Back to GetFilings.com
================================================================================
Page 1 of 41
Index to Exhibits - Pages 27 - 40
================================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2002
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) (I.R.S. Employer Identification No.)
804 Green Valley Road, Suite 300, Greensboro, N.C. 27408
- -------------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 336-379-6220
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 July 25, 2002: 25,706,393.
================================================================================
1
CONE MILLS CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
Page
Number
Item 1. Financial Statements
Consolidated Condensed Statements of Operations
Thirteen and Twenty-Six weeks ended June 30, 2002 and
July 1, 2001 (Unaudited).............................................3
Consolidated Condensed Balance Sheets
June 30, 2002 and July 1, 2001 (Unaudited)
and December 30, 2001................................................4
Consolidated Condensed Statements of Cash Flows
Twenty-Six weeks ended June 30, 2002 and
July 1, 2001 (Unaudited).............................................5
Notes to Consolidated Condensed Financial Statements
(Unaudited)..........................................................6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.......................16
Item 3. Quantitative and Qualitative Disclosures about Market
Risk ..............................................................24
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...................................................25
Item 4. Submission of Matters to a Vote of Security Holders ................25
Item 5. Other Information ..................................................25
Item 6. Exhibits and Reports on Form 8-K....................................26
2
PART I
Item 1.
CONE MILLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Thirteen Thirteen Twenty-Six Twenty-Six
Weeks Ended Weeks Ended Weeks Ended Weeks Ended
June 30, 2002 July 1, 2001 June 30, 2002 July 1, 2001
- -----------------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Net Sales $ 125,837 $ 121,728 $ 231,657 $ 254,389
Cost of Goods Sold 108,570 116,322 200,085 236,435
--------------------------------------------------------------------
Gross Profit 17,267 5,406 31,572 17,954
Selling and Administrative 9,466 9,749 17,095 19,147
Restructuring and Impairment of Assets - 19,739 - 19,739
--------------------------------------------------------------------
Income (Loss) from Operations 7,801 ( 24,082 ) 14,477 ( 20,932 )
--------------------------------------------------------------------
Other Income (Expense)
Interest income 111 89 129 213
Interest expense ( 3,994 ) ( 4,836 ) ( 8,302 ) ( 9,474 )
Other expense ( 541 ) ( 763 ) ( 1,006 ) ( 1,323 )
--------------------------------------------------------------------
( 4,424 ) ( 5,510 ) ( 9,179 ) ( 10,584 )
--------------------------------------------------------------------
Income (Loss) from Continuing Operations before
Income Tax Expense (Benefit) and Equity in
Earnings of Unconsolidated Affiliates 3,377 ( 29,592 ) 5,298 ( 31,516 )
Income Tax Expense (Benefit) 1,013 ( 8,401 ) 1,447 ( 9,074 )
--------------------------------------------------------------------
Income (Loss) from Continuing Operations before
Equity in Earnings of Unconsolidated Affiliates 2,364 ( 21,191 ) 3,851 ( 22,442 )
Equity in Earnings of Unconsolidated Affiliates 729 223 682 572
--------------------------------------------------------------------
Income (Loss) from Continuing Operations 3,093 ( 20,968 ) 4,533 ( 21,870 )
--------------------------------------------------------------------
Discontinued Operations
Loss from discontinued operations - ( 8,457 ) - ( 11,536 )
Income tax benefit - ( 2,960 ) - ( 4,038 )
--------------------------------------------------------------------
- ( 5,497 ) - ( 7,498 )
--------------------------------------------------------------------
Net Income (Loss) $ 3,093 $ ( 26,465 ) $ 4,533 $ ( 29,368 )
--------------------------------------------------------------------
Income (Loss) Available to Common Stockholders $ 2,015 $ ( 27,532 ) $ 2,423 $ ( 31,414 )
--------------------------------------------------------------------
Earnings (Loss) per Share - Basic and Diluted
Income (loss) from continuing operations $ 0.08 $ ( 0.86 ) $ 0.09 $ ( 0.94 )
Loss from discontinued operations - ( 0.22 ) - ( 0.29 )
--------------------------------------------------------------------
Earnings (Loss) per Share - Basic and Diluted $ 0.08 $ ( 1.08 ) $ 0.09 $ ( 1.23 )
--------------------------------------------------------------------
Weighted-Average Common Shares Outstanding
Basic 25,692 25,557 25,679 25,537
--------------------------------------------------------------------
Diluted 26,109 25,557 26,065 25,537
--------------------------------------------------------------------
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)
June 30, July 1, December 30,
2002 2001 2001
- --------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited) (Note)
ASSETS
Current Assets
Cash $ 408 $ 2,183 $ 529
Accounts receivable, less allowances: 2002, $5,700;
2001, $5,000 and $5,700 40,028 49,921 28,373
Inventories 49,518 82,085 62,057
Other current assets 5,330 9,406 3,371
--------------------------------------------------------
Total Current Assets 95,284 143,595 94,330
Investments in and Advances to Unconsolidated Affiliates 52,087 52,989 51,664
Other Assets 27,176 16,614 23,917
Property, Plant and Equipment 155,640 172,600 164,468
--------------------------------------------------------
$ 330,187 $ 385,798 $ 334,379
--------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt $ 62,160 $ 83,495 $ 3,075
Accounts payable 31,053 33,646 21,535
Sundry accounts payable and accrued liabilities 22,409 31,955 27,928
--------------------------------------------------------
Total Current Liabilities 115,622 149,096 52,538
Long-Term Debt 98,797 106,357 170,655
Deferred Income Taxes 12,278 17,413 10,513
Other Liabilities 14,043 16,291 14,063
Stockholders' Equity
Class A preferred stock - $100 par value; authorized
1,500,000 shares; issued and outstanding:
2002, 349,913 shares; 2001, 353,941 shares and
334,309 shares 34,991 35,394 33,431
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:
2002, 25,706,193 shares; 2001, 25,586,133
shares and 25,660,663 shares 2,571 2,559 2,566
Capital in excess of par 57,950 57,765 57,872
Retained earnings 2,550 9,205 2,029
Deferred compensation - restricted stock ( 5 ) ( 26 ) ( 12 )
Accumulated other comprehensive loss ( 8,610 ) ( 8,256 ) ( 9,276 )
--------------------------------------------------------
Total Stockholders' Equity 89,447 96,641 86,610
--------------------------------------------------------
$ 330,187 $ 385,798 $ 334,379
--------------------------------------------------------
Note: The balance sheet at December 30, 2001, has been derived from
the audited 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)
Twenty-Six Twenty-Six
Weeks Ended Weeks Ended
June 30, 2002 July 1, 2001
- --------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
CASH PROVIDED BY (USED IN) OPERATIONS $ 19,668 $ ( 5,144 )
-----------------------------------
INVESTING
Investments in and advances to unconsolidated affiliates - ( 1,740 )
Proceeds from sale of property, plant and equipment 997 3,034
Capital expenditures ( 1,906 ) ( 2,980 )
-----------------------------------
Cash used in investing ( 909 ) ( 1,686 )
-----------------------------------
FINANCING
Decrease in checks issued in excess of deposits ( 3,515 ) ( 1,839 )
Principal borrowings (payments) on long-term debt ( 12,996 ) 9,913
Proceeds from issuance of common stock 83 142
Dividends paid - Class A Preferred ( 92 ) ( 58 )
Redemption of Class A Preferred stock ( 2,360 ) ( 2,021 )
-----------------------------------
Cash provided by (used in) financing ( 18,880 ) 6,137
-----------------------------------
Net change in cash ( 121 ) (693 )
Cash at Beginning of Period 529 2,876
----------------------------------
Cash at End of Period $ 408 $ 2,183
-----------------------------------
Supplemental Disclosures of Additional Cash Flow Information:
Cash payments for:
Interest $ 8,411 $ 9,132
-----------------------------------
Income taxes, net of refunds $ - $ 227
-----------------------------------
Supplemental Schedule of Noncash Financing Activities:
Stock dividend - Class A Preferred Stock $ 3,920 $ 3,881
-----------------------------------
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 ("Cone") consolidated condensed financial statements
for June 30, 2002 and July 1, 2001 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 June 30,
2002, July l, 2001 and December 30, 2001, and the related consolidated condensed
statements of operations for the respective thirteen and twenty-six weeks ended
June 30, 2002 and July 1, 2001 and cash flows for the twenty-six weeks then
ended. All adjustments are of a normal recurring nature with the exception of
those reclassifications made in connection with discontinued operations and
entries related to Cone's Reinvention Plan. 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 Cone's annual report on Form 10-K for
fiscal year 2001.
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 June 30, 2002 and July 1, 2001 and related consolidated condensed
statements of operations for the thirteen and twenty-six weeks then ended are
based on certain estimates relating to quantities and cost as of the end of the
fiscal year.
Reclassifications: Loss per share for the thirteen and twenty-six weeks ended
July 1, 2001, has been reclassified to reflect discontinued operations.
Note 2. Securitization of Accounts Receivable
Accounting Policies: Cone records accounts receivable at cost, which
approximates fair value at the respective balance sheet dates. Cone estimates
its allowance for doubtful accounts based on a combination of historical and
current information regarding the balance of accounts receivable, as well as the
current composition of the pool of accounts receivable. Cone determines past due
status on accounts receivable based on the contractual terms of the original
sale. Accounts receivable that management believes to be ultimately
uncollectible are written off upon such determination.
