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Page 1 of 42
Index to Exhibits - Pages 27 - 42
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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 29, 2003
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 __
Indicate by check mark whether the registrant is an accelerated filer (as
defined in rule 12b-2 of the Act). Yes __ No X
Number of shares of common stock outstanding as of July 23, 2003: 25,941,475.
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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 29, 2003 and
June 30, 2002 (Unaudited) 3
Consolidated Condensed Balance Sheets
June 29, 2003 and June 30, 2002 (Unaudited)
and December 29, 2002 4
Consolidated Condensed Statements of Cash Flows
Twenty-Six weeks ended June 29, 2003 and
June 30, 2002 (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 25
Item 4. Controls and Procedures 25
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 26
Item 6. Exhibits and Reports on Form 8-K 26
PART I
Item 1.
CONE MILLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
Thirteen Thirteen Twenty-Six Twenty-Six
Weeks Ended Weeks Ended Weeks Ended Weeks Ended
(in thousands, except per share data) June 29, 2003 June 30, 2002 June 29, 2003 June 30, 2002
- ---------------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Net Sales $ 96,336 $ 125,837 $ 198,600 $ 231,657
Cost of Goods Sold 85,966 108,570 174,431 200,085
---------------------------------------------------------------------
Gross Profit 10,370 17,267 24,169 31,572
Selling and Administrative 7,768 9,466 16,451 17,095
Impairment of Assets 766 - 766 -
---------------------------------------------------------------------
Income from Operations 1,836 7,801 6,952 14,477
---------------------------------------------------------------------
Other Income (Expense)
Interest income 51 111 130 129
Interest expense ( 3,828 ) ( 3,994 ) ( 7,477 ) ( 8,302 )
Other ( 367 ) ( 541 ) ( 685 ) ( 1,006 )
Equity appreciation rights ( 4,117 ) - ( 4,117 ) -
---------------------------------------------------------------------
( 8,261 ) ( 4,424 ) ( 12,149 ) ( 9,179 )
---------------------------------------------------------------------
Income (Loss) from Operations before
Income Tax Expense (Benefit) and Equity in
Earnings of Unconsolidated Affiliates ( 6,425 ) 3,377 ( 5,197 ) 5,298
Income Tax Expense (Benefit) ( 2,348 ) 1,013 ( 1,940 ) 1,447
---------------------------------------------------------------------
Income (Loss) from Operations before
Equity in Earnings of Unconsolidated Affiliates ( 4,077 ) 2,364 ( 3,257 ) 3,851
Equity in Earnings of Unconsolidated Affiliates 506 729 1,487 682
---------------------------------------------------------------------
Net Income (Loss) $ ( 3,571 ) $ 3,093 $ ( 1,770 ) $ 4,533
---------------------------------------------------------------------
Income (Loss) Available to Common Stockholders $ ( 4,593 ) $ 2,015 $ ( 3,768 ) $ 2,423
---------------------------------------------------------------------
Earnings (Loss) per Share - Basic and Diluted $ ( 0.18 ) $ 0.08 $ ( 0.15 ) $ 0.09
---------------------------------------------------------------------
Weighted-Average Common Shares Outstanding
Basic 25,832 25,692 25,795 25,679
---------------------------------------------------------------------
Diluted 25,832 26,109 25,795 26,065
---------------------------------------------------------------------
See Notes to Consolidated Condensed Financial Statements.
