debt Security for principal, premium, if any, and interest.
The Indentures further provide that if the Company fails to pay such amount
forthwith upon such demand, the applicable Trustee may, among other things,
institute a judicial proceeding for the collection thereof. (Section 7.03)
The Indentures also provide that notwithstanding any other provision of the
Indentures, the holder of any Debt Security of any series will have the right to
institute suit for the enforcement of any payment of principal of, premium, if
any, and interest on such Debt Security when due and that such right may not be
impaired without the consent of such holder. (Section 7.08)
The Company is required to file annually with the Trustee a written
statement of officers as to the existence or non-existence of defaults under the
Indentures or the Debt Securities. (Section 5.05)
GUARANTEE
C&A Co., as primary obligor and not merely as surety, will irrevocably,
fully and unconditionally guarantee on either an unsecured senior basis, an
unsecured senior subordinated basis or an unsecured junior subordinated basis,
as applicable, the performance and punctual payment when due, whether at stated
maturity, by acceleration or otherwise, of all obligations of the Company under
the Senior Indenture, Subordinated Indenture and the Debt Securities, whether
for principal of or interest on the Debt Securities, expenses, indemnification
or otherwise (all such obligations guaranteed by C&A Co. being herein called the
"Guaranteed Obligations"). C&A Co. will agree to pay, in addition to the amount
stated above, any and all expenses (including reasonable counsel fees and
expenses) incurred by the Trustee or the holders in enforcing any rights under
the Guarantee with respect to C&A Co. (Section 14.01 of Senior Indenture and
Section 15.01 of Subordinated Indenture) Such Guarantee, however, will be
limited in amount to an amount not to exceed the maximum amount that can be
guaranteed by C&A Co. without rendering the Guarantee, as it relates to C&A Co.,
voidable under applicable law relating to fraudulent conveyance or fraudulent
transfer. (Section 14.02 of Senior Indenture and Section 15.02 of Subordinated
Indenture) C&A Co. has no material assets other than the common stock of the
Company.
The Guarantee is a continuing guarantee and will (i) remain in full force
and affect until payment in full of all the Guaranteed Obligations, (ii) be
binding upon C&A Co. and (iii) enure to the benefit of and be enforceable by the
Trustee, the holders and their successors, transferees and assigns. (Section
14.03 of Senior Indenture and Section 15.03 of Subordinated Indenture) Upon the
failure of the Company to pay the principal of or interest on any Guaranteed
Obligation when and as due, whether at
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maturity, by acceleration, by redemption or otherwise, or to perform or comply
with any other Guaranteed Obligations, C&A Co. shall, upon receipt of written
demand by the Trustee, pay or cause to be paid, in cash, to the holders or the
Trustee an amount equal to the sum of (a) unpaid principal amount of such
Guaranteed Obligations, (b) accrued and unpaid interest on such Guaranteed
Obligations (but only to the extent not prohibited by law) and (c) all other
monetary Guaranteed Obligations of the Company to the holders and the Trustee.
See "Events of Default, Waivers, Etc." for a description of rights in an Event
of Default.
REGISTRATION AND TRANSFER
Unless otherwise indicated in the applicable Prospectus Supplement, Debt
Securities will be issued only as Registered Securities. (Section 2.01) If
Bearer Securities are issued, the United States Federal income tax consequences
and other special considerations, procedures and limitations applicable to such
Bearer Securities will be described in the Prospectus Supplement relating
thereto.
Unless otherwise indicated in the applicable Prospectus Supplement, Debt
Securities issued as Registered Securities will be without coupons. Debt
Securities issued as Bearer Securities will have interest coupons attached,
unless issued as zero coupon securities. (Section 2.01)
Registered Securities (other than a Global Security) may be presented for
transfer (with the form of transfer endorsed thereon duly executed) or exchanged
for other Debt Securities of the same series at the office of the security
registrar appointed by the Company (the "Security Registrar") specified
according to the terms of the applicable Indenture. The Company has agreed in
each of the Indentures that, with respect to Registered Securities having the
City of New York as a place of payment, the Company will appoint a Security
Registrar or a co-security registrar, as may be appropriate (the "Co-Security
Registrar") located in the City of New York for such transfer or exchange.
Unless otherwise provided in the applicable Prospectus Supplement, such transfer
or exchange shall be made without service charge, but the Company may require
payment of any taxes or other governmental charges as described in the
applicable Indenture. Provisions relating to the exchange of Bearer Securities
for other Debt Securities of the same series (including, if applicable,
Registered Securities) will be described in the applicable Prospectus
Supplement. In no event, however, will Registered Securities be exchangeable for
Bearer Securities. (Section 3.05)
GLOBAL SECURITIES
Debt Securities of a series may be issued in whole or in part in the form of
one or more Global Securities that will be deposited with, or on behalf of, a
depositary (the "Depositary") identified in the Prospectus Supplement relating
to such series. (Section 3.01) Global Securities may be issued in either
registered or bearer form and in either temporary or permanent form. (Section
2.04) Unless and until it is exchanged in whole or in part for the individual
Debt Securities represented thereby, a Global Security may not be transferred
except as a whole by the Depositary for such Global Security to a nominee of
such Depositary or by a nominee of such Depositary to such Depositary or another
nominee of such Depositary or by the Depositary or any nominee to a successor
Depositary or any nominee of such successor. (Section 3.05)
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The specific terms of the depositary arrangement with respect to a series of
Debt Securities and certain limitations and restrictions relating to a series of
Bearer Securities in the form of one or more Global Securities will be described
in the Prospectus Supplement relating to such series. The Company anticipates
that the following provisions will generally apply to depositary arrangements.
Upon the issuance of a Global Security, the Depositary for such Global
Security or its nominee will credit, on its book-entry registration and transfer
system, the respective principal amounts of the individual Debt Securities
represented by such Global Security to the accounts of persons that have
accounts with such Depositary. Such accounts shall be designated by the
underwriters or agents with respect to such Debt Securities. Ownership of
beneficial interests in a Global Security will be limited to persons that have
accounts with the applicable Depositary ("participants") or persons that may
hold interests through participants. Ownership of beneficial interests in such
Global Security will be shown on, and the transfer of that ownership will be
effected only through, records maintained by the applicable Depositary or its
nominee (with respect to interests of participants) and the records of
participants (with respect to interests of persons other than participants). The
laws of some states 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 transfer beneficial interests in a Global Security.
So long as the Depositary for a Global Security, or its nominee, is the
registered owner of such Global Security, such Depositary or such nominee, as
the case may be, will be considered the sole owner or holder of the Debt
Securities represented by such Global Security for all purposes under the
Indenture governing such Debt Securities. Except as provided below, owners of
beneficial interests in a Global Security will not be entitled to have any of
the individual Debt Securities of the series represented by such Global Security
registered in their names, will not receive or be entitled to receive physical
delivery of any such Debt Securities of such series in definitive form and will
not be considered the owners or holders thereof under the Indenture governing
such Debt Securities. (Sections 1.12 and 3.08)
Payments of principal of, premium, if any, and interest, if any, on
individual Debt Securities represented by a Global Security registered in the
name of a Depositary or its nominee will be made to the Depositary or its
nominee, as the case may be, as the registered owner of the Global Security
representing such Debt Securities. None of the Company, the Trustee for such
Debt Securities, any person authorized by the Company to pay the principal of,
premium, if any, or interest on any Debt Securities or any coupons appertaining
thereto on behalf of the Company ("Paying Agent"), and the Security Registrar
for such Debt Securities will have any responsibility or liability for any
aspect of the records relating to or payments made on account of beneficial
ownership interests of the Global Security for such Debt Securities or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests. (Section 3.08)
Subject to certain restrictions relating to Bearer Securities, the Company
expects that the Depositary for a series of Debt Securities or its nominee, upon
receipt of any payment of principal, premium or interest in respect of a
permanent Global Security representing any of such Debt Securities, will credit
participants' accounts immediately with payments in amounts proportionate to
their respective beneficial interests in the principal amount of such Global
Security for such Debt Securities as shown on the records of such Depositary or
its nominee. The Company also expects that payments by participants to owners of
beneficial interests in such Global Security held through such participants will
be governed by standing instructions and customary practices, as is now the case
with securities held for the accounts of customers in bearer form or registered
in "street name". Such payments will be the responsibility of such participants.
With respect to owners of beneficial interests in a temporary Global Security
representing Bearer Securities, receipt by such beneficial owners of payments of
principal, premium or interest in respect thereof will be subject to additional
restrictions.
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If the Depositary for a series of Debt Securities is at any time unwilling,
unable or ineligible to continue as depositary and a successor depositary is not
appointed by the Company within 90 days, the Company will issue individual Debt
Securities of such series in definitive form in exchange for the Global Security
representing such series of Debt Securities. (Section 3.05) In addition, the
Company may at any time and in its sole discretion, subject to any limitations
described in the Prospectus Supplement relating to such Debt Securities,
determine not to have any Debt Securities of a series represented by one or more
Global Securities and, in such event, will issue individual Debt Securities of
such series in definitive form in exchange for the Global Security or Securities
representing such series of Debt Securities. (Section 3.05) Further, if the
Company so specifies with respect to the Debt Securities of a series, an owner
of a beneficial interest in a Global Security representing Debt Securities of
such series may, on terms acceptable to the Company, the Trustee and the
Depositary for such Global Security, receive Debt Securities of such series in
definitive form in exchange for such beneficial interests, subject to any
limitations described in the Prospectus Supplement relating to such Debt
Securities. (Section 3.05) In any such instance, an owner of a beneficial
interest in a Global Security will be entitled to physical delivery in
definitive form of Debt Securities of the series represented by such Global
Security equal in principal amount to such beneficial interest and to have such
Debt Securities registered in its name (if the Debt Securities of such series
are issuable as Registered Securities). (Section 3.05) Debt Securities of such
series so issued in definitive form will be issued (i) as Registered Securities
in denominations, unless otherwise specified by the Company, of $1,000 and
integral multiples thereof if the Debt Securities of such series are issuable as
Registered Securities, (ii) as Bearer Securities in the denomination, unless
otherwise specified by the Company, of $5,000 if the Debt Securities of such
series are issuable as Bearer Securities or (iii) as either Registered or Bearer
Securities, if the Debt Securities of such series are issuable in either form.
(Sections 3.02 and 3.05) Certain restrictions may apply, however, on the
issuance of a Bearer Security in definitive form in exchange for an interest in
a Global Security.
PAYMENT AND PAYING AGENTS
Unless otherwise indicated in an applicable Prospectus Supplement, payment
of principal of and premium, if any, on Registered Securities will be made at
the office of such Paying Agent or Paying Agents as the Company may designate
from time to time. At the option of the Company, payment of any interest may be
made (i) by check mailed to the address of the person entitled thereto as such
address shall appear in the applicable security register kept by the Company
("Security Register") or (ii) by wire transfer to an account maintained by the
person entitled thereto as specified in the applicable Security Register. Unless
otherwise indicated in an applicable Prospectus Supplement, payment of any
installment of interest on Registered Securities 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 payment. (Sections 3.07 and 5.02)
Unless otherwise indicated in an applicable Prospectus Supplement, payment
of principal of, premium, if any, and any interest on Bearer Securities will be
payable, subject to any applicable laws and regulations, at the offices of such
Paying Agents outside the United States as the Company may designate from time
to time or, at the option of the holder, by check mailed to any address outside
the United States or by transfer to an account maintained by the payee with a
bank located outside the United States. Unless otherwise indicated in an
applicable Prospectus Supplement, payment of interest on Bearer Securities will
be made only against surrender of the coupon relating to such interest payment
date. No payment with respect to any Bearer Security will be made at any office
or agency of the Company in the United States or by check mailed to any address
in the United States or by transfer to an account maintained with a bank located
in the United States. (Sections 3.07, 5.01 and 5.02)
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CONSOLIDATION, MERGER OR SALE OF ASSETS
Each Indenture provides that the Company may not, without the consent of the
holders of the Debt Securities outstanding under the applicable Indenture,
consolidate with, merge into or transfer its assets substantially as an entirety
to any single person, unless (i) any such successor assumes the Company's
obligations on the applicable Debt Securities and under the applicable
Indenture, (ii) after giving effect thereto, no Event of Default shall have
happened and be continuing and (iii) the Company has delivered to the Trustee an
officers' certificate and an opinion of counsel each stating that such
consolidation, merger, conveyance or transfer and the supplemental indenture
pursuant to which the successor assumes the Company's obligations on the
applicable Debt Securities comply with Article 10 of the applicable Indenture
and that all conditions precedent therein provided for relating to such
transaction have been complied with. (Section 10.01) Accordingly, unless
otherwise specified in an applicable Prospectus Supplement, any such
consolidation, merger or transfer of assets substantially as an entirety that
meets the conditions described above, would not create any Event of Default
which would entitle holders of the Debt Securities, or the Trustee on their
behalf, to take any of the actions described above under "Events of Default,
Waivers, Etc." Additionally, upon any such consolidation or merger, or any such
conveyance or transfer of the properties and assets of the Company substantially
as an entirety, the successor person formed by such consolidation or into which
the Company is merged or to which such conveyance or transfer is made shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under each Indenture with the same effect as if such successor
person had been named as the Company. In the event of any such conveyance or
transfer, the Company as the predecessor corporation and C&A Co. shall be
relieved of all obligations and covenants under each Indenture and may be
dissolved, wound up and liquidated at any time thereafter. (Section 10.02)
LEVERAGED AND OTHER TRANSACTIONS
Neither Indenture contains provisions which would afford holders of the Debt
Securities protection in the event of a highly leveraged or other transaction
involving the Company which could adversely affect the holders of Debt
Securities. Provisions, if any, applicable to any such transaction will be
described in an applicable Prospectus Supplement.
MODIFICATION OF THE INDENTURE; WAIVER OF COVENANTS
Each Indenture provides that, with the consent of the holders of not less
than a majority in aggregate principal amount of the outstanding Debt Securities
of each affected series, modifications and alterations of such Indenture may be
made which affect the rights of the holders of such Debt Securities, except that
no such modification or alteration may be made without the consent of the holder
of each Debt Security so affected which would, among other things, (i) change
the maturity of the principal of, or of any installment of interest (or premium,
if any) on, any Debt Security issued pursuant to such Indenture, or reduce the
principal amount thereof or any premium thereon, or change the method of
calculation of interest or the currency of payment of principal or interest (or
premium, if any) on, or reduce the minimum rate of interest thereon, or impair
the right to institute suit for the enforcement of any such payment on or with
respect to any such Debt Security, or reduce the amount of principal of an
Original Issue Discount Security that would be due and payable upon an
acceleration of the maturity thereof or (ii) reduce the above-stated percentage
in principal amount of outstanding Debt Securities required to modify or alter
such Indenture. (Section 9.02)
Each Indenture also provides that, without the consent of any holder of Debt
Securities, the Company, when authorized by a resolution of its Board of
Directors, and the Trustee, at any time and from time to time, may enter into
one or more supplemental indentures to such Indenture to (i) evidence the
succession of another corporation or person to the Company or C&A Co., as the
case may be, in the Indenture and in the Debt Securities, (ii) evidence and
provide for a successor Trustee, (iii) add to the covenants of the Company or
C&A Co. for the benefit of the holders of Debt Securities of all or any
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<PAGE>
series or to surrender any right or power conferred upon the Company or C&A Co.
in the Indenture, (iv) cure any ambiguity, correct or supplement any provision
which may be inconsistent or make any other provisions with respect to matters
or questions arising under the Indenture, provided the interests of the holders
of Debt Securities of any series are not adversely affected in any material
respect, (v) add any additional Events of Default, (vi) make certain changes
with respect to Bearer Securities which do not adversely affect the interests of
the holders of Debt Securities of any series in any material respect, (vii) add
to, change or eliminate any provision of the Indenture; provided that such
addition, change or elimination (a) becomes effective only when there is no Debt
Security outstanding of a series created prior to the execution of such
supplemental indenture which is adversely affected or (b) does not apply to any
outstanding Debt Securities, (viii) establish the form or terms of Debt
Securities of any series as permitted under the Indenture, (ix) add to or change
provisions to permit or facilitate the issuance of Debt Securities convertible
into other securities, (x) evidence any changes to corporate Trustee eligibility
authorized by the Trust Indenture Act of 1939, as in force as of the date an
Indenture is executed and, to the extent required by law, as thereafter amended
(the "Trust Indenture Act"), or (xi) add to or change or eliminate any provision
of the Indenture as necessary to comply with the Trust Indenture Act provided
such action does not adversely affect the interests of the holders of Debt
Securities of any series in any material respect. (Section 9.01).