6
Cone has not sold any of its accounts receivable other than those pursuant to
the Accounts Receivable Securitization Facility ("A/R Securitization Facility")
with General Electric Capital Corporation. As of June 30, 2002 and July 1, 2001,
the total amount of advances of proceeds from the sale of receivables under the
A/R Securitization Facility was $37.7 million and $51.6 million, respectively.
As of June 30, 2002 and July 1, 2001, included in accounts receivable were
deferred purchase price receivables under the A/R Securitization Facility of
$17.7 million and $42.3 million, respectively. The table below summarizes
certain cash flows under the securitization:
Thirteen Thirteen Twenty-Six Twenty-Six
Weeks Ended Weeks Ended Weeks Ended Weeks Ended
(in thousands) 6/30/02 7/1/01 6/30/02 7/1/01
-----------------------------------------------------------------------------
Proceeds from securitizations $ 36,536 $ 22,118 $ 67,447 $ 30,728
Reductions due to change
in level of receivables sold ( 30,562 ) ( 23,549 ) ( 66,702 ) ( 37,702 )
Daily yield paid ( 539 ) ( 886 ) ( 990 ) ( 1,821 )
Servicing fees paid ( 170 ) ( 194 ) ( 311 ) ( 403 )
Servicing fees received 170 124 311 344
Note 3. Inventories
(in thousands) 6/30/02 7/1/01 12/30/01
------------------------------------------
Greige and finished goods $ 27,220 $ 50,602 $ 35,811
Work in process 4,326 6,618 5,084
Raw materials 8,442 14,648 10,779
Supplies and other 9,530 10,217 10,383
------------------------------------------
$ 49,518 $ 82,085 $ 62,057
------------------------------------------
Note 4. Long-Term Debt
(in thousands) 6/30/02 7/1/01 12/30/01
------------------------------------------
Senior Note $ 25,160 $ 28,859 $ 27,155
Revolving Credit Agreement 37,000 65,000 48,000
8-1/8% Debentures 98,797 95,993 98,575
------------------------------------------
160,957 189,852 173,730
Less current maturities 62,160 83,495 3,075
------------------------------------------
$ 98,797 $106,357 $170,655
------------------------------------------
7
On November 9, 2001, Cone entered into agreements to refinance both its
Revolving Credit Facility with its existing banks and its Senior Note. The new
agreements provide for scheduled amortization or commitment reductions of $10
million during 2002 with a final maturity date of January 15, 2003. In addition,
the agreements provide for additional amortization and commitment reductions
related to proceeds received by Cone for permitted asset sales and 75% of excess
cash flow (as defined in the agreements). Cone is considering its financing
alternatives and has not decided on a specific course of action at this time.
There can be no assurance that financing will be available on acceptable terms
and conditions.
On July 1, 2002, the interest rate on the Senior Note and the margin on Base
Rate Loans on the Revolving Credit Facility increased to 14.2% and 4.5% from
13.7% and 4.0%, respectively.
Note 5. Class A Preferred Stock
On February 13, 2002, Cone declared a 12.0% stock dividend on Cone's Class A
Preferred Stock, which was paid on March 31, 2002. The dividend was charged to
retained earnings in the amount of approximately $3.9 million. The 2003 dividend
rate for Class A Preferred Stock is 12.0%, payable March 31, 2003.
Note 6. Depreciation and Amortization
The following table presents depreciation and amortization included in
continuing operations in the consolidated condensed statements of operations.
Thirteen Thirteen Twenty-Six Twenty-Six
Weeks Ended Weeks Ended Weeks Ended Weeks Ended
(in thousands) 6/30/02 7/1/01 6/30/02 7/1/01
-----------------------------------------------------------------------------
Depreciation $ 5,048 $ 5,374 $ 10,098 $ 10,882
Amortization 23 27 46 57
-----------------------------------------------------------------------------
$ 5,071 $ 5,401 $ 10,144 $ 10,939
-----------------------------------------------------------------------------
Depreciation and amortization expense included in the pre-tax loss from
discontinued operations (See Note 12, "Discontinued Operations," to the Notes to
Consolidated Condensed Financial Statements) is as follows:
Thirteen Thirteen Twenty-Six Twenty-Six
Weeks Ended Weeks Ended Weeks Ended Weeks Ended
(in thousands) 6/30/02 7/1/01 6/30/02 7/1/01
-----------------------------------------------------------------------------
Depreciation $ - $ 63 $ - $ 111
Amortization - 3 - 4
-----------------------------------------------------------------------------
$ - $ 66 $ - $ 115
-----------------------------------------------------------------------------
8
Note 7. Earnings (Loss) Per Share
The following table sets forth the computation of basic and diluted earnings
(loss) per common share ("EPS").
Thirteen Thirteen
Weeks Ended Weeks Ended
(in thousands, except per share data) 6/30/02 7/1/01
----------------------------------------
Income (loss) from continuing operations $ 3,093 $ ( 20,968 )
Preferred dividends ( 1,078 ) ( 1,067 )
----------------------------------------
Income (loss) from continuing operations available
to common stockholders 2,015 ( 22,035 )
Loss from discontinued operations - ( 5,497 )
----------------------------------------
Basic EPS - income (loss) available to common
stockholders 2,015 ( 27,532 )
Effect of dilutive securities - -
----------------------------------------
Diluted EPS - income (loss) available to common
stockholders after assumed conversions $ 2,015 $ ( 27,532 )
----------------------------------------
Determination of shares:
Weighted-average shares 25,700 25,572
Contingently issuable (unvested restricted shares) ( 8 ) ( 15 )
----------------------------------------
Basic EPS - weighted-average shares 25,692 25,557
Effect of dilutive securities 417 -
----------------------------------------
Diluted EPS - adjusted weighted-average shares after
assumed conversions 26,109 25,557
----------------------------------------
Earnings (loss) per share - basic and diluted:
Income (loss) from continuing operations $ 0.08 $ ( 0.86 )
Loss from discontinued operations - ( 0.22 )
----------------------------------------
Earnings (loss) per share - basic and diluted $ 0.08 $ ( 1.08 )
----------------------------------------
The number of potentially dilutive common stock options outstanding using the
treasury stock method for the thirteen weeks ended July 1, 2001, were
approximately 23,000 but were not included in the computation of diluted loss
per share because to do so would have been antidilutive.
9
Note 7. Earnings (Loss) Per Share (continued)
The following table sets forth the computation of basic and diluted income
(loss) per common share ("EPS").
Twenty-Six Twenty-Six
Weeks Ended Weeks Ended
(in thousands, except per share data) 6/30/02 7/1/01
----------------------------------------
Income (loss) from continuing operations $ 4,533 $ ( 21,870 )
Preferred dividends ( 2,110 ) ( 2,046 )
----------------------------------------
Income (loss) from continuing operations available
to common stockholders 2,423 ( 23,916 )
Loss from discontinued operations - ( 7,498 )
----------------------------------------
Basic EPS - income (loss) available to common
stockholders 2,423 ( 31,414 )
Effect of dilutive securities - -
----------------------------------------
Diluted EPS - income (loss) available to common
stockholders after assumed conversions $ 2,423 $ ( 31,414 )
----------------------------------------
Determination of shares:
Weighted-average shares 25,687 25,552
Contingently issuable (unvested restricted shares) ( 8 ) ( 15 )
----------------------------------------
Basic EPS - weighted-average shares 25,679 25,537
Effect of dilutive securities 386 -
----------------------------------------
Diluted EPS - adjusted weighted-average shares after
assumed conversions 26,065 25,537
----------------------------------------
Earnings (loss) per share - basic and diluted:
Income (loss) from continuing operations $ 0.09 $ ( 0.94 )
Loss from discontinued operations - ( 0.29 )
----------------------------------------
Earnings (loss) per share - basic and diluted $ 0.09 $ ( 1.23 )
----------------------------------------
The number of potentially dilutive common stock options outstanding using the
treasury stock method for the twenty-six weeks ended July 1, 2001, were
approximately 16,000 but were not included in the computation of diluted loss
per share because to do so would have been antidilutive.
Note 8. Segment Information
Cone has three principal business segments based upon organizational structure:
1) Denim; 2) Commission Finishing; and 3) Decorative Fabrics.
10
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 affiliates is
included in the denim segment. Unallocated expenses, interest and income tax
expense (benefit) are not included in segment operating income (loss).
Unallocated expenses include certain legal expenses, bank fees and fees and
discounts on the sale of accounts receivable.