CONE MILLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
June 29, June 30, December 29,
(in thousands, except share and par value data) 2003 2002 2002
- ----------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited) (Note)
ASSETS
Current Assets
Cash $ 4,308 $ 408 $ 1,654
Accounts receivable, less allowances:
2003, $3,400; 2002, $5,700 and $3,400 33,602 40,028 33,017
Inventories 60,747 49,518 48,848
Other current assets 2,855 5,330 1,630
----------------------------------------------------
Total Current Assets 101,512 95,284 85,149
Investments in and Advances to Unconsolidated
Affiliates 55,100 52,087 53,613
Other Assets 29,569 27,176 30,423
Property, Plant and Equipment 141,161 155,640 149,077
----------------------------------------------------
$ 327,342 $ 330,187 $ 318,262
----------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt $ 58,655 $ 62,160 $ 46,170
Accounts payable 33,518 31,053 25,589
Sundry accounts payable and accrued liabilities 19,737 22,409 25,448
----------------------------------------------------
Total Current Liabilities 111,910 115,622 97,207
Long-Term Debt 99,241 98,797 99,019
Deferred Income Taxes 12,988 12,278 14,884
Other Liabilities 13,871 14,043 13,699
Stockholders' Equity
Class A preferred stock - $100 par value;
authorized 1,500,000 shares; issued and outstanding:
2003, 348,812 shares; 2002, 349,913 shares and
327,283 shares 34,881 34,991 32,728
Class B preferred stock - no par value; authorized
5,000,000 shares - - -
Common stock - $0.10 par value; authorized
42,700,000 shares; issued and outstanding:
2003, 25,941,475 shares; 2002, 25,706,193
shares and 25,757,344 shares 2,594 2,571 2,576
Capital in excess of par 58,366 57,950 58,098
Retained earnings 3,581 2,550 9,279
Deferred compensation - restricted stock - ( 5 ) -
Accumulated other comprehensive loss ( 10,090 ) ( 8,610 ) ( 9,228 )
----------------------------------------------------
Total Stockholders' Equity 89,332 89,447 93,453
----------------------------------------------------
$ 327,342 $ 330,187 $ 318,262
----------------------------------------------------
Note: The balance sheet at December 29, 2002, has been derived from
the audited financial statements at that date.
See Notes to Consolidated Condensed Financial Statements.
CONE MILLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Twenty-Six Twenty-Six
Weeks Ended Weeks Ended
(in thousands) June 29, 2003 June 30, 2002
- ----------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
CASH PROVIDED BY (USED IN) OPERATIONS $ (3,748 ) $ 19,668
----------------------------------
INVESTING
Proceeds from sale of property, plant and equipment 1,076 997
Capital expenditures ( 2,464 ) ( 1,906 )
----------------------------------
Cash used in investing ( 1,388 ) ( 909 )
----------------------------------
FINANCING
Decrease in checks issued in excess of deposits ( 1,148 ) ( 3,515 )
Principal borrowings (payments) on long-term debt 10,697 (12,996 )
Proceeds from issuance of common stock 16 83
Dividends paid - Class A Preferred ( 68 ) ( 92 )
Redemption of Class A Preferred stock ( 1,707 ) ( 2,360 )
----------------------------------
Cash provided by (used in) financing 7,790 (18,880 )
----------------------------------
Net change in cash 2,654 (121 )
Cash at Beginning of Period 1,654 529
----------------------------------
Cash at End of Period $ 4,308 $ 408
----------------------------------
Supplemental Disclosures of Additional Cash Flow Information:
Cash payments (receipts) for:
Interest $ 7,199 $ 8,411
----------------------------------
Income tax refunds $ (406 ) $ -
----------------------------------
Supplemental Schedule of Noncash Financing Activities:
Stock dividend - Class A Preferred Stock $ 3,860 $ 3,920
----------------------------------
See Notes to Consolidated Condensed Financial Statements.
CONE MILLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note 1. Basis of Financial Statement Preparation
Financial Statement Preparation. The Cone Mills Corporation ("Cone")
consolidated condensed financial statements for June 29, 2003 and June 30, 2002
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 29, 2003, June 30, 2002 and December
29, 2002, and the related consolidated condensed statements of operations for
the respective thirteen and twenty-six weeks ended June 29, 2003 and June 30,
2002 and cash flows for the twenty-six weeks then ended. All adjustments are of
a normal recurring nature with the exception of the Equity Appreciation Rights
("EARS") payment and the asset impairment charge. 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 2002.
Inventories. 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
year-end, the inventories at June 29, 2003 and June 30, 2002 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.
Stock-Based Employee Compensation. Cone has stock-based employee compensation
plans. Cone accounts for those plans under the recognition and measurement
principles of Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees," and related Interpretations. No stock-based
employee compensation cost is reflected in net income, as all options granted
under those plans had an exercise price equal to the market value of the
underlying common stock on the date of grant. The following table illustrates
the effect on net income (loss) and earnings (loss) per share if Cone had
applied the fair value recognition provisions of Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation," to stock-based employee compensation. SFAS No. 123 requires pro
forma disclosures only for options granted after December 31, 1994; therefore,
the pro forma amounts for compensation expense may not be representative of the
pro forma earnings impact upon future years.
