Page 1 of 165
Index to Exhibits-Pages 21-31
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Transition period from to
Commission file number 1-3634
CONE MILLS CORPORATION
(Exact name of registrant as specified in its charter)
North Carolina 56-0367025
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3101 North Elm Street, Greensboro, North Carolina 27408
(Address of principal executive offices) (Zip Code)
(910) 379-6220
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Number of shares of common stock outstanding as of May 1,
1997: 26,099,533 shares.
Page 1
FORM 10-Q
CONE MILLS CORPORATION
INDEX
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Statements of Operations
Thirteen weeks ended March 30, 1997 and
March 31, 1996
(Unaudited) . . . . . . . . . . . . . . . . . . . 3
Consolidated Condensed Balance Sheets
March 30, 1997 and March 31, 1996
(Unaudited) and December 29, 1996 . . . . . . . . 4 & 5
Consolidated Condensed Statements of
Stockholders' Equity
Thirteen weeks ended March 30, 1997 and
and March 31, 1996 (Unaudited). . . . . . . . . . 6
Consolidated Condensed Statements of
Cash Flows
Thirteen weeks ended March 30, 1997 and
and March 31, 1996 (Unaudited). . . . . . . . . . 7
Notes to Consolidated Condensed Financial
Statements (Unaudited). . . . . . . . . . . . . . . 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . 18
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . 20
Page 2
FORM 10-Q
PART I
Item 1.
CONE MILLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(amounts in thousands, except per share data)
Thirteen Thirteen
Weeks Ended Weeks Ended
March 30, 1997 March 31, 1996
(Unaudited) (Unaudited)
Net Sales $ 174,714 $ 199,282
Operating Costs and Expenses:
Cost of sales 148,059 161,236
Selling and administrative 18,304 21,116
Depreciation 6,671 7,136
Restructuring 655 (4,675)
173,689 184,813
Income from Operations 1,025 14,469
Other Income (Expense):
Interest income 188 96
Interest expense (3,683) (3,837)
(3,495) (3,741)
Income (Loss) before Income Taxes (Benefit) and Equity
in Earnings (Loss) of Unconsolidated Affiliate (2,470) 10,728
Income Taxes (Benefit) (988) 3,755
Income (Loss) before Equity in Earnings (Loss) of
Unconsolidated Affiliate (1,482) 6,973
Equity in Earnings (Loss) of Unconsolidated Affiliate (513) 212
Net Income (Loss) $ (1,995) $ 7,185
Income (Loss) Available to Common Shareholders:
Net Income (Loss) $ (2,715) $ 6,465
Earnings (Loss) Per Share - Fully Diluted:
Net Income (Loss) $ (.10) $ .24
Weighted Average Common Shares and
Common Share Equivalents Outstanding -
Fully Diluted 26,237 27,462
See Notes to Consolidated Condensed Financial Statements.
Page 3
FORM 10-Q
Item 1. (continued)
CONE MILLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(amounts in thousands, except share and par value data)
March 30, March 31, December 29,
ASSETS 1997 1996 1996
(Unaudited) (Unaudited) (Note)
Current Assets:
Cash $ 1,148 $ 1,447 $ 1,018
Accounts receivable - trade, less provision for
doubtful accounts $1,250; $3,000; $3,000 27,862 78,747 49,073
Subordinated note receivable 31,292 - -
Inventories:
Greige and finished goods 93,131 92,823 94,635
Work in process 12,060 13,143 10,793
Raw materials 14,300 11,794 7,231
Supplies and other 26,000 32,599 26,874
145,491 150,359 139,533
Other current assets 12,716 13,781 14,794
Total Current Assets 218,509 244,334 204,418
Investments in Unconsolidated Affiliates 33,631 37,087 34,144
Other Assets 39,819 41,815 40,746
Property, Plant and Equipment:
Land 17,672 18,398 17,880
Buildings 83,025 81,821 83,048
Machinery and equipment 320,577 304,024 319,271
Other 34,284 30,605 34,143
455,558 434,848 454,342
Less accumulated depreciation 205,869 191,243 203,664
Property, Plant and Equipment-Net 249,689 243,605 250,678
$ 541,648 $ 566,841 $ 529,986
Note: The balance sheet at December 29, 1996, has been
derived from the audited financial statements at that date.
See Notes to Consolidated Condensed Financial Statements.
Page 4
FORM 10-Q
Item 1. (continued)
CONE MILLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(amounts in thousands, except share and par value data)
March 30, March 31, December 29,
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996 1996
(Unaudited) (Unaudited) (Note)
Current Liabilities:
Notes payable $ 25,190 $ 11,391 $ 5,267
Current maturities of long-term debt 10,754 11,096 10,754
Accounts payable - trade 33,055 33,124 27,113
Sundry accounts payable and accrued expenses 44,121 44,779 52,770
Deferred income taxes 23,594 26,317 23,667
Total Current Liabilities 136,714 126,707 119,571
Long-Term Debt 150,079 161,420 149,968
Deferred Items:
Deferred income taxes 40,598 40,849 40,066
Other deferred items 10,229 9,934 10,130
50,827 50,783 50,196
Stockholders' Equity:
Class A Preferred Stock - $100 par value; authorized
1,500,000 shares; issued and outstanding 383,948
shares - Employee Stock Ownership Plan 38,395 38,395 38,395
Class B Preferred Stock - no par value; authorized
5,000,000 shares - - -
Common Stock - $.10 par value; authorized 42,700,000
shares; issued and outstanding 26,119,133 shares;
1996, 27,383,933 shares and 26,301,233 shares 2,612 2,738 2,630
Capital in excess of par 61,625 71,100 62,995
Retained earnings 109,879 124,160 114,706
Currency translation adjustment (8,483) (8,462) (8,475)
Total Stockholders' Equity 204,028 227,931 210,251
$ 541,648 $ 566,841 $ 529,986
Note: The balance sheet at December 29, 1996, has been
derived from the audited financial statements at that date.
See Notes to Consolidated Condensed Financial Statements.