Net sales and income (loss) from continuing operations for Cone's operating
segments are as follows:
Thirteen Thirteen
Weeks Ended Weeks Ended
(in thousands) 6/30/02 7/1/01
---------------------------------------
Net Sales
Denim $ 101,725 $ 97,475
Commission Finishing 15,365 17,968
Decorative Fabrics 9,491 9,927
Other 81 89
---------------------------------------
126,662 125,459
Less Intersegment Sales 825 3,731
---------------------------------------
$ 125,837 $ 121,728
---------------------------------------
Income (Loss) from Continuing Operations
Denim $ 8,692 $ 3,402
Commission Finishing 1,073 885
Decorative Fabrics ( 145 ) ( 144 )
Other ( 626 ) 13
Unallocated Expenses ( 464 ) ( 1,137 )
---------------------------------------
8,530 3,019
Reinvention Plan - Inventory Charges and
Facility Consolidation Charges - ( 7,139 )
Restructuring and Impairment of Assets - ( 19,739 )
---------------------------------------
8,530 ( 23,859 )
Less Equity in Earnings of
Unconsolidated Affiliates 729 223
---------------------------------------
7,801 ( 24,082 )
Other Expense, Net ( 4,424 ) ( 5,510 )
---------------------------------------
Income (Loss) from Continuing Operations
before Income Tax Expense (Benefit) and
Equity in Earnings of Unconsolidated
Affiliates $ 3,377 $ ( 29,592 )
---------------------------------------
11
Note 8. Segment Information (continued)
Twenty-Six Twenty-Six
Weeks Ended Weeks Ended
(in thousands) 6/30/02 7/1/01
---------------------------------------
Net Sales
Denim $ 183,840 $ 203,625
Commission Finishing 30,524 37,317
Decorative Fabrics 19,810 21,065
Other 143 208
---------------------------------------
234,317 262,215
Less Intersegment Sales 2,660 7,826
---------------------------------------
$ 231,657 $ 254,389
---------------------------------------
Income (Loss) from Continuing Operations
Denim $ 14,473 $ 8,450
Commission Finishing 2,129 272
Decorative Fabrics 371 ( 267 )
Other ( 994 ) ( 67 )
Unallocated Expenses ( 820 ) ( 1,870 )
---------------------------------------
15,159 6,518
Reinvention Plan - Inventory Charges and
Facility Consolidation Charges - ( 7,139 )
Restructuring and Impairment of Assets - ( 19,739 )
---------------------------------------
15,159 ( 20,360 )
Less Equity in Earnings of Unconsolidated Affiliates 682 572
---------------------------------------
14,477 ( 20,932 )
Other Expense, Net ( 9,179 ) ( 10,584 )
---------------------------------------
Income (Loss) from Continuing Operations before
Income Tax Expense (Benefit) and Equity in Earnings
of Unconsolidated Affiliates $ 5,298 $ ( 31,516 )
---------------------------------------
Note 9. Comprehensive Income (Loss)
Comprehensive income (loss) is the total of net income (loss) and other changes
in equity, except those resulting from investments by owners and distributions
to owners not reflected in net income (loss). Total comprehensive income (loss)
for the periods was as follows:
Thirteen Thirteen Twenty-Six Twenty-Six
Weeks Ended Weeks Ended Weeks Ended Weeks Ended
(in thousands) 6/30/02 7/1/01 6/30/02 7/1/01
---------------------------------------------------------------------------
Net income (loss) $ 3,093 $ ( 26,465 ) $ 4,533 $ ( 29,368 )
Other comprehensive income,
cotton derivatives gains 843 550 666 1,513
---------------------------------------------------------------------------
$ 3,936 $ ( 25,915 ) $ 5,199 $ ( 27,855 )
---------------------------------------------------------------------------
12
Cotton derivatives gains as of June 30, 2002, reflected above in other
comprehensive income (loss) will be recognized in cost of goods sold over the
next twelve months.
Note 10. Financial Instruments
Cone utilizes derivative financial instruments to manage risks associated with
changes in cotton prices, interest rates and foreign exchange rates.
Cone adopted SFAS No. 133 and SFAS No. 138 as of January 1, 2001. Cone
determined that its interest rate swap agreement was an ineffective hedge under
the new standards. Because of the transition provision of SFAS No. 133, Cone did
not recognize a cumulative effect of an accounting change affecting results of
operations related to its interest rate swap agreement at January 1, 2001. The
adjustment to the carrying value of debt in the amount of approximately $2.7
million on January 1, 2001, recorded under the transition provisions of the new
standards, was amortized to results of operations over the period to swap
termination. Cone recognized approximately $0.2 million and $0.4 million in
expense related to amortization of this adjustment to the carrying value of debt
for the thirteen and twenty-six weeks ended July 1, 2001, which is reflected in
the "Other expense" caption on the consolidated condensed statements of
operations. Changes in the fair value of the interest rate swap agreement after
transition were recorded in the statements of operations in the period of
change. For the thirteen and twenty-six weeks ended July 1, 2001, Cone
recognized a gain on the change in the fair value of this derivative instrument
of $0.3 million and $0.8 million, respectively, which is reflected in the "Other
expense" caption on the consolidated condensed statements of operations. As of
July 1, 2001, the interest rate swap had an estimated fair market value of $1.9
million and was recorded in other long-term liabilities on the consolidated
condensed balance sheet. Effective October 4, 2001, the interest rate swap
agreement was terminated for a total cost of $50,000.
Cash Flow Hedging Strategy
Cotton is the primary raw material for Cone's fabric manufacturing operations.
Cone has an established cotton purchasing program, administered in conformance
with policies approved by the Board of Directors, to ensure an uninterrupted
supply of appropriate quality and quantities of cotton, to cover committed and
anticipated fabric sales and to manage margin risks associated with price
fluctuations on anticipated cotton purchases. Cone primarily uses forward
purchase contracts and, to a lesser extent, futures and option contracts. Cone
considers its cotton derivatives to be primarily cash flow hedges of anticipated
future transactions under SFAS No. 133. The effective portion of derivative
gains and losses for these hedges is initially reported as a component of other
comprehensive income (loss) outside results of operations and subsequently
reclassified into results of operations when the forecasted transactions being
hedged affect results of operations. At June 30, 2002, Cone recorded in
accumulated other comprehensive income (loss) cotton derivative gains, net of
deferred taxes, of $1.0 million. At July 1, 2001, Cone recorded in accumulated
other comprehensive income (loss) cotton derivative gains, net of
13
deferred taxes, of $1.5 million. Gains of $0.2 million and $0.6 million were
credited to cost of goods sold during the thirteen and twenty-six weeks ended
June 30, 2002, respectively. Gains of less than $0.1 million and $0.4 million
were credited to cost of goods sold during the thirteen and twenty-six weeks
ended July 1, 2001, respectively. The ineffective portion of derivative gains
and losses is reported in results of operations immediately. Hedge
ineffectiveness for the thirteen and twenty-six weeks ended June 30, 2002 and
July 1, 2001, was immaterial.
Note 11. Restructuring and Impairment of Assets
A roll-forward of the activity related to Cone's restructuring charges for the
twenty-six weeks ended June 30, 2002 and July 1, 2001 follows:
Corporate
& Textile
Products
(in thousands) Group Raytex Total
--------------------------------------------------------------
Balance, December 30, 2001 $ 639 $ - $ 639
Deductions:
Terminal leave and related benefits ( 639 ) - ( 639 )
--------------------------------------------------------------
Balance, June 30, 2002 $ - $ - $ -
--------------------------------------------------------------
Balance, December 31, 2000 $ - $ 964 $ 964
Additions:
Terminal leave and related benefits 3,335 - 3,335
Consulting and legal fees 600 - 600
Pension curtailment* 888 - 888
--------------------------------------------------------------
4,823 - 4,823
--------------------------------------------------------------
Deductions:
Terminal leave and related benefits ( 216 ) ( 735 ) ( 951 )
Consulting and legal fees ( 233 ) - ( 233 )
Pension curtailment* ( 888 ) - ( 888 )
--------------------------------------------------------------
( 1,337 ) ( 735 ) ( 2,072 )
--------------------------------------------------------------
Balance, July 1, 2001 $ 3,486 $ 229 $ 3,715
--------------------------------------------------------------
*Items expensed as incurred.
Note 12. Discontinued Operations
In accordance with the provisions of Statement of Financial Accounting Standards
("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets," Cone recorded in fiscal year 2001 the operating results of its khaki
business and the John Wolf converted fabrics
14
business as discontinued operations. Cone will not have any significant
continuing involvement in the operations of these businesses.
Net sales and losses from discontinued operations were as follows:
Thirteen Twenty-Six
Weeks Ended Weeks Ended
(in thousands) 7/1/01 7/1/01
----------------------------------------
Net Sales
John Wolf $ 5,922 $ 11,620
Khaki 7,564 16,740
----------------------------------------
$ 13,486 $ 28,360
----------------------------------------
Pretax Loss from Discontinued Operations
John Wolf $ ( 3,015 ) $ ( 4,255 )
Khaki ( 5,442 ) ( 7,281 )
----------------------------------------
( 8,457 ) ( 11,536 )
Income Tax Benefit ( 2,960 ) ( 4,038 )
----------------------------------------
Net Loss from Discontinued Operations $ ( 5,497 ) $ ( 7,498 )
----------------------------------------
Note 13. Income Taxes
The effective tax rate for the thirteen and twenty-six weeks ended June 30,
2002, is lower than expected because of the effect of the extraterritorial
income exclusion related to export sales. The effective tax rate used for the
twenty-six weeks ended July 1, 2001, differs from 35% because Cone recorded a
valuation allowance on the deferred tax assets that resulted from the non-cash
impairment charges totaling $5.6 million related to Cone's investments in
certain of its unconsolidated affiliates, Ashima and CIPSA. The impairment
charges will result in future tax deductible capital losses; however, Cone does
not expect to have taxable capital gains in the future to realize these tax
deductible losses. As such, Cone has established the valuation allowance on the
resulting deferred tax assets.
15
Item 2.
MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
The U.S. economy continued its recovery in the second quarter of 2002 from the
2001 economic slowdown. However, growth slowed from the 6.1% increase in U.S.
GDP in the first quarter to an estimated 2.5% increase in the second quarter of
2002. The outlook for the U.S. economy for the balance of 2002 has been tempered
as a result of the volatility in the equity markets. The Federal Reserve is
forecasting that U.S. GDP growth will be 3% in the second half of 2002 and that
the consumer will continue to drive the general economy as overall economic
fundamentals continue to improve. On a trade-weighted basis, the U.S. dollar has
declined versus foreign currencies by approximately 9% in 2002 through the end
of July. In general, the decline in the U.S. dollar should aid recovery of U.S.
manufacturing. However, the environment for U.S. textiles is expected to remain
challenging, as many of the largest apparel exporting countries have linked
their currency to the U.S. dollar. Many of these countries do not have
free-market economies and any adjustment of trade flows will be based upon
global trade policy.
