Page 1 of 58
Index to Exhibits - Pages 17-28
UNITED STATES
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 April 2, 2000
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)
336.379.6220
(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 April 28, 2000:
25,479,717 shares.
1
CONE MILLS CORPORATION
INDEX
Page
Number
PART I. FINANCIAL INFORMATION.
Item 1. Financial Statements
Consolidated Condensed Statements of Operations
Thirteen weeks ended April 2, 2000 and April 4, 1999
(Unaudited)..................................................... 3
Consolidated Condensed Balance Sheets
April 2, 2000 and April 4, 1999 (Unaudited)
and January 2, 2000..............................................4
Consolidated Condensed Statements of Cash Flows
Thirteen weeks ended April 2, 2000 and April 4, 1999
(Unaudited) .....................................................5
Notes to Consolidated Condensed Financial Statements
(Unaudited) .....................................................6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations...................11
Item 3. Quantitative and Qualitative Disclosures about Market
Risk ..........................................................15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...............................................15
Item 6. Exhibits and Reports on Form 8-K................................16
2
CONE MILLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Thirteen Thirteen
Weeks Ended Weeks Ended
April 2, 2000 April 4, 1999
- -------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
Net Sales $ 141,677 $ 157,257
Cost of Goods Sold 124,576 141,914
-----------------------------------
Gross Profit 17,101 15,343
Selling and Administrative 13,426 13,305
Restructuring and Impairment of Assets (332) 12,917
-----------------------------------
Income (Loss) from Operations 4,007 (10,879)
-----------------------------------
Other Income (Expense)
Interest income 370 430
Interest expense (4,671) (3,640)
Other expense (807) -
-----------------------------------
(5,108) (3,210)
-----------------------------------
Loss before Income Tax Benefit, Equity in Earnings of
Unconsolidated Affiliate and Cumulative Effect of
Accounting Change (1,101) (14,089)
Income Tax Benefit (374) (4,790)
-----------------------------------
Loss before Equity in Earnings of Unconsolidated Affiliate
and Cumulative Effect of Accounting Change (727) (9,299)
Equity in Earnings of Unconsolidated Affiliate 450 867
-----------------------------------
Loss before Cumulative Effect of Accounting Change (277) (8,432)
Cumulative Effect of Accounting Change - (1,038)
-----------------------------------
Net Loss $ (277) $ (9,470)
-----------------------------------
Loss Available to Common Shareholders
Loss before Cumulative Effect of Accounting Change $ (984) $ (9,152)
Cumulative Effect of Accounting Change - (1,038)
-----------------------------------
Net Loss $ (984) $ (10,190)
-----------------------------------
Loss Per Share - Basic and Diluted
Loss before Cumulative Effect of Accounting Change $ (0.04) $ (0.36)
Cumulative Effect of Accounting Change - (0.04)
-----------------------------------
Net Loss $ (0.04) $ (0.40)
-----------------------------------
Weighted-Average Common Shares Outstanding
Basic and Diluted 25,480 25,431
-----------------------------------
See Notes to Consolidated Condensed Financial Statements.
3
CONE MILLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands, except share and par value data)
April 2, April 4, January 2,
2000 1999 2000
- -------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited) (Note)
ASSETS
Current Assets
Cash $ 1,025 $ 1,883 $ 1,267
Accounts receivable, less allowances of $5,050;
1999, $3,300 and $5,050 60,589 21,765 47,531
Subordinated note receivable - 30,025 -
Inventories 116,892 132,912 110,613
Other current assets 7,167 14,625 6,149
-----------------------------------------------------
Total CurrentuAssetsAssets 185,673 201,210 165,560
Investments in Unconsolidated Affiliates 47,843 45,318 46,815
Other Assets 38,118 36,127 38,964
Property, Plant and Equipment 215,674 230,211 221,458
-----------------------------------------------------
$ 487,308 $ 512,866 $ 472,797
-----------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes payable $ - $ 4,000 $ -
Current maturities of long-term debt 80,714 10,714 79,714
Accounts payable 47,982 41,154 26,849
Sundry accounts payable and accrued liabilities 25,965 43,042 33,866
Deferred income taxes 12,091 18,115 9,894
-----------------------------------------------------
Total Current Liabilities 166,752 117,025 150,323
Long-Term Debt 119,227 181,497 119,115
Deferred Income Taxes 33,289 30,241 33,916
Other Liabilities 11,850 11,651 11,958
Stockholders' Equity
Class A preferred stock - $100 par value; authorized
1,500,000 shares; issued and outstanding 373,660
shares; 1999, 411,916 shares and 355,635 shares 37,366 41,192 35,564
Class B preferred stock - no par value; authorized
5,000,000psharesPlant and Equipment-Net - - -
Common stock - $.10 par value; authorized 42,700,000
shares; issued and outstanding 25,479,717 shares;
1999, 25,431,233 shares and 25,479,717 shares 2,548 2,543 2,548
Capital in excess of par 57,435 57,256 57,435
Retained earnings 67,594 80,494 70,776
Deferred compensation - restricted stock (236) (533) (321)
Accumulated other comprehensive loss, currency
translation adjustment (8,517) (8,500) (8,517)
-----------------------------------------------------
Total Stockholders' Equity 156,190 172,452 157,485
-----------------------------------------------------
$ 487,308 $ 512,866 $ 472,797
-----------------------------------------------------
Note: The balance sheet at January 2, 2000, has been derived from
the financial statements at that date.