Page 5
FORM 10-Q
Item 1. (continued)
CONE MILLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY
THIRTEEN WEEKS ENDED MARCH 30, 1997 AND MARCH 31, 1996
(amounts in thousands, except share data)
(Unaudited)
Class A Preferred Capital in Currency
Stock Common Stock Excess Retained Translation
Shares Amount Shares Amount of Par Earnings Adjustment
Balance, December 29, 1996 383,948 $ 38,395 26,301,233 $ 2,630 $ 62,995 $ 114,706 $ (8,475)
Net loss - - - - - (1,995) -
Currency translation adjustment - - - - - - (8)
Class A Preferred Stock -
Employee Stock Ownership Plan:
Cash dividends paid - - - - - (55) -
Dividends accrued - - - - - (2,777) -
Common Stock:
Purchase of common shares - - (182,100) (18) (1,370) - -
Balance, March 30, 1997 383,948 $ 38,395 26,119,133 $ 2,612 $ 61,625 $ 109,879 $ (8,483)
Class A Preferred Capital in Currency
Stock Common Stock Excess Retained Translation
Shares Amount Shares Amount of Par Earnings Adjustment
Balance, December 31, 1995 383,948 $ 38,395 27,380,409 $ 2,738 $ 71,090 $ 119,825 $ (9,923)
Net income - - - - - 7,185 -
Currency translation adjustment -
Sale of stock of affiliate - - - - - - 1,461
Class A Preferred Stock -
Employee Stock Ownership Plan:
Cash dividends paid - - - - - (2,850) -
Common Stock:
Options exercised - - 6,000 - 36 - -
Purchase of common shares - - (2,476) - (26) - -
Balance, March 31, 1996 383,948 $ 38,395 27,383,933 $ 2,738 $ 71,100 $ 124,160 $ (8,462)
See Notes to Consolidated Condensed Financial Statements.
Page 6
FORM 10-Q
Item 1. (continued)
CONE MILLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(amounts in thousands)
Thirteen Thirteen
Weeks Ended Weeks Ended
March 30, 1997 March 31, 1996
(Unaudited) (Unaudited)
Cash Flows Used In Operating Activities $ (8,044) $ (16,647)
Cash Flows from Investing Activities:
Proceeds from divestiture (a) - 40,053
Capital expenditures (6,556) (5,341)
Other (275) 1,486
Net cash (used in) provided by investing activities (6,831) 36,198
Cash Flows from Financing Activities:
Net payments - short-term loans 19,923 2,516
Decrease in checks issued in excess of deposits (3,475) (17,502)
Other (1,443) (3,454)
Net cash provided by (used in) financing activities 15,005 (18,440)
Net increase in cash 130 1,111
Cash at Beginning of Period 1,018 336
Cash at End of Period $ 1,148 $ 1,447
(a)Divestiture:
Inventories $ 14,926
Property, plant and equipment 21,516
Other (1,064)
Gain on sale 4,675
Proceeds from sale $ 40,053
Supplemental Disclosures of Additional Cash Flow Information:
Cash payments for:
Interest, net of interest capitalized $ 7,045 $ 7,495
Income taxes, net of refunds $ (3,714) $ 103
Supplemental Schedule of Noncash Investing and Financing Activities:
Receivable recorded from sale of division $ 2,703 $ 4,449
Liability incurred for dividend payable $ 2,777 $ -
See Notes to Consolidated Condensed Financial Statements.
Page 7
FORM 10-Q
Item 1. (continued)
CONE MILLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MARCH 30, 1997
Note 1. Basis of Financial Statement Preparation
The Cone Mills Corporation (the "Company") consolidated
condensed financial statements for March 30, 1997 and
March 31, 1996 are unaudited, but in the opinion of
management reflect all adjustments necessary to present
fairly the consolidated condensed balance sheets of Cone
Mills Corporation and Subsidiaries at March 30, 1997,
March 31, 1996, and December 29, 1996, and the related
consolidated condensed statements of operations,
stockholders' equity and cash flows for the thirteen
weeks ended March 30, 1997 and March 31, 1996. All
adjustments are of a normal recurring nature. The
results are not necessarily indicative of the results to
be expected for the full year.
These statements should be read in conjunction with the
audited financial statements and related notes included
in the Company's annual report on Form 10-K for fiscal
1996.
Inventories are stated at the lower of cost or market.
The last-in, first-out (LIFO) method is used to value
inventories of most domestically produced goods. The
first-in, first-out (FIFO) or average cost methods are
used to value all other inventories. Because amounts for
inventories under the LIFO method are based on an annual
determination of quantities as of the year-end, the
inventories at March 30, 1997 and March 31, 1996 and
related consolidated condensed statements of operations
for the thirteen weeks then ended are based on certain
estimates relating to quantities and cost as of the end
of the fiscal year.
Note 2. Securitization of Accounts Receivable
On March 25, 1997, the Company entered into a one year
agreement with the subsidiary of a major financial
institution ("the purchaser") and Cone Receivables, LLC,
Page 8
FORM 10-Q
Item 1. (continued)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
a wholly owned subsidiary of Cone Mills Corporation,
which allows the sale of up to $40 million undivided
interest in eligible accounts receivable by Cone
Receivables, LLC. Cone Receivables, LLC, a qualifying
special-purpose entity, meets the requirements for
accounts receivable securitization in accordance with
SFAS 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities", and
therefore is not a consolidated entity of Cone Mills.
Cone Mills accounts for the sale of receivables to Cone
Receivables, LLC, as a true sale in accordance with SFAS
125.
At March 30, 1997, the Company had sold gross accounts
receivable of $67 million, net of a $2 million provision
for doubtful accounts receivable, to Cone Receivables,
LLC. The Company received $34 million in cash and a note
receivable of $31 million.
The Company acts as an agent for Cone Receivables, LLC,
and the purchaser by performing record keeping and
collection functions of receivables sold. The discount on
receivables sold to Cone Receivables, LLC, is computed
based upon a variable rate and the term of the
receivables sold. The discount on the sale of
receivables is included in cost of sales.