Cone's second quarter results improved from first quarter primarily because of
excellent manufacturing performance as measured against historical benchmarks,
cost savings from initiatives undertaken as part of the 2001 Reinvention Plan,
improved denim demand, and lower cotton costs. Assuming that the housing effect
partially offsets the loss of wealth as a result of the declines in the equity
markets and that the consumer continues to spend, Cone expects continued
improvement in operating results in the third quarter. Traditionally, the second
and third quarters are Cone's strongest quarters. Cone should also benefit from
lower cotton costs in the third quarter, which will be partially offset by lower
denim sales prices. Improvement in Cone's Carlisle and jacquard businesses is
also dependent upon the general strength of the economy and overall confidence
levels, which have been shaken with the declines in the equity markets.
Cone remains focused on its strategy to grow its denim business by expanding
capacity in Mexico. The stated plan has been to build a denim plant, with an
initial capacity of 20 million yards, on our site in Altamira, Tamaulipas,
Mexico when financing is available. Previously, our estimates for the cost of
this denim facility, depending upon ultimate size and configuration, had been an
investment of between $60 and $90 million. Based upon a review of the used
textile machinery market and other project cost reduction opportunities, we now
believe that the initial denim facility can be completed for a capital
investment of less than $60 million. The funds required for the denim facility
will require debt or equity financing and certain modifications to our current
debt structure and lending agreements. Cone is presently in discussions with its
lenders regarding a balance sheet recapitalization and is holding discussions
with capital providers regarding funds for the Mexican denim project. Cone has
not arranged financing or modified its debt structure or lending agreements to
date, and there can be no assurance that such financing
16
will be available on acceptable terms and conditions or that its present lenders
will agree to the required modifications.
Also in Mexico, Cone and its joint venture partner, Compania Industrial de
Parras, S.A. de C.V. ("CIPSA"), have agreed to expand Parras Cone's denim
production capacity by up to 35%. The expansion is expected to be financed by
Parras Cone with internally generated cash flow and debt. The expansion has been
delayed until financing can be secured; however, there can be no assurance that
such financing will be available on acceptable terms and conditions. In the
interim, until financing can be arranged for the larger expansion, a smaller
scale expansion of approximately 9% of capacity at an estimated cost of $1
million is in process and is expected to be completed by August 2002. Cone will
continue to market and distribute 100% of the fabric production of Parras Cone.
RESULTS OF OPERATIONS
Second Quarter Ended June 30, 2002 Compared with Second Quarter Ended July 1,
2001.
For the second quarter of 2002, Cone had sales of $125.8 million, an increase of
3.4% over sales of $121.7 million for the second quarter of 2001. The increase
in sales was primarily driven by denim unit increases.
Gross profit margin increased to 13.7% of sales for the second quarter of 2002,
as compared with 4.4% for the second quarter of 2001. The primary drivers of the
improvement in gross profit margin were the savings from the 2001 Reinvention
Plan, lower cotton costs that were partially offset by lower denim selling
prices and favorable manufacturing variances reflecting additional cost
reductions, improved operating schedules and improved efficiencies and quality.
Segment Information. Cone operates in three principal business segments: Denim,
Commission Finishing and Decorative Fabrics. (See Note 8 of the Notes to
Consolidated Condensed Financial Statements included in Part I, Item 1.)
Denim. Denim sales revenues were $101.7 million for the second quarter
of 2002, as compared with sales of $97.5 million for the second quarter
of 2001, or an increase of 4.4%. Denim units increased 11.8%, as
compared with the prior year's second quarter results, as improvements
in the market for denim fabrics and Cone's product styling allowed the
denim facilities to operate at full capacity and also to reduce
inventory levels. As compared with the prior year's period, sales
prices on a percentage basis were down in the mid-single digits and on
a consolidated basis sales mix was less favorable as denims produced by
Parras Cone were a higher percentage of total denim sales. Operating
income for the denim segment was $8.7 million or 8.5% of sales for the
second quarter of 2002, as compared with $3.4 million, or 3.5% of sales
for the second quarter of 2001. The improvement in operating income was
attributable to the 2001 Reinvention Plan savings, lower cotton costs
and favorable manufacturing variances. Cotton cost savings were
partially offset by the decline in average selling prices. Cone expects
to realize
17
greater benefits from lower cotton prices in the third quarter of 2002.
However, the decline in cotton prices that occurred in late 2001 has
partially reversed as cotton futures prices have recently increased.
Operating income for the segment includes the equity in earnings
(losses) of the Parras Cone joint venture and the Altamira industrial
park joint venture. Equity in earnings of Parras Cone was $0.8 million
for the second quarter of 2002, as compared with $0.2 million for the
second quarter of 2001.
Commission Finishing. In 2002, the commission finishing segment
consists only of the Carlisle plant. In 2001, the segment consisted of
both the Carlisle and Raytex operations. Outside sales (total segment
sales less intercompany sales) of the commission finishing segment
increased by 2.1%, as compared with second quarter 2001 results. The
increase in outside sales was the result of the sale of the John Wolf
unit in August 2001, thereby changing the classification of these sales
to outside sales from intercompany sales. Sales to the apparel and
specialty markets were lower in 2002, as compared with 2001. Total
sales, including intercompany sales, decreased by 14.5% primarily as a
result of Cone's decision to exit the khaki segment at the end of 2001.
For the second quarter of 2002, the segment reported a profit of $1.1
million, as compared with $0.9 million for the second quarter of 2001.
The improvement in the segment's operating income is primarily
attributable to improved operating efficiencies, quality and savings
from the 2001 Reinvention Plan.
Decorative Fabrics. The decorative fabrics segment consists of Cone's
jacquard operation. Sales revenue in the second quarter of 2002 was
$9.5 million, as compared with $9.9 million for second quarter 2001.
Sales volume decreased by approximately 20% and was partially offset by
improved product mix and higher average unit selling prices. The
reduction in sales volume is the result of fewer product placements in
the market, a decision to move certain looms to the denim operation in
second half of 2001 and management's decision to phase out certain
unprofitable lines. Segment operating results were a loss of $0.1
million for both periods.
Selling and administrative expenses for the second quarter of 2002 were 7.5% of
sales, as compared to 8.0% for the second quarter of 2001. Selling and
administrative expenses were a lower percentage of sales in the second quarter
of 2002 as a result of savings from the 2001 Reinvention Plan partially offset
by lower unit selling prices and certain accruals for performance-based
compensation. Expenses related to Cone's balance sheet recapitalization
initiative were also included in second quarter of 2002 administrative expenses.
Interest expense for the second quarter of 2002 was $4.0 million, as compared
with $4.8 million for the second quarter of 2001. Benefits from lower borrowing
levels and lower market interest rate levels were partially offset by increases
in rates under Cone's financing agreements. Other expense of $0.5 million in the
second quarter of 2002 include the ongoing expenses of the accounts receivable
securitization program, as compared to other expense of $0.8 million in the
second quarter of 2001, which included the ongoing expenses of the accounts
receivable securitization program as well as amortization of the transition
amount and the valuation adjustment of the interest rate swap derivative
instrument. The interest rate swap was terminated in the fourth quarter of 2001.
18
The effective tax rate from continuing operations for the second quarter of 2002
was 30% versus a tax benefit of 28% for the second quarter of 2001. Tax benefits
of export sales reduced the effective tax rate for the second quarter of 2002.
The effective tax rate used for the thirteen weeks ended July 1, 2001, differed
from 35% because Cone recorded a valuation allowance on the deferred tax assets
that resulted from the non-cash impairment charges totaling $5.6 million related
to Cone's investments in certain of its unconsolidated affiliates, Ashima and
CIPSA. The impairment charges will result in future tax deductible capital
losses; however, Cone does not expect to have taxable capital gains in the
future to realize these tax deductible losses. Therefore, Cone has established
the valuation allowance on the resulting deferred tax assets.
For the second quarter of 2002, Cone had a net profit $3.1 million or $.08 per
share after preferred dividends. For the second quarter of 2001, Cone had a net
loss of $26.5 million, or $1.08 per share after preferred dividends. Included in
the net loss were after-tax charges of $23.8 million of impairment and
restructuring charges and inventory write-downs and facility consolidation
charges related to the Reinvention Plan, or $0.93 per share.
Six Months Ended June 30, 2002 Compared with Six Months Ended July 2, 2001
- --------------------------------------------------------------------------
For the first six months of 2002, Cone had sales of $231.7 million, a decrease
of 8.9%, as compared with sales of $254.4 million for the first six months of
2001. The decrease in sales was across all segments.
Gross profit margin increased to 13.6% of sales for the first half of 2002, as
compared with 7.1% for the first half of 2001. The improvement in gross profit
margin was attributable to the savings from the 2001 Reinvention Plan, lower
cotton costs that were partially offset by lower denim selling prices and
favorable manufacturing variances reflecting additional cost reductions and
improved efficiencies and quality.
Segment Information. Cone operates in three principal business segments: Denim,
Commission Finishing and Decorative Fabrics. (See Note 8 of the Notes to
Consolidated Condensed Financial Statements included in Part I, Item 1.)