GOVERNING LAW
The Indentures and the Debt Securities will be governed by, and construed in
accordance with, the laws of the State of New York.
REGARDING THE TRUSTEE
The Indentures contain certain limitations on the right of the Trustee, if
and when the Trustee becomes a creditor of the Company (or any other obligor
upon the Debt Securities), regarding the collection of such claims against the
Company (or any such other obligor). (Section 8.13) Except as provided in the
following sentence, the Indentures do not prohibit the Trustee from serving as
trustee under any other indenture to which the Company may be a party from time
to time or from engaging in other transactions with the Company. If the Trustee
acquires any conflicting interest and there is a default with respect to any
series of Debt Securities, it must eliminate such conflict or resign. (Section
8.08)
SENIOR SECURITIES
The Senior Securities will be direct, unsecured obligations of the Company
and will rank pari passu with all outstanding unsecured senior indebtedness of
the Company.
SUBORDINATED SECURITIES
The Subordinated Securities will be direct, unsecured obligations of the
Company and will be subject to the subordination provisions described below.
SUBORDINATION
The payment of the principal of, premium (if any) and interest on the
Subordinated Securities and other payment obligations of the Company in respect
of the Subordinated Securities is subordinated in right of payment, as set forth
in the Subordinated Indenture, to the payment in cash when due of all Senior
Indebtedness and, if applicable, Senior Subordinated Indebtedness of the
Company. (Section
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14.01 of Subordinated Indenture) However, payment from the money or the proceeds
of U.S. government obligations held in any defeasance trust is not subordinate
to any Senior Indebtedness or, if applicable, Senior Subordinated Indebtedness
or subject to the restrictions described herein if such money was permitted to
be deposited in such trust at the time of deposit. (Section 14.12 of
Subordinated Indenture) At January 27, 1996, outstanding Senior Indebtedness of
the Company was $761.8 million (excluding unused commitments, approximately
$128.0 million in off-balance sheet financing under the Receivables Facility and
approximately $28.1 million of outstanding letters of credit), and the Company
did not have any Senior Subordinated Indebtedness. At that date the Company's
continuing subsidiaries had approximately $56.4 million of indebtedness for
borrowed money (excluding intercompany balances), trade and other liabilities
substantially in excess of that amount and approximately $688.6 million of
guarantees of Senior Indebtedness of the Company. Claims of creditors of such
subsidiaries, including trade creditors, secured creditors and creditors holding
guarantees issued by such subsidiaries, and claims of preferred stockholders (if
any) of such subsidiaries generally will have priority with respect to the
assets and earnings of such subsidiaries over the claims of creditors of the
Company, including holders of the Subordinated Securities, even though such
obligations may not constitute Senior Indebtedness or Senior Subordinated
Indebtedness. The Subordinated Securities therefore will be effectively
subordinated to creditors (including trade creditors) and preferred stockholders
(if any) of subsidiaries of the Company. The domestic subsidiaries of the
Company have guaranteed the Company's obligations pursuant to the Credit
Agreement.
Senior Indebtedness is defined in the Subordinated Indenture as (i) all
obligations of the Company, whether direct or by guarantee, to pay principal,
interest (including all interest accruing after the filing of a petition by or
against the Company under any Bankruptcy Law, in accordance with and at the
rate, including any default rate, specified in the Credit Agreement, whether or
not a claim for such interest is allowed as a claim after such filing in any
proceeding under such Bankruptcy Law), fees, expenses, reimbursement
obligations, indemnities and other amounts payable under or in connection with
the Credit Agreement, whether outstanding on the date of the Subordinated
Indenture or thereafter created, assumed or incurred, (ii) the principal of,
premium, if any, and interest (including all interest accruing after the filing
of a petition by or against the Company under any Bankruptcy Law in accordance
with and at the rate, including any default rate, specified with respect to such
indebtedness, whether or not a claim for such interest is allowed as a claim
after such filing in any proceeding under such Bankruptcy Law) on, (a) all the
Company's other indebtedness for money borrowed whether outstanding on the date
of execution of the Subordinated Indenture or thereafter created, assumed or
incurred, except such indebtedness (including any securities issued under the
Subordinated Indenture) as is by its terms expressly stated to be not superior
in right of payment to the subordinated securities issued under the Subordinated
Indenture and (b) any deferrals, renewals or extensions of any such Senior
Indebtedness and (iii) all Interest Swap Obligations of the Company in respect
of Senior Indebtedness, except that Senior Indebtedness will not include (1) any
obligation of the Company to any subsidiary, (2) any liability for Federal,
state, local or other taxes owed or owing by the Company, (3) any accounts
payable or other liability to trade creditors arising in the ordinary course of
business (including guarantees thereof or instruments evidencing such
liabilities), (4) any indebtedness, guarantee or obligation of the Company which
is expressly subordinate or junior in right of payment in any respect to any
other indebtedness, guarantee or obligation of the Company, including any senior
subordinated indebtedness and any subordinated obligations, or (5) any
obligations with respect to any capital stock. The term "indebtedness for money
borrowed" as used in the foregoing sentence means any obligation of, or any
obligation guaranteed by, the Company for the repayment of borrowed money,
whether or not evidenced by bonds, debentures, notes or other written
instruments, and any deferred obligation for the payment of the purchase price
of property or assets. (Section 1.01 of Subordinated Indenture) There is no
limitation on the issuance of additional Senior Indebtedness of the Company. The
Senior Securities constitute Senior Indebtedness under the Subordinated
Indenture.
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The Subordinated Securities may rank pari passu with other subordinated
indebtedness of the Company or may, if indicated in the applicable Prospectus
Supplement, be subordinate to Senior Subordinated Indebtedness, including other
series of Subordinated Securities. (Section 3.01 Subordinated Indenture) "Senior
Subordinated Indebtedness" means any indebtedness of the Company that is not
subordinated by its terms in right of payment to any indebtedness or obligation
of the Company which is not Senior Indebtedness and which is senior in right of
payment to the Debt Securities. (Section 1.01 of Subordinated Indenture)
Neither the Company nor C&A Co. may directly or indirectly (nor shall any
direct or indirect payment or distribution be made by or on behalf of the
Company or C&A Co. in respect of the following) pay principal of, premium (if
any) or interest on the Subordinated Securities and other payment obligations of
the Company in respect of the Subordinated Securities, make any deposits
pursuant to the defeasance provisions in the Subordinated Indenture or otherwise
purchase, redeem or retire any Subordinated Securities (collectively, "pay the
Subordinated Securities") if (i) any Senior Indebtedness and, if applicable,
Senior Subordinated Indebtedness is not paid when due or (ii) any other default
on Senior Indebtedness, and, if applicable, Senior Subordinated Indebtedness
occurs and the maturity of such Senior Indebtedness, and, if applicable, Senior
Subordinated Indebtedness is accelerated in accordance with its terms unless, in
either case, the default has been cured or waived and any such acceleration has
been rescinded or such Senior Indebtedness and, if applicable, Senior
Subordinated Indebtedness has been paid in full in cash. However, the Company
and C&A Co. may pay the Subordinated Securities without regard to the foregoing
if the Company, C&A Co. and the Trustee receive written notice approving such
payment from the Representatives (as defined below) of the holders of Senior
Indebtedness, and, if applicable, Senior Subordinated Indebtedness with respect
to which either of the events set forth in clause (i) or (ii) of the immediately
preceding sentence has occurred and is continuing. Representative of the holders
of Senior Indebtedness or Senior Subordinated Indebtedness means a trustee,
agent or other representative (if any) for an issue of such Senior Indebtedness
or Senior Subordinated Indebtedness, as applicable. During the continuance of
any default (other than a default described in clause (i) or (ii) of the second
preceding sentence) with respect to any Senior Indebtedness, and, if applicable,
Senior Subordinated Indebtedness, pursuant to which the maturity thereof may be
accelerated immediately without further notice (except such notice as may be
required to effect such acceleration) or the expiration of any applicable grace
periods, neither the Company nor C&A Co. may pay the Subordinated Securities for
a period (a "Payment Blockage Period") commencing upon the receipt by the
Trustee (with a copy to the Company and C&A Co.) of written notice (a "Blockage
Notice") of such default from the Representatives of the holders of such Senior
Indebtedness, and, if applicable, Senior Subordinated Indebtedness, specifying
an election to effect a Payment Blockage Period and ending 179 days thereafter
(or earlier if such Payment Blockage Period is terminated (a) by written notice
to the Trustee, the Company and C&A Co. from the Person or Persons who gave such
Blockage Notice, (b) because the default giving rise to such Blockage Notice is
no longer continuing or (c) because such Senior Indebtedness, and, if
applicable, Senior Subordinated Indebtedness, has been repaid in full in cash).
Notwithstanding the provisions described in the immediately preceding sentence,
unless one of the events described in clause (i) or (ii) of this paragraph is
then continuing, the Company and C&A Co. may resume payments on the Subordinated
Securities after the end of such Payment Blockage Period. Not more than one
Blockage Notice may be given in any consecutive 360-day period, irrespective of
the number of defaults with respect to Senior Indebtedness, and, if applicable,
Senior Subordinated Indebtedness during such period. (Section 14.03 of
Subordinated Indenture)
Upon any payment or distribution of the assets or securities of the Company
or C&A Co. to creditors upon a total or partial liquidation or dissolution or
reorganization of or similar proceeding relating to the Company or C&A Co. or
their property, or in connection with a bankruptcy, insolvency, receivership or
similar proceeding relating to the Company or C&A Co. or their respective
property, or in connection with an assignment for the benefit of creditors or
any marshalling of assets and liabilities
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of the Company or C&A Co., the holders of Senior Indebtedness and, if
applicable, Senior Subordinated Indebtedness will be entitled to receive payment
in full in cash of the Senior Indebtedness and, if applicable, Senior
Subordinated Indebtedness before the holders of Subordinated Securities are
entitled to receive any payment or distribution, and until the Senior
Indebtedness and, if applicable, Senior Subordinated Indebtedness is paid in
full, any payment or distribution to which holders of Subordinated Securities
would be entitled but for the subordination provisions of the Subordinated
Indenture will be made to holders of the Senior Indebtedness and, if applicable,
Senior Subordinated Indebtedness as their interests may appear. (Section 14.02
of Subordinated Indenture) If a distribution is made to holders of Subordinated
Securities that, due to the subordination provisions, should not have been made
to them, such holders of Subordinated Securities are required to hold it in
trust for the holders of Senior Indebtedness or Senior Subordinated
Indebtedness, as the case may be, and pay it over to them as their interests may
appear. (Section 14.05 of Subordinated Indenture)
If payment of the Subordinated Securities is accelerated because of an Event
of Default, the Company, C&A Co. or the Trustee will promptly notify the holders
of Senior Indebtedness and, if applicable, Senior Subordinated Indebtedness or
the Representatives of such holders of the acceleration. The Company may not pay
the Subordinated Securities until five business days after such holders or the
Representatives of the Senior Indebtedness and, if applicable, Senior
Subordinated Indebtedness receive notice of such acceleration and, thereafter,
may pay the Subordinated Securities only if the subordination provisions of the
Subordinated Indenture otherwise permit payment at that time. (Section 14.04 of
Subordinated Indenture)
By reason of such subordination provisions contained in the Subordinated
Indenture, in the event of insolvency, creditors of the Company or C&A Co. who
are holders of Senior Indebtedness or Senior Subordinated Indebtedness may
recover more, ratably, than the holders of Subordinated Securities, and
creditors of the Company who are not holders of Senior Indebtedness or Senior
Subordinated Indebtedness may recover less, ratably, than holders of Senior
Indebtedness or Senior Subordinated Indebtedness, as the case may be, and may
recover more, ratably, than the holders of Subordinated Indebtedness.
Definitions
"Designated Senior Indebtedness" means (i) the Credit Agreement and (ii) to
the extent expressly so designated in the agreement or instrument evidencing
such Senior Indebtedness each series of Senior Indebtedness having an aggregate
principal amount (or available commitments) of at least $25 million.
"Credit Agreement" means the collective reference to (i) the Credit
Agreement, dated as of June 22, 1994, by and among Collins & Aikman Corporation,
Collins & Aikman Products Co., Collins & Aikman Canada Inc., the Lenders
referred to therein, Continental Bank, N.A. and NationsBank, N.A., as Managing
Agents, and Chemical Bank, as Administrative Agent, and (ii) the Credit
Agreement dated as of December 22, 1995, by and among Collins & Aikman
Corporation, Collins & Aikman Products Co., the Lenders named therein and
Chemical Bank, as Administrative Agent, and all promissory notes, guarantees,
security agreements, pledge agreements, deeds of trust, mortgages, letters of
credit and other instruments, agreements and documents executed pursuant thereto
or in connection therewith, as each may be amended, extended, renewed, restated,
replaced, refinanced, supplemented or otherwise modified (in whole or in part,
and without limitation as to amount, terms, conditions, covenants and other
provisions) from time to time, and any agreement governing Indebtedness incurred
to refund or refinance a portion of the borrowings and commitments then
outstanding or permitted to be outstanding under the Credit Agreement or such
agreement; provided that such refunding or refinancing by its terms states that
it is intended to be senior in right of payment to the Subordinated Securities.
The Company shall promptly notify the Trustee of any such refunding or
refinancing of the Credit Agreement; provided that failure to give such notice
shall not impair the subordination provisions hereof.
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"Interest Swap Obligation" means any obligation of any person pursuant to
any arrangement with any other person whereby, directly or indirectly, such
person is entitled to receive from time to time periodic payments calculated by
applying either a fixed or floating rate of interest on a stated notional amount
in exchange for periodic payments made by such person calculated by applying a
fixed or floating rate of interest on the same notional amount. The term
"Interest Swap Obligation" shall also include interest rate exchange, collar,
cap, swap option or similar agreements providing interest rate protection.
PLAN OF DISTRIBUTION
The Company may sell the Debt Securities to one or more underwriters (acting
alone or through underwriting syndicates led by one or more managing
underwriters) or dealers for public offering and sale by them or may sell the
Debt Securities to investors directly or through agents designated from time to
time. The Prospectus Supplement with respect to the Debt Securities offered
thereby describes the terms of the offering of such Debt Securities and the
method of distribution of the Debt Securities offered thereby and identifies any
firms acting as underwriters, dealers or agents in connection therewith.
The Debt Securities may be distributed from time to time in one or more
transactions at a fixed price or prices (which may be changed from time to
time), at market prices prevailing at the time of sale, at prices related to
such prevailing market prices or at prices determined as specified in the
Prospectus Supplement. In connection with the sale of the Debt Securities,
underwriters, dealers or agents may be deemed to have received compensation from
the Company in the form of underwriting discounts or commissions and may also
receive commissions from purchasers of the Debt Securities for whom they may act
as agent. Underwriters may sell the Debt Securities to or through dealers, and
such dealers may receive compensation in the form of discounts, concessions or
commissions from the purchasers for whom they may act as agent. Certain of the
underwriters, dealers or agents who participate in the distribution of the Debt
Securities may engage in other transactions with, and perform other services
for, the Company in the ordinary course of business.