The provision for doubtful accounts receivable was
reduced by $2 million to reflect the sale of receivables
and their related provision to Cone Receivables, LLC. The
remaining provision for doubtful accounts is deemed to be
sufficient for receivables which are not securitized.
Page 9
FORM 10-Q
Item 1. (continued)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note 3. Long-Term Debt
March 30, 1997
Current
Total Maturity Long-Term
(amounts in thousands)
8% Senior Note $ 64,286 $10,714 $ 53,572
8-1/8% Debentures 96,465 - 96,465
Other 82 40 42
Total $160,833 $10,754 $150,079
March 31, 1996
Current
Total Maturity Long-Term
(amounts in thousands)
8% Senior Note $ 75,000 $10,714 $ 64,286
8-1/8% Debentures 96,021 - 96,021
Capital Lease Obligation 1,374 344 1,030
Other 121 38 83
Total $172,516 $11,096 $161,420
Note 4. Class A Preferred Stock
The dividend for Class A Preferred Stock payable March
31, 1997, has been included in accrued expenses at March
30, 1997. The 1998 dividend rate for Class A Preferred
Stock is 7.85%, payable March 31, 1998.
Page 10
FORM 10-Q
Item 1. (continued)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note 5. Earnings (Loss) Per Share
Thirteen Thirteen
Weeks Ended Weeks Ended
March 30, 1997 March 31, 1996
Fully Fully
Primary Diluted Primary Diluted
(amounts in thousands,
except per share data)
Income (loss) from
continuing operations $(1,995) $(1,995) $ 7,185 $ 7,185
Less: Class A Preferred
dividends ( 720) ( 720) ( 720) ( 720)
Adjusted net income (loss) $(2,715) $(2,715) $ 6,465 $ 6,465
Weighted average common
shares outstanding 26,237 26,237 27,381 27,381
Common share equivalents
from assumed exercise
of outstanding options,
less shares assumed
repurchased - - 75 81
Weighted average common
shares and common share
equivalents outstanding 26,237 26,237 27,456 27,462
Earnings (loss) per common
share and common share
equivalent $( .10) $( .10) $ .24 $ .24
Primary and fully diluted earnings (loss) per share have been
computed by dividing the net earnings (loss) available to
common stockholders by the sum of the weighted average common
shares and common share equivalents outstanding. Common share
equivalents have been excluded when they would be
antidilutive.
Page 11
FORM 10-Q
Item 1. (continued)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note 6. Sale of Division
In January 1996, the Company completed the sale of its
polyurethane products division. The Company sold all
inventory and substantially all of the property, plant,
and equipment of this division. Proceeds of $40.1 million
had been received at March 31, 1996. Gain of $4.7 million
from disposal of this division was recognized in the
first quarter 1996 financial statements as a
restructuring item.
Note 7. Restructuring Activities
Restructuring costs of $0.7 million, incurred in the
first quarter of 1997, related to the consolidation of
operations from Cone's Granite Finishing Plant to its
Carlisle facility. Additional restructuring costs will
be incurred during 1997 as the consolidation of
facilities continues and the Granite plant is eventually
closed.
Page 12
FORM 10-Q
Item 2.
MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OPERATING RESULTS
First Quarter Ended March 30, 1997 Compared with First Quarter
Ended March 31, 1996.
While U.S. consumer spending in apparel and home furnishings
increased in the first quarter of 1997, Cone Mills continued
to experience value-added denim inventory adjustments in
certain customer segments and weak fashion demand for
decorative prints.
Sales for the first quarter of 1997 were $174.7 million, down
12.3%, as compared with sales of $199.3 million for the first
quarter of 1996. After eliminating the sales of business units
included in the Company's restructuring plan, sales were off
approximately 8%. Lower sales in denim products and decorative
prints more than offset increased specialty sportswear sales.
International sales, primarily denims, were $44.5 million, or
25% of total sales, as compared with $52.6 million, or 26% of
sales, for the first quarter of 1996.
Cone Mills had a net loss for the first quarter of 1997 of
$2.0 million, or $.10 per share after preferred dividends,
which included a pre-tax charge of $0.7 million associated
with the consolidation of the Granite operations into
Carlisle. For comparison, first quarter 1996 net income was
$7.2 million, or $.24 per share, including a pre-tax gain of
$4.7 million related to the sale of the Olympic Products
Division.
Gross profit for the first quarter of 1997 (net sales less
cost of sales and depreciation) was 11.4% of sales, as
compared with 15.5% for the previous year. The decrease was
primarily the result of mix changes to more basic denim
products with lower margins, cost inefficiencies associated
with operating plants at less than capacity and pricing
pressures associated with temporary supply and demand
imbalances arising from excess inventories.
Page 13
FORM 10-Q
Item 2. (continued)
Business Segments. Cone operates in two principal business
segments, apparel fabrics and home furnishings products. The
following table sets forth certain net sales and operating
income (loss) information.
First Quarter
1997 1996
(Dollar amounts in millions)
NET SALES
Apparel(1) $ 148.4 84.9% $ 165.7 83.2%
Home Furnishings(2) 26.3 15.1 33.6 16.8
Total $ 174.7 100.0% $ 199.3 100.0%
OPERATING INCOME (LOSS)(3)
Apparel $ 6.1 4.1% $ 13.0 7.8%
Home Furnishings (3.5) (13.4) (1.9) (5.7)
Restructuring (.7) - 4.7 -
(1) Apparel includes synthetic fabrics net sales of $2.7
million and $6.0 million in 1997 and 1996, respectively.
(2) Home furnishings includes Greeff's and real estate's net
sales of $1.4 million in 1997, and Olympic's, Greeff's
and real estate's net sales of $7.8 million in 1996.
(3) Operating income (loss) excludes general corporate
expenses. Percentages reflect operating income (loss) as
a percentage of segment net sales.