Denim. Denim sales revenues were $183.8 million for the first half of
2002, as compared with sales of $203.6 million for the first half of
2001, or a decrease of 9.7%. Sales yards were down in the first half of
2002, as compared with the first half of 2001 as fourth quarter 2001
market weaknesses continued into the first part of 2002 and more than
offset the weakening of the market that began in the second quarter of
2001. Sales prices, on a percentage basis, were down in the mid-single
digits, as compared with the prior year, and sales mix was also less
favorable. Operating income for the denim segment was $14.5 million or
7.9% of sales for the first half of 2002, as compared with $8.5 million
or 4.1% of sales for the first half of 2001. The improvement in
operating income was attributable to the 2001 Reinvention Plan savings,
lower cotton costs and favorable manufacturing variances. Cotton cost
savings were partially offset by the decline in
19
average selling prices. Operating income for the segment includes the
equity in earnings (losses) of the Parras Cone joint venture and the
Altamira industrial park joint venture. Equity in earnings of Parras
Cone was $0.9 million for the first half of 2002, as compared with $0.6
million for the first half of 2001.
Commission Finishing. In 2002, the commission finishing segment
consists only of the Carlisle plant. In 2001, the segment consisted of
both the Carlisle and Raytex operations. During the first quarter of
2001, Cone was in the process of closing the Raytex operation. Outside
sales (total segment sales less intercompany sales) of the commission
finishing segment increased by 1.3%, as compared with first half 2001
results after eliminating the results of the Raytex operation for the
period. The increase in outside sales was the result of the sale of the
John Wolf unit in August 2001, thereby changing the classification of
these sales to outside sales from intercompany sales. Total sales
excluding Raytex but, including intercompany sales, decreased by 13.3%
primarily as a result of Cone's decision to exit the khaki segment at
the end of 2001. For the first half of 2002, the segment reported a
profit of $2.1 million, as compared with $0.3 million for the first
half of 2001. The improvement in the segment's operating income is
primarily attributable to improved operating efficiencies, quality and
savings from the 2001 Reinvention Plan and the closing of the Raytex
operation.
Decorative Fabrics. The decorative fabrics segment consists of Cone's
jacquard operation. Sales revenue in the first half of 2002 was $19.8
million, as compared with $21.1 million for first half of 2001. Sales
volume decreased by 18.5% and was partially offset by improved product
mix and higher average unit selling prices. The reduction in sales
volume is the result of fewer product placements in the market, a
decision to move certain looms to the denim operation in second half of
2001 and management's decision to phase out certain unprofitable lines.
Segment operating income was $0.4 million for the first half of 2002,
as compared with a segment operating loss of $0.3 million for the
comparable prior year period.
Selling and administrative expenses for the first half of 2002 were $17.1
million, as compared to $19.1 million for the first half of 2001. Selling and
administrative expenses were lower on both an absolute and a percentage of sales
base in the first half of 2002 as a result of savings from the 2001 Reinvention
Plan partially offset by lower unit selling prices and certain accruals for
performance-based compensation.
Interest expense for the first half of 2002 was $8.3 million, as compared with
$9.5 million for the first half of 2001. Benefits from lower borrowing levels
and lower market interest rate levels were partially offset by increases in
rates under Cone's financing agreements. Other expenses of $1.0 million in the
first half of 2002 include the ongoing expenses of the accounts receivable
securitization program, as compared to other expense of $1.3 million in the
first half of 2001, which included the ongoing expenses of the accounts
receivable securitization program as well as amortization of the transition
amount and the valuation adjustment of the interest rate swap derivative
instrument.
20
The effective tax rate on continuing operations for the first half of 2002 was
27% versus a tax benefit of 29% for the first half of 2001. Tax benefits of
export sales reduced the effective tax rate for the first half of 2002. The
effective tax rate used for the six months ended July 1, 2001, differs from 35%
because Cone recorded a valuation allowance on the deferred tax assets that
resulted from the non-cash impairment charges totaling $5.6 million related to
Cone's investments in certain of its unconsolidated affiliates, Ashima and
CIPSA. The impairment charges will result in future tax deductible capital
losses; however, Cone does not expect to have taxable capital gains in the
future to realize these tax deductible losses. Therefore, Cone has established
the valuation allowance on the resulting deferred tax assets.
For the first half of 2002, Cone had a net profit $4.5 million or $.09 per share
after preferred dividends. For the first six months of 2001, Cone had a net loss
of $29.4 million, or $1.23 per share after preferred dividends. Included in the
net loss were after-tax charges of $23.8 million of impairment and restructuring
charges and inventory write-downs and facility consolidation charges related to
the Reinvention Plan, or $0.93 per share.
LIQUIDITY AND CAPITAL RESOURCES
Cone's principal capital components consist of debt outstanding under its
Revolving Credit Facility, Senior Note, and 8-1/8% Debentures and stockholders'
equity. Primary sources of liquidity are internally generated funds,
availability under the Revolving Credit Facility and a $60 million Receivables
Purchase and Servicing Agreement (the "A/R Securitization Facility").
On November 9, 2001, Cone entered into agreements both to refinance and to
extend its Revolving Credit Facility with its existing bank group and to extend
the maturity on its Senior Note. The new agreements provide for scheduled
amortization and commitment reductions of $10 million during 2002 with a new
maturity date of January 15, 2003. In addition, the agreements provide for
additional amortization and commitment reductions related to proceeds received
by Cone for permitted asset sales and 75% of excess cash flow (as defined in the
agreements). Interest rates were increased and new covenant levels were
established.
Based upon its operating results for the first six months of 2002, per the 75%
of excess cash flow provision of its lending agreements, Cone will make an
additional amortization payment and commitment reduction of $3.7 million in
August 2002.
Financing agreements of Cone prohibit it from paying dividends on its Common
Stock.
21
The following is a summary of primary financing agreements as of June 30, 2002.
Interest/
($ Amounts in Millions) Facility Amount Discount
Financing Agreement Commitment Outstanding Rate Maturity Date
- ------------------- ---------- ----------- ---- -------------
8-1/8% Debenture $ 100.0 $ 100.0 8.125% Mar 15, 2005
Senior Note 25.2 25.2 13.700 Jan 15, 2003
Revolving Credit Facility 65.7 37.0 8.750 Jan 15, 2003
A/R Securitization Facility 60.0 37.7 5.230 Sept 1, 2004
At June 30, 2002, Cone had availability under its financing agreements of $26.9
million. Availability under the Revolving Credit Facility and the A/R
Securitization Facility is determined by overall facility commitment levels and
borrowing base calculations, as defined in the respective agreements.
Availability under these agreements averaged well in excess of $20 million for
the second quarter of 2002. During the first six months of 2002, Cone generated
$19.7 million of cash from operations. Changes in operating assets and
liabilities provided $6.0 million of the cash from operations as liquidation of
inventories and increase in payables more than offset the increase in accounts
receivable. During the first six months of 2002, Cone invested in capital
expenditures of $1.9 million and sold $1.0 million of land and other
non-essential equipment. Cone expects to spend approximately $8.5 million in
2002 for domestic capital expenditures to maintain its manufacturing facilities
in good condition and to provide the flexibility and capability necessary to
meet market demands. Capital expenditures are expected to be financed by
internally generated funds.
Cone believes that internally generated operating funds and funds available
under its Revolving Credit Facility currently in effect are sufficient to meet
its needs for working capital and domestic capital spending permitted under the
terms of the Revolving Credit Facility. However, by January 2003, Cone must
either refinance or replace the Revolving Credit Facility and Senior Note. If
Cone is unable to refinance this debt or is in default, in addition to the
amounts owed, Cone will be required to pay to the lenders within two years
thereafter, upon notice from the lenders, an amount equal to the greater of $1
million or 10% of the market value of Cone's outstanding common stock at the
time of the notice. There is no assurance that Cone will be able to replace its
Revolving Credit Facility and its Senior Note or otherwise obtain financing on
terms and conditions acceptable to Cone. Cone has not yet been able to finance
its proposed plant in Altamira, Tamaulipas, Mexico, and its current debt
structure will not permit that financing. Cone is in the process of exploring
its alternatives related to financing its businesses in both the U.S. and
Mexico.
Cone has made it a priority to implement a long-term recapitalization of its
balance sheet in 2002 that will provide the funding for its Mexican denim
expansion. In the second quarter of 2002, we retained Jefferies and Co., as our
investment banker to assist us in the process. We have had discussions with our
existing lenders and potential new sources of debt or equity. At this time,
22
there is no definitive proposal or agreement on the recapitalization of the
balance sheet. Management remains committed to completing the recapitalization
in 2002.
On June 30, 2002, Cone's capital structure consisted of $161.0 million of debt
(including current maturities) and $89.4 million of stockholders' equity. For
comparison, Cone had $189.9 million of debt (including current maturities) and
$96.6 million of stockholders' equity at July 1, 2001.
Accounts receivable on June 30, 2002 were $40.0 million, as compared with $49.9
million at July 1, 2001. Receivables, including those sold pursuant to the A/R
Securitization Facility, represented 57 days of sales outstanding at June 30,
2002 and 69 days at July 1, 2001. Advances outstanding under the A/R
Securitization Facility were $37.7 million at June 30, 2002 and $50.6 million at
July 1, 2001.
Inventories on June 30, 2002 were $49.5 million, as compared with $62.1 million
at December 30, 2001 reflecting reductions in inventory levels of finished
goods, work-in-process, raw materials and supplies and other. In addition,
inventory carrying values were lower to reflect lower cotton prices and the
reduced cost of operations as the result of the 2001 Reinvention Plan. Finished
goods inventories were reduced by $8.6 million from year-end 2001 levels. For
comparison purposes, inventories at July 1, 2001 were $82.1 million. The
year-over-year reduction in inventories is the result of the liquidation of core
inventories, write-downs taken as part of Cone's Reinvention Plan, the sale of
John Wolf, the exit from the khaki segment and lower cotton and other raw
material prices.