Any underwriting compensation paid by the Company to underwriters or agents
in connection with the offering of the Debt Securities, and any discounts,
concessions or commissions allowed by underwriters to dealers, are set forth in
the Prospectus Supplement. Underwriters, dealers and agents participating in the
distribution of the Debt Securities may be deemed to be underwriters, and any
discounts and commissions received by them and any profit realized by them on
the resale of the Debt Securities may be deemed to be underwriting discounts and
commissions under the Securities Act. Underwriters and their controlling
persons, dealers and agents may be entitled, under agreements entered into with
the Company, to indemnification against and contribution toward certain civil
liabilities, including liabilities under the Securities Act.
If so indicated in the applicable Prospectus Supplement, the Company will
authorize underwriters or agents to solicit offers by certain institutions to
purchase Debt Securities from the Company pursuant to delayed delivery contracts
providing for payment and delivery at a future date. Institutions with which
such contracts may be made include commercial and savings banks, insurance
companies, pension funds, investment companies, educational and charitable
institutions and others, but in all cases such institutions must be approved by
the Company. Unless otherwise set forth in the applicable Prospectus Supplement,
the obligations of any purchaser under any such contract will not be subject to
any conditions except that (i) the purchase of the Debt Securities shall not at
the time of delivery be prohibited under the laws of the jurisdiction to which
such purchaser is subject, and (ii) if the Debt Securities are also being sold
to underwriters acting as principals for their own account, the underwriters
shall have purchased such Debt Securities not sold for delayed delivery. The
underwriters and such other persons will not have any responsibility in respect
of the validity or performance of such contracts.
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CERTAIN LEGAL MATTERS
Certain legal matters in connection with the Debt Securities will be passed
upon for the Company by Cravath, Swaine & Moore, Worldwide Plaza, 825 Eighth
Ave., New York, NY 10019. Certain legal matters will be passed upon for the
underwriters or agents, if any, named in a Prospectus Supplement, by Jones, Day,
Reavis & Pogue, 599 Lexington Avenue, New York, New York 10022. From time to
time, Jones, Day, Reavis & Pogue provides legal services to C&A Co. and the
Company and other entities in which the principal stockholders of C&A Co. have
equity interests.
EXPERTS
The consolidated financial statements and schedules of C&A Co. incorporated
by reference in this prospectus and elsewhere in the registration statement to
the extent and for the periods indicated in their reports have been audited by
Arthur Andersen LLP, independent public accountants, and are incorporated by
reference herein in reliance upon the authority of said firm as experts in
giving said reports.
-------------------
No person is authorized to give any information or to make any
representations other than those contained in this Prospectus or any
accompanying Prospectus Supplement in connection with the offer made by this
Prospectus or any Prospectus Supplement, and, if given or made, such other
information or representations must not be relied upon as having been authorized
by the Company or by any underwriter, dealer or agent. This Prospectus and any
Prospectus Supplement do not constitute an offer to sell or a solicitation of an
offer to buy any securities other than those to which they relate. Neither the
delivery of this Prospectus and any accompanying Prospectus Supplement nor any
sale of or offer to sell the Debt Securities offered hereby shall, under any
circumstances, create an implication that there has been no change in the
affairs of the Company or that the information herein is correct as of any time
after the date hereof. This Prospectus and any accompanying Prospectus
Supplement do not constitute an offer to sell or a solicitation of an offer to
buy any of the Debt Securities offered hereby in any state to any person to whom
it is unlawful to make such offer or solicitation in such state.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
Report of Independent Public Accountants............................................ F-2
Consolidated Statements of Operations for the fiscal years ended January 27, 1996,
January 28, 1995 and January 29, 1994............................................... F-3
Consolidated Balance Sheets at January 27, 1996 and January 28, 1995................ F-4
Consolidated Statements of Cash Flows for the fiscal years ended January 27, 1996,
January 28, 1995 and January 29, 1994............................................... F-5
Consolidated Statements of Common Stockholders' Deficit for the fiscal years ended
January 27, 1996, January 28, 1995 and January 29, 1994............................. F-6
Notes to Consolidated Financial Statements.......................................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of Collins & Aikman Corporation:
We have audited the accompanying consolidated balance sheets of Collins &
Aikman Corporation (a Delaware Corporation) and subsidiaries as of January 27,
1996 and January 28, 1995, and the related consolidated statements of
operations, cash flows, and common stockholders' deficit for each of the three
fiscal years in the period ended January 27, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Collins &
Aikman Corporation and subsidiaries as of January 27, 1996 and January 28, 1995,
and the results of their operations and their cash flows for each of the three
fiscal years in the period ended January 27, 1996, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Charlotte, North Carolina,
April 10, 1996.
F-2
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE><CAPTION>
FISCAL YEAR ENDED
--------------------------------------------------------
<S> <C> <C> <C>
JANUARY 27, 1996 JANUARY 28, 1995 JANUARY 29, 1994
---------------- ---------------- ----------------
Net sales..................................... $1,291,466 $1,319,379 $1,085,068
Cost of goods sold............................ 1,012,358 1,017,200 850,090
Selling, general and administrative
expenses...................................... 131,010 136,378 134,490
Management equity plan expense................ -- -- 26,736
Goodwill amortization and write-off........... 270 -- 102,120
---------------- ---------------- ----------------
1,143,638 1,153,578 1,113,436
---------------- ---------------- ----------------
Operating income (loss)....................... 147,828 165,801 (28,368)
Interest expense, net of interest income of
$1,587, $6,404, and $4,434.................... 47,938 75,006 110,962
Loss on sale of receivables................... 8,688 7,616 --
Dividends on preferred stock of subsidiary.... -- 2,258 4,533
---------------- ---------------- ----------------
Income (loss) from continuing operations
before income taxes......................... 91,202 80,921 (143,863)
Income tax expense (benefit).................. (138,520) 11,015 10,494
---------------- ---------------- ----------------
Income (loss) from continuing operations...... 229,722 69,906 (154,357)
Discontinued operations:
Income (loss) from operations, net of income
tax expense (benefit) of $(595), $522 and
$1,367........................................ (23,281) 5,840 (23,743)
Loss on disposals, net of income tax benefit
$0, $0, and $344.......................... -- -- (99,564)
---------------- ---------------- ----------------
Income (loss) before extraordinary loss....... 206,441 75,746 (277,664)
Extraordinary loss, net of income taxes of
$0............................................ -- (106,528) --
---------------- ---------------- ----------------
Net income (loss)............................. $ 206,441 $ (30,782) $ (277,664)
---------------- ---------------- ----------------
---------------- ---------------- ----------------
Dividends and accretion on preferred stock.... -- (14,408) (23,723)
---------------- ---------------- ----------------
Excess of redemption cost over book value of
preferred stock............................... -- (82,022) --
---------------- ---------------- ----------------
Income (loss) applicable to common
stockholders.................................. $ 206,441 $ (127,212) $ (301,387)
---------------- ---------------- ----------------
---------------- ---------------- ----------------
Net income (loss) per primary and fully
diluted common share:
Continuing operations....................... $ 3.23 $ (.50) $ (6.54)
Discontinued operations..................... (.33) .11 (4.52)
Extraordinary item.......................... -- (2.01) --
---------------- ---------------- ----------------
Net income (loss)............................. $ 2.90 $ (2.40) $ (11.06)
---------------- ---------------- ----------------
---------------- ---------------- ----------------
Average common shares outstanding:
Primary..................................... 71,194 52,905 27,260
---------------- ---------------- ----------------
---------------- ---------------- ----------------
Fully diluted............................... 71,234 52,905 27,260
---------------- ---------------- ----------------
---------------- ---------------- ----------------
</TABLE>
The Notes to Consolidated Financial Statements are
an integral part of these consolidated financial statements.
F-3
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 27, JANUARY 28,
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents......................... $ 977 $ 3,317
Accounts and notes receivable, net of allowances
of $4,302 and $6,390............................ 128,595 91,559
Inventories....................................... 147,774 136,301
Net assets of discontinued operations............. 79,401 75,623
Other............................................. 74,158 33,453
----------- -----------
Total current assets............................ 430,905 340,253
Property, plant and equipment, net.................. 286,033 252,891
Deferred tax assets................................. 124,395 --
Goodwill, net....................................... 159,347 --
Other assets........................................ 49,327 47,174
----------- -----------
$ 1,050,007 $ 640,318
----------- -----------
----------- -----------
LIABILITIES AND COMMON STOCKHOLDERS' DEFICIT
Current Liabilities:
Notes payable..................................... $ 2,101 $ 1,723
Current maturities of long-term debt.............. 51,508 17,819
Accounts payable.................................. 117,059 86,642
Accrued expenses.................................. 97,883 131,768
----------- -----------
Total current liabilities....................... 268,551 237,952
Long-term debt...................................... 713,514 547,283
Deferred income taxes............................... -- 462
Other, including postretirement benefit
obligation.......................................... 295,794 267,243
Commitments and contingencies....................... -- --
Common Stockholders' Deficit:
Common stock (150,000 shares authorized, 70,521
shares issued and 69,074 shares outstanding at
January 27, 1996 and 70,521 shares issued and
outstanding at January 28, 1995).................... 705 705
Other paid-in capital............................. 585,469 586,281
Accumulated deficit............................... (770,139) (976,549)
Foreign currency translation adjustments.......... (23,719) (13,655)
Pension equity adjustment......................... (9,090) (9,404)
Treasury stock, at cost (1,447 shares)............ (11,078) --
----------- -----------
Total common stockholders' deficit.............. (227,852) (412,622)
----------- -----------
$ 1,050,007 $ 640,318
----------- -----------
----------- -----------
</TABLE>
The Notes to Consolidated Financial Statements are
an integral part of these consolidated financial statements.
F-4
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------------
<S> <C> <C> <C>
JANUARY 27, JANUARY 28, JANUARY 29,
1996 1995 1994
----------- ----------- -----------
OPERATING ACTIVITIES
Income (loss) from continuing operations................. $ 229,722 $ 69,906 $ (154,357)
Adjustments to derive cash flow from continuing operating
activities:
Deferred income tax benefit............................ (149,822) (105) (3,128)
Depreciation and leasehold amortization................ 37,341 38,590 36,642
Goodwill amortization and write-off.................... 270 -- 102,120
Management equity plan expense......................... -- -- 26,736
Amortization of other assets and liabilities........... 5,995 5,277 13,029
(Increase) decrease in accounts and notes receivable... 2,535 (35,544) (33,480)
Increase in inventories................................ (1,837) (12,731) (6,912)
Increase (decrease) in interest and dividends
payable.................................................. 1,353 (14,479) (4,860)
Increase in accounts payable........................... 6,365 14,837 9,786
Other, net............................................. (25,964) (21,991) 15,998
----------- ----------- -----------
Net cash provided by continuing operating
activities............................................... 105,958 43,760 1,574
----------- ----------- -----------
Cash provided by (used in) Wallcoverings discontinued
operations............................................... (2,990) 6,796 21,049
Cash used in other discontinued operations............... (22,886) (30,974) (67,417)
----------- ----------- -----------
Net cash used by discontinued operations............... (25,876) (24,178) (46,368)
----------- ----------- -----------
INVESTING ACTIVITIES
Additions to property, plant and equipment............... (93,698) (84,423) (56,278)
Sales of property, plant and equipment................... 2,733 805 22,710
Proceeds from sale-leaseback arrangements................ 32,818 30,365 --
Acquisition of businesses, net of cash acquired.......... (190,338) -- --
Net proceeds from disposition of discontinued
operations............................................... -- 68,861 148,743
Other, net............................................... (5,507) 1,915 44,271
----------- ----------- -----------
Net cash provided by (used in) investing
activities............................................... (253,992) 17,523 159,446
----------- ----------- -----------
FINANCING ACTIVITIES
Issuance of common stock................................. -- 232,436 --
Issuance of long-term debt............................... 213,658 675,234 76,135
Proceeds from (reduction of) participating interests in
accounts receivable, net of redemptions.................. (17,000) 145,000 --
Redemption of preferred stock............................ -- (219,110) --
Repayment and defeasance of long-term debt............... (18,979) (884,908) (139,940)
Net borrowings (repayments) on revolving credit
facilities, excluding the Recapitalization............. 5,000 (60,000) (40,000)
Net borrowings (repayments) on notes payable............. 214 (2,066) (5,899)
Purchases of treasury stock.............................. (11,736) -- --
Proceeds from exercise of stock options.................. 382 -- --
Other, net............................................... 31 (1,747) (7,263)
----------- ----------- -----------
Net cash provided by (used in) financing
activities............................................... 171,570 (115,161) (116,967)
----------- ----------- -----------
Decrease in cash and cash equivalents.................... (2,340) (78,056) (2,315)
Cash and cash equivalents at beginning of year........... 3,317 81,373 83,688
----------- ----------- -----------
Cash and cash equivalents at end of year................. $ 977 $ 3,317 $ 81,373
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The Notes to Consolidated Financial Statements are
an integral part of these consolidated financial statements.
F-5
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' DEFICIT
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOREIGN
OTHER CURRENCY PENSION
COMMON PAID-IN ACCUMULATED TRANSLATION EQUITY TREASURY
STOCK CAPITAL DEFICIT ADJUSTMENTS ADJUSTMENT STOCK TOTAL
------ -------- ----------- ----------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 30, 1993... $282 $133,581 $(547,950) $ (4,870) $ (2,503) $ -- $(421,460)
------ -------- ----------- ----------- ---------- -------- ---------
1993 management equity plan
expense....................... -- 26,736 -- -- -- -- 26,736
Net loss...................... -- -- (277,664) -- -- -- (277,664)
Redeemable preferred stock
dividends..................... -- -- (22,107) -- -- -- (22,107)
Accretion of redeemable
preferred stock.............. -- -- (1,616) -- -- -- (1,616)
Foreign currency translation
adjustments................... -- -- -- (865) -- -- (865)
Pension equity adjustment..... -- -- -- -- (5,244) -- (5,244)
------ -------- ----------- ----------- ---------- -------- ---------
Balance at January 29, 1994... 282 160,317 (849,337) (5,735) (7,747) -- (702,220)
------ -------- ----------- ----------- ---------- -------- ---------
Issuance of shares through the
Recapitalization.............. 423 426,759 -- -- -- -- 427,182
Compensation expense
adjustment.................... -- (795) -- -- -- -- (795)
Net loss...................... -- -- (30,782) -- -- -- (30,782)
Redeemable preferred stock
dividends..................... -- -- (12,380) -- -- -- (12,380)
Accretion of redeemable
preferred stock.............. -- -- (2,028) -- -- -- (2,028)
Excess of redemption cost over
book value of redeemable
preferred stock............... -- -- (82,022) -- -- -- (82,022)
Foreign currency translation
adjustments................... -- -- -- (7,920) -- -- (7,920)
Pension equity adjustment..... -- -- -- -- (1,657) -- (1,657)
------ -------- ----------- ----------- ---------- -------- ---------
Balance at January 28, 1995... 705 586,281 (976,549) (13,655) (9,404) -- (412,622)
------ -------- ----------- ----------- ---------- -------- ---------
Compensation expense
adjustment.................... -- (567) -- -- -- -- (567)
Net income.................... -- -- 206,441 -- -- -- 206,441
Purchase of treasury stock
(1,542 shares)............... -- -- -- -- -- (11,736) (11,736)
Exercise of stock options (95
shares)....................... -- (245) (31) -- -- 658 382
Foreign currency translation
adjustments................... -- -- -- (10,064) -- -- (10,064)
Pension equity adjustment..... -- -- -- -- 314 -- 314
------ -------- ----------- ----------- ---------- -------- ---------
Balance at January 27, 1996... $705 $585,469 $(770,139) $ (23,719) $ (9,090) $(11,078) $(227,852)
------ -------- ----------- ----------- ---------- -------- ---------
------ -------- ----------- ----------- ---------- -------- ---------
</TABLE>
The Notes to Consolidated Financial Statements are
an integral part of these consolidated financial statements.