See Notes to Consolidated Condensed Financial Statements.
4
CONE MILLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
Thirteen Thirteen
Weeks Ended Weeks Ended
April 2, 2000 April 4, 1999
- -------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
CASH PROVIDED BY (USED IN) OPERATIONS $ 1,571 $ (19,542)
-----------------------------------
-----------------------------------
INVESTING
Investments in unconsolidated affiliates (578) -
Proceeds from sale of property, plant and equipment 1,815 450
Capital expenditures (1,025) (1,420)
-----------------------------------
Cash provided by (used in) investing 212 (970)
-----------------------------------
FINANCING
Net borrowings under line of credit agreements 1,000 3,000
Decrease in checks issued in excess of deposits (1,922) (1,206)
Proceeds from long-term debt borrowings - 20,000
Dividends paid - Class A Preferred (60) (38)
Redemption of Class A Preferred stock (1,043) -
-----------------------------------
Cash provided by (used in) financing (2,025) 21,756
-----------------------------------
Net change in cash (242) 1,244
Cash at Beginning of Period 1,267 639
-----------------------------------
Cash at End of Period $ 1,025 $ 1,883
-----------------------------------
Supplemental Disclosures of Additional Cash Flow Information:
Cash payments for:
Interest $ 7,573 $ 6,271
-----------------------------------
Income taxes, net of refunds $ (408) $ 30
-----------------------------------
Supplemental Schedule of Noncash Financing Activities:
Stock dividend - Class A Preferred Stock $ 2,845 $ 2,797
See Notes to Consolidated Condensed Financial Statements.
5
CONE MILLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note 1. Basis of Financial Statement Preparation
The Cone Mills Corporation (the "Company") consolidated condensed financial
statements for April 2, 2000 and April 4, 1999 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 April 2, 2000, April 4, 1999, and January 2, 2000, and the related
consolidated condensed statements of operations and cash flows for the thirteen
weeks ended April 2, 2000 and April 4, 1999. 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 year 1999.Inventories are stated at the lower of cost or
market. The last-in, first-out (LIFO) method is used to determine cost of most
domestically produced goods. The first-in, first-out (FIFO) or average cost
methods are used to determine cost of 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 April 2, 2000 and April 4,
1999 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. Inventories
(in thousands) 4/2/00 4/4/99 1/2/00
Greige and finished goods $ 80,286 $ 100,206 $ 78,973
Work in process 5,263 9,162 4,821
Raw materials 20,418 13,184 15,523
Supplies and other 10,925 10,360 11,296
$ 116,892 $ 132,912 $ 110,613
6
Note 3. Long-Term Debt
(in thousands) 4/2/00 4/4/99 1/2/00
Senior Note $ 32,144 $ 42,858 $ 32,144
Revolving Credit Agreement 70,000 52,000 69,000
8 1/8% Debentures 97,797 97,353 97,685
199,941 192,211 198,829
Less current maturities 80,714 10,714 79,714
$ 119,227 $ 181,497 $ 119,115
Note 4. Class A Preferred Stock
On February 11, 2000, the Company declared a 8.0% stock dividend on the
Company's Class A Preferred Stock, which was paid on March 31, 2000. The
dividend was charged to retained earnings in the amount of approximately $2.8
million.
Note 5. Depreciation and Amortization
The following table presents depreciation and amortization included in the
consolidated condensed statements of operations.
(in thousands) Thirteen Thirteen
Weeks Ended Weeks Ended
4/2/00 4/4/99
Depreciation $ 5,966 $ 7,190
Amortization 454 452
$ 6,420 $ 7,642
7
Note 6. Loss Per Share
The following table sets forth the computation of basic and diluted loss
per common share ("EPS").