Thirteen Thirteen Twenty-Six Twenty-Six
Weeks Ended Weeks Ended Weeks Ended Weeks Ended
(in thousands, except per share data) 6/29/03 6/30/02 6/29/03 6/30/02
----------------------------------------------------------------------
Net income (loss), as reported $ ( 3,571 ) $ 3,093 $ ( 1,770 ) $ 4,533
Deduct: Total stock-based employee
compensation expense determined
under fair value based method for
all awards, net of related tax effects ( 126 ) ( 155 ) ( 251 ) ( 311 )
----------------------------------------------------------------------
Pro forma net income (loss) $ ( 3,697 ) $ 2,938 $ ( 2,021 ) $ 4,222
----------------------------------------------------------------------
Earnings (loss) per share - basic and diluted:
Basic and diluted - as reported $ ( 0.18 ) $ 0.08 $ ( 0.15 ) $ 0.09
Basic and diluted - pro forma $ ( 0.18 ) $ 0.07 $ ( 0.16 ) $ 0.08
Recent Accounting Pronouncements. Effective third quarter 2003, Cone will adopt
SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging
Activities", if required. This statement amends and clarifies financial
accounting and reporting for derivatives and for hedging activities under SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." This
standard is not expected to have an impact on Cone's financial statements.
In May 2003, the Financial Accounting Standards Board ("FASB") issued SFAS No.
150, "Accounting for Certain Instruments with Characteristics of Both
Liabilities and Equity." This standard requires that certain financial
instruments embodying an obligation to transfer assets or to issue equity
securities be classified as liabilities. It is effective for financial
instruments entered into or modified after May 31, 2003, and otherwise is
effective July 1, 2003. This standard has no impact on Cone's financial
statements.
Note 2. Securitization of Accounts Receivable
As of June 29, 2003 and June 30, 2002, the total amount of advances of proceeds
from the sale of receivables under the Accounts Receivable Securitization
Facility ("A/R Securitization Facility") was $30.3 million and $37.7 million,
respectively. As of June 29, 2003 and June 30, 2002, included in accounts
receivable were deferred purchase price receivables under the A/R Securitization
Facility of $27.8 million and $29.4 million, respectively. Expenses incurred in
connection with the sale of accounts receivable were $0.4 million and $0.5
million for the thirteen weeks ended June 29, 2003 and June 30, 2002,
respectively, and $0.7 million and $1.0 million for the twenty-six weeks ended
June 29, 2003 and June 30, 2002, respectively, and were included in "Other" in
the Consolidated Condensed Statements of Income. The table below summarizes
certain cash flows under the securitization for the fiscal quarters ended June
29, 2003 and June 30, 2002:
Thirteen Thirteen Twenty-Six Twenty-Six
Weeks Ended Weeks Ended Weeks Ended Weeks Ended
(in thousands) 6/29/03 6/30/02 6/29/03 6/30/02
-------------------------------------------------------------------------
Proceeds from securitizations $ 24,806 $ 36,536 $ 48,472 $ 67,447
Reductions due to change
in level of receivables sold ( 21,147 ) ( 30,562 ) ( 46,042 ) ( 66,702 )
Daily yield paid ( 366 ) ( 539 ) ( 685 ) ( 990 )
Servicing fees paid ( 139 ) ( 170 ) ( 265 ) ( 311 )
Servicing fees received 139 170 265 311
Note 3. Inventories
(in thousands) 6/29/03 6/30/02 12/29/02
-----------------------------------------
Greige and finished goods $ 36,061 $ 27,220 $ 24,401
Work in process 4,447 4,326 6,237
Raw materials 11,589 8,442 9,188
Supplies and other 8,650 9,530 9,022
-----------------------------------------
$ 60,747 $ 49,518 $ 48,848
-----------------------------------------
Note 4. Long-Term Debt
(in thousands) 6/29/03 6/30/02 12/29/02
-----------------------------------------
14.2% Senior Notes $ 22,484 $ 25,160 $ 22,170
12.0% Senior Notes 26,171 - -
Revolving Credit Facility 10,000 37,000 24,000
8-1/8% Debentures 99,241 98,797 99,019
-----------------------------------------
157,896 160,957 145,189
Less current maturities 58,655 62,160 46,170
-----------------------------------------
$ 99,241 $ 98,797 $ 99,019
-----------------------------------------
On May 27, 2003, Cone amended agreements with its lenders extending the maturity
date of its existing Revolving Credit Facility and its Senior Note obligation
through March 15, 2004. With the amendments, the interest rate on the senior
note remained 14.2%. The revolving credit agreement was split into two
components. The first component is a $25 million, 12% senior note and the second
component is a $31 million revolving credit facility bearing interest at LIBOR
plus 6.75%.