F-6
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION:
Collins & Aikman Corporation (the "Company") (formerly Collins & Aikman
Holdings Corporation) is a Delaware corporation. Prior to July 13, 1994, the
Company was a wholly-owned subsidiary of Collins & Aikman Holdings II
Corporation ("Holdings II"). In connection with an initial public offering of
common stock and a recapitalization (the "Recapitalization") (described below),
Holdings II was merged into the Company. Concurrently, Collins & Aikman Group,
Inc., a wholly-owned subsidiary of the Company ("Group"), was merged into its
wholly-owned subsidiary, Collins & Aikman Corporation, which changed its name to
Collins & Aikman Products Co. ("C&A Products"). On July 7, 1994, the Company
changed its name from Collins & Aikman Holdings Corporation to Collins & Aikman
Corporation.
Prior to the Recapitalization, the Company was jointly owned by Blackstone
Capital Partners L.P. ("Blackstone Partners") and Wasserstein Perella Partners,
L.P. ("WP Partners") and their respective affiliates. As of January 27, 1996,
Blackstone Partners and WP Partners and their respective affiliates collectively
own approximately 78% of the common stock of the Company.
The Company conducts all of its operating activities through its
wholly-owned C&A Products subsidiary.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION--The consolidated financial statements include the
accounts of the Company and its subsidiaries. All significant intercompany items
have been eliminated in consolidation. Certain prior year items have been
reclassified to conform with the fiscal 1995 presentation and are primarily
related to the Wallcoverings segment being reclassified as a discontinued
operation. See Note 15.
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
FISCAL YEAR--The fiscal year of the Company ends on the last Saturday of
January. Fiscal 1995, fiscal 1994 and fiscal 1993 were 52-week years which ended
on January 27, 1996, January 28, 1995 and January 29, 1994, respectively.
EARNINGS (LOSS) PER SHARE--Earnings (loss) per common share is based on the
weighted average number of shares of common stock outstanding during each period
and the assumed exercise of employee stock options less the number of treasury
shares assumed to be purchased from the proceeds, including applicable
compensation expense. In connection with the merger of Holdings II into the
Company, the 35,035,000 shares of common stock of the Company outstanding prior
to the Recapitalization were canceled and approximately 28,164,000 shares of
common stock were issued in exchange for the common stock of Holdings II. All
historical amounts and earnings (loss) per share computations have been adjusted
to reflect the merger. Net losses have been adjusted by dividends and accretion
requirements on preferred stock and the excess of redemption cost over book
value of preferred stock to compute the losses applicable to common
stockholders.
FOREIGN CURRENCY TRANSLATION--Foreign currency accounts are translated in
accordance with Statement of Financial Accounting Standards No. 52, "Foreign
Currency Translation" ("SFAS No.
F-7
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:--(CONTINUED)
52"). SFAS No. 52 generally provides that the assets and liabilities of foreign
operations be translated at the current exchange rates as of the end of the
accounting period and that revenues and expenses be translated using average
exchange rates. The resulting translation adjustments arising from foreign
currency translations are accumulated as a separate component of common
stockholders' deficit. Translation adjustments during fiscal 1995, 1994 and 1993
were ($10.1) million, ($7.9) million, and ($.9) million, respectively.
CASH AND CASH EQUIVALENTS--Cash and cash equivalents include all cash
balances and highly liquid investments with an original maturity of three months
or less.
INVENTORIES--Inventories are valued at the lower of cost or market, but not
in excess of net realizable value. Cost is determined on the first-in, first-out
basis.
INSURANCE DEPOSITS--Other current assets as of January 27, 1996 and January
28, 1995 included $.5 million and $14.4 million, respectively, which were on
deposit with an Insurer to cover the self-insured portion of the Company's
workers' compensation, automotive and general liabilities. During fiscal 1995,
the Company replaced certain of these deposits with letters of credit of
approximately $12.5 million. The Company's reserves for these claims were
determined based upon actuarial analyses and aggregated $23.6 million and $26.5
million at January 27, 1996 and January 28, 1995, respectively. Of these
reserves, $6.0 million and $16.1 million, respectively, were classified in
current liabilities.
PROPERTY, PLANT AND EQUIPMENT--Property, plant and equipment are stated at
cost. Provisions for depreciation are primarily computed on a straight-line
basis over the estimated useful lives of the assets, presently ranging from 3 to
40 years. Leasehold improvements are amortized over the lesser of the lease term
or the estimated useful lives of the improvements.
LONG LIVED ASSETS--In the fourth quarter of fiscal 1995, the Company adopted
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
("SFAS No. 121"). SFAS No. 121 establishes accounting standards for the
impairment of long-lived assets, certain identifiable intangibles, and goodwill
related to those assets to be held and used and for long-lived assets and
certain identifiable intangibles to be disposed of. SFAS No. 121 requires that
long-lived assets and certain identifiable intangibles to be held and used by an
entity be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable, and that
certain long-lived assets and identifiable intangibles to be disposed of be
reported at the lower of carrying amount or fair value less cost to sell. The
adoption of SFAS No. 121 did not have a material impact on the Company's
consolidated results of operations.
GOODWILL--Goodwill, representing the excess of purchase price over the fair
value of net assets of the acquired entities, is being amortized on a
straight-line basis over the period of forty years. Amortization of goodwill
applicable to continuing operations for fiscal years 1995 and 1993 was $.3
million and $2.1 million, respectively. Accumulated amortization at January 27,
1996 was $.3 million. The carrying value of goodwill will be reviewed
periodically based on the nondiscounted cash flows and pretax income of the
entities acquired over the remaining amortization periods. Should this review
indicate that the goodwill balance will not be recoverable, the Company's
carrying value of the goodwill will be reduced. At January 27, 1996, the Company
believes the goodwill of $159.3 million was not impaired. See Notes 3 and 7.
F-8
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:--(CONTINUED)
ENVIRONMENTAL--The Company records its best estimate when it believes it is
probable that an environmental liability has been incurred and the amount of
loss can be reasonably estimated. The Company also considers estimates of
certain reasonably possible environmental liabilities in determining the
aggregate amount of environmental reserves. Accruals for environmental
liabilities are generally included in the consolidated balance sheet as other
noncurrent liabilities at undiscounted amounts and exclude claims for recoveries
from insurance or other third parties. Accruals for insurance or other third
party recoveries for environmental liabilities are recorded when it is probable
that the claim will be realized.
NEWLY ISSUED ACCOUNTING STANDARDS--In October 1995, Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
No. 123") was issued. SFAS No. 123 is effective for fiscal years beginning after
December 15, 1995. SFAS No. 123 encourages companies to adopt the fair value
method for compensation expense recognition related to employee stock options.
Existing accounting requirements of Accounting Principles Board Opinion No. 25
use the intrinsic value method in determining compensation expense which
represents the excess of the market price of the stock over the exercise price
on the measurement date. If the Company elects to remain under the existing
accounting rules for stock options, it will be required to provide pro forma
disclosures of what net income and earnings per share would have been had the
Company adopted the new fair value method for recognition purposes. The Company
has not determined the method which it will adopt under SFAS No. 123 and has not
determined the impact on its consolidated financial position or results of
operations.
3. ACQUISITIONS:
During fiscal 1995, the Company acquired the entities described below, which
were accounted for by the purchase method of accounting. The results of
operations of the acquired companies are included in the Company's consolidated
statement of operations for the periods in which they were owned by the Company.
On January 3, 1996, the Company completed the acquisition of Manchester
Plastics for a purchase price of approximately $184.0 million, including $40.4
million of debt extinguished in connection with the acquisition. The
acquisition, related fees and expenses and estimated Manchester Plastics'
working capital requirements were financed with the proceeds from a $197 million
term loan facility. Manchester Plastics is a designer and manufacturer of high
quality plastic-based automotive door panels, headrests, floor console systems
and instrument panel components used in the interior of automobiles, light
trucks, sport utility vehicles and minivans. It serves the North American
automakers from seven manufacturing plants in the United States and Canada. The
excess of the purchase price over the estimated fair value of the tangible and
identifiable intangible net assets acquired is being amortized over a period of
forty years on a straight line basis.
In November 1995, the Company acquired certain assets of Amco Manufacturing
Corporation and its Mexican affiliate Omca, Inc. (collectively "Amco") for
approximately $7 million. The assets acquired are used in the manufacture and
design of convertible tops and related parts for the automotive manufacturers in
the United States and Mexico as well as the automotive aftermarket. The excess
of the purchase price over the estimated fair value of the tangible and
identifiable intangible net assets acquired is being amortized over a period of
forty years on a straight line basis.
F-9
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. ACQUISITIONS:--(CONTINUED)
In determining the amortization period of goodwill assigned to these
automotive industry acquisitions, management assessed the impact of these
acquisitions on the Company's ability to strategically position itself with the
long term trends in the design and manufacturing of automotive products. These
trends highlight the increased use of plastic components and U.S. OEMs' movement
to fewer suppliers and to suppliers with engineering and design capabilities.
The Company anticipates the reduction in the supply chain will result in
integration whereby the complete interior of an automobile will be co-designed
and developed with a single supplier who will manufacture and deliver required
components. The Company anticipates these capabilities will be essential to its
long term strategic positioning as a key supplier within the automotive industry
and with its OEM customers.
4. RECAPITALIZATION:
On July 13, 1994, the Company completed an initial public offering (the
"Offering") of 15,000,000 shares of its common stock. The Offering provided net
proceeds to the Company of $145.4 million. In addition, the Company sold to its
principal stockholders, Blackstone Partners and WP Partners, and their
respective affiliates an additional 8,810,000 shares for $87 million. These
proceeds were combined with $720 million of proceeds from new credit facilities
and existing cash to redeem all outstanding shares of preferred stock issued by
the Company and Group as well as virtually all their outstanding indebtedness.
In a noncash transaction, approximately 18,500,000 shares were issued by the
Company in exchange for outstanding indebtedness in an amount of $194.7 million.
5. PRO FORMA INFORMATION:
Set forth below are unaudited pro forma consolidated results assuming (i)
the Offering and Recapitalization had occurred as of the beginning of each of
the 1994 and 1993 fiscal years and (ii) the fiscal 1995 acquisitions of
Manchester Plastics and Amco had occurred as of the beginning of each of the
1995 and 1994 fiscal years (in thousands, except per share amounts):
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Net sales.............................................. $1,473,529 $1,496,476 $1,085,068
Operating income (loss)................................ 152,116 188,923 (25,368)
Interest expense, net.................................. 62,838 51,398 25,253
Loss on the sale of receivables........................ 8,688 9,805 7,195
Income (loss) from continuing operations............... 218,862 112,671 (67,830)
Income (loss) from continuing operations
per common share..................................... 3.07 1.56 (.97)
Average shares outstanding............................. 71,194 72,166 69,617
</TABLE>
The pro forma information excludes discontinued operations and the
extraordinary loss since the pro forma adjustments did not impact the
discontinued operations or extraordinary loss. Additionally, the computation of
pro forma data excludes all interest and other charges related to the preferred
stock and indebtedness redeemed as part of the Offering and Recapitalization.
F-10
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. INTEREST RATE PROTECTION PROGRAM:
The Company maintains a program designed to reduce its exposure to changes
in the cost of its variable rate borrowings by the use of interest rate cap and
corridor agreements. The strike price of these agreements exceeded the current
market levels at the time they were entered into and their cost is included in
interest expense ratably during the life of the agreements. Payments to be
received, if any, as a result of the agreements are accrued as a reduction of
interest expense. Unamortized costs of these agreements are included in other
assets. Under these agreements, the Company has limited its exposure on notional
principal amounts as follows (in thousands):
<TABLE>
<CAPTION>
PROTECTION PERIOD NOTIONAL PRINCIPAL AMOUNT AVERAGE LIBOR STRIKE PRICE
- ----------------------------- ------------------------- --------------------------
<S> <C> <C>
October 1994 thru October
1995......................... $ 300,000 6.92%
October 1995 thru October
1996......................... $ 250,000 7.50%
</TABLE>
Amortization of these agreements amounted to $.7 million and $.1 million,
respectively, during fiscal 1995 and 1994. Information regarding the fair value
of these agreements is included in Note 20.
7. GOODWILL:
FISCAL 1995 ACQUISITIONS
Goodwill shown in the consolidated balance sheet at January 27, 1996 relates
to: 1) the Company's fiscal 1995 acquisition of Manchester Plastics and 2) the
Company's fiscal 1995 acquisition of Amco.
PRE-1995 GOODWILL
At October 30, 1993, before giving effect to the write-off described below,
the Company's continuing operations had $100.0 million of goodwill which arose
as a result of the acquisition of Group in December 1988. The substantial losses
of Builders Emporium home improvement chain ("Builders Emporium") and the
inability to sell Builders Emporium as an ongoing entity left the Company with
materially higher leverage and interest costs than previously anticipated. The
inability of the Company to sell its Dura Convertible Systems division ("Dura")
at an acceptable price along with the sale of Kayser-Roth Corporation
("Kayser-Roth") at a price and on terms that were worse than management's prior
expectations of value were additional adverse factors. Prior to the end of the
third quarter of fiscal 1993, management explored debt recapitalization
alternatives and the possibility of raising new equity capital. The indications
from the financial community at that time were that a debt recapitalization was
not likely to significantly reduce the Company's interest burden and that
raising new equity capital to deleverage the Company was not feasible at that
time. Although management of the Company, based on the facts known to it at
October 30, 1993, was expecting both cyclical and long-term improvement in the
results of operations, an analysis indicated that, given the Company's capital
structure, a deterioration of the financial condition of the Company had
occurred. As a result, the Company forecasted its operating results forward 35
years, which approximated the remaining amortization period of the Company's
goodwill at October 30, 1993, to determine whether cumulative net income would
be sufficient to recover the goodwill. At October 30, 1993, management believed
that the projected future results were the most likely scenario given the
Company's capital structure at that time. In spite of the fact that the results
reflected in the forecasts showed improvement over the historical results
achieved during the past few years, the result was a cumulative net loss.
Accordingly, the Company's continuing
F-11
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. GOODWILL:--(CONTINUED)
operations wrote off its remaining goodwill balance of $100.0 million during the
third quarter ended October 30, 1993.
8. INVENTORIES:
Inventory balances are summarized below (in thousands):
JANUARY 27, JANUARY 28,
1996 1995
----------- -----------
Raw materials................................... $ 80,827 $ 74,871
Work in process................................. 24,140 22,112
Finished goods.................................. 42,807 39,318
----------- -----------
$ 147,774 $ 136,301
----------- -----------
----------- -----------
9. PROPERTY, PLANT AND EQUIPMENT, NET:
Property, plant and equipment, net, are summarized below (in thousands):
JANUARY 27, JANUARY 28,
1996 1995
----------- -----------
Land and improvements........................... $ 21,349 $ 21,238
Buildings....................................... 117,442 91,855
Machinery and equipment......................... 346,001 315,130
Leasehold improvements.......................... 2,426 833
Construction in progress........................ 21,199 27,668
----------- -----------
508,417 456,724
Less accumulated depreciation and amortization.. (222,384) (203,833)
----------- -----------
$ 286,033 $ 252,891
----------- -----------
----------- -----------
Depreciation and leasehold amortization of property, plant and equipment
applicable to continuing operations was $37.3 million, $38.6 million, and $36.6
million for fiscal 1995, 1994 and 1993, respectively.