(in thousands, except Thirteen Thirteen
per share data) Weeks Ended Weeks Ended
4/2/00 4/4/99
Loss before cumulative effect of
accounting change $ ( 277) $ ( 8,432)
Preferred stock dividends ( 707) ( 720)
Loss before cumulative effect of accounting
change available to common shareholders ( 984) ( 9,152)
Cumulative effect of accounting change - ( 1,038)
Basic EPS - loss available to common
shareholders ( 984) (10,190)
Effect of dilutive securities - -
Diluted EPS - loss available to common
shareholders after assumed conversions $ ( 984) $ (10,190)
Determination of shares:
Basic EPS - weighted-average shares 25,480 25,431
Effect of dilutive securities - -
Diluted EPS - adjusted weighted-average
shares after assumed conversions 25,480 25,431
Loss per share - basic and diluted
Loss before cumulative effect of
accounting change $ ( .04) $ ( .36)
Cumulative effect of accounting change - ( .04)
Net loss $ ( .04) $ ( .40)
Common stock options outstanding at April 2, 2000 and April 4, 1999, were
not included in the computation of diluted loss per share because to do so would
have been antidilutive.
Note 7. Segment Information
The Company has three principal business segments which are based upon
organizational structure: 1) denim and khaki; 2) commission finishing; and 3)
decorative fabrics. The Company ceased manufacturing yarn-dyed products in 1999.
8
Operating income (loss) for each segment is total revenue less operating
expenses applicable to the segment. Intersegment revenue relates to the
commission finishing segment. Equity in earnings of unconsolidated
affiliate is included in the denim and khaki segment. Restructuring and
impairment of assets, unallocated expenses, interest, income tax benefits
and cumulative effect of accounting change are not included in segment
operating income (loss).
Net sales and income (loss) from operations for the Company's operating
segments are as follows:
(in thousands) Thirteen Thirteen
Weeks Ended Weeks Ended
4/2/00 4/4/99
Net Sales
Denim and Khaki $ 104,262 $ 112,635
Commission Finishing 20,803 25,838
Decorative Fabrics 19,549 16,585
Yarn-Dyed Products 10 7,506
Other 283 472
144,907 163,036
Less Intersegment Sales 3,230 5,779
$ 141,677 $ 157,257
Income (Loss) from Operations
Denim and Khaki $ 5,336 $ 9,316
Commission Finishing ( 839) ( 1,956)
Decorative Fabrics ( 216) 504
Yarn-Dyed Products ( 60) ( 3,277)
Other 692 ( 229)
Unallocated Expenses ( 788) ( 1,453)
4,125 2,905
Restructuring and Impairment of Assets 332 (12,917)
4,457 (10,012)
Less Equity in Earnings of
Unconsolidated Affiliate 450 867
4,007 (10,879)
Other Expense, Net ( 5,108) ( 3,210)
Loss before Income Tax Benefit,
Equity in Earnings of Unconsolidated
Affiliate and Cumulative Effect of
Accounting Change $ ( 1,101) $ (14,089)
9
Note 8. Comprehensive Loss
Comprehensive loss is the total of net loss and other changes in equity,
except those resulting from investments by owners and distribution to owners not
reflected in net loss. Total comprehensive loss for the periods was as follows:
(in thousands) Thirteen Thirteen
Weeks Ended Weeks Ended
4/2/00 4/4/99
Net loss $( 277) $ (9,470)
Other comprehensive loss,
currency translation adjustment - ( 2)
$ ( 277) $ (9,472)
Note 9. Securitization of Accounts Receivable
On April 24, 2000, the Company amended the securitization agreements to
include certain additional trade receivables related to the ongoing purchase and
subsequent resale by Cone Receivables II LLC. Effective with this amendment,
purchases by Redwood Receivables Corporation may provide proceeds of up to $60
million at any point in time. As of April 2, 2000, the total amount outstanding
under the Accounts Receivable Facility was $45.5 million.
10
Item 2.
MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
First Quarter Ended April 2, 2000 Compared with First Quarter Ended April 4,
1999.
For the first quarter of 2000, Cone Mills had sales of $141.7 million, down
10% from sales of $157.3 million for the first quarter of 1999. Lower denim
prices and the exit from yarn-dyed products last year were the primary causes of
the sales decline. Excluding sales of businesses exited in 1999, sales were down
5%.
Gross profit for the first quarter of 2000 increased to 12.1% of sales, as
compared with 9.8% for the previous year. The improvement was primarily the
result of better operating results in commission finishing and the realization
of savings from the 1999 comprehensive restructuring program. These savings
include savings from yarn outsourcing, reconfiguration of overhead structures in
the denim plants, restructurings at Carlisle and the exit from the yarn-dyed
shirtings product line.
Segment Information. The Company has three principal business segments: 1)
denim and khaki; 2) commission finishing; and 3) decorative fabrics. The Company
ceased manufacturing yarn-dyed products in 1999. (See Note 7 to Notes to
Consolidated Condensed Financial Statements included in Part I, Item 1.)