Apparel Fabrics. Apparel fabric segment sales for the first
quarter of 1997 were $148.4 million, down 10.5% from the
first quarter of 1996. Excluding sales of the synthetic
fabrics business, which was sold in January of 1997,
apparel fabric segment sales were down approximately 9%.
Lower denim sales because of lower volume and prices
accounted for the decrease. Average denim prices were down
in the first quarter of 1997 as a result of a mix shift to
more basic denims and price pressure from temporary
industry supply and demand imbalances arising from excess
inventories. While unit sales of denim products continue to
be strong at retail, excessive inventory build-up in
certain segments are resulting in weak near-term sales of
denim fabrics. Sales of specialty sportswear were up as
compared with 1996.
For the first quarter of 1997, the apparel segment had
operating income of $6.1 million, or 4.1% of sales, as
compared with income of $13.0 million, or 7.8% of sales, in
Page 14
FORM 10-Q
Item 2. (continued)
the first quarter of 1996. All apparel manufacturing
facilities operated at less than capacity as the Company
attempted to control inventory levels.
Home Furnishings. For the first quarter of 1997, home
furnishings segment sales were $24.9 million, excluding
Olympic, Greeff and real estate, as compared with $25.8
million in the first quarter of 1996. Lower sales in Cone
Finishing and Cone Decorative Fabrics, partially offset by
increased sales of Cone Jacquards, accounted for the
decrease. The home furnishings segment had an operating
loss of $3.5 million compared with a loss of $1.9 million
for the first quarter of 1996. Home furnishings results
were negatively impacted by the finishing division
operating at less than capacity.
Total Company selling and administrative expenses declined
from $21.1 million for the first quarter of 1996 to $18.3
million in the first quarter of 1997, the result of the sale
of the Olympic, Greeff and synthetic fabric operations as well
as a cost reduction program to reduce selling and
administrative expenses. Selling and administrative expenses
were 10.5% of sales in the first quarter of 1997 as compared
with 10.6% in the first quarter of 1996.
Interest expense for the first quarter of 1997 was $3.7
million, down 4% from the first quarter of 1996.
Equity in loss of Parras Cone, the joint venture plant in
Mexico, was $0.5 million. The loss was primarily the result of
operating at levels less than capacity.
Even though the Company has seen some improvement in both
denim and specialty sportswear markets, second quarter results
will continue to be impacted by curtailed manufacturing
operating schedules and weak denim and home furnishings sales.
However, Cone continues to implement a five-point
profitability improvement program which includes focusing on
core businesses, aggressive marketing, cost reduction, the
reconfiguration of manufacturing operations and capital
conservation.
Liquidity and Capital Resources
The Company's principal long-term capital components consist
of $64.3 million outstanding under a Note Agreement with The
Prudential Insurance Company of America (the "Term Loan"), its
Page 15
FORM 10-Q
Item 2. (continued)
8 1/8% Debentures issued on March 15, 1995 and due March 15,
2005 (the "Debentures"), and stockholders' equity. Primary
sources of liquidity are internally generated funds, an $80
million Credit Agreement with a group of banks with Morgan
Guaranty Trust Company of New York ("Morgan Guaranty") as
Agent Bank (the "Revolving Credit Facility"), and the $40
million Receivables Purchase Agreement (the "Receivables
Purchase Agreement") with Delaware Funding Corporation, an
affiliate of Morgan Guaranty. The Receivables Purchase
Agreement is a one year agreement entered into on March 25,
1997 with Delaware Funding Corporation and Cone Receivables,
LLC, a wholly owned subsidiary of Cone Mills Corporation. On
March 30, 1997, the Company had funds available of $86 million
under its Revolving Credit Facility and Receivables Purchase
Agreement.
During the first quarter of 1997, the Company generated cash
from operating activities before changes in working capital of
$6.1 million as compared with $11.9 million in the first
quarter of 1996. Working capital uses in the first quarter of
1997 were $14.1 million. Other uses of cash in the first
quarter of 1997 included $6.6 million for capital expenditures
and $1.4 million for the repurchase of 0.2 million shares of
common stock.
Subsequent to the end of the first quarter of 1997, the
Company completed the sale of substantially all of the assets
of its real estate operation, including Cornwallis Development
Co., for approximately $20 million. Proceeds of the sale will
be used to repay short-term borrowings and for general
corporate purposes.
The Company believes that the proceeds from the sale of its
real estate business, together with Cone's internally
generated operating funds and funds available under its credit
facilities, will be sufficient to meet its working capital,
capital spending, potential stock repurchases, and financing
needs for the foreseeable future. The Company's Revolving
Credit Facility matures in 1997. Based upon discussions with
financial institutions, management believes the Company can
enter into successor facilities that will provide adequate
liquidity with terms and conditions acceptable to the Company.
Page 16
FORM 10-Q
Item 2. (continued)
On March 30, 1997, the Company's long-term capital structure
consisted of $150.1 million of long-term debt and $204.0
million of stockholders' equity. For comparison, on March 31,
1996, the Company had $161.4 million of long-term debt and
$227.9 million of stockholders' equity. Long-term debt
(including current maturities of long-term debt) as a
percentage of long-term debt and stockholders' equity was 44%
on March 30, 1997 and 43% on March 31, 1996.
Accounts and note receivables on March 30, 1997, were $59.2
million, down from $78.7 million at March 31, 1996. At March
30, 1997, the Company had sold gross accounts receivable of
$67 million, net of a $2 million provision for doubtful
accounts receivable, to Cone Receivables, LLC. The Company
received $34 million in cash and a note receivable of $31
million. At March 31, 1996, the Company had sold $25 million
of accounts receivable. The decrease in accounts and note
receivable was primarily due to lower sales levels, the
collection of receivables from business units sold and the
additional net amounts outstanding under the Receivables
Purchase Agreement. The Company adopted SFAS 125 "Accounting
for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" during the first quarter of
1997. Receivables, including those sold pursuant to the
Receivables Purchase Agreement, represented 49 days of sales
outstanding at both March 30, 1997 and March 31, 1996.