The Revolving Credit Facility and Senior Notes call for monthly amortizations of
$0.8 million, beginning in July 2003. As part of the extension, Cone settled the
EARS, which were contingent rights granted as a part of the November 2001
agreements, for $4.1 million. The rights entitled the lenders, upon giving of
notice within two years following January 15, 2003, to receive a payment of the
greater of $1 million or 10% of the market value of Cone's outstanding common
stock if Cone did not refinance the Revolving Credit Facility and Senior Note by
January 15, 2003, which did not occur. The rights were settled for $2.1 million
in cash, $1.8 million in senior notes bearing interest at 12% and 14.2% maturing
on March 15, 2004 and approximately 169,000 shares of Cone common stock.
Given the current business environment, it is likely that Cone will need to
amend its Revolving Credit Facility and Senior Notes during the third quarter of
2003. There can be no assurance that an amendment to the Revolving Credit
Facility and Senior Notes will be obtained. Absent an amendment, Cone may be out
of compliance with one or more covenants some time during or after September
2003.
The failure to comply with the provisions of the Revolving Credit Facility and
Senior Notes would result in events of default thereunder, and, depending upon
the actions of the lenders thereunder, all amounts owed under the Revolving
Credit Facility and Senior Notes could be declared due and payable. If Cone is
not able to repay all amounts owed under the Revolving Credit Facility and
Senior Notes, the lenders thereunder would have the right to proceed against the
collateral granted to the lenders to secure such indebtedness. An acceleration
of indebtedness under the Revolving Credit Facility and Senior Notes would
result in a cross-default under Cone's indebtedness under its 8-1/8% debentures.
If the indebtedness outstanding under the Revolving Credit Facility and Senior
Notes were to be accelerated, there can be no assurance that the funds and
assets of the company would be sufficient to repay in full such indebtedness,
and there can be no assurance that there would be sufficient assets remaining
after such repayments to pay amounts due in respect of any or all of the
company's other indebtedness or to fund continuing operations. The financial
statements do not include any adjustments that might result from the outcome of
these matters.
By March 2004, or earlier if events of default occur, Cone must either amend,
refinance or replace the Revolving Credit Facility and Senior Notes. Based on
Cone's operating results, its business environment and the negative perception
by lenders regarding the U.S. textile industry, there is no assurance that Cone
will be able to amend as needed, refinance or replace its Revolving Credit
Facility and its Senior Notes or otherwise obtain financing on terms and
conditions acceptable to Cone. Cone has not yet been able to finance its
proposed denim expansion strategy, and its current debt structure will not
permit that financing.
On January 16, 2003 Cone entered into a letter of intent with WLR Recovery Fund
II, L.P. ("WLR"), a fund managed by W.L. Ross and Company, in which WLR would
support a recapitalization of Cone's balance sheet that would provide funds to
allow Cone to execute its Mexican expansion strategy. Based upon present
economic conditions and Cone's near-term operating outlook the recapitalization
plan as described in Cone's Form 10-K for the year ended December 29, 2002 is
not expected to be consummated. Cone is continuing to explore alternatives
related to financing its business and the expansion of denim capacity in
low-cost countries.
Note 5. Class A Preferred Stock
On February 12, 2003, Cone declared a 12.0% stock dividend on Cone's Class A
Preferred Stock, which was paid on March 31, 2003. The dividend was charged to
retained earnings in the amount of approximately $3.9 million in Cone's fiscal
quarter ended June 29, 2003. The 2004 dividend rate for Class A Preferred Stock
is 11.5%, payable March 31, 2004.
Note 6. Depreciation and Amortization
The following table presents depreciation and amortization included in
operations in the consolidated condensed statements of operations.