Denim and Khaki. Denim and khaki segment sales for the first quarter of
2000 were $104.3 million, down 7.4% from the first quarter of 1999 sales of
$112.6 million. While sales yards were marginally higher in the most recent
quarter, revenues were adversely affected by lower denim prices, the result
of industry supply/demand imbalances and declining cotton costs, which were
passed on to customers because of market conditions. Operating income for
the denim and khaki segment was $5.3 million, or 5.1% of sales for the most
recent quarter, as compared with $9.3 million, or 8.3% of sales for the
first quarter of 1999. The decline resulted primarily from lower denim
prices. The khaki product line continued to post an operating loss and was
negatively impacted by quality problems associated with the closing of a
supplier's plant and difficulties in finishing certain products. Operating
income for the segment includes the equity in earnings from the Parras Cone
joint venture plant.
Commission Finishing. Outside sales of the commission finishing division
were $17.6 million for the first quarter of 2000, down 12.4% from the first
quarter of 1999. Lower sales at Raytex, resulting from weaker demand in
11
top-of-bed prints, accounted for the decline. Carlisle sales to outside
customers increased by approximately 7% in the first quarter of 2000, as
compared with the 1999 period. Operating results for the segment improved
as the Carlisle plant posted a profit, as compared with a significant loss
for the previous year, mitigating the volume shortfall at Raytex. Losses
for this segment were reduced from $2.0 million for the first quarter of
1999 to a loss of $.8 million for the most recent quarter.
Decorative Fabrics. For the first quarter of 2000, sales of the decorative
fabrics segment rose by 17.9% to $19.5 million the result of continued
growth in jacquards. As a result of weak John Wolf sales in January and
February, start-up expenses associated with increasing capacity at the
Jacquard plant and production curtailments because of inclement weather in
January, the decorative fabrics segment reported a loss of $.2 million for
first quarter 2000, as compared with a $.5 million operating profit for the
previous year period.
Yarn-Dyed Products. As part of the 1999 comprehensive restructuring
program, the Company ceased manufacturing yarn-dyed products and exited the
business in 1999. For the first quarter of 1999, sales of yarn-dyed
products were $7.5 million and the operating loss for the segment was $3.3
million.
Selling and administrative expenses for the first quarter of 2000 were
$13.4 million, or 9.5% of sales, as compared with $13.3 million, or 8.5% of
sales in first quarter 1999. Expenses associated with the Company's new credit
facility, certain performance-based compensation accruals and lower denim prices
on essentially the same sales yards resulted in selling and administrative
expenses increasing as a percent of sales.
For the first quarter of 2000, EBITDA, defined as income (loss) from
operations before depreciation and amortization, was $10.4 million. For
comparison, EBITDA for the first quarter of 1999 was a loss of $3.0 million.
However, excluding restructuring charges, related expenses, inventory writedowns
and operating losses associated with businesses exited, the Company had a pro
forma EBITDA in the first quarter of 1999 of $14.2 million.
Interest expense for the first quarter of 2000 was $4.7 million, up 28%
from $3.6 million for the first quarter of 1999. The increase in interest
expense was the result of increased rates charged by financial lenders and
slightly higher borrowing levels. Other expenses of $.8 million recognized in
the first quarter of 2000 were the ongoing expense of the new accounts
receivable securitization program, which began September 1999.
In both first quarters of 2000 and 1999, the income tax benefit as a
percent of the taxable loss was 34%.
12
Equity in earnings of Parras Cone, the Company's joint venture plant in
Mexico, was $.5 million for the first quarter of 2000, as compared with $.9
million for the first quarter of 1999.
For the first quarter of 2000, the Company had a net loss of $.3 million,
or $.04 per share after preferred dividends. For comparison, for the first
quarter of 1999 the Company reported a net loss of $9.5 million, or $.40 per
share after preferred dividends. Excluding restructuring and related expenses,
and the cumulative effect of an accounting change, the Company had pro forma
earnings of $.02 per share for the first quarter of 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal long-term capital components consist of debt
outstanding under its Senior Note, its 8-1/8% Debentures and stockholders'
equity. Primary sources of liquidity are internally generated funds, an $80
million Revolving Credit Facility ("Revolving Credit Facility")of which $10
million was available on April 2, 2000, and a $60 million Receivables Purchase
and Servicing Agreement (the "Receivables Agreement") entered into on September
1, 1999 and amended on April 24, 2000, with Cone Receivables II LLC, Redwood
Receivables Corporation, an affiliate of General Electric Capital Corporation,
and General Electric Capital Corporation.
On April 24, 2000, the Company amended the Receivables Agreement increasing
the facility from $50 million to $60 million. In addition to increasing the
commitment, the Company modified other provisions of the agreement to allow it
to utilize more fully the entire facility.
During the first quarter of 2000, the Company generated cash from
operations, before changes in working capital, of $6.4 million, as compared with
using $3.3 million of cash during the first quarter of 1999. In the 2000 period,
working capital increased by $4.8 million. Uses of cash in the 2000 period
included $1.6 million for domestic capital expenditures and investment to
develop the Company's joint venture industrial park in Mexico, and $1.0 million
for the redemption of preferred stock.