Inventories on March 30, 1997, were $145.5 million, down $4.9
million or 3.2% from March 31, 1996 levels.
Capital spending in 1997 is budgeted at $44 million. Projects
include new weaving machines that replace 1970s vintage
weaving machines, link ring spinning, and additional looms for
the jacquard facility. Capital spending in the first quarter
of 1997 was $6.6 million.
The Company has an agreement with CIPSA to purchase up to an
additional 33% of the existing outstanding common stock of
Parras Cone for an amount of $20 million if CIPSA does not
meet certain financial obligations.
Federal, state and local regulations relating to the workplace
and the discharge of materials into the environment continue
to change and, consequently, it is difficult to gauge the
total future impact of such regulations on the Company.
Existing government regulations are not expected to cause a
material change in the Company's competitive position,
Page 17
FORM 10-Q
Item 2. (continued)
operating results or planned capital expenditures. The Company
has an active environmental committee which fosters protection
of the environment and compliance with laws.
The Company is a party to various legal claims and actions.
Management believes that none of these claims or actions,
either individually or in the aggregate, will have a material
adverse effect on the financial condition of the Company.
"Safe Harbor" Statement under Section 27A of the Securities
Act of 1993, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended.
Except for the historical information presented, the
matters disclosed in the foregoing discussion and
analysis and other parts of this report include forward-
looking statements. These statements represent the
Company's current judgment on the future and are subject
to risks and uncertainties that could cause actual
results to differ materially. Such factors include,
without limitation: (i) the demand for textile products,
including the Company's products, will vary with the U.S.
and world business cycles, imbalances between consumer
demand and inventories of retailers and manufacturers and
changes in fashion trends, (ii) the highly competitive
nature of the textile industry and the possible effects
of reduced import protection and free-trade initiatives,
(iii) the unpredictability of the cost and availability
of cotton, the Company's principal raw material, and (iv)
the Company's relationships with Levi Strauss as its
major customer. For a further description of these risks
see the Company's 1996 Form 10-K, "Item 1. Business -
Competition, -Raw Materials and -Customers" and
"Management's Discussion and Analysis of Results of
Operations and Financial Condition -- Overview" of the
Company's 1996 Annual Report to Shareholders incorporated
by reference into Item 7. of the Form 10-K. Other risks
and uncertainties may be described from time to time in
the Company's other reports and filings with the
Securities and Exchange Commission.
PART II
Item 3. Legal Proceedings
In November 1988, William J. Elmore and Wayne Comer (the
"Plaintiffs") former employees of the Company, instituted a
class action suit against the Company and certain other
defendants in which the Plaintiffs asserted a variety of
Page 18
FORM 10-Q
claims related to the Cone Mills Corporation 1983 ESOP (the
"1983 ESOP") and certain other employee benefit plans
maintained by the Company. In March 1992, the United States
District Court in Greenville, South Carolina entered a
judgment in the amount of $15.5 million (including an
attorneys' fee award) against the Company with respect to an
alleged promise to make additional Company contributions to
the 1983 ESOP and all claims unrelated to the alleged promise
were dismissed. The Company, certain individual defendants
and the Plaintiffs appealed.
On May 6, 1994, the United States Court of Appeals for the
Fourth Circuit, sitting en banc, affirmed the prior conclusion
of a panel of three of its judges and unanimously reversed the
$15.5 million judgment and unanimously affirmed all of the
District Court's rulings in favor of the Company. However,
the Court of Appeals affirmed, by an equally divided court,
the District Court's holding that Plaintiffs should be allowed
to proceed on an alternative theory whether, subject to proof
of detrimental reliance, Plaintiffs could establish that a
letter to salaried employees on December 15, 1983 created an
enforceable obligation that could allow recovery on a theory
of equitable estoppel. Accordingly, the case was remanded to
the District Court for a determination of whether the
Plaintiffs could establish detrimental reliance creating
estoppel of the Company.
On April 19, 1995, the District Court granted a motion by the
Company for summary judgment on the issues of equitable
estoppel and third-party beneficiary of contract which had
been remanded to it by the Court of Appeals. The court ruled
that the Plaintiffs could not forecast necessary proof of
detrimental reliance. The District Court, however, granted
Plaintiffs motion to amend the complaint insofar as they
sought to pursue a "new" claim for unjust enrichment, but
denied their motion to amend so far as they sought to add
claims for promissory estoppel and unilateral contract. The
court further denied the Company's motion to decertify the
class.
The District Court held a hearing on July 24, 1995 to decide
on the merits Plaintiffs' lone remaining claim of unjust
enrichment, and in an order entered September 25, 1995, the
District Court dismissed that claim with prejudice. On
October 20, 1995, the Plaintiffs appealed to the Court of
Appeals from the April 19, 1995 and September 25, 1995 orders
of the District Court. Oral argument on Plaintiffs' appeal
was held in the Court of Appeals on October 31, 1996. Due to
Page 19
FORM 10-Q
Item 3. (continued)
the uncertainties inherent in the litigation process, it is
not possible to predict the ultimate outcome of this lawsuit.
However, the Company has defended this matter vigorously, and
it is the opinion of the Company's management that the
probability is remote that this lawsuit, when finally
concluded, will have a material adverse effect on the
Company's financial condition or results of operations.
Item 6. Exhibits and Reports for Form 8-K
None.
Page 20
FORM 10-Q INDEX TO EXHIBITS
Exhibit Sequential
No. Description Page No.
* 2.1 Receivables Purchase Agreement dated
as of August 11, 1992, between the
Registrant and Delaware Funding
Corporation filed as Exhibit 2.01 to
the Registrant's report on Form 8-K
dated August 13, 1992.
* 2.1(a) Amendment to Receivables Purchase
Agreement dated April 4, 1994, between
the Registrant and Delaware Funding
Corporation filed as Exhibit 2.1 to
the Registrant's report on Form 8-K
dated March 1, 1995.
* 2.1(b) Amendment to Receivables Purchase
Agreement dated June 7, 1994, between
the Registrant and Delaware Funding
Corporation filed as Exhibit 2.2 to
the Registrant's report on Form 8-K
dated March 1, 1995.