Thirteen Thirteen Twenty-Six Twenty-Six
Weeks Ended Weeks Ended Weeks Ended Weeks Ended
(in thousands) 6/29/03 6/30/02 6/29/03 6/30/02
--------------------------------------------------------------------------
Depreciation $ 4,833 $ 5,048 $ 9,623 $ 10,098
Amortization 23 23 46 46
---------------------------------------------------------------------------
$ 4,856 $ 5,071 $ 9,669 $ 10,144
---------------------------------------------------------------------------
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) 6/29/03 6/30/02
----------------------------------
Net income (loss) $ (3,571 ) $ 3,093
Preferred dividends ( 1,022 ) ( 1,078 )
----------------------------------
Basic EPS - income (loss) available to common
stockholders ( 4,593 ) 2,015
Effect of dilutive securities - -
----------------------------------
Diluted EPS - income (loss) available to common
stockholders after assumed conversions $ ( 4,593 ) $ 2,015
----------------------------------
Determination of shares:
Weighted-average shares 25,832 25,700
Contingently issuable (unvested restricted shares) - ( 8 )
----------------------------------
Basic EPS - weighted-average shares 25,832 25,692
Effect of dilutive securities - 417
----------------------------------
Diluted EPS - adjusted weighted-average shares after
assumed conversions 25,832 26,109
----------------------------------
Earnings (loss) per share - basic and diluted $ (0.18 ) $ 0.08
----------------------------------
The number of potentially dilutive common stock options outstanding using the
treasury stock method for the thirteen weeks ended June 29, 2003, were
approximately 220,000 but were not included in the computation of diluted loss
per share because to do so would have been antidilutive.
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) 6/29/03 6/30/02
----------------------------------
Net income (loss) $ ( 1,770 ) $ 4,533
Preferred dividends ( 1,998 ) ( 2,110 )
----------------------------------
Basic EPS - income (loss) available to common
stockholders ( 3,768 ) 2,423
Effect of dilutive securities - -
----------------------------------
Diluted EPS - income (loss) available to common
stockholders after assumed conversions $ ( 3,768 ) $ 2,423
----------------------------------
Determination of shares:
Weighted-average shares 25,795 25,687
Contingently issuable (unvested restricted shares) - ( 8 )
----------------------------------
Basic EPS - weighted-average shares 25,795 25,679
Effect of dilutive securities - 386
----------------------------------
Diluted EPS - adjusted weighted-average shares after
assumed conversions 25,795 26,065
----------------------------------
Earnings (loss) per share - basic and diluted $ ( 0.15 ) $ 0.09
----------------------------------
The number of potentially dilutive common stock options outstanding using the
treasury stock method for the twenty-six weeks ended June 29, 2003, were
approximately 230,000 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.
Operating income (loss) for each segment is total revenue less operating
expenses applicable to the segment. Intersegment revenue relates to the denim
and commission finishing segments. Equity in earnings of unconsolidated
affiliates is included in the denim segment. Impairment of asset charges, EARS
expenses, 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.
Note 8. Segment Information (continued)
Net sales and income (loss) from operations for Cone's operating segments are as
follows:
Thirteen Thirteen
Weeks Ended Weeks Ended
(in thousands) 6/29/03 6/30/02
-----------------------------------
Net Sales
Denim $ 78,930 $ 101,725
Commission Finishing 11,348 15,365
Decorative Fabrics 6,243 9,491
Other 114 81
-----------------------------------
96,635 126,662
Less Intersegment Sales 299 825
-----------------------------------
$ 96,336 $ 125,837
-----------------------------------
Income (Loss) from Operations
Denim $ 5,496 $ 8,692
Commission Finishing (205 ) 1,073
Decorative Fabrics ( 1,122 ) ( 145 )
Other ( 411 ) ( 626 )
Unallocated Expenses ( 650 ) ( 464 )
-----------------------------------
3,108 8,530
Impairment of Assets ( 766 ) -
-----------------------------------
2,342 8,530
Less Equity in Earnings of Unconsolidated Affiliates 506 729
-----------------------------------
1,836 7,801
Other Expense, Net ( 4,144 ) ( 4,424 )
Equity Appreciation Rights ( 4,117 ) -
-----------------------------------
Income (Loss) from Operations before Income Tax Expense
(Benefit) and Equity in Earnings of Unconsolidated Affiliates $ ( 6,425 ) $ 3,377
-----------------------------------
Note 8. Segment Information (continued)
Twenty-Six Twenty-Six
Weeks Ended Weeks Ended
(in thousands) 6/29/03 6/30/02
-----------------------------------
Net Sales
Denim $ 163,425 $ 183,840
Commission Finishing 22,968 30,524
Decorative Fabrics 13,618 19,810
Other 188 143
-----------------------------------
200,199 234,317
Less Intersegment Sales 1,599 2,660
-----------------------------------
$ 198,600 $ 231,657
-----------------------------------
Income (Loss) from Operations
Denim $ 13,183 $ 14,473
Commission Finishing ( 193 ) 2,129
Decorative Fabrics ( 2,024 ) 371
Other ( 807 ) ( 994 )
Unallocated Expenses ( 954 ) ( 820 )
-----------------------------------
9,205 15,159
Impairment of Assets ( 766 ) -
-----------------------------------
8,439 15,159
Less Equity in Earnings of Unconsolidated Affiliates 1,487 682
-----------------------------------
6,952 14,477
Other Expense, Net ( 8,032 ) ( 9,179 )
Equity Appreciation Rights ( 4,117 ) -
-----------------------------------
Income (Loss) from Operations before Income Tax Expense
(Benefit) and Equity in Earnings of Unconsolidated Affiliates $ ( 5,197 ) $ 5,298
-----------------------------------
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) 6/29/03 6/30/02 6/29/03 6/30/02
-------------------------------------------------------------------------------
Net income (loss) $ ( 3,571 ) $ 3,093 $ ( 1,770 ) $ 4,533
Other comprehensive income (loss),
cotton derivatives gains (losses) ( 579 ) 843 ( 862 ) 666
-------------------------------------------------------------------------------
$ ( 4,150 ) $ 3,936 $ ( 2,632 ) $ 5,199
-------------------------------------------------------------------------------
Cotton derivatives losses as of June 29, 2003, 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.