OTHER MATTERS
EBITDA from continuing operations and pro forma EBITDA, which includes 50% of
Parras Cone's EBITDA, are presented not as an alternative measure of operating
results or cash flow from continuing operations (as determined in accordance
with accounting principles generally accepted in the United States of America)
but because they are a widely accepted financial indicator of the ability to
incur and service debt. Cone calculates EBITDA from continuing operations and
pro forma EBITDA as follows:
Thirteen Thirteen Twenty-Six Twenty-Six
Weeks Ended Weeks Ended Weeks Ended Weeks Ended
(in thousands) 6/30/02 7/1/01 6/30/02 7/1/01
------------------------------------------------------------------------
Income (Loss) from Continuing Operations $ 7,801 $ ( 24,082 ) $ 14,477 $ ( 20,932 )
Depreciation and Amortization 5,071 5,401 10,144 10,939
Reinvention Plan - Inventory Charges
and Facility Consolidation Charges - 7,139 - 7,139
Restructuring and Impairment Charges - 19,739 - 19,739
------------------------------------------------------------------------
EBITDA 12,872 8,197 24,621 16,885
50% Parras Cone EBITDA 2,296 1,569 3,537 3,227
------------------------------------------------------------------------
Pro Forma EBITDA $ 15,168 $ 9,766 $ 28,158 $ 20,112
------------------------------------------------------------------------
24
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 Cone. Existing
government regulations are not expected to cause a material change in Cone's
competitive position, operating results or planned capital expenditures. Cone
has an active environmental committee, which fosters protection of the
environment and compliance with laws.
From time to time, Cone 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
and liquidity of Cone. As a result of Cone's recent operating results,
management believes that the effects of any litigation, no matter how small or
insignificant, could be considered material to Cone's future results of
operations. As of June 30, 2002, no significant litigation existed.
"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 Cone'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 Cone'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, free-trade initiatives and
retaliatory measures in trade disputes, (iii) the unpredictability of
the cost and availability of cotton, Cone's principal raw material, and
other manufacturing costs, (iv) Cone's relationships with Levi Strauss
as its major customer including its sourcing practices, (v) Cone's
ability to attract and maintain adequate capital to fund operations and
strategic initiatives, (vi) increases in prevailing interest rates,
(vii) Cone's inability to continue the savings and profit improvement
associated with its Restructuring Plan, and (viii) the effect on Cone's
sales and markets of events such as the events of September 11, 2001.
For a further description of these risks see Cone's 2001 Form 10-K,
"Item 1. Business -- Competition, --Raw Materials and --Customers" and
"Item 7. Management's Discussion and Analysis of Results of Operations
and Financial Condition -- Overview" of the Form 10-K. Other risks and
uncertainties may be described from time to time in Cone's other
reports and filings with the Securities and Exchange Commission.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Cone is exposed to market risks relating to fluctuations in interest rates and
commodity prices. There has been no material change in Cone's market risks that
would significantly affect the disclosures made in the Form 10-K for the year
ended December 30, 2001.
24
PART II
Item 1. Legal Proceedings
From time to time, Cone 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
and liquidity of Cone. As a result of Cone's recent operating results,
management believes that the effects of any litigation, no matter how small or
insignificant, could be considered material to Cone's future results of
operations. As of June 30, 2002, no significant litigation existed.
Item 4. Submission of Matters to a Vote of Security Holders
Cone Mills Corporation's Annual Meeting of Shareholders was held May 7, 2002.
The proposals voted upon and the results of the voting were as follows:
Abstentions
Against/ (Includes Broker
For Withheld Non-Votes)
--------- ---------- ----------------
1. Election of four class I directors for a three-year term:
John L. Bakane 24,464,469 207,998 0
Marvin W. Goldstein 24,484,340 188,127 0
Haynes G. Griffin 24,488,753 183,714 0
Charles M. Reid 24,483,543 188,924 0
2. Approval of 2002 Executive Incentive Compensation Plan:
22,716,694 1,312,725 642,778
3. Ratification of the appointment of McGladrey & Pullen, LLP, as
independent auditors for the Corporation for the current year:
24,383,038 173,919 115,510
Item 5. Other Information
Notice of a matter to be presented by a shareholder for consideration at the
2003 annual meeting other than pursuant to Rule 14a-8 of the Securities Exchange
Act of 1934 must be received by the Company prior to February 10, 2003. Failure
to give timely notice will result in the proxy statement relating to the meeting
not including information on the matter or the manner in which
25
management's proxies will vote on the matter and the proxies received by
management will have discretionary authority to vote on such matter.
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.
None
26
Exhibit
No. Description
*2.1 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.
*2.2 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.
*2.3.1 First Amendment and Waiver to Securitization Agreements dated as of
November 16, 1999, by and between Cone Receivables II LLC, the
Registrant, Redwood Receivables Corporation and General Electric
Capital Corporation, together with all exhibits thereto, filed as
Exhibit 2.1(c) to Registrant's report on Form 10-K for the fiscal year
ending January 2, 2000.
*2.3.2 Second Amendment to Securitization Agreements dated as of January 28,
2000, by and between Cone Receivables II LLC, the Registrant, Redwood
Receivables Corporation, and General Electric Capital Corporation,
together with all exhibits thereto, filed as Exhibit 2.1(d) to
Registrant's report on Form 10-K for the fiscal year ending January 2,
2000.
*2.3.3 Third Amendment to Securitization Agreements dated as of March 31,
2000, by and between Cone Receivables II LLC, the Registrant, Redwood
Receivables Corporation, and General Electric Capital Corporation,
together with all Exhibits thereto, filed as Exhibit 2.1(e) to
Registrant's report on Form 10-Q for the quarter ended April 2, 2000.
*2.3.4 Fourth Amendment to Securitization Agreements dated as of April 24,
2000 by and between Cone Receivables II LLC, the Registrant, Cone
Foreign Trading LLC, Redwood Receivables Corporation, and General
Electric Capital Corporation, together with all exhibits thereto,
filed as Exhibit 2.1(f) to Registrant's report on Form 10-Q for the
quarter ended April 2, 2000, filed as Exhibit 2.3.4 to Registrant's
Registration Statement on Form S-4 (File No. 333-43014).
27
Exhibit
No. Description
*2.3.5 Fifth Amendment to Securitization Agreements dated as of June 30, 2000
by and between Cone Receivables II LLC, the Registrant, Cone Foreign
Trading LLC, Redwood Receivables Corporation, and General Electric
Capital Corporation, filed as Exhibit 2.3.5 to Registrant's
Registration Statement on Form S-4 (File No. 333-43014).
*2.3.6 Sixth Amendment to Securitization Agreements dated as of December 12,
2000 by and between Cone Receivables II LLC, the Registrant, Cone
Foreign Trading LLC, Redwood Receivables Corporation and General
Electric Capital Corporation, filed as Exhibit 2.3.6 to Registrant's
Registration Statement on Form S-4 (File No. 333-43014).
*2.3.7 Seventh Amendment to Securitization Agreement dated as of April 23,
2001 by and between Cone Receivables II LLC, the Registrant, Cone
Foreign Trading LLC, and General Electric Capital Corporation, filed
as Exhibit 2.3.7 to Registrant's report on Form 10-Q for the quarter
ended July 1, 2001.
*2.3.8 Eighth Amendment to Securitization Agreement dated as of July 20, 2001
by and between Cone Receivables II LLC, the Registrant, Cone Foreign
Trading LLC, and General Electric Capital Corporation, filed as
Exhibit 2.3.8 to Registrant's report on Form 10-Q for the quarter
ended July 1, 2001.
*2.3.9 Ninth Amendment to Securitization Agreement dated as of November 9,
2001 by and between Cone Receivables II LLC, the Registrant, Cone
Foreign Trading LLC, and General Electric Capital Corporation, filed
as Exhibit 2.3.9 to the Registrant's report on Form 10-K for the year
ended December 30, 2001.
*2.4 Investment Agreement dated as of June 18, 1993, among Compania
Industrial de Parras, S.A. de C.V., Sr. Rodolfo Garcia Muriel, and the
Registrant, filed as Exhibit 2.2(a) to Registrant's report on Form
10-Q for the quarter ended July 4, 1993.
*2.5 Commercial Agreement dated as of July 1, 1999, among Compania
Industrial de Parras, S.A. de C.V., the Registrant, and Parras Cone de
Mexico, S.A., filed as Exhibit 2.2(b) to Registrant's report on Form
10-K for the fiscal year ending January 2, 2000.
28
Exhibit
No. Description
*2.5.1 Amended and Restated Commercial Agreement, dated as of December 12,
2000, among Compania Industrial de Parras, S.A. de C.V., the
Registrant and Parras Cone de Mexico, S.A., filed as Exhibit 2.5.1 to
Registrant's Registration Statement on Form S-4 (File No. 333-43014).
*2.6 Guaranty Agreement dated as of June 25, 1993, between the Registrant
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.
*2.7 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.
*2.7.1 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 Registrant's report
on Form 10-Q for the quarter ended July 2, 1995.
*2.8 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.
*2.9 Parras Registration Rights Agreement dated as of June 25, 1993,
between Compania Industrial de Parras, S.A. de C.V. and the
Registrant, filed as Exhibit 2.2(f) to Registrant's report on Form
10-Q for the quarter ended July 4, 1993.
*2.10 Support Agreement dated as of June 25, 1993, among the Registrant, Sr.
Rodolfo L. Garcia, Sr. Rodolfo Garcia Muriel and certain other persons
listed therein ("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.