* 2.1(c) Amendment to Receivables Purchase
Agreement dated as of June 30, 1994,
between the Registrant and Delaware
Funding Corporation filed as Exhibit
2.1 to the Registrant's report on
Form 10-Q for the quarter ended
July 3, 1994.
* 2.1(d) Amendment to Receivables Purchase
Agreement dated as of November 15, 1994,
between the Registrant and Delaware
Funding Corporation filed as Exhibit
2.4 to the Registrant's report on
Form 8-K dated March 1, 1995.
* 2.1(e) Amendment to Receivables Purchase
Agreement dated as of June 30, 1995,
between the Registrant and Delaware
Funding Corporation filed as Exhibit
2.1(e) to the Registrant's report on
Form 10-Q for the quarter ended
July 2, 1995.
Page 21
FORM 10-Q INDEX TO EXHIBITS
Exhibit Sequential
No. Description Page No.
* 2.1(f) Amendment to Receivables Purchase
Agreement dated as of December 31,
1995, between the Registrant and
Delaware Funding Corporation,
filed as Exhibit 2.1(f) to the
Registrant's report on Form 10-K
for the year ended December 31, 1995.
* 2.1(g) Amendment to Receivables Purchase
Agreement and Letter Agreement
referred to therein dated as of
June 24, 1996, between the Registrant
and Delaware Funding Corporation filed
as Exhibit 2.1(g) to Registrant's report
on Form 10-K for the quarter ended
June 30, 1996.
* 2.1(h) Amendment to Receivables Purchase
Agreement dated as of June 30, 1996,
between the Registrant and Delaware
Funding Corporation filed as Exhibit
2.1(h)to the Registrant's report on
Form 10-Q for the quarter ended
September 29, 1996.
* 2.1(i) Amendment to Receivables Purchase
Agreement dated as of August 26, 1996,
between the Registrant and Delaware
Funding Corporation filed as Exhibit
2.1(i) to the Registrant's report on
Form 10-Q for the quarter ended
September 29, 1996.
* 2.1(j) Amendment to Receivables Purchase
Agreement dated as of September 29,
1996, between the Registrant and
Delaware Funding Corporation filed
as Exhibit 2.1(j) to the Registrant's
report on Form 10-Q for the quarter
end September 29, 1996.
2.1(k) Omnibus Termination and Release dated
as of March 26, 1997, between the
Registrant and Delaware Funding
Corporation terminating the
Receivables Purchase Agreement. 33
Page 22
FORM 10-Q INDEX TO EXHIBITS
Exhibit Sequential
No. Description Page No.
2.1(l) Purchase Agreement between Registrant
and Cone Receivables LLC dated as of
March 25, 1997. 36
2.1(m) Receivables Purchase Agreement dated
as of March 25, 1997, among Cone
Receivables LLC, as Seller, the
Registrant, as Servicer, and
Delaware Funding Corporation, as
buyer. 76
* 2.2(a) Investment Agreement dated as of
June 18, 1993, among Compania Industrial
de Parras, S.A. de C.V., Sr. Rodolfo
Garcia Muriel, and Cone Mills
Corporation, filed as Exhibit 2.2(a)
to Registrant's report on Form 10-Q for
the quarter ended July 4, 1993, with
exhibits herein numbered 2.2(b),(c),
(d), (f), (g), and (j) attached.
* 2.2(b) Commercial Agreement dated as of June
25, 1993, among Compania Industrial de
Parras, S.A. de C.V., Cone Mills
Corporation and Parras Cone de Mexico,
S.A., filed as Exhibit 2.2(b) to
Registrant's report on Form 10-Q for the
quarter ended July 4, 1993.
* 2.2(c) Guaranty Agreement dated as of June 25,
1993, between Cone Mills Corporation and
Compania Industrial de Parras, S.A. de
C.V., filed as Exhibit 2.2(c) to
Registrant's report on Form 10-Q for the
quarter ended July 4, 1993.
* 2.2(d) Joint Venture Agreement dated as of
June 25, 1993, between Compania
Industrial de Parras, S.A. de C.V., and
Cone Mills (Mexico), S.A. de C.V. filed as
Exhibit 2.2(d) to Registrant's report on
Form 10-Q for the quarter ended
July 4, 1993.
Page 23
FORM 10-Q INDEX TO EXHIBITS
Exhibit Sequential
No. Description Page No.
* 2.2(e) First Amendment to Joint Venture
Agreement dated as of June 14, 1995,
between Compania Industrial de Parras,
S.A. de C.V., and Cone Mills (Mexico),
S.A. de C.V., filed as Exhibit 2.2(e)
to the Registrant's report on Form 10-Q
for the quarter ended July 2, 1995.
* 2.2(f) Joint Venture Registration Rights
Agreement dated as of June 25, 1993,
among Parras Cone de Mexico, S.A.,
Compania Industrial de Parras, S.A. de
C.V. and Cone Mills (Mexico),
S.A. de C.V. filed as Exhibit 2.2(e)
to Registrant's report on Form 10-Q
for the quarter ended July 4, 1993.
* 2.2(g) Parras Registration Rights Agreement
dated as of June 25, 1993, between Compania
Industrial de Parras, S.A. de C.V. and
Cone Mills Corporation filed as Exhibit
2.2(f) to the Registrant's report on Form
10-Q for the quarter ended July 4, 1993.
* 2.2(h) Guaranty Agreement dated as of June 14,
1995, between Compania Industrial de
Parras, S.A. de C.V. and Cone Mills
Corporation filed as Exhibit 2.2(h) to
the Registrant's report on Form 10-Q
for the quarter ended July 2, 1995.
* 2.2(i) Guaranty Agreement dated as of June 15,
1995, between Cone Mills Corporation
and Morgan Guaranty Trust Company of
New York filed as Exhibit 2.2(I) to
the Registrant's report on Form 10-Q
for the quarter ended July 2, 1995.