10. ACCRUED EXPENSES:
Accrued expenses are summarized below (in thousands):
JANUARY 27, JANUARY 28,
1996 1995
----------- -----------
Payroll and employee benefits.................... $33,530 $ 36,639
Interest......................................... 7,239 5,886
Insurance........................................ 14,633 22,859
Other............................................ 42,481 66,384
----------- -----------
$97,883 $ 131,768
----------- -----------
----------- -----------
F-12
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. LONG-TERM DEBT:
Long-term debt is summarized below (in thousands):
JANUARY 27, JANUARY 28,
1996 1995
----------- -----------
Revolving Facility.............................. $ 75,000 $ 70,000
Term Loan Facilities............................ 461,806 475,000
Term Loan B Facility............................ 197,000 --
Other........................................... 31,216 20,102
----------- -----------
Total debt...................................... 765,022 565,102
Less current maturities......................... (51,508) (17,819)
----------- -----------
$ 713,514 $ 547,283
----------- -----------
----------- -----------
As part of the Recapitalization on July 13, 1994, the Company's C&A Products
subsidiary entered into the new credit facilities aggregating $775 million,
which together with proceeds from the Offering and available cash, were used to
effect a defeasance and redemption or repayment of virtually all outstanding
indebtedness of the Company.
The new credit facilities consist of (i) the Term Loan Facilities, comprised
of term loans in an initial aggregate principal amount of $475 million
(including a $45 million Canadian loan) and having a term of eight years, (ii)
the Revolving Facility, having an aggregate principal amount of up to $150
million and a term of seven years (the Term Loan Facility and Revolving
Facility, together, the "Facilities") and (iii) the Bridge Receivables Facility,
which was terminated and replaced with the Receivables Facility (See Note 12).
The Facilities contain restrictive covenants including maintenance of EBITDA
(i.e. earnings before interest, taxes, depreciation, amortization and other
non-cash charges) and interest coverage ratios, leverage and liquidity tests and
various other restrictive covenants which are typical for such facilities. See
Note 17.
On December 22, 1995, the Company entered into an additional credit facility
(the "Term Loan B Facility") to finance the January 1996 purchase of Manchester
Plastics, as discussed previously. The Term Loan B Facility consists of a term
loan with a principal amount of $197 million all of which was outstanding at
January 27, 1996. In conjunction with the Term Loan B Facility, the restrictive
covenants of the Facilities were amended to facilitate the purchase of
Manchester Plastics. The restrictive covenants of the Term Loan B Facility are
identical to those of the Facilities.
The Company's obligations under the Facilities and the Term Loan B Facility
are secured by a pledge of the stock of C&A Products and its significant
subsidiaries.
Indebtedness under the Facilities bears interest at a per annum rate equal
to the Company's choice of (i) Chemical Bank's ("Chemical's") Alternate Base
Rate (which is the highest of Chemical's announced prime rate, the Federal Funds
Rate plus .5% and Chemical's base certificate of deposit rate plus 1%) plus a
margin (the "ABR Margin") ranging from 0% to .75% or (ii) the offered rates for
Eurodollar deposits ("LIBOR") of one, two, three, six, nine or twelve months, as
selected by the Company, plus a margin (the "LIBOR Margin") ranging from 1% to
1.75%. Indebtedness under the Term Loan B Facility bears interest at a per annum
rate equal to the Company's choice of (i) Chemical's Alternate Base Rate (which
is the highest of Chemical's announced prime rate, the Federal Funds Rate plus
.5% and Chemical's base certificate of deposit rate plus 1%) plus a margin of
1.25% or (ii) the offered rates for LIBOR of one, two, three or six months, as
selected by the Company, plus a
F-13
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. LONG-TERM DEBT:--(CONTINUED)
margin of 2.25%. Pursuant to the terms of the Facilities, at January 27, 1996
the ABR Margin is .75% and the LIBOR Margin is 1.75%. The weighted average rate
of interest on the balances outstanding under the Facilities and the Term Loan B
Facility at January 27, 1996 was 7.7%.
The Company had a total of $54.2 million of borrowing availability under its
credit arrangements as of January 27, 1996. The total is comprised of
approximately $46.9 million under the Revolving Facility, approximately $1.8
million under the Receivables Facility and approximately $5.5 million under a
bank demand line of credit in Canada. At January 27, 1996, the Company had
approximately $28.1 million outstanding in letters of credit.
The current maturities of long-term debt primarily consist of the current
portion of the Term Loan Facilities, Term Loan B Facility, vendor financing,
industrial revenue bonds and other miscellaneous debt. Repayments of
indebtedness under the Facilities commenced in the third quarter of fiscal 1995.
Repayments of indebtedness under the Term Loan B Facility commence in the first
quarter of fiscal 1996. In addition, the Facilities and the Term Loan B Facility
provide for mandatory prepayments with certain excess cash flows of the Company
and net cash proceeds of certain asset sales or other dispositions by the
Company, certain sale-leaseback transactions and certain issuances of debt
obligations.
At January 27, 1996, the scheduled annual maturities of long-term debt are
as follows (in thousands):
FISCAL YEAR ENDING
January 1997.................................................... $ 51,508
January 1998.................................................... 72,244
January 1999.................................................... 92,876
January 2000.................................................... 104,845
January 2001.................................................... 111,545
Later Years..................................................... 332,004
--------
$765,022
--------
--------
The Company has filed a shelf registration statement providing for issuance
of up to $400 million of debt securities. The issuance of debt securities under
the registration statement would require amendment to the Company's credit
facilities.
As part of the Recapitalization, the Company defeased or redeemed the
following face value of indebtedness (in thousands):
Credit facility................................................. $122,581
Debentures due 2005............................................. 138,694
Senior subordinated debentures due 2001......................... 347,414
Subordinated notes due 1995..................................... 137,359
Subordinated debentures due 1997................................ 24,500
Subordinated PIK bridge notes due 1996.......................... 9,712
Subordinated PIK bridge notes due 1996 exchanged for common
stock........................................................... 194,745
Other........................................................... 8,094
--------
$983,099
--------
--------
F-14
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. LONG-TERM DEBT:--(CONTINUED)
The redemption of this indebtedness resulted in a loss of $106.5 million
consisting of premiums paid of $9.6 million, unamortized debt discounts and
deferred debt expenses of $79.7 million and $11.8 million, respectively, and
post defeasance interest of $5.4 million.
Total interest paid by the Company on all indebtedness was $45.8 million,
$77.9 million, and $101.5 million for fiscal 1995, 1994 and 1993, respectively.
12. RECEIVABLES FACILITY:
In connection with the Recapitalization, on July 13, 1994, C&A Products and
certain of its subsidiaries (the "Sellers") transferred approximately $190.0
million of customer trade receivables to Carcorp, Inc. ("Carcorp"), a
wholly-owned, bankruptcy remote subsidiary of C&A Products which, in turn, on
July 13, 1994, sold an undivided senior interest in the receivables pool for
$136.8 million to Chemical pursuant to a Receivables Transfer and Servicing
Agreement with Chemical, as administrative agent (the "Bridge Receivables
Facility").
On March 31, 1995, C&A Products repaid and terminated the Bridge Receivables
Facility and entered, through the trust formed by Carcorp, into a new
receivables facility (the "Receivables Facility") comprised of (i) term
certificates, which were issued on March 31, 1995, in an aggregate face amount
of $110 million and have a term of five years and (ii) variable funding
certificates, which represent revolving commitments of up to an aggregate of $75
million and have a term of five years. Carcorp purchases on a revolving basis
and transfers to the trust virtually all trade receivables generated by the
Sellers. The certificates represent the right to receive payments generated by
the receivables held by the trust.
Availability under the variable funding certificates at any time depends
primarily on the amount of receivables generated by the Sellers from sales to
the auto industry, the rate of collection on those receivables and other
characteristics of those receivables that affect their eligibility (such as
bankruptcy or downgrading below investment grade of the obligor, delinquency and
excessive concentration). Based on these criteria, at January 27, 1996
approximately $19.8 million was available under the variable funding
certificates, of which $18.0 million was utilized.
In connection with the receivables sales, a loss of $8.7 million and $7.6
million was incurred in fiscal 1995 and 1994, respectively. Of the fiscal 1994
loss, $1.3 million related to initial fees and expenses associated with the
sales and $6.3 million related to discounts on the receivables sold.
As of January 27, 1996, Carcorp's total receivables pool was $198.9 million
net of reserves for doubtful accounts. As of January 27, 1996, the holders of
term certificates and variable funding certificates collectively had invested
$128 million to purchase an undivided senior interest (net of settlements in
transit) in the trust's receivables pool and, accordingly, such receivables were
not reflected in the Company's accounts receivable balance as of that date.
13. LEASE COMMITMENTS:
The Company is lessee under various long-term operating leases for land and
buildings for periods up to forty years. The majority of these leases contain
renewal provisions. In addition, the Company leases transportation, operating
and administrative equipment for periods ranging from one to ten years.
F-15
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. LEASE COMMITMENTS:--(CONTINUED)
On September 30, 1994, the Company entered into a master equipment lease
agreement. Pursuant to that agreement, during fiscal 1995 and 1994 the Company
sold and leased back equipment utilized in its Automotive Products and Interior
Furnishings segments. During fiscal 1995 and 1994, the aggregate net book values
of the equipment totaling $32.7 million and $29.8 million, respectively, were
removed from the balance sheet and the gains realized on the sales totaling
approximately $.1 million and $.6 million, respectively, were deferred and are
being recognized as adjustments to rent expense over the lease terms. The
Company made lease payments of approximately $6.3 million and $4.0 million for
fiscal 1995 and 1994, respectively. The Company has a purchase option on the
equipment at the end of the lease term based on the fair market value of the
equipment and has additional options to cause the sale of some or all of the
equipment or to purchase some or all of the equipment at prices determined under
the agreement. The Company has classified the leases as operating. The Company
may sell and lease back additional equipment in the future under the same master
lease agreement, subject to lessors' approval.
At January 27, 1996, future minimum lease payments under operating leases
for continuing operations are as follows (in thousands):
FISCAL YEAR ENDING
January 1997.................................................... $ 20,006
January 1998.................................................... 18,753
January 1999.................................................... 17,587
January 2000.................................................... 17,099
January 2001.................................................... 16,955
Later years..................................................... 41,016
--------
$131,416
--------
--------
Rental expense of continuing operations under operating leases was $16.3
million, $13.1 million, and $11.6 million for fiscal 1995, 1994 and 1993,
respectively. Obligations under capital leases are not significant.
F-16
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
14. EMPLOYEE BENEFIT PLANS:
DEFINED BENEFIT PLANS
Subsidiaries of the Company have defined benefit pension plans covering
substantially all employees who meet eligibility requirements. Plan benefits are
generally based on years of service and employees' compensation during their
years of employment. Funding of retirement costs for these plans complies with
the minimum funding requirements specified by the Employee Retirement Income
Security Act. Assets of the pension plans are held in a master trust which
invests primarily in equity and fixed income securities.
The net periodic pension cost of continuing operations for fiscal 1995, 1994
and 1993 includes the following components (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------------------------------
JANUARY 27, 1996 JANUARY 28, 1995 JANUARY 29, 1994
---------------- ----------------- ----------------
<S> <C> <C> <C>
Service cost.................................. $ 4,645 $ 4,698 $4,490
Interest cost on projected benefit obligation
and service cost............................ 7,776 6,659 6,049
Actual loss (gain) on assets.................. (10,706) 1,036 (5,099)
Net amortization and deferral................. 4,926 (6,491) (1,412)
------- ------- -------
Net periodic pension cost..................... $ 6,641 $ 5,902 $4,028
------- ------- -------
------- ------- -------
</TABLE>
The following table sets forth the plans' funded status and amounts
recognized in the Company's consolidated balance sheets, excluding
Wallcoverings, at January 27, 1996 and January 28, 1995 (in thousands):
<TABLE>
<CAPTION>
JANUARY 27, 1996 JANUARY 28, 1995
-------------------------- --------------------------
PLANS FOR WHICH PLANS FOR WHICH
-------------------------- --------------------------
ASSETS ACCUMULATED ASSETS ACCUMULATED
EXCEED BENEFITS EXCEED BENEFITS
ACCUMULATED EXCEED ACCUMULATED EXCEED
BENEFITS ASSETS BENEFITS ASSETS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Actuarial present value of benefit
obligations:
Vested benefit obligation.................. $ (22,462) $ (81,694) $ (18,785) $ (70,968)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Accumulated benefit obligation............. $ (23,043) $ (88,308) $ (19,383) $ (76,203)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Projected benefit obligation............... $ (24,552) $ (92,430) $ (20,561) $ (79,472)
Plan assets at fair value.................... 27,013 66,903 22,500 55,139
----------- ----------- ----------- -----------
Projected benefit obligation less than (in
excess of) plan assets..................... 2,461 (25,527) 1,939 (24,333)
Unrecognized net loss........................ 15 15,402 795 15,992
Prior service amounts not yet recognized in
net periodic pension cost.................. 942 (4,555) 1,040 (5,249)
Adjustment required to recognize minimum
liability.................................... -- (9,261) -- (9,040)
----------- ----------- ----------- -----------
Pension asset (liability) recognized in the
consolidated balance sheets.................. $ 3,418 $ (23,941) $ 3,774 $ (22,630)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
F-17
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
14. EMPLOYEE BENEFIT PLANS:--(CONTINUED)
The discount rate used in determining the actuarial present value of the
projected benefit obligation was 7.5% and 8.5% at January 27, 1996 and January
28, 1995, respectively. The expected rate of increase in future compensation
levels is 5.5% and the expected long-term rate of return on plan assets was 9%
in fiscal 1995 and 1994. The provisions of Statement of Financial Accounting
Standards No. 87, "Employers' Accounting for Pensions" ("SFAS No. 87") require
companies with any plans that have an unfunded accumulated benefit obligation to
recognize an additional minimum pension liability, an offsetting intangible
pension asset and, in certain situations, a contra-equity balance. In accordance
with the provisions of SFAS No. 87, the consolidated balance sheets at January
27, 1996 and January 28, 1995 include an intangible pension asset of $.2 million
and $.1 million; an additional minimum pension liability of $9.3 million and
$9.0 million; and a contra-equity balance of $9.1 million and $9.4 million,
respectively.
DEFINED CONTRIBUTION PLANS
Subsidiaries of the Company sponsor defined contribution plans covering
employees who meet eligibility requirements. Subsidiary contributions are based
on formulas or are at the Company's discretion as specified in the plan
documents. Contributions related to continuing operations were $4.6 million,
$4.2 million and $4.7 million for fiscal 1995, 1994 and 1993, respectively.
POSTRETIREMENT BENEFIT PLANS
Subsidiaries of the Company have provided postretirement life and health
coverage for certain retirees under plans currently in effect. Many of the
subsidiaries' domestic employees may be eligible for coverage if they reach
retirement age while still employed by the Company.
The net periodic postretirement benefit cost of continuing operations,
determined on the accrual basis, includes the following components (in
thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------------------------
JANUARY 27, JANUARY 28, JANUARY 29,
1996 1995 1994
----------- ----------- ----------------
<S> <C> <C> <C>
Service cost........................................... $ 1,005 $ 1,237 $1,735
Interest cost on accumulated postretirement benefit
obligation............................................. 2,692 2,677 3,666
Net amortization....................................... (1,809) (1,532) (200)
----------- ----------- -------
Net periodic postretirement benefit cost............... $ 1,888 $ 2,382 $5,201
----------- ----------- -------
----------- ----------- -------
</TABLE>
The following table sets forth the amount of accumulated postretirement
benefit obligation included in the Company's consolidated balance sheets,
excluding Wallcoverings, (in thousands):
<TABLE>
<CAPTION>
JANUARY 27, JANUARY 28,
1996 1995
----------- -----------
<S> <C> <C>
Retirees.............................................................. $36,341 $34,291
Fully eligible active plan participants............................... 12,269 10,123
Other active plan participants........................................ 13,651 11,102
Unrecognized prior service gain from plan amendments.................. 20,717 22,766
Unrecognized net gain................................................. 9,031 16,059
----------- -----------
Accumulated postretirement benefit obligation......................... $92,009 $94,341
----------- -----------
----------- -----------
</TABLE>
F-18
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
14. EMPLOYEE BENEFIT PLANS:--(CONTINUED)
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.5% and 8.5% at January 27, 1996 and
January 28, 1995, respectively. The Company does not fund its postretirement
benefit plans.