On January 28, 2000, the Company entered into a new $80 million Revolving
Credit Facility with its existing banks with Bank of America, N.A., as agent.
The Revolving Credit Facility was secured by Company assets and will mature on
August 7, 2000. Interest rates were increased to market levels and new covenants
were set.
At the same time the Company entered into the Revolving Credit Facility,
its Senior Notes and 8-1/8% Debentures were ratably secured with the bank
facility.
13
The Revolving Credit Facility, the Company's Senior Notes and
8-1/8% Debentures, and the Company's Master Lease for its corporate headquarters
property with Atlantic Financial Group, Ltd. prohibit the Company from paying
dividends on its Common Stock.
The Company believes that internally generated operating funds and funds
available under its credit facilities will be sufficient to meet its needs for
working capital and domestic capital spending permitted under the terms of the
Revolving Credit Facility. Liquidity is predicated on the Company meeting its
operating targets in 2000 and further reductions in inventories. By August 2000,
the Company must either refinance or replace the Revolving Credit Facility. The
Company is in the process of exploring its alternatives related to financing its
business. These alternatives may include the following: (1) the restructuring or
replacing of the Revolving Credit Facility; and (2) funding from nontraditional
sources of capital. While management believes that it will be able to obtain the
appropriate financings, including those for its Mexican initiatives, there is no
assurance that the Company will be able to replace its Revolving Credit Facility
or otherwise obtain financing on terms and conditions acceptable to the Company.
On April 2, 2000, the Company's long-term capital structure consisted of $199.9
million of long-term debt (including current maturities) and $156.2 million of
stockholders' equity. For comparison, on April 4, 1999, the Company had $192.2
million of long-term debt (including current maturities) and $172.5 million of
stockholders' equity. Long-term debt (including current maturities) as a
percentage of long-term debt and stockholders' equity was 56% at April 2, 2000,
as compared with 53% at April 4, 1999.
Accounts and note receivable on April 2, 2000, were $60.6 million, as
compared with $51.8 million at April 4, 1999. Receivables, including those sold
pursuant to the Receivables Purchase Agreement, represented 70 days of sales
outstanding at April 2, 2000 and 55 days at April 4, 1999. The increase in days
of sales outstanding primarily reflects a change in customer sales mix with
fewer customers paying in advance of due date.
Inventories on April 2, 2000, were $116.9 million, down $16.0 million from
$132.9 million at April 4, 1999. The Company liquidated inventories associated
with businesses in which it has exited.
For the first quarter of 2000, domestic capital spending was $1.0 million
compared to $1.4 million for the 1999 period. Domestic capital spending in 2000
is expected to be approximately $12 million. In addition to the 2000 domestic
capital spending budget, the Company expects to spend approximately $8 million
for investments in international initiatives of which $.6 million was invested
in the first quarter.
14
OTHER MATTERS
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, 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 1933, 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, (iv) the Company's relationships with Levi Strauss
as its major customer, (v) the Company's ability to attract and maintain
adequate capital to fund operations and strategic initiatives, (vi)
increases in prevailing interest rates, and (vii) the inability to achieve
the cost savings associated with the Company's restructuring initiatives.
For a further description of these risks see the Company's 1999 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 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.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company is exposed to market risks relating to fluctuations in interest
rates and commodity prices. There has been no material change in the Company's
market risks that would significantly affect the disclosures made in the Form
10-K for the year ended January 2, 2000.
15
PART II
Item 1. Legal Proceedings
The Company and its subsidiaries are involved in legal proceedings and
claims arising in the ordinary course of business. Although there can be no
assurance as to the ultimate disposition of these matters, management believes
that the probable resolution of such contingencies will not have a material
adverse effect on the financial condition of the Company.
Item 6. Exhibits and Reports on Form 8-K
(a) The exhibits to this Form 10-Q are listed in the accompanying Index to
Exhibits.
(b) Reports on Form 8-K.
A report on Form 8-K was filed on February 11, 2000.
16
Exhibit Sequential
No. Description Page No.
*2.1(a) Receivables Purchase and Servicing
Agreement dated as of September 1, 1999,
by and among Cone Receivables II LLC,
as Seller, Redwood Receivables
Corporation, as Purchaser, the Registrant,
as Servicer, and General Electric Capital
Corporation, as Operating Agent and
Collateral Agent, filed as Exhibit 2.1(h)
to Registrant's report on Form 10-Q
for the quarter ended October 3, 1999.
*2.1(b) Receivables Transfer Agreement dated as
of September 1, 1999, by and among the
Registrant, any other Originator Party hereto,
and Cone Receivables II LLC, filed as Exhibit
2.1(i) to Registrant's report on Form 10-Q
for the quarter ended October 3, 1999.