* 2.2(j) Support Agreement dated as of June 25,
1993, among Cone Mills Corporation, Sr.
Rodolfo L. Garcia, Sr. Rodolfo Garcia
Muriel and certain other person listed
herein ("private stockholders") filed
as Exhibit 2.2(g) to Registrant's
report on Form 10-Q for the quarter
ended July 4, 1993.
Page 24
FORM 10-Q INDEX TO EXHIBITS
Exhibit Sequential
No. Description Page No.
* 2.2(k) Call Option dated September 25, 1995,
between Registrant and SMM Trust, 1995
- M, a Delaware business trust, filed
as Exhibit 2.2(k) to the Registrant's
report on Form 10-Q for the quarter
ended October 1, 1995.
* 2.2(l) Put Option dated September 25, 1995,
between Registrant and SMM Trust, 1995
- M, a Delaware business trust, filed
as Exhibit 2.2(l) to the Registrant's
report on Form 10-Q for the quarter
ended October 1, 1995.
* 2.2(m) Letter Agreement dated January 11, 1996
among Registrant, Rodolfo Garcia Muriel,
and Compania Industrial de Parras,
S.A. de C.V., filed as Exhibit 2.2(m) to
the Registrant's report on Form 10-K
for the year ended December 31, 1995.
* 2.3 Asset Purchase Agreement dated as
of December 2, 1994 between the
Registrant, Lancer Industries, Inc.
and M.P.M. Transportation, Inc.,
filed as Exhibit 2 to the Registrant's
Current Report on Form 8-K dated
December 2, 1994.
* 2.4 Olympic Division Acquisition Agreement
by and among Vitafoam Incorporated,
British Vita PLC, and Registrant
dated January 19, 1996 with related
Lease Agreement, Lease Agreement and
Option to Purchase, Sublease Agreement,
Services Agreement, License Agreement And
Hold Back Escrow Agreement, each
dated January 22, 1996. The Acquisition
Agreement and related agreements were
filed as Exhibit 2.4 to the Registrant's
report on Form 10-K for the year ended
December 31, 1995. The following
exhibits and schedules to the Acquisition
Agreement have been omitted. The
Registrant hereby undertakes to furnish
supplementally a copy of such omitted
exhibit or schedule to the Commission upon
request.
Page 25
FORM 10-Q INDEX TO EXHIBITS
Exhibit Sequential
No. Description Page No.
Exhibits
Exhibit A1 Form of Buyer Lease
Exhibit A2 Form of Buyer Lease
Exhibit B Form of Holdback Escrow
Agreement
Exhibit C1 Facility 1
Exhibit C2 Facility 2
Exhibit C3 Facility 3
Exhibit C4 Facility 4
Exhibit C5 Facility 5
Exhibit C6 Facility 6
Exhibit D Form of Sublease Agreement
Exhibit E Form of Opinion of Buyer's
Counsel
Exhibit F Form of Opinion of Seller's
Counsel
Exhibit G Form of Assumption Agreement
Exhibit H Form of Services Agreement
Exhibit I Inventory Valuation Principles
Exhibit J Form of License Agreement
Schedules
Schedule 1.1(a) Excluded Assets
Schedule 1.1(b) Tangible Fixed Assets
Schedule 2.8 Assigned Contracts
Schedule 2.10 Allocation of Purchase
Price
Schedule 4.3 Consents and
Authorizations
Schedule 4.7 Contracts by Category
Schedule 4.9 Litigation
Schedule 4.11 Tax Matters
Schedule 4.12 Licenses and Permits
Schedule 4.14 Tangible Personal
Property
Schedule 4.15 Employees and Wage Rates
Schedule 4.16 Insurance Policies
Schedule 4.17 Intellectual Property
Schedule 4.18 Licenses to Intellectual
Property; Third-party
Patents
Schedule 4.19 Purchases from One Party
Schedule 4.22 Real Property
Schedule 4.23 Business Names
Schedule 4.24 Environmental Matters
Schedule 9.4 Facility 5 Remediation Plan
Page 26
FORM 10-Q INDEX TO EXHIBITS
Exhibit Sequential
No. Description Page No.
* 4.1 Restated Articles of Incorporation of
the Registrant effective August 25, 1993,
filed as Exhibit 4.1 to Registrant's
report on Form 10-Q for the quarter ended
October 3, 1993.
* 4.2 Amended and Restated Bylaws of Registrant,
Effective June 18, 1992, filed as Exhibit
3.5 to the Registrant's Registration
Statement on Form S-1 (File No. 33-46907).
* 4.3 Note Agreement dated as of August 13, 1992,
between Cone Mills Corporation and The
Prudential Insurance Company of America,
with form of 8% promissory note attached,
filed as Exhibit 4.01 to the Registrant's
report on Form 8-K dated August 13, 1992.
* 4.3(a) Letter Agreement dated September 11, 1992,
amending the Note Agreement dated August 13,
1992, between the Registrant and The
Prudential Insurance Company of America
filed as Exhibit 4.2 to the Registrant's
report on Form 8-K dated March 1, 1995.
* 4.3(b) Letter Agreement dated July 19, 1993,
amending the Note Agreement dated
August 13, 1992, between the Registrant
and The Prudential Insurance Company of
America filed as Exhibit 4.3 to the
Registrant's report on Form 8-K dated
March 1, 1995.
* 4.3(c) Letter Agreement dated June 30, 1994,
amending the Note Agreement dated
August 13, 1992, between the Registrant
and The Prudential Insurance Company of
America filed as Exhibit 4.4 to the
Registrant's report on Form 8-K dated
March 1, 1995.
* 4.3(d) Letter Agreement dated November 14, 1994,
amending the Note Agreement dated
August 13, 1992, between the Registrant
and The Prudential Insurance Company of
America filed as Exhibit 4.5 to the
Registrant's report on Form 8-K dated
March 1, 1995.
Page 27
FORM 10-Q INDEX TO EXHIBITS
Exhibit Sequential
No. Description Page No.