For measurement purposes, an 11% and 12% annual rate of increase in the per
capita cost of covered health care benefits was assumed for fiscal 1996 and
1995, respectively; the rate was assumed to decrease 1 percentage point per year
to 6% and remain at that level thereafter. The health care cost trend rate
assumption has an impact on the amounts reported; however, the Company's
obligation is limited by certain amended provisions of the various plans, as
further described below. To illustrate, increasing the assumed health care cost
trend rates by 1 percentage point in each year would increase the accumulated
postretirement benefit obligation as of January 27, 1996 by $1.3 million and the
aggregate of the service and interest cost components of net periodic
postretirement benefit cost for the year then ended by $.2 million.
Effective April 1, 1994, the Company amended the postretirement benefit plan
which covers substantially all of the eligible current and retired employees of
the Company's continuing operations. Pursuant to the amendment, the Company's
obligation for future inflation of health care costs will be limited to 6% per
year through March 31, 1998. Subsequent to March 1998, the Company's portion of
coverage costs will not be adjusted for inflation in health care costs.
15. DISCONTINUED OPERATIONS:
On April 9, 1996, the Company announced a plan to spin off its Imperial
Wallcoverings subsidiary ("Wallcoverings") to the stockholders of the Company in
the form of a stock dividend. The spin-off requires, among other things, the
consent of the Company's lenders and the final approval of the Company's Board
of Directors. The Company expects the spin-off to occur in the summer of 1996.
The Company has accounted for the financial results and net assets of
Wallcoverings as a discontinued operation. Accordingly, previously reported
financial results for all periods presented have been restated to reflect
Wallcoverings as a discontinued operation.
Wallcoverings incurred a $23.3 million loss in fiscal 1995, income of $5.8
million in fiscal 1994 and a loss of $19.0 million in fiscal 1993. Included in
the fiscal 1995 loss were $9.9 million in charges related to the consolidation
of distribution activities, and the closure of the segment's Hammond, Indiana
facility. See Note 16 for further discussion on facility closings. Additionally,
$3.0 million in charges related to the impairment of assets and $10.8 million
related to a write-down of inventory were incurred in fiscal 1995. Included in
the fiscal 1993 loss was a $29.9 million write-off of Wallcoverings goodwill at
October 30, 1993. For further discussion of the analysis that resulted in this
write-off see Note 7.
As of the end of fiscal 1992, the Company reclassified its Builders Emporium
home improvement retail chain and its Engineering Group as discontinued
operations. The Company recorded a loss on a disposal of discontinued operations
of $168.0 million in the fourth quarter of fiscal 1992 principally to provide
for the expected loss on sale of Builders Emporium. In March 1993, the
Engineering Group was sold for approximately $51 million. As of the end of the
second quarter of fiscal 1993, the Company determined that it would be unable to
sell Builders Emporium as an ongoing entity. The Company recorded an additional
loss on disposal of discontinued operations of $125.5 million principally to (i)
provide additional reserves for the significant reduction in estimated proceeds
from disposition and other costs in connection with the sale or disposition of
Builders Emporium's inventory, real estate and other assets, (ii) provide for
employee severance and other costs and (iii) realize a previously unrecognized
F-19
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
15. DISCONTINUED OPERATIONS:--(CONTINUED)
loss as a result of the decision to retain Dura. Builders Emporium's inventory
was sold during the third and fourth quarters of fiscal 1993 and all accounts
receivable and accounts payable balances were settled as of January 28, 1995.
Remaining assets and liabilities of Builders Emporium at January 27, 1996 relate
primarily to six owned and three leased real estate properties and self-insured
workers compensation liabilities, which continue to be liquidated.
Kayser-Roth was reclassified as a discontinued operation at the end of the
third fiscal quarter ended October 30, 1993 and was sold on January 28, 1994 for
a total price of approximately $170 million, subject to a post-closing purchase
price adjustment of $5.1 million which was paid to the purchaser of Kayser-Roth
on September 1, 1994. In connection with the sale, the Company received a 90 day
$70 million senior unsecured bridge note from the purchaser which was collected
with accrued interest on April 27, 1994. The gain on disposal of $28.1 million
in the fourth quarter of fiscal 1993 related to the sale of Kayser-Roth.
Net sales of discontinued operations in fiscal 1995, 1994, and 1993
aggregated approximately $205.3 million, $216.6 million, and $1,010.5 million,
respectively. Subsequent to their respective reclassifications as discontinued
operations, sales of Builders Emporium aggregated approximately $410.0 million
and sales of Kayser-Roth aggregated approximately $95.0 million. Net interest
expense of discontinued operations including amounts attributable to
discontinued operations was $.7 million, $.7 million and $19.2 million in fiscal
1995, 1994 and 1993, respectively. Interest expense of $13.1 million during
fiscal 1993 has been allocated to discontinued operations based upon the ratio
of net book value of discontinued operations (including reserves for loss on
disposal) to consolidated invested capital. Interest expense incurred by
Builders Emporium and Kayser-Roth subsequent to their reclassification as
discontinued operations aggregated $2.2 million. Such amounts were charged to
discontinued operations reserves.
In connection with certain discontinued operations, the Company has future
minimum lease payments and future sublease rental receipts at January 27, 1996
as follows (in thousands):
<TABLE>
<CAPTION>
MINIMUM SUBLEASE
LEASE RENTAL
FISCAL YEAR ENDING PAYMENTS RECEIPTS
- ---------------------------------------------------------------- ------------- ---------------
<S> <C> <C>
January 1997.................................................... $14,057 $ 4,967
January 1998.................................................... 9,854 2,661
January 1999.................................................... 6,777 1,868
January 2000.................................................... 4,981 1,564
January 2001.................................................... 2,721 839
Later years..................................................... 5,210 115
------------- ---------------
$43,600 $12,014
------------- ---------------
------------- ---------------
</TABLE>
16. FACILITY CLOSING COSTS:
In the fourth quarter of fiscal 1995, the Company in its Automotive Products
segment provided for the cost to exit one manufacturing facility affecting
approximately 90 employees. Additionally, the Company provided for the cost to
exit one manufacturing and three distribution centers in its
F-20
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
16. FACILITY CLOSING COSTS:--(CONTINUED)
discontinued Wallcoverings segment. The Wallcoverings closings affected
approximately 200 employees. The components of the reserves for these facility
closings, which are expected to be completed during fiscal 1996, are as follows
(in thousands):
<TABLE>
<CAPTION>
WRITE-DOWN OF PROPERTY,
PLANT AND EQUIPMENT TO REMAINING RESERVE
ORIGINAL RESERVE NET REALIZATION VALUE JANUARY 27, 1996
------------------------- --------------------------- -------------------------
CONTINUING DISCONTINUED CONTINUING DISCONTINUED CONTINUING DISCONTINUED
OPERATIONS OPERATIONS OPERATIONS OPERATIONS OPERATIONS OPERATIONS
---------- ------------ ------------ ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Anticipated losses associated
with the disposal of
property, plant and
equipment...................... $ 385 $5,721 $ (385) $ (5,721) -$- $--
Anticipated expenditures to
close and dispose of idled
facilities..................... 513 2,766 -- -- 513 2,766
Anticipated severance
benefits....................... 406 1,410 -- -- 406 1,410
---------- ------------ ------ ------------ ----- ------------
$1,304 $9,897 $ (385) $ (5,721) $919 $4,176
---------- ------------ ------ ------------ ----- ------------
---------- ------------ ------ ------------ ----- ------------
</TABLE>
17. COMMON STOCK AND PREFERRED STOCK:
At January 29, 1994, 1,000 shares of $1.00 par value common stock were
authorized, issued and outstanding. The Company's Certificate of Incorporation
was amended on April 27, 1994 to authorize 150,000,000 shares of common stock,
to reduce the par value of the common stock from $1.00 to $.01 per share and to
authorize a 35,035 for 1 stock split of all outstanding shares of common stock.
The stock split was effective April 27, 1994. In connection with the merger of
Holdings II into the Company, the 35,035,000 shares of common stock of the
Company outstanding prior to the Recapitalization were canceled and
approximately 28,164,000 shares of common stock were issued in exchange for the
common stock of Holdings II. All historical amounts and earnings (loss) per
share computations have been adjusted to reflect the merger and the stock split.
In connection with the 1989 merger of a wholly owned subsidiary of the
Company into Group, approximately 4,250,000 shares of 15 1/2% Cumulative
Exchangeable Redeemable Preferred Stock ("Merger Preferred Stock"), par value
$.01 (authorized 16,000,000 shares), were issued. At January 29, 1994,
approximately 6,268,000 shares were outstanding. Dividends payable in additional
shares accrued during fiscal 1994 and 1993, including accretion for the
difference between redemption value and fair value at date of issuance,
aggregated approximately $14.4 million and $23.7 million, respectively. All of
the shares of Merger Preferred Stock were redeemed in connection with the
Recapitalization.
At January 29, 1994, 30,000,000 shares of $.10 par value preferred stock of
Group were authorized and approximately 1,806,000 shares of $2.50 Convertible
Preferred Stock, Series A of Group ("Series A Preferred Stock") were
outstanding. Each share of Series A Preferred Stock of Group had an annual
dividend of $2.50 per share. All of the Series A Preferred Stock of Group was
redeemed in connection with the Recapitalization.
The Company has not declared or paid cash dividends on its common stock
since its incorporation. The Facilities and the Term Loan B Facility limit any
dividends paid to a maximum of $12 million per fiscal year unless the principal
amount of the Term Loan Facilities is reduced to less than $350 million
F-21
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
17. COMMON STOCK AND PREFERRED STOCK:--(CONTINUED)
and certain other conditions are satisfied (in which case the Facilities limit
dividends paid in any year to a maximum of 25% of net income for the prior
fiscal year).
18. STOCK OPTION PLANS:
Effective on January 28, 1994, the Company adopted the 1993 Employee Stock
Option Plan ("1993 Plan") for certain key employees. The 1993 Plan was created
primarily for the special purpose of rewarding key employees for the
appreciation earned through prior service under the Company's previous equity
share plan that was terminated on October 29, 1993. The 1993 Plan authorizes the
issuance of 3,119,466 shares of common stock. Effective on January 28, 1994, the
Company granted options to acquire 3,119,466 shares of the common stock. The
majority of these options vested 40% in June 1995 with the remaining shares
vesting in June 1996. In connection with the adoption of this plan, the Company
recorded a charge of $26.7 million for management equity plan expense in fiscal
1993.
In addition, effective in April 1994, the 1994 Employee Stock Option Plan
("1994 Plan") was adopted as a successor to the 1993 Plan to facilitate awards
to certain key employees and to consultants. The 1994 Plan authorizes the
issuance of up to 2,980,534 shares of common stock and provides that no options
may be granted after 10 years from the effective date of this plan. Options
vest, in each case, as specified by the Company's compensation committee,
generally over three years after issuance. At January 27, 1996, options
representing 2,516,152 shares of common stock were available for grants.
Effective on February 23, 1995, the Company adopted the 1994 Director's
Stock Option Plan ("the Director's Plan") which provides for the issuance of a
maximum of 600,000 options to acquire common stock to nonmanagement directors
and directors not affiliated with a major stockholder. As of January 27, 1996,
30,000 options had been granted.
At January 27, 1996, 1,251,887 of the outstanding options were exercisable.
Upon a change of control, as defined, all of the above options become fully
vested and exercisable.
Stock option activity under the plans is as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------------------------------
JANUARY 27, 1996 JANUARY 28, 1995
-------------------------- --------------------------
NUMBER PRICE NUMBER PRICE
OF PER OF PER
SHARES SHARE SHARES SHARE
--------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding beginning of year......... 3,096,802 $3.99-- $10.50 3,119,466 $3.99-- $ 8.26
Awarded............................... 431,500 7.00-- 8.88 186,634 4.43-- 10.50
Cancelled............................. (135,003) 3.99-- 8.75 (209,298) 3.99-- 8.26
Exercised............................. (95,263) 3.99 -- --
--------- ---------
Outstanding at end of year............ 3,298,036 3.99-- 10.50 3,096,802 3.99-- 10.50
--------- ---------
--------- ---------
</TABLE>
F-22
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
19. INCOME TAXES:
Deferred income taxes are provided for the temporary differences between the
financial reporting and tax basis of the Company's assets and liabilities. The
components of the net deferred tax asset (liability) as of January 27, 1996 and
January 28, 1995 were as follows (in thousands):
<TABLE>
<CAPTION>
JANUARY 27, JANUARY 28,
1996 1995
----------- -----------
<S> <C> <C>
Deferred tax assets:
Employee benefits, including postretirement benefits............... $ 64,485 $ 66,371
Net operating loss carryforwards................................... 101,984 132,408
Investment tax credit carryforwards................................ 6,900 10,700
Alternative minimum tax credits.................................... 8,700 6,700
Other liabilities and reserves..................................... 79,206 96,222
Valuation allowance................................................ (51,573) (261,323)
----------- -----------
Total deferred tax assets.................................... 209,702 51,078
Deferred tax liabilities:
Property, plant and equipment...................................... (45,300) (51,540)
Undistributed earnings of foreign subsidiaries..................... (7,600) --
----------- -----------
Total deferred tax liabilities............................... (52,900) (51,540)
----------- -----------
Net deferred tax asset (liability)................................... $ 156,802 $ (462)
----------- -----------
----------- -----------
</TABLE>
The above amounts have been classified in the consolidated balance sheet as
follows (in thousands):
<TABLE>
<CAPTION>
JANUARY 27, JANUARY 28,
1996 1995
----------- -----------
<S> <C> <C>
Deferred tax assets and (liabilities):
Current, included in other current assets.......................... $ 32,407 $ --
Noncurrent......................................................... 124,395 (462)
----------- -----------
$ 156,802 $ (462)
----------- -----------
----------- -----------
</TABLE>
In fiscal 1993 and prior years, the Company incurred significant financial
reporting and tax losses principally as a result of a capital structure that
contained a substantial amount of high interest rate debt. In addition, losses
were incurred as the Company exited businesses which it did not consider to be
consistent with its long-term strategy. Although substantial net deferred tax
assets were generated during these periods, a valuation allowance was
established because in management's assessment the historical operating trends
made it uncertain whether the net deferred tax assets would be realized.
During July 1994, the Company completed the Offering and Recapitalization,
which reduced the Company's indebtedness, lowered interest expense and provided
liquidity for operations and other general corporate purposes. As a result of
the Recapitalization, the Company's annual financing costs were reduced from
$115 million in fiscal 1993 to $57 million in fiscal 1995. In fiscal 1994, the
Company reported taxable income and had net income before an extraordinary loss
on the Recapitalization for financial reporting purposes; however, management
determined, largely because of the Company's prior losses, that it remained
uncertain whether the net deferred tax assets would be realized.
F-23
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
19. INCOME TAXES:--(CONTINUED)
In fiscal 1995, the Company's continuing business segments generated
substantial operating income, consistent with historical trends, that, when
combined with the post-Recapitalization capital structure, resulted in income
for both tax and financial reporting purposes. The spin-off of the Wallcoverings
segment that was announced in April 1996 further clarified management's
assessment of the Company's likely future performance. Management considered
these factors as well as the future outlook for its continuing businesses in
concluding that it is more likely than not that net deferred tax assets of
$156.8 million at January 27, 1996 will be realized. While continued operating
performance at current levels is sufficient to realize these assets, the
Company's ability to generate future taxable income is dependent on numerous
factors, including general economic conditions, the state of the automotive and
interior furnishings industries and other factors beyond management's control.