29
Exhibit
No. Description
*3.1.1 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 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 Registrant's report on Form 8-A dated October 29,
1999.
*4.2 Note Agreement dated as of August 13, 1992, between the Registrant and
The Prudential Insurance Company of America, with form of 8%
promissory note attached, filed as Exhibit 4.01 to Registrant's report
on Form 8-K dated August 13, 1992.
*4.2.1 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 Registrant's
report on Form 8-K dated March 1, 1995.
*4.2.2 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 Registrant's
report on Form 8-K dated March 1, 1995.
*4.2.3 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 Registrant's
report on Form 8-K dated March 1, 1995.
*4.2.4 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 Registrant's
report on Form 8-K dated March 1, 1995.
30
Exhibit
No. Description
*4.2.5 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
Registrant's report on Form 10-Q for the quarter ended July 2, 1995.
*4.2.6 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 Registrant's report on Form 10-Q
for the quarter ended July 2, 1995, filed as Exhibit 4.3(f) to
Registrant's report on Form 10-K for year ended December 31, 1995.
*4.2.7 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 Registrant's report on Form 10-Q for the quarter ended March
31, 1996.
*4.2.8 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 Registrant's report on Form 10-K for the year ended December
29, 1996.
*4.2.9 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 Registrant's report on Form 10-Q for the quarter ended September
28, 1997.
*4.2.10 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.
*4.2.11 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) to
Registrant's report on Form 10-Q for the quarter ended October 3,
1999.
*4.2.12 Amendment of 1992 Note Agreement dated as of January 28, 2000, by and
among the Registrant and The Prudential Insurance Company of America,
together with all exhibits thereto, filed as Exhibit 9 to Registrant's
report on Form 8-K dated February 11, 2000.
31
Exhibit
No. Description
*4.2.13 Waiver under Note Agreement dated as of July 3, 2000, by and among the
Registrant and The Prudential Insurance Company of America, filed as
Exhibit 4.2.13 to Registrant's Registration Statement on Form S-4
(File No. 333-43014).
*4.2.14 Amendment of 1992 Note Agreement dated as of July 14, 2000, by and
among the Registrant and The Prudential Insurance Company of America,
filed as Exhibit 4.2.14 to Registrant's Registration Statement on Form
S-4 (File No. 333-43014).
*4.2.15 Amendment of 1992 Note Agreement dated as of December 12, 2000, by and
among the Registrant and The Prudential Insurance Company of America,
filed as Exhibit 4.2.15 to the Registrant's Registration Statement on
Form S-4 (File No. 333-43014).
*4.2.16 Amendment of 1992 Note Agreement and Waiver dated as of April 23,
2001, by and among the Registrant and The Prudential Insurance Company
of America, filed as Exhibit 4.2.16 to Registrant's report on Form
10-Q for quarter ended July 1, 2001.
*4.2.17 Amendment of 1992 Note Agreement dated as of June 28, 2001, by and
among the Registrant and The Prudential Insurance Company of America,
filed as Exhibit 4.2.17 to Registrant's report on Form 10-Q for the
quarter ended July 1, 2001.
*4.2.18 Waiver Under 1992 Note Agreement dated as of August 10, 2001, by and
among the Registrant and The Prudential Insurance Company of America,
filed as Exhibit 4.2.18 to Registrant's report on Form 10-Q for the
quarter ended September 30, 2001.
*4.2.19 Amendment of 1992 Note Agreement dated as of September 25, 2001, by
and among the Registrant and The Prudential Insurance Company of
America, filed as Exhibit 4.2.19 to Registrant's report on Form 10-Q
for the quarter ended September 30, 2001.
*4.2.20 Amendment of 1992 Note Agreement dated as of October 25, 2001, by and
among the Registrant and The Prudential Insurance Company of America,
filed as Exhibit 4.2.20 to Registrant's report on Form 10-Q for the
quarter ended September 30, 2001.
32
Exhibit
No. Description
*4.2.21 Amendment of 1992 Note Agreement dated as of November 9, 2001, by and
among the Registrant and The Prudential Insurance Company of America,
filed as Exhibit 4.2.21 to the Registrant's report on Form 10-K for
the year ended December 30, 2001.
*4.2.22 Amendment of 1992 Note Agreement dated as of March 22, 2002, by and
among the Registrant and The Prudential Insurance Company of America,
filed as Exhibit 4.2.22 to the Registrant's report on Form 10-K for
the year ended December 30, 2001.
*4.3 Credit Agreement dated as of January 28, 2000, by and among the
Registrant, 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 thereto, filed as Exhibit 1 to Registrant's report on Form
8-K dated February 11, 2000.
*4.3.1 Amendment No. 1 to Credit Agreement dated as of July 14, 2000, by and
among the Registrant, as Borrower, Cone Global Finance Corp., CIPCO
S.C. Inc. and Cone Foreign Trading LLC, as Guarantors, Bank of
America, N.A., as Agent and as Lender, and the Lenders party thereto
from time to time, filed as Exhibit 4.3.1 to Registrant's Registration
Statement on Form S-4 (File No. 333-43014).
*4.3.2 Amendment No. 2 to Credit Agreement dated as of December 12, 2000, by
and among the Registrant, as Borrower, Cone Global Finance Corp.,
CIPCO S.C. Inc. and Cone Foreign Trading LLC, as Guarantors, Bank of
America, N.A., as Agent and as Lender, and the Lenders party thereto
from time to time, filed as Exhibit 4.3.2 to Registrant's Registration
Statement on Form S-4 (File No. 333-43014).
*4.3.3 Waiver and Amendment No. 3 to Credit Agreement dated as of April 23,
2001, by and among the Registrant, as Borrower, Bank of America, N.A.,
as Agent and as Lender, and the Lenders Signatory Thereto, filed as
Exhibit 4.3.3 to Registrant's report on Form 10-Q for the quarter
ended July 1, 2001.
*4.3.4 Amendment No. 4 to Credit Agreement dated as of June 28, 2001, by and
among the Registrant, as Borrower, Bank of America, N.A., as Agent and
Lender, and the Lenders Signatory Thereto, filed as Exhibit 4.3.4 to
Registrant's report on Form 10-Q for the quarter ended July 1, 2001.
33
Exhibit
No. Description
*4.3.5 Amendment No. 5 to Credit Agreement dated as of August 10, 2001, by
and among the Registrant, as Borrower, Bank of America, N.A., as Agent
and Lender, and the Lenders Signatory Thereto, filed as Exhibit 4.3.5
to Registrant's report on Form 10-Q for the quarter ended September
30, 2001.
*4.3.6 Amendment No. 6 to Credit Agreement dated as of September 25, 2001, by
and among the Registrant, as Borrower, Bank of America, N.A., as Agent
and Lender, and the Lenders Signatory Thereto, filed as Exhibit 4.3.6
to Registrant's report on Form 10-Q for the quarter ended September
30, 2001.
*4.3.7 Amendment No. 7 to Credit Agreement dated as of October 25, 2001, by
and among the Registrant, as Borrower, Bank of America, N.A., as Agent
and Lender, and the Lenders Signatory Thereto, filed as Exhibit 4.3.7
to Registrant's report on Form 10-Q for the quarter ended September
30, 2001.
*4.3.8 Amendment No. 8 to Credit Agreement dated as of November 9, 2001, by
and among the Registrant, as Borrower, Bank of America, N.A., as Agent
and Lender, and the Lenders Signatory Thereto, filed as Exhibit 4.3.8
to the Registrant's report on Form 10-K for the year ended December
30, 2001.
*4.3.9 Amendment No. 9 to Credit Agreement dated as of February 27, 2002, by
and among the Registrant, as Borrower, Bank of America, N.A., as Agent
and Lender, and the Lenders Signatory Thereto, filed as Exhibit 4.3.9
to the Registrant's report on Form 10-K for the year ended December
30, 2001.
*4.4 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 Registrant's report on
Form 8-K dated February 11, 2000.
*4.5 Priority Security Agreement dated as of January 28, 2000, by the
Registrant 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 Registrant's report on Form
8-K dated February 11, 2000.
34
Exhibit
No. Description
*4.6 General Security Agreement dated as of January 28, 2000, by the
Registrant 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 Registrant's report on
Form 8-K dated February 11, 2000.
*4.7 Securities Pledge Agreement dated as of January 28, 2000, by the
Registrant in favor of Wilmington Trust Company, as General Collateral
Agent, together with all exhibits thereto, filed as Exhibit 5 to
Registrant's report on Form 8-K dated February 11, 2000.
*4.8 CMM Pledge Agreement dated as of January 28, 2000, by the Registrant
in favor of Wilmington Trust Company, as General Collateral Agent,
together with all exhibits thereto, filed as Exhibit 6 to Registrant's
Report on Form 8-K dated February 11, 2000.
*4.9 Deed of Trust, Security Agreement, Fixture Filing, Assignment of
Leases and Rents and Financing Statement dated as of January 28, 2000,
between the Registrant, 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 Registrant's report on Form 8-K dated February
11, 2000.
*4.10 Deed of Trust, Security Agreement, Fixture Filing, Assignment of
Leases and Rents and Financing Statement dated as of January 28, 2000,
between the Registrant, 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 Registrant's report on Form
8-K dated February 11, 2000.
*4.11 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, filed
as Exhibit 4.4(h) to Registrant's report on Form 10-K for the fiscal
year ending January 2, 2000.
*4.12 Specimen Class A Preferred Stock Certificate, filed as Exhibit 4.5 to
Registrant's Registration Statement on Form S-1 (File No. 33-46907).