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 is subsequently
reclassified into results of operations when the forecasted transactions being
hedged affect results of operations. At June 29, 2003, Cone recorded in
accumulated other comprehensive income (loss) cotton derivative losses, net of
deferred tax benefit, of $0.5 million. At June 30, 2002, Cone recorded in
accumulated other comprehensive income (loss) cotton derivative gains, net of
deferred taxes, of $1.0 million. Gains of less than $0.1 million and gains of
$0.7 million were credited to cost of goods sold during the thirteen and
twenty-six weeks ended June 29, 2003, respectively. 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. 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 29, 2003
and June 30, 2002, 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 29, 2003 and June 30, 2002 follows:
Corporate &
Textile Products
(in thousands) Group
----------------------
Balance, December 29, 2002 $ 58
Deductions:
Terminal leave and related benefits ( 15 )
----------------------
Balance, June 29, 2003 $ 43
----------------------
Balance, December 30, 2001 $ 639
Deductions:
Terminal leave and related benefits ( 639 )
----------------------
Balance, June, 30, 2002 $ -
----------------------
In the second quarter of 2003, Cone made an adjustment to certain impairment
charges recognized in 2000. Cone recorded a $0.8 million impairment charge on
the Consolidated Condensed Statement of Operations, as a further write down to
certain assets available for sale that it had reached an agreement to sell in
the third quarter of 2003. The fair value that is ultimately realized upon the
sale may differ from the currently estimated fair value.
Note 12. Income Taxes
Excluding equity in earnings of unconsolidated affiliates, upon which no U.S.
tax was provided, the effective tax benefit for the thirteen and twenty-six
weeks ended June 29, 2003, was 37%. Excluding equity in earnings of
unconsolidated affiliates, upon which no U.S. tax was provided, the effective
tax rate for the thirteen and twenty-six weeks ended June 30, 2002, was 30% and
27%, respectively. Tax benefits of export sales significantly reduced the
effective tax rate for the thirteen and twenty-six weeks ended June 30, 2002.
Item 2.
MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
The U.S. economy continued its tepid recovery in the second quarter of 2003. The
U.S. Commerce Department reported that the economy grew at an annual rate of
2.4% in the second quarter of 2003, compared to the 1.4% growth rate for the
first quarter of 2003 and fourth quarter of 2002. However, U.S. defense spending
accounted for 1.0% of the growth in the second quarter 2003 GDP. Economic growth
continues to be negatively impacted by several factors, including lack of
business spending, war worries and bad weather in the Eastern U.S. In response
to the weakness in the economic recovery since the mild recession of 2001, the
U.S. government has attempted to accelerate the rate of growth in the economy
with massive monetary and fiscal stimulus efforts. While some economists believe
that the anticipated consumer spending effect of the tax package will enable the
U.S. economy to finally turn the corner over the next six months to a higher
rate of growth, Cone has yet to see an improvement in our business outlook.
In the face of the difficult retail environment and generally poor domestic
textile market conditions, Cone experienced a 14.3% sales decline in the first
half of 2003, as compared with the prior year period, and reported a net loss of
$1.8 million or $0.15 per share after preferred dividends for the first half of
2003. For comparison, Cone reported net income of $4.5 million or $0.09 per
share after preferred dividends for the first half of 2002.