Therefore, there can be no assurance that the Company will meet its expectation
of future taxable income.
The valuation allowance at January 27, 1996 provides for certain deferred
tax assets that in management's assessment will not be realized due to tax
limitations on the use of such amounts or that relate to tax attributes that are
subject to uncertainty due to the long-term nature of their realization.
Deferred income taxes and withholding taxes have been provided on earnings
of the Company's foreign subsidiaries to the extent it is anticipated that the
earnings will be remitted in the future as dividends. Deferred income taxes and
withholding taxes have not been provided on the remaining undistributed earnings
of foreign subsidiaries as such amounts are deemed to be permanently reinvested.
The cumulative undistributed earnings on which the Company has not provided
deferred income taxes and withholding taxes are not significant.
The provisions for income taxes applicable to continuing operations for
fiscal 1995, 1994 and 1993 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------------
JANUARY 27, JANUARY 28, JANUARY 29,
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Current
Federal................................................. $ 1,730 $ 150 $--
State................................................... 3,332 4,576 5,821
Foreign................................................. 6,240 6,394 7,801
----------- ----------- -----------
11,302 11,120 13,622
----------- ----------- -----------
Deferred
Federal................................................. (140,705) -- --
State................................................... (9,050) 162 (16)
Foreign................................................. (67) (267) (3,112)
----------- ----------- -----------
(149,822) (105) (3,128)
----------- ----------- -----------
Income tax expense (benefit)............................ $ (138,520) $11,015 $10,494
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
F-24
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
19. INCOME TAXES:--(CONTINUED)
Domestic and foreign components of income (loss) from continuing operations
before income taxes are summarized as follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------------
JANUARY 27, JANUARY 28, JANUARY 29,
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Domestic.................................................. $77,439 $61,962 $ (146,258)
Foreign................................................... 13,763 18,959 2,395
----------- ----------- -----------
$91,202 $80,921 $ (143,863)
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
A reconciliation between income taxes computed at the statutory Federal rate
of 35% and the provisions for income taxes applicable to continuing operations
is as follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------------
JANUARY 27, JANUARY 28, JANUARY 29,
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Amount at statutory Federal rate.......................... $ 31,921 $ 28,324 $ (50,352)
State income taxes, net of Federal income tax benefit..... 2,325 3,080 4,963
Foreign tax more (less) than Federal tax at statutory
rate...................................................... 1,356 (509) 3,851
Foreign dividend income................................... 800 21,965 --
Amortization and write-off of goodwill.................... 95 -- 35,742
Other..................................................... 1,250 2,898 (4,658)
Change in valuation allowance............................. (176,267) (44,743) 20,948
----------- ----------- -----------
Income tax expense (benefit).............................. $ (138,520) $ 11,015 $ 10,494
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
During fiscal 1995, the valuation allowance decreased $209.8 million from
fiscal 1994. This decrease resulted primarily from the recognition of certain
deferred tax assets discussed above as well as the utilization of deferred tax
assets by continuing operations. An additional reduction of $33.5 million
related primarily to changes in reserves for discontinued operations and certain
other adjustments. During fiscal 1994, the valuation allowance decreased $26.0
million from fiscal 1993. The net decrease resulted from the utilization of
$44.7 million for continuing operations offset by $18.7 million in additions
related primarily to the deferral of the net benefits arising from the loss on
redemption of indebtedness and other miscellaneous adjustments.
F-25
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
19. INCOME TAXES:--(CONTINUED)
At January 27, 1996, the Company had the following tax attributes
carryforwards available for Federal income tax purposes (in thousands):
<TABLE>
<CAPTION>
EXPIRATION
AMOUNT DATES
-------- ----------
<S> <C> <C>
Net operating losses--regular tax
Preacquisition, subject to limitations............................. $ 79,800 1996-2010
Postacquisition, unrestricted...................................... 206,700 2006-2008
--------
$286,500
--------
--------
Net operating losses--alternative minimum tax
Preacquisition, subject to limitations............................. $ 52,900 1996-2010
Postacquisition, unrestricted...................................... 153,600 2006-2008
--------
$206,500
--------
--------
Investment tax and other credits
Preacquisition, subject to limitations............................. $ 6,900 1996-2003
--------
--------
Alternative minimum tax credits.................................... $ 8,700 No limit
--------
--------
</TABLE>
The above amounts exclude $9 million of NOLs attributable to the
discontinued Wallcoverings segment. In addition, approximately $30 million of
future net Federal and state tax deductions have been excluded in determining
the Company's net deferred tax assets. After the spin-off occurs, these
Wallcoverings' deferred tax assets, which total $14.7 million of future tax
benefits, will no longer be available to the Company. Because of the
uncertainties regarding Wallcoverings' future performance, a valuation allowance
offsetting this amount has been maintained. Accordingly, these net deferred tax
assets had no impact on the net assets or operating results of discontinued
operations presented in the accompanying consolidated financial statements.
Approximately $79.8 million of the Company's NOLs and $6.9 million of the
Company's unused Federal tax credits may be used only against the income and
apportioned tax liability of the specific corporate entity that generated such
losses or credits or its successors. The Company believes that a substantial
portion of these tax benefits will be realized in the future. Future sales of
common stock by the Company or its principal stockholders, or changes in the
composition of its principal stockholders, could constitute a "change in
control" that would result in annual limitations on the Company's use of its
NOLs and unused tax credits. Management cannot predict whether such a "change in
control" will occur. If such a "change in control" were to occur, the resulting
annual limitations on the use of NOLs and tax credits would depend on the value
of the equity of the Company and the amount of "built-in gain" or "built-in
loss" in the Company's assets at the time of the "change in control", which
cannot be known at this time.
The Company previously reported that its Federal income tax returns for the
period 1988 through 1991 were under examination and that the IRS had proposed
adjustments that could have resulted in the loss of a material amount of the
NOLs otherwise available to the Company in future years. During
F-26
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
19. INCOME TAXES:--(CONTINUED)
1995, the IRS withdrew substantially all of the proposed adjustments. The
Company agreed to pay tax and interest of $1.4 million and to reduce its NOLs by
$6.1 million.
The California Franchise Tax Board has challenged the treatment of the sale
of certain foreign subsidiaries during 1987 and has issued a notice of tax
assessment, which the Company received in November 1995, for approximately $11.8
million. The Company disputes the assessment and has filed a protest with the
Franchise Tax Board. If the Franchise Tax Board were to maintain its position
and such position were to be upheld in litigation, the Company would also become
liable for the payment of interest which is currently estimated to be $13.9
million. In the opinion of management, the final determination of any additional
tax and interest liability will not have a material adverse effect on the
Company's consolidated financial condition or results of operations.
Income taxes paid, net of refunds, were $13.5 million, $5.1 million, and
$3.3 million for fiscal 1995, 1994 and 1993, respectively.
20. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
fair value:
CASH AND CASH EQUIVALENTS--The carrying amount approximates fair value
because of the short maturity of these instruments.
LONG-TERM INVESTMENTS--Fair value approximates carrying value.
INTEREST RATE PROTECTION AGREEMENTS--The fair value of interest rate cap
and corridor agreements is based on quoted market prices as if the
agreements were entered into on the measurement date.
LONG-TERM DEBT--The fair value of the long-term debt of the Company
approximates the carrying value.
The estimated fair values of the Company's continuing operations'
financial instruments are summarized as follows (in thousands):
<TABLE>
<CAPTION>
JANUARY 27, 1996 JANUARY 28, 1995
---------------------- ---------------------
ESTIMATED
CARRYING ESTIMATED CARRYING FAIR
AMOUNT FAIR VALUE AMOUNT VALUE
-------- ---------- -------- ---------
<S> <C> <C> <C> <C>
Long-term investments................................ $ 3,646 $ 3,646 $ 4,030 $ 4,030
Interest rate protection agreements.................. 680 -- 1,405 1,567
Long-term debt....................................... 765,022 765,022 565,102 565,102
</TABLE>
F-27
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
21. RELATED PARTY TRANSACTIONS:
Pursuant to the Stockholders' Agreement among the Company, Group, Blackstone
Partners and WP Partners dated December 1988, the Company paid Blackstone
Partners and WP Partners, or their respective affiliates, operating, management
and advisory fees aggregating $5.0 million annually until the agreement's
amendment in July 1994. Under the Amended and Restated Stockholders' Agreement
among the Company, C&A Products, Blackstone Partners and WP Partners, the
Company pays Blackstone Partners and WP Partners, or their respective
affiliates, each an annual monitoring fee of $1.0 million, which is payable
quarterly and which commenced in the quarter ended October 29, 1994.
During the fourth quarter of fiscal 1995, the Company incurred $2.5 million
in fees and expenses for services performed by Blackstone Partners and WP
Partners in connection with the acquisition of Manchester Plastics in January
1996.
During the first quarter of fiscal 1994, the Company incurred expenses of
$2.5 million in fees and expenses for services performed by affiliates of
Blackstone Partners and WP Partners in connection with a comprehensive review of
the Company's liabilities associated with discontinued operations, including
surplus real estate, postretirement and workers' compensation liabilities. The
Company also incurred during the first quarter of fiscal 1994 expenses of $2.75
million for services performed by affiliates of WP Partners and $3.25 million
for services performed by affiliates of Blackstone Partners in connection with
the Company's review of refinancing and strategic alternatives as well as other
advisory services; these fees are included in "selling, general and
administrative expenses" for the first quarter of fiscal 1994.
In connection with the Company's discontinued operations, the Company
incurred fees to affiliates of Blackstone Partners and WP Partners for services
related to divestitures aggregating $4.3 million during fiscal 1993. These
fiscal 1993 amounts related principally to divestiture fees on the sales of
Kayser-Roth and the Engineering Group, and advisory services in connection with
the sale of Builders Emporium's inventory, real estate and other assets. Fees
incurred during the first quarter of fiscal 1994 included $.1 million to an
affiliate of Blackstone Partners for advisory services in connection with the
sale of Builders Emporium's inventory, real estate and other assets.
In September 1993, an affiliate of Blackstone Partners negotiated with a
real estate consultant to receive 20% of the incentive fees payable to the
consultant by the Company in connection with the resolution of lease liabilities
of Builders Emporium. Such affiliate received approximately $.5 million in fees
during fiscal 1994 pursuant to this arrangement.
22. INFORMATION ABOUT SEGMENTS OF THE COMPANY'S OPERATIONS:
The Company's continuing business segments consist of Automotive Products,
which supplies interior trim products to the North American automotive industry;
and Interior Furnishings, which manufactures residential upholstery and
commercial floorcoverings in the United States. The Wallcoverings segment, which
produces residential and commercial wallpaper in North America, has been
classified as a discontinued operation and, accordingly, all prior year segment
information has been restated.
The Company performs periodic credit evaluations of its customers' financial
condition and, although the Company does not generally require collateral, it
does require cash payments in advance when the assessment of credit risk
associated with a customer is substantially higher than normal. Receivables
generally are due within 45 days, and credit losses have consistently been
within management's expectations and are provided for in the consolidated
financial statements.
F-28
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
22. INFORMATION ABOUT SEGMENTS OF THE COMPANY'S OPERATIONS:--(CONTINUED)
Direct and indirect sales to significant customers in excess of ten percent
of consolidated net sales from continuing operations are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
General Motors Corporation............................................... 23.3% 21.3% 19.4%
Ford Motor Company....................................................... 11.6% 14.1% N/A
Chrysler Corporation..................................................... 12.7% 12.0% 12.0%
</TABLE>
Information about the Company's business segments for fiscal 1995, 1994 and
1993 follows (in thousands):
<TABLE>
<CAPTION>
AUTOMOTIVE INTERIOR CORPORATE
PRODUCTS FURNISHINGS ITEMS CONSOLIDATED
---------- ----------- --------- ------------
<S> <C> <C> <C> <C>
FISCAL 1995
Net sales....................................... $ 906,945 $ 384,521 $ -- $ 1,291,466
Operating income (a)............................ 99,383 48,445 -- 147,828
Depreciation and amortization (c)............... 27,684 11,757 4,165 43,606
Identifiable assets (e)......................... 529,541 136,449 384,017 1,050,007
Capital expenditures (f)........................ 51,457 24,389 17,852 93,698
<CAPTION>
AUTOMOTIVE INTERIOR CORPORATE
PRODUCTS FURNISHINGS ITEMS CONSOLIDATED
---------- ----------- --------- ------------
<S> <C> <C> <C> <C>
FISCAL 1994
Net sales....................................... $ 904,855 $ 414,524 $ -- $ 1,319,379
Operating income (loss) (a)..................... 123,318 57,421 (14,938) 165,801
Depreciation and amortization (c)............... 25,279 12,247 6,341 43,867
Identifiable assets (e)......................... 273,010 131,851 235,457 640,318
Capital expenditures (f)........................ 55,834 22,173 6,416 84,423
<CAPTION>
AUTOMOTIVE INTERIOR CORPORATE
PRODUCTS FURNISHINGS ITEMS CONSOLIDATED
---------- ----------- --------- ------------
<S> <C> <C> <C> <C>
FISCAL 1993
Net sales....................................... $ 677,867 $ 407,201 $ -- $ 1,085,068
Operating income (loss) (a) (b) (d)............. (2,261) 12,175 (38,282) (28,368)
Depreciation and amortization (c)............... 25,873 12,521 13,414 51,808
Identifiable assets (e)......................... 379,637 226,417 274,743 880,797
Capital expenditures (f)........................ 29,208 11,768 15,302 56,278
</TABLE>
F-29
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
22. INFORMATION ABOUT SEGMENTS OF THE COMPANY'S OPERATIONS:--(CONTINUED)
Information about the Company's operations in different geographic areas for
fiscal 1995, 1994 and 1993 follows (in thousands):
<TABLE>
<CAPTION>
UNITED OTHER CORPORATE
STATES CANADA MEXICO COUNTRIES ITEMS CONSOLIDATED
---------- -------- ------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
FISCAL 1995
Net sales............................ $1,148,957 $123,958 $14,466 $ 4,085 $ -- $ 1,291,466
Operating income (loss) (a).......... 127,208 20,426 (5) 199 -- 147,828
Depreciation and amortization (c).... 35,290 2,795 1,190 166 4,165 43,606
Identifiable assets (e).............. 382,397 245,943 24,579 13,071 384,017 1,050,007
Capital expenditures (f)............. 61,959 5,055 1,739 7,093 17,852 93,698
<CAPTION>
UNITED OTHER CORPORATE
STATES CANADA MEXICO COUNTRIES ITEMS CONSOLIDATED
---------- -------- ------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
FISCAL 1994
Net sales............................ $1,192,899 $107,845 $ 3,955 $14,680 $ -- $ 1,319,379
Operating income (loss) (a).......... 160,596 20,406 -- (263) (14,938) 165,801
Depreciation and amortization (c).... 34,191 2,537 479 319 6,341 43,867
Identifiable assets (e).............. 348,377 40,084 13,471 2,929 235,457 640,318
Capital expenditures (f)............. 66,075 4,498 5,907 1,527 6,416 84,423
<CAPTION>
UNITED OTHER CORPORATE
STATES CANADA MEXICO COUNTRIES ITEMS CONSOLIDATED
---------- -------- ------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
FISCAL 1993
Net sales............................ $ 987,462 $ 94,761 $ 888 $ 1,957 $ -- $ 1,085,068
Operating income (loss) (a) (b)
(d).................................. 7,826 2,431 -- (343) (38,282) (28,368)
Depreciation and amortization (c).... 35,602 2,755 27 10 13,414 51,808
Identifiable assets (e).............. 529,548 54,010 7,119 15,377 274,743 880,797
Capital expenditures (f)............. 33,232 1,992 5,511 241 15,302 56,278
</TABLE>
- ------------
<TABLE>
<C> <S>
(a) Operating income (loss) is determined by deducting all operating expenses, including
goodwill write-off and other costs, from revenues. Operating expenses do not include
interest expense.