*2.1(c) First Amendment and Waiver to Securitization
Agreements dated as of November 16, 1999, by
and between Cone Receivables II LLC, Cone Mills
Corporation, Redwood Receivables Corporation
and General Electric Capital Corporation,
together with all exhibits thereto.
*2.1(d) Second Amendment to Securitization Agreements
dated as of January 28, 2000, by and between
Cone Receivables II LLC, Cone Mills
Corporation, Redwood Receivables Corporation,
and General Electric Capital Corporation,
together with all exhibits thereto.
2.1(e) Third Amendment to Securitization Agreements
dated as of March 31, 2000, by and between
Cone Receivables II LLC, Cone Mills
Corporation, Redwood Receivables Corporation,
and General Electric Capital Corporation,
together with all exhibits thereto. 30
2.1(f) Fourth Amendment to Securitization Agreement
dated as of April 24, 2000 by and between
Cone Receivables II LLC, Cone Mills
Corporation, Redwood Receivables Corporation,
and General Electric Capital Corporation,
together with all exhibits thereto. 35
*2.2(a) Investment Agreement dated as of
June 18, 1993, among Compania Industrial
de Parras, S.A. de C.V., Sr. Rodolfo
17
Exhibit Sequential
No. Description Page No.
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(c),
(d), (f), (g), and (j) attached.
*2.2(b) Commercial Agreement dated as of July 1,
1999, among Compania Industrial de
Parras, S.A. de C.V., Cone Mills
Corporation and Parras Cone de Mexico,
S.A.
*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.
*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
18
Exhibit Sequential
No. Description Page No.
2.2(f) to the Registrant's report on Form
10-Q for the quarter ended July 4, 1993.
*2.2(h) 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.
*3.1 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.
*3.1(a) Articles of Amendment of the Articles of
Incorporation of the Registrant effective
October 22, 1999, to fix the designation,
preferences, limitations, and relative
rights of a series of its Class B Preferred
Stock, filed as Exhibit 4.1(a) to Registrant's
Report on Form 10-Q for the quarter ended
October 3, 1999.
*3.2 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).
*4.1 Rights Agreement dated as of October 14,
1999, between the Registrant and First
Union National Bank, as Rights Agent,
with Form of Articles of Amendment with
respect to the Class B Preferred Stock
(Series A), the Form of Rights Certificate,
and Summary of Rights attached, filed as
Exhibit 1 to the Registrant's report on Form
8-A dated October 29, 1999.
*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.
19
Exhibit Sequential
No. Description Page No.
*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.
*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
20
Exhibit Sequential
No. Description Page No.
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.
*4.3(i) Letter Agreement dated as of July 31,
1997, between the Registrant and The
Prudential Insurance Company of America,
filed as Exhibit 4.3(i) to the
Registrant's report on Form 10-Q for
the quarter ended September 28, 1997.
*4.3(j) Modification to Note Agreement dated
as of February 14, 1998, between the
Registrant and The Prudential
Insurance Company of America, filed as
Exhibit 4.3(j) to Registrant's report on
Form 10-Q for the quarter ended March 29,
1998.
*4.3(k) Letter Agreement dated as of
September 1, 1999, amending the Note
Agreement dated August 13, 1992,
between the Registrant and The Prudential
Insurance Company of America, filed as
Exhibit 4.3(i) on Form 10-Q for the
quarter ended October 3, 1999.
*4.3(l) Amendment of 1992 Note Agreement dated as
of January 28, 2000, by and among Cone Mills
Corporation and The Prudential Insurance
Company of America, together with all
exhibits thereto, filed as Exhibit 9 to the
Registrant's report on Form 8-K dated
February 11, 2000.
*4.4 Credit Agreement dated as of January 28, 2000,
by and among Cone Mills Corporation, as
Borrower, Bank of America, N.A., as Agent
and as Lender and the Lenders party thereto
from time to time, together with all exhibits
21
Exhibit Sequential
No. Description Page No.
thereto, filed as Exhibit 1 to the
Registrant's report on Form 8-K dated
February 11, 2000.
*4.4(a) Guaranty Agreement dated as of January 28,
2000, made by Cone Global Finance Corporation,
CIPCO S.C., Inc. and Cone Foreign Trading
LLC in favor of Bank of America, N.A.
as Revolving Credit Agent for the Lenders,
The Prudential Insurance Company of America,
SunTrust Bank, Morgan Guaranty Trust
Company of New York, Wilmington Trust
Company, as General Collateral Agent,
Bank of America, N.A., as Priority
Collateral Agent, and Atlantic Financial
Group, Ltd., together with all exhibits
thereto, filed as Exhibit 2 to the
Registrant's report on Form 8-K dated
February 11, 2000.
*4.4(b) Priority Security Agreement dated as of
January 28, 2000, by Cone Mills Corporation
and certain of its subsidiaries, as Grantors,
and Bank of America, N.A., as Priority
Collateral Agent, together with all exhibits
thereto, filed as Exhibit 3 to the Registrant's
report on Form 8-K dated February 11, 2000.