As a result of sluggish retail sales in the first half of 2003, retailers have
been extremely conservative in the level of orders for the critical fall and
holiday 2003 selling seasons. As retailers have aggressively acted to reduce
their inventories this has increased inventories throughout the balance of the
softgoods pipeline. Many of our customers have indicated that they will seek to
reduce their inventories in the second half of 2003, which is expected to impact
negatively Cone's profitability as a result of lower sales volume, sales revenue
and curtailed operating schedules. The continued pressure on denim prices
coupled with rising raw material costs is expected to reduce margins and
operating earnings in the second half of 2003, as compared with the second
quarter of 2003.
The textile business is an extremely competitive business on a global basis.
Overall apparel and textile imports into the U.S. continued to grow at
double-digit rates with the bulk of the growth coming from the Far East. Many
Asian countries, including China, have artificially pegged their currencies to
the U.S. dollar, which has helped to keep their goods cheaper thereby boosting
their exports. This currency effect, the general global oversupply of apparel
and textiles, U.S. retail consolidation and the slowing in consumer spending
have resulted in volume and deflationary pricing pressures throughout the
apparel and home furnishings markets. On an aggregate basis the North American
Free Trade Agreement ("NAFTA") and the Caribbean Basin Initiative ("CBI")
countries currently provide approximately 60% of the denim jeans and fabric
imports into the U.S. In the near term, imports of denim apparel continue to
accelerate as U.S. garment producers continue to shutter U.S. operations. For
the twelve-month period ended May 2003, imports of denim apparel from Mexico and
CBI grew at an annual rate of 10.8%, as compared with a 47.6% rate of growth for
imports from the Far East. Denim apparel produced in CBI is made principally
from U.S. fabrics while denim apparel produced in Mexico is made typically from
U.S. or Mexican produced fabrics.
Cone's business strategy is to invest and grow in its core franchises where it
is recognized as a market leader. As a result of economic and industry
conditions, Cone is focused on four initiatives: (1) engage in businesses in
which Cone believes it is an industry leader; (2) retain, attract, motivate and
focus a talented and capable management team; (3) migrate to low-cost
manufacturing platforms for commodity products; and (4) attract and efficiently
invest capital. Our long-term migration strategy is focused on the Americas
where free trade agreements, such as NAFTA, CAFTA (Central America Free Trade
Act) and FTAA (Free Trade of the Americas), are in place or are expected to be
enacted in the future. We believe that denim jeans produced in these regions
will maintain a significant market share of the U.S. retail market because of
certain unique product characteristics. Among the characteristics of denim
fabric and jeans that make them more likely to be sourced closer to or in the
U.S. are the significant fashion element, especially in women's jeans, the
overall low labor content as compared to other textiles and apparel, the
availability of U.S. cotton and certain other supply chain factors.
Cone's strategy is to grow its denim business by expanding its production
capacity in Mexico or other low-cost countries in this hemisphere. The options
to expand Cone's denim capacity in low cost countries include acquiring existing
operations, acquiring existing buildings and retrofitting into a denim operation
or building a greenfield facility. We believe that the capital investment for
such a denim expansion is approximately $60 - $90 million. The capital cost for
such a facility will be dependent upon its size, age and flexibility. Funding
the denim facility will require debt and equity financing and certain
modifications to Cone's current debt structure and lending agreements. Cone has
not arranged financing or modified its debt structure or lending agreements to
date, and there can be no assurance that such financing will be available on
acceptable terms and conditions or that its present lenders will agree to the
required modifications.
Regarding the near-term operating outlook, we expect continued pressure on
margins and volumes as a result of weak U.S. economic conditions, higher cotton
costs, higher than desired customer and competitor inventory levels, retailers'
cautiousness and imports. Longer term the monetary and fiscal stimuli being
applied to the U.S. economy along with the inevitable end to inventory
liquidations should result in some recovery in our markets.
RESULTS OF OPERATIONS
Second Quarter Ended June 29, 2003 Compared with Second Quarter Ended June 30,
2002.
For the second quarter of 2003, Cone had sales of $96.3 million, as compared
with sales of $125.8 million for the second quarter of 2002 or a 23.4% decrease.
The decrease in sales was attributable to lower unit volume in all segments, as
domestic retail sales of apparel continued to reflect weak consumer demand.