* 4.3(e) Letter Agreement dated as of June 30,
1995, amending the Note Agreement dated
August 13, 1992, between the Registrant
and The Prudential Insurance Company
of America filed as Exhibit 4.3(e) to
the Registrant's report on Form 10-Q
for the quarter ended July 2, 1995.
* 4.3(f) Letter Agreement dated as of June 30,
1995, between the Registrant and
The Prudential Insurance Company
of America superseding Letter Agreement
filed as Exhibit 4.3(e) to the
Registrant's report on Form 10-Q
for the quarter ended July 2, 1995.
* 4.3(g) Letter Agreement dated as of March 30,
1996, between the Registrant and The
Prudential Insurance Company of
America filed as Exhibit 4.3(g) to the
Registrant's report on Form 10-Q for
the quarter ended March 31, 1996.
* 4.3(h) Letter Agreement dated as of January
31, 1997, between the Registrant and
The Prudential Insurance Company of
America filed as Exhibit 4.3(h) to
the Registrant's report on Form 10-K
for the year ended December 29, 1996.
* 4.4 Credit Agreement dated as of August 13,
1992, among Cone Mills Corporation,
the banks listed therein and Morgan
Guaranty Trust Company of New York,
as Agent, with form of note attached
filed as Exhibit 4.02 to the Registrant's
report on Form 8-K dated August 13, 1992.
* 4.4(a) Amended and Restated Credit Agreement
dated November 18, 1994, among the
Registrant, various banks and Morgan
Guaranty Trust Company of New York,
as Agent, filed as Exhibit 4.1
to the Registrant's report on Form 8-K
dated March 1, 1995.
Page 28
FORM 10-Q INDEX TO EXHIBITS
Exhibit Sequential
No. Description Page No.
* 4.4(b) Amendment to Credit Agreement dated as of
June 30, 1995, amending the Amended and
Restated Credit Agreement dated
November 18, 1994, among the Registrant,
various banks and Morgan Guaranty Trust
Company of New York, as Agent filed as
Exhibit 4.4(b) to the Registrant's
report on Form 10-Q for the quarter
ended July 2, 1995.
* 4.4(c) Amendment No. 2 to Credit Agreement
dated as of December 31, 1995, amending
the Amended and Restated Credit
Agreement dated November 18, 1994,
among the Registrant, various banks
and Morgan Guaranty Trust Company
of New York, as Agent, filed as
Exhibit 4.4(c) to the Registrant's
report on Form 10-K for year ended
December 31, 1995.
* 4.4(d) Amendment No. 3 to Credit Agreement
dated as of June 30, 1996 to the
Amended and Restated Credit
Agreement dated as of November 18,
1994, among the Registrant, various
banks and Morgan Guaranty Trust
Company of New York, as Agent, filed
as Exhibit 4.4(d) to the Registrant's
report on Form 10-Q for the quarter
ended September 29, 1996.
* 4.4(e) Amendment No. 4 to Credit Agreement
dated as of September 29, 1996 to
the Amended and Restated Credit
Agreement dated as of November 18,
1994, among the Registrant, various
banks and Morgan Guaranty Trust
Company of New York, as Agent, filed
as Exhibit 4.4(e) to the Registrant's
report on Form 10-Q for the quarter
ended September 29, 1996.
Page 29
FORM 10-Q INDEX TO EXHIBITS
Exhibit Sequential
No. Description Page No.
4.4(f) Amendment No. 5 to Credit Agreement
dated as of March 30, 1997, to the
Amended and Restated Credit Agreement
dated as of November 18, 1994, among
the Registrant, various banks and
Morgan Guaranty Trust Company of
New York, as Agent. 163
* 4.5 Specimen Class A Preferred Stock
Certificate, filed as Exhibit 4.5
to the Registrant's Registration
Statement on Form S-1(File No. 33-46907).
* 4.6 Specimen Common Stock Certificate,
effective June 18, 1992, filed as
Exhibit 4.7 to the Registrant's
Registration Statement on Form S-1
(File No. 33-46907).
* 4.7 The 401(k) Program of Cone Mills
Corporation, amended and restated
effective December 1, 1994, filed as
Exhibit 4.8 to the Registrant's
report on Form 10-K for year ended
January 1, 1995.
* 4.7(a) First Amendment to the 401(k)
Program of Cone Mills Corporation
dated May 9, 1995, filed as
Exhibit 4.8(a) to the Registrant's
report on Form 10-K for year ended
December 31, 1995.
* 4.7(b) Second Amendment to the 401(k)
Program of Cone Mills Corporation
dated December 5, 1995, filed as
Exhibit 4.8(b) to the Registrant's
report on Form 10-K for year ended
December 31, 1995.
* 4.8 Cone Mills Corporation 1983 ESOP as
amended and restated effective
December 1, 1994, filed as Exhibit 4.9
to the Registrant's report on Form 10-K
for year ended January 1, 1995.
Page 30
FORM 10-Q INDEX TO EXHIBITS
Exhibit Sequential
No. Description Page No.
* 4.8(a) First Amendment to the Cone Mills
Corporation 1983 ESOP dated
May 9, 1995, filed as Exhibit 4.9(a)
to the Registrant's report on Form 10-K
for year ended December 31, 1995.
* 4.8(b) Second Amendment to the Cone Mills
Corporation 1983 ESOP dated
December 5, 1995, filed as
Exhibit 4.9(b) to the Registrant's
report on Form 10-K for year ended
December 31, 1995.
* 4.9 Indenture dated as of February 14,
1995, between Cone Mills Corporation
and Wachovia Bank of North Carolina,
N.A. as Trustee, filed as Exhibit 4.1
to Registrant's Registration Statement
on Form S-3 (File No. 33-57713).
27 Financial Data Schedule 165
* Incorporated by reference to the statement or report indicated.
Page 31
FORM 10-Q
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
CONE MILLS CORPORATION
(Registrant)
Date May 13, 1997 /s/ Anthony L. Furr
Anthony L. Furr
Vice President and
Chief Financial Officer
Page 32