*4.13 Specimen Common Stock Certificate, effective June 18, 1992, filed as
Exhibit 4.7 to Registrant's Registration Statement on Form S-1 (File
No. 33-46907).
35
Exhibit
No. Description
*4.14 Cone Mills Corporation 1983 ESOP as amended and restated effective
December 1, 1994, filed as Exhibit 4.9 to Registrant's report on Form
10-K for year ended January 1, 1995.
*4.14.1 First Amendment to the Cone Mills Corporation 1983 ESOP dated May 9,
1995, filed as Exhibit 4.9(a) to Registrant's report on Form 10-K for
year ended December 31, 1995.
*4.14.2 Second Amendment to the Cone Mills Corporation 1983 ESOP dated
December 5, 1995, filed as Exhibit 4.9(b) to Registrant's report on
Form 10-K for year ended December 31, 1995.
*4.14.3 Third Amendment to the Cone Mills Corporation 1983 ESOP dated August
7, 1997, filed as Exhibit 4.8(c) to Registrant's report on Form 10-Q
for the quarter ended September 28, 1997.
*4.14.4 Fourth Amendment to the Cone Mills Corporation 1983 ESOP dated
December 4, 1997, filed as Exhibit 4.8(d) to Registrant's report on
Form 10-K for the year ended December 28, 1997.
*4.15 Indenture dated as of February 14, 1995, between the Registrant and
Wachovia Bank of North Carolina, N.A. as Trustee (The 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).
*10.1 Employees' Retirement Plan of Cone Mills Corporation as amended and
restated effective December 1, 1994, filed as Exhibit 10.1 to
Registrant's report on Form 10-K for the year ended January 1, 1995.
*10.1.1 First Amendment to the Employees' Retirement Plan of Cone Mills
Corporation dated May 9, 1995, filed as Exhibit 10.1(a) to
Registrant's report on Form 10-K for the year ended December 31, 1995.
*10.1.2 Second Amendment to the Employees' Retirement Plan of Cone Mills
Corporation dated December 5, 1995, filed as Exhibit 10.1(b) to
Registrant's report on Form 10-K for the year ended December 31, 1995.
*10.1.3 Third Amendment to the Employees' Retirement Plan of Cone Mills
Corporation dated August 16, 1996, filed as Exhibit 10.1(c) to
Registrant's report on Form 10-K for the year ended December 29, 1996.
36
Exhibit
No. Description
*10.1.4 Fourth Amendment to the Employees' Retirement Plan of Cone Mills
Corporation, filed as Exhibit 10 to Registrant's report on Form 10-Q
for the quarter ended September 28, 1997.
*10.1.5 Fifth Amendment to Employees' Retirement Plan of Cone Mills
Corporation dated December 4, 1997, filed as Exhibit 10.1(e) to
Registrant's report on Form 10-K for the year ended December 28, 1997.
*10.1.6 Employees Retirement Plan of Cone Mills Corporation as amended and
restated as of June 30, 2001, filed as Exhibit 10.1.6 to Registrant's
report on Form 10-Q for the quarter ended July 1, 2001.
*10.7 Cone Mills Corporation SERP as amended and restated as of December 5,
1995, filed as Exhibit 10.2 to Registrant's report on Form 10-K for
the year ended December 31, 1995.
*10.7.1 Cone Mills Corporation SERP as amended and restated effective June 30,
2001, filed as Exhibit 10.7.1 to Registrant's report on Form 10-Q for
the quarter ended July 1, 2001.
*10.8 Excess Benefit Plan of Cone Mills Corporation as amended and restated
as of December 5, 1995, filed as Exhibit 10.3 to Registrant's report
on Form 10-K for the year ended December 31, 1995.
*10.8.1 Excess Benefit Plan of Cone Mills Corporation as amended and restated
effective June 30, 2001, filed as Exhibit 10.8.1 to Registrant's
report on form 10-Q for the quarter ended July 1, 2001.
*10.9 1984 Stock Option Plan of Registrant filed as Exhibit 10.7 to
Registrant's Registration Statement on Form S-1 (File No. 33-28040).
*10.10 Form of Nonqualified Stock Option Agreement under 1984 Stock Option
Plan of Registrant, filed as Exhibit 10.8 to Registrant's Registration
Statement on Form S-1 (File No. 33-28040).
*10.11 Form of Incentive Stock Option Agreement under 1984 Stock Option Plan
of Registrant, filed as Exhibit 10.9 to Registrant's Registration
Statement on Form S-1 (File No. 33-28040).
*10.12 1992 Stock Option Plan of Registrant, filed as Exhibit 10.9 to
Registrant's Report on Form 10-K for the year ended December 29, 1991.
37
Exhibit
No. Description
*10.12.1 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.
*10.13 Form of Incentive Stock Option Agreement under 1992 Stock Option Plan,
filed as Exhibit 10.10 to Registrant's report on Form 10-K for the
year ended January 3, 1993.
*10.14 Form of Nonqualified Stock Option Agreement under 1992 Stock Option
Plan, filed as Exhibit 10.8(a) to Registrant's report on Form 10-K for
the year ended December 29, 1996.
*10.14.1 Form of Nonqualified Stock Option Agreement under 1992 Amended and
Restated Stock Plan, filed as Exhibit 10.8(b) to Registrant's report
on Form 10-K for the year ended December 29, 1996.
*10.15 Form of Restricted Stock Award Agreement under 1992 Amended and
Restated Stock Plan, filed as Exhibit 10.8(c) to Registrant's report
on Form 10-K for the year ended December 28, 1997.
*10.15.1 Form of Incentive Stock Option Agreement under 1992 Amended and
Restated Stock Plan, filed as Exhibit 10.8(d) to Registrant's report
on Form 10-K for the year ended December 28, 1997.
*10.16 1994 Stock Option Plan for Non-Employee Directors of Registrant, filed
as Exhibit 10.9 to Registrant's report on Form 10-K for the year ended
January 2, 1994.
*10.17 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.
*10.18 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.
*10.19 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.
*10.20 1997 Senior Management Discretionary Bonus Plan, filed as Exhibit
10.13 to Registrant's report on Form 10-K for the year ended December
29, 1996.
38
Exhibit
No. Description
*10.21 2000 Stock Compensation Plan for Non-Employee Directors of Registrant
dated as of May 9, 2000, filed as Exhibit 10.18 to Registrant's report
on Form 10-Q for the quarter ended April 7, 2000.
*10.22 Form of Agreement between the Registrant and Levi Strauss dated as of
March 30, 1992, filed as Exhibit 10.14 to Registrant's Registration
Statement on Form S-1 (File No. 33-46907).
*10.23 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. 33-46907).
*10.23.1 Second Amendment to Supply Agreement dated as of May 13, 2002, between
the Registrant and Levi Strauss dated as of March 30, 1992, filed as
Exhibit 10.23.1 to Registrant's report on Form 10-Q for the quarter
ended March 31, 2002.
*10.24 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 ended January 2, 2000.
*10.25 Tenth Amendment to Master Lease dated as of January 28, 2000, between
Atlantic Financial Group, Ltd. and the Registrant, together with all
exhibits thereto, filed as Exhibit 10 to Registrant's Report on Form
8-K dated February 11, 2000.
*10.25.1 Eleventh Amendment to Master Lease dated as of July 14, 2000 between
Atlantic Financial Group, Ltd. and the Registrant, filed as Exhibit
10.25.1 to Registrant's Registration Statement on Form S-4 (File No.
333-43014).
*10.25.2 Assignment and Termination Agreement dated as of August 31, 2000,
among Atlantic Financial Group, Ltd., Suntrust Bank, and the
Registrant, filed as Exhibit 10.25.2 to Registrant's report on Form
10-Q for the quarter ended October 1, 2000.
*10.26 2001 Stock Incentive Plan, filed as Exhibit 10.26 to Registrant's
report on Form 10-Q for the quarter ended April 1, 2001.
*10.26.1 Form of Incentive Stock Option Agreement under 2001 Stock Incentive
Plan, filed as Exhibit 10.26.1 to Registrant's report on Form 10-Q for
the quarter ended April 1, 2001.
39
Exhibit
No. Description
*10.26.2 2002 Executive Incentive Compensation Plan filed as Exhibit 10.26.2 to
Registrant's report on Form 10-K for the year ended December 30, 2001.
*21 Subsidiaries of the Registrant.
*23.1 Consent of McGladrey & Pullen, LLP, Independent auditor, with respect
to the incorporation by reference in the Registrant's Registration
Statements on Form S-8 (Nos. 33-31977; 33-31979; 33-51951; 33-51953;
33-53705; 33-67800; 333-37054; and 333-60954) of their reports on the
consolidated financial statements and schedules included in
Registrant's report on Form 10-K for the year ended December 30, 2001.
*23.2 Consent of Auditors of Parras Cone de Mexico, S.A. de C.V. with
respect to the incorporation by reference in the Registrant's
Registration Statements on Form S-8 (Nos. 33-31977; 33-31979;
33-51951; 33-51953; 33-53705; 33-67800; 333-37054 and 333-60954) of
their reports on the financial statements included on Form 10-K/A for
the year ended December 31, 2001.
*99.1 Financial Statements of Parras Cone de Mexico, S.A. de C.V., as of and
for the year ended December 31, 2001.
99.2 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
- --------------------------------------------------------------------------
*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, 804 Green
Valley Road, Suite 300, Greensboro NC 27408.
40
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: August 14, 2002 /s/Gary L. Smtih
Gary L. Smith
Executive Vice President and
Chief Financial Officer
41