*4.4(c) General Security Agreement dated as of January
28,2000, by Cone Mills Corporation and certain
of its subsidiaries, as Grantors, and
Wilmington Trust Company, as General Collateral
Agent, together with all exhibits thereto,
filed as Exhibit 4 to the Registrant's
report on Form 8-K dated February 11, 2000.
*4.4(d) Securities Pledge Agreement dated as of
January 28, 2000, by Cone Mills Corporation in
favor of Wilmington Trust Company, as General
Collateral Agent, together with all exhibits
thereto, filed as Exhibit 5 to the Registrant's
report on Form 8-K dated February 11, 2000.
*4.4(e) CMM Pledge Agreement dated as of January 28,
2000, by Cone Mills Corporation in favor of
Wilmington Trust Company, as General Collateral
Agent, together with all exhibits thereto,
filed as Exhibit 6 to the Registrant's
Report on Form 8-K dated February 11, 2000.
22
Exhibit Sequential
No. Description Page No.
*4.4(f) Deed of Trust, Security Agreement, Fixture
Filing, Assignment of Leases and Rents and
Financing Statement dated as of January 28,
2000, between Cone Mills Corporation, as Grantor,
TIM, Inc., as Trustee, Wilmington Trust
Company, as General Collateral Agent, and
Bank of America, N.A., as Designated
Collateral Subagent, together with all
exhibits thereto, filed as Exhibit 7 to
the Registrant's report on Form 8-K dated
February 11, 2000.
*4.4(g) Deed of Trust, Security Agreement, Fixture
Filing, Assignment of Leases and Rents and
Financing Statement dated as of January 28,
2000, between Cone Mills Corporation, as
Grantor, TIM, Inc., as Trustee, and Bank of
America, N.A., as Priority Collateral Agent,
together with all exhibits thereto, filed as
Exhibit 8 to the Registrant's report on Form
8-K dated February 11.
*4.4(h) Termination Agreement dated as of January
28, 2000, between the Registrant and Morgan
Guaranty Trust Company of New York, as
Agent for various banks terminating the
Credit Agent dated August 7, 1997.
*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 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.
*4.7(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
23
Exhibit Sequential
No. Description Page No.
for year ended December 31, 1995.
*4.7(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.
*4.7(c) Third Amendment to the Cone Mills
Corporation 1983 ESOP dated
August 7, 1997, filed as Exhibit
4.8(c) to the Registrant's report
on Form 10-Q for the quarter ended
September 28,1997.
*4.7(d) Fourth Amendment to the Cone Mills
Corporation 1983 ESOP dated
December 4, 1997, filed as Exhibit
4.8(d) to the Registrant's report
on Form 10-K for the year ended
December 28,1997.
*4.8 Indenture dated as of February 14,
1995, between Cone Mills Corporation
and Wachovia Bank of North Carolina,
N.A. as Trustee (Bank of New York is
successor Trustee), filed as Exhibit 4.1
to Registrant's Registration Statement
on Form S-3 (File No. 33-57713).
Management contract or compensatory plan or arrangement
(Exhibits 10.1 - 10.13)
*10.1 Employees' Retirement Plan of Cone
Mills Corporation as amended and
restated effective December 1, 1994,
filed as Exhibit 10.1 to the
Registrant's report on Form 10-K for
the year ended January 1, 1995.
*10.1(a) First Amendment to the Employees'
Retirement Plan of Cone Mills
Corporation dated May 9,1995,
filed as Exhibit 10.1(a) to the
Registrant's report on Form 10-K
for the year ended December 31, 1995.
24
Exhibit Sequential
No. Description Page No.
*10.1(b) Second Amendment to the Employees'
Retirement Plan of Cone Mills
Corporation dated December 5, 1995,
filed as Exhibit 10.1(b) to the
Registrant's report on Form 10-K
for the year ended December 31, 1995.
*10.1(c) Third Amendment to the Employees'
Retirement Plan of Cone Mills
Corporation dated August 16, 1996,
filed as Exhibit 10.1(c) to the
Registrant's report on Form 10-K
for the year ended December 29, 1996
*10.1(d) Fourth Amendment to the Employees'
Retirement Plan of Cone Mills
Corporation, filed as Exhibit 10
to the Registrant's report on
Form 10-Q for the quarter ended
September 28, 1997.
*10.1(e) Fifth Amendment to Employees'
Retirement Plan of Cone Mills
Corporation dated December 4, 1997,
filed as Exhibit 10.1(e) to the
Registrant's report on Form 10-K
or the year ended December 28, 1997.
*10.2 Cone Mills Corporation SERP as amended
and restated as of December 5, 1995,
filed as Exhibit 10.2 to the
Registrant's report on Form 10-K
for the year ended December 31, 1995.