(b) The segment operating income in fiscal 1993 includes the write-off of goodwill of
$100.0 million; $68.4 million of which is included in the $2.3 million operating loss
of the Automotive Products segment and $31.6 million of which is included in the $12.2
million operating income of the Interior Furnishings segment.
(c) Depreciation and amortization includes the amortization of other assets and
liabilities, and excludes depreciation and amortization for discontinued operations of
$13.9 million, $5.3 million and $22.6 million in fiscal 1995, 1994 and 1993,
respectively.
(d) Corporate items in fiscal 1993 include $26.7 million of management equity plan expense.
(e) Corporate items includes Carcorp's $70.9 million and $83.5 million interest in the
total receivables pool of $198.9 million and $228.5 million, net of allowances for
doubtful accounts, at January 27, 1996 and January 28, 1995, respectively. Also
included are the net assets of discontinued operations for fiscal 1995, 1994 and 1993
of $79.4 million, $75.6 million and $98.3 million, respectively.
(f) Corporate items include capital expenditures for discontinued operations in fiscal
1995, 1994 and 1993 of $15.8 million, $5.4 million and $15.1 million, respectively.
</TABLE>
Intersegment sales between geographic areas are not material. For fiscal
years 1995, 1994 and 1993, export sales from the United States to foreign
countries were $131.2 million, $122.9 million and $89.9 million, respectively.
F-30
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
23. COMMITMENTS AND CONTINGENCIES:
Environmental
The Company is legally or contractually responsible or alleged to be
responsible for the investigation and remediation of contamination at various
sites. It also has received notices that it is a potentially responsible party
("PRP") in a number of proceedings. The Company may be named as a PRP at other
sites in the future, including with respect to divested and acquired businesses.
The Company is currently engaged in investigation or remediation at certain
sites. In estimating the total cost of investigation and remediation, the
Company has considered, among other things, the Company's prior experience in
remediating contaminated sites, remediation efforts by other parties, data
released by the EPA, the professional judgment of the Company's environmental
experts, outside environmental specialists and other experts, and the likelihood
that other parties which have been named as PRPs will have the financial
resources to fulfill their obligations at sites where they and the Company may
be jointly and severally liable. Under the theory of joint and several
liability, the Company could be liable for the full costs of investigation and
remediation even if additional parties are found to be responsible under the
applicable laws. It is difficult to estimate the total cost of investigation and
remediation due to various factors including incomplete information regarding
particular sites and other PRPs, uncertainty regarding the extent of
environmental problems and the Company's share, if any, of liability for such
problems, the selection of alternative compliance approaches, the complexity of
environmental laws and regulations and changes in cleanup standards and
techniques. When it has been possible to provide reasonable estimates of the
Company's liability with respect to environmental sites, provisions have been
made in accordance with generally accepted accounting principles. The Company
records its best estimate when it believes it is probable that an environmental
liability has been incurred and the amount of loss can be reasonably estimated.
The Company also considers estimates of certain reasonably possible
environmental liabilities in determining the aggregate amount of environmental
reserves. In its assessment the Company makes its best estimate of the liability
based upon information available to the Company at that time, including the
professional judgment of the Company's environmental experts, outside
environmental specialists and other experts. As of January 27, 1996, including
sites relating to the acquisition of Manchester Plastics and excluding sites at
which the Company's participation is anticipated to be de minimis or otherwise
insignificant or where the Company is being indemnified by a third party for the
liability, there are 16 sites where the Company is participating in the
investigation or remediation of the site either directly or through financial
contribution, and 10 additional sites where the Company is alleged to be
responsible for costs of investigation or remediation. As of January 27, 1996,
the Company's estimate of its liability for these 26 sites, which exclude sites
related to Wallcoverings, is approximately $31.3 million. As of January 27,
1996, the Company has established reserves of approximately $38.9 million for
the estimated future costs related to all its known environmental sites,
excluding sites related to Wallcoverings. In the opinion of management, based on
the facts presently known to it, the environmental costs and contingencies will
not have a material adverse effect on the Company's consolidated financial
condition or results of operations. However, there can be no assurance that the
Company has identified or properly assessed all potential environmental
liability arising from the activities or properties of the Company, its present
and former subsidiaries and their corporate predecessors.
The Company is subject to Federal, state and local environmental laws and
regulations that (i) affect ongoing operations and may increase capital costs
and operating expenses and (ii) impose liability for the costs of investigation
and remediation and certain other damages related to on-site and off-site soil
and groundwater contamination. The Company's management believes that it has
obtained, and is in material compliance with, all material environmental permits
and approvals necessary to conduct its
F-31
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
23. COMMITMENTS AND CONTINGENCIES:--(CONTINUED)
various businesses. Environmental compliance costs for continuing businesses
currently are accounted for as normal operating expenses or capital expenditures
of such business units. In the opinion of management, based on the facts
presently known to it, such environmental compliance costs will not have a
material adverse effect on the Company's consolidated financial condition or
results of operations.
Litigation
During 1991, a Fifth Consolidated Amended Complaint was filed in In re Ivan
F. Boesky Securities Litigation, involving numerous claims against a variety of
defendants including Group, among other things, alleging a conspiracy to
manipulate the price of Group's common stock in 1986 for the purpose of
triggering a redemption of certain outstanding preferred stock of Group.
Plaintiffs and C&A Products have agreed to the principal terms of a settlement
whereby plaintiffs would release all claims relating to the litigation against
Group and the individual Group-related defendants in exchange for payment by C&A
Products of $4.25 million. The settlement is subject to approval of the court.
In May 1995, C&A Products paid $4.25 million into an escrow account with the
court pursuant to the terms of the settlement. The settlement was within
previously established accruals. In 1992, Advanced Development & Engineering
Centre ("ADEC"), a division of an indirect subsidiary of the Company, filed
arbitration demands against the Pakistan Ordnance Factories Board ("POF")
concerning ADEC's installation of a munitions facility for POF. POF filed
arbitration counterclaims alleging that ADEC's alleged breach of contract caused
POF to lose its entire investment in the munitions facility.
The Company and its subsidiaries also have other lawsuits and claims pending
against them and have certain guarantees outstanding which were made in the
ordinary course of business.
The ultimate outcome of the legal proceedings to which the Company is a
party will not, in the opinion of the Company's management based on the facts
presently known to it, have a material adverse effect on the Company's
consolidated financial condition or results of operations.
Other Commitments
The majority of Builders Emporium's leased properties have been assigned to
third parties. In addition, Group has assigned leases in connection with the
divestiture of Kayser-Roth, the Engineering Group and other divested businesses.
Although Group has obtained releases from the lessors of certain properties, C&A
Products, as successor by merger to Group, remains contingently liable under
most of the leases. C&A Products' future liability for these leases, in
management's opinion, based on the facts presently known to it, will not have a
material adverse effect on the Company's consolidated financial condition or
future results of operations.
24. QUARTERLY FINANCIAL DATA (UNAUDITED): (IN THOUSANDS, EXCEPT FOR PER SHARE
DATA)
On April 8, 1996, the Company's Board of Directors approved a plan to
spin-off the Company's Wallcoverings business segment and accordingly,
previously reported quarterly financial data has been
F-32
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
24. QUARTERLY FINANCIAL DATA (UNAUDITED):--(CONTINUED)
restated for fiscal 1995 and 1994. See Note 15 and Management's Discussion and
Analysis of Financial Condition and Results of Operations for additional
information.
<TABLE><CAPTION>
FISCAL 1995
--------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales as previously reported................. $392,129 $352,847 $380,855 $370,929
Less discontinued operations..................... 57,239 50,985 52,219 44,851
-------- -------- -------- --------
Net sales as restated............................ $334,890 $301,862 $328,636 $326,078
-------- -------- -------- --------
-------- -------- -------- --------
Gross margin as previously reported.............. $ 93,698 $ 81,177 $ 87,343 $ 81,833
Less discontinued operations..................... 20,115 16,203 16,299 12,326
-------- -------- -------- --------
Gross margin as restated......................... $ 73,583 $ 64,974 $ 71,044 $ 69,507
-------- -------- -------- --------
-------- -------- -------- --------
Income from continuing operations as previously
reported (a)..................................... $ 28,901 $ 15,445 $ 20,640 $141,455
Less discontinued operations (b)................. 4,134 (113) (697) (26,605)
-------- -------- -------- --------
Income from continuing operations as restated.... $ 24,767 $ 15,558 $ 21,337 $168,060
-------- -------- -------- --------
-------- -------- -------- --------
Net income....................................... $ 28,901 $ 15,445 $ 20,640 $141,455
-------- -------- -------- --------
-------- -------- -------- --------
Primary and fully diluted earnings per share..... $ .40 $ .22 $ .29 $ 2.01
-------- -------- -------- --------
-------- -------- -------- --------
Common stock prices
High........................................... $ 8 3/8 $ 9 $ 9 1/4 $ 8 3/8
Low............................................ $ 7 1/2 $ 6 3/8 $ 7 1/2 $ 6 1/8
<CAPTION>
FISCAL 1994
--------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales as previously reported................. $390,446 $359,749 $403,722 $382,085
Less discontinued operations..................... 60,326 50,107 55,723 50,467
-------- -------- -------- --------
Net sales as restated............................ $330,120 $309,642 $347,999 $331,618
-------- -------- -------- --------
-------- -------- -------- --------
Gross margin as previously reported.............. $100,954 $ 87,357 $ 92,976 $ 89,846
Less discontinued operations..................... 20,925 14,756 18,075 15,198
-------- -------- -------- --------
Gross margin as restated......................... $ 80,029 $ 72,601 $ 74,901 $ 74,648
-------- -------- -------- --------
-------- -------- -------- --------
Income from continuing operations as previously
reported......................................... $ 12,754 $ 7,323 $ 30,966 $ 24,703
Less discontinued operations..................... 4,768 720 2,144 (1,792)
-------- -------- -------- --------
Income from continuing operations as restated.... $ 7,986 $ 6,603 $ 28,822 $ 26,495
-------- -------- -------- --------
-------- -------- -------- --------
Net income (loss) (c)............................ $ 12,754 $(99,205) $ 30,966 $ 24,703
-------- -------- -------- --------
-------- -------- -------- --------
Primary and fully diluted earnings (loss) per
share............................................ $ .19 $ (4.99) $ .43 $ .34
-------- -------- -------- --------
-------- -------- -------- --------
Common stock prices
High........................................... -- $10 9/16 $ 10 7/8 $ 9 1/4
Low............................................ -- $ 10 $ 8 5/8 $ 7 7/8
</TABLE>
- ------------
<TABLE>
<C> <S>
(a) Income from continuing operations in the fourth quarter of fiscal 1995 includes a
reduction in the valuation allowance against net deferred tax assets as discussed in
Note 19.
(b) Net loss from discontinued operations in the fourth quarter of fiscal 1995 includes
$9.9 million in charges related to the consolidation of Wallcoverings' distribution
activities and the closure of its Hammond, Indiana facility, $3.0 million in charges
related to the impairment of assets and $10.8 million related to a write-down of
inventory.
</TABLE>
F-33
<PAGE>
COLLINS & AIKMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
24. QUARTERLY FINANCIAL DATA (UNAUDITED):--(CONTINUED)
(c) Net loss in the second quarter of fiscal 1994 includes an extraordinary
loss of $106.5 million related to the Recapitalization.
The Company's operations are not subject to significant seasonal influences.
25. SIGNIFICANT SUBSIDIARY:
The Company conducts all of its operating activities through its
wholly-owned subsidiary C&A Products. The following represents summarized
consolidated financial information of C&A Products and its subsidiaries for the
fiscal years ending (in thousands):
<TABLE>
<CAPTION>
JANUARY 27, JANUARY 28, JANUARY 29,
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Current assets............................................ $ 429,662 $ 339,378 $ 579,814
Noncurrent assets......................................... 619,102 300,047 296,673
Current liabilities....................................... 268,516 237,952 231,200
Noncurrent liabilities.................................... 1,006,726 812,406 1,025,746
Redeemable stock.......................................... -- -- 132
Net sales................................................. 1,291,466 1,319,379 1,085,068
Gross margin.............................................. 279,108 302,179 234,978
Income (loss) from continuing operations.................. 230,400 85,062 (125,142)
Income (loss) before extraordinary item................... 207,119 90,902 (248,449)
Net income (loss)......................................... 207,119 (15,626) (248,449)
</TABLE>
Separate financial statements of C&A Products are not presented because they
would not be material to the holders of any debt securities of C&A Products that
may be issued, there being no material differences between the financial
statements of C&A Products and the Company.
F-34
<PAGE>
NO PERSON IS AUTHORIZED IN CONNECTION
WITH THE OFFER MADE BY THIS PROSPECTUS
SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS TO COLLINS & AIKMAN
GIVE ANY INFORMATION OR TO MAKE ANY PRODUCTS CO.
REPRESENTATIONS OTHER THAN THOSE CONTAINED
IN THIS PROSPECTUS SUPPLEMENT OR IN THE
ACCOMPANYING PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS $400,000,000
MUST NOT BE RELIED UPON AS HAVING BEEN % SENIOR SUBORDINATED
AUTHORIZED BY THE COMPANY OR THE NOTES DUE 2006
UNDERWRITERS. THIS PROSPECTUS SUPPLEMENT AND
THE ACCOMPANYING PROSPECTUS DO NOT
CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITY GUARANTEED ON A
OTHER THAN THE NOTES OFFERED HEREBY, NOR DO SENIOR SUBORDINATED
THEY CONSTITUTE AN OFFER TO SELL OR A BASIS BY
SOLICITATION OF AN OFFER TO BUY ANY OF THE
NOTES TO ANY PERSON IN ANY JURISDICTION IN
WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER
OR SOLICITATION TO SUCH PERSON. NEITHER THE COLLINS & AIKMAN
DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND CORPORATION
THE ACCOMPANYING PROSPECTUS NOR ANY SALE OF
OR OFFER TO SELL THE NOTES OFFERED
HEREBY, SHALL, UNDER ANY CIRCUMSTANCE, -------------------
CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
OR THAT THE INFORMATION CONTAINED LOGO
HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT
TO THE DATE HEREOF.
-------------------
-------------------
PROSPECTUS SUPPLEMENT
TABLE OF CONTENTS
PAGE
PROSPECTUS SUPPLEMENT
Prospectus Supplement Summary......... S-3
Use of Proceeds....................... S-9
Capitalization........................ S-10
Selected Consolidated Financial
Data.................................. S-11
Pro Forma Consolidated Financial
Data.................................. S-12
Management's Discussion and Analysis
of Financial Condition and Results of
Operations............................ S-15
Business.............................. S-29
Management............................ S-38
Principal Stockholders and Security
Ownership of Management............... S-41
Description of the Notes.............. S-43
Amendment to Credit Facilities........ S-73
Underwriting.......................... S-75
Certain Legal Matters................. S-76
Experts............................... S-76 WASSERSTEIN PERELLA
SECURITIES, INC.
PROSPECTUS CHASE SECURITIES INC.
BA SECURITIES, INC.
Available Information................. 2
Information Incorporated by
Reference............................. 2
Risk Factors.......................... 3
The Company........................... 6
Ratio of Earnings to Fixed Charges.... 6
Use of Proceeds....................... 7
Existing Credit Facilities............ 7
Description of the Debt Securities.... 9
Senior Securities..................... 17
Subordinated Securities............... 17
Plan of Distribution.................. 21
Certain Legal Matters................. 22 , 1996
Experts............................... 22
Index to Consolidated Financial
Statements............................ F-1