*10.3 Excess Benefit Plan of Cone Mills
Corporation as amended and restated
as of December 5, 1995, filed as
Exhibit 10.3 to the Registrant's
report on Form 10-K for the year ended
December 31, 1995.
*10.4 1984 Stock Option Plan of Registrant
filed as Exhibit 10.7 to the Registrant's
Registration Statement on Form S-1
(File No. 33-28040).
*10.5 Form of Nonqualified Stock Option
Agreement under 1984 Stock Option Plan
25
Exhibit Sequential
No. Description Page No.
of Registrant, filed as Exhibit 10.8 to
the Registrant's Registration Statement
on Form S-1 (File No. 33-28040).
*10.6 Form of Incentive Stock Option Agreement
under 1984 Stock Option Plan of
Registrant, filed as Exhibit 10.9 to the
Registrant's Registration Statement on
Form S-1 (File No. 33-28040).
*10.7 1992 Stock Option Plan of Registrant,
filed as Exhibit 10.9 to the Registrant's
Report on Form 10-K for the year ended
December 29, 1991.
*10.7(a) Amended and Restated 1992 Stock Plan,
filed as Exhibit 10.1 to
Registrant's report on Form 10-Q
for the quarter ended March 31, 1996.
*10.8 Form of Incentive Stock Option Agreement
under 1992 Stock Option Plan, filed as
Exhibit 10.10 to the Registrant's report on
Form 10-K for the year ended January 3, 1993.
*10.8(a) Form of Nonqualified Stock Option
Agreement under 1992 Stock Option
Plan, filed as Exhibit 10.8(a) to
the Registrant's report on Form
10-K for the year ended
December 29,1996.
*10.8(b) Form of Nonqualified Stock Option
Agreement under 1992 Amended and
Restated Stock Plan, filed as
Exhibit 10.8(b) to the Registrant's
report on Form 10-K for the year
ended December 29, 1996.
*10.8(c) Form of Restricted Stock Award
Agreement under 1992 Amended and
Restated Stock Plan, filed as
Exhibit 10.8(c) to the Registrant's
report on Form 10-K for the year
ended December 28, 1997.
*10.9 1994 Stock Option Plan for Non-
Employee Directors of Registrant, filed
as Exhibit 10.9 to Registrant's report
26
Exhibit Sequential
No. Description Page No.
on Form 10-K for the year ended
January 2,1994.
*10.10 Form of Non-Qualified Stock Option
Agreement under 1994 Stock Option
Plan for Non-Employee Directors of
Registrant, filed as Exhibit 10.10 to
Registrant's report on Form 10-K for
the year ended January 2, 1994.
*10.11 Management Incentive Plan of the
Registrant, filed as Exhibit 10.11(b)
to Registrant's report on Form 10-K
for the year ended January 3, 1993.
*10.12 1997 Senior Management Incentive
Compensation Plan, filed as Exhibit 10.2
to Registrant's report on Form 10-Q
for the quarter ended March 31, 1996.
*10.13 1997 Senior Management Discretionary
Bonus Plan, filed as Exhibit 10.13 to
the Registrant's report on Form 10-K
for the year ended December 29, 1996.
*10.14 Form of Agreement between the Registrant
and Levi Strauss dated as of March 30,
1992, filed as Exhibit 10.14 to the
Registrant's Registration Statement on
Form S-1 (File No. 33-46907).
*10.15 First Amendment to Supply Agreement
dated as of April 15, 1992, between the
Registrant and Levi Strauss dated as of
March 30, 1992, filed as Exhibit 10.15
to Registrant's Registration Statement
on Form S-1 (No. 33-469007).
*10.16 Agreement dated January 1, 1999, between
the Registrant and Parkdale Mills, Inc.,
filed as Exhibit 10.17 to Registrant's
Report on Form 10-K for the year ending
January 2, 2000.
*10.17 Tenth Amendment to Master Lease dated as
of January 28, 2000, between Atlantic
Financial Group, Ltd. and Cone Mills
Corporation, together with all exhibits
thereto, filed as Exhibit 10 to Registrant's
27
Exhibit Sequential
No. Description Page No.
Report on Form 8-K dated February 11, 2000.
10.18 2000 Stock Compensation Plan for Non-Employee
Directors of Registrant dated as of May 9,
2000. 51
27 Financial Data Schedule 58
__________________________________________
* Incorporated by reference to the statement or report indicated.
The Registrant will provide any Shareholder or participant in the Company
Stock Fund in the 401(k) Programs copies of any of the foregoing exhibits upon
written request addressed to Corporate Secretary, Cone Mills Corporation, 3101
North Elm Street, Greensboro, NC 27408.
28
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 15, 2000 /s/ Gary L. Smith
Gary L. Smith
Executive Vice President and
Chief Financial Officer
29