Gross profit margin decreased to 10.8% of sales for the second quarter of 2003,
as compared with 13.7% for the second quarter of 2002. In the second quarter of
2003, the decline in gross profit margin was primarily attributable to
unfavorable manufacturing variances associated with curtailed operating
schedules resulting from lower sales.
Cone operates in three principal business segments: 1) Denim; 2) Commission
Finishing; and 3) Decorative Fabrics. (See Note 8 of the Notes to Consolidated
Condensed Financial Statements included in Part I, Item 1.)
Denim. Outside sales (total segment sales less intercompany sales) of the
denim segment for the second quarter of 2003 were $78.8 million, as
compared with sales of $101.7 million for the second quarter of 2002, or a
decrease of 22.6%. Sales yards decreased 23.5%, as compared with the prior
year's second quarter results, as a result of market weaknesses and the
comparison against a strong prior year period. Denim sales prices continued
to decline slightly, as compared with the second quarter of 2002. Operating
income for the denim segment was $5.5 million or 7.0% of sales for the
second quarter of 2003, as compared with $8.7 million, or 8.5% of sales for
the second quarter of 2002. The decline in operating income was
attributable to lower sales volume and unfavorable manufacturing variances
associated with curtailed operating schedules. 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 $0.6 million for the second quarter of 2003, as compared
with $0.8 million for the second quarter of 2002.
Commission Finishing. Outside sales (total segment sales less intercompany
sales) of the commission finishing segment for the second quarter of 2003
were $11.2 million, down 22.8%, as compared with second quarter 2002
results. Sales volume declined significantly as a result of overall weak
market conditions in all of Carlisle's market segments. For the second
quarter of 2003, the segment reported a loss of $0.2 million, as compared
with a profit of $1.1 million for the second quarter of 2002. Operating
results were negatively impacted by lower sales volume, which resulted in
curtailed operating schedules, and higher energy costs. Plant operating
efficiencies continued to improve in the second quarter of 2003, as
compared with the second quarter of 2002. The home fashions industry
continues to experience extremely difficult market conditions.
Decorative Fabrics. Sales revenue in the second quarter of 2003 was $6.2
million, as compared with $9.5 million for second quarter 2002. Market
conditions in the bedding and furniture segments continued to be weak and
were exacerbated by increased import penetration of furniture products and
the low level of new product introductions achieved by Cone Jacquards in
2001 and 2002. Decorative fabrics operating loss for the second quarter of
2003 was $1.1 million, as compared with $0.1 million for second quarter
2002. Operating results were affected negatively by lower sales volume,
resulting in poor plant utilization levels and unsatisfactory operating
efficiencies. In addition, in order to improve its new product
introductions in 2003 the business unit increased expenditures on design
and sampling.
Selling and administrative expenses for the second quarter of 2003 were 8.1% of
sales, as compared to 7.5% for the second quarter of 2002. Selling and
administrative expenses were a higher percentage of sales in the second quarter
of 2003 primarily as a result of significantly lower sales, increased pension
costs related to a negative return on plan assets in 2002 partially offset by
lower accruals for performance-based compensation.
Interest expense for the second quarter of 2003 was $3.8 million, as compared
with $4.0 million for the second quarter of 2002. Benefits from lower market
interest rates and lower borrowings outstanding were partially reduced by
increased rates under the lending agreements. Other expenses of $0.4 million in
the second quarter of 2003 consist of the ongoing expenses of the accounts
receivable securitization program, as compared to other expense of $0.5 million
in the second quarter of 2002.
On May 27, 2003, Cone amended agreements with its lenders extending the maturity
date of its existing Revolving Credit Facility and its Senior Note obligation
through March 15, 2004. With the amendments, the interest rate on the senior
note remained 14.2%. The revolving credit agreement was split into two
components. The first component is a $25 million, 12% senior note and the second
component is a $31 million revolving credit facility bearing interest at LIBOR
plus 6.75%.
The Revolving Credit Facility and Senior Notes call for monthly amortizations of
$0.8 million, beginning in July 2003. As part of the extension, Cone settled the
Equity Appreciation Rights ("EARS"), which were contingent rights granted as a
part of the November 2001 agreements, for $4.1 million. The rights entitled the
lenders, upon giving of notice within two years following January 15, 2003, to
receive a payment of the greater of $1 million or 10% of the market value of
Cone's outstanding common stock if Cone did not refinance the Revolving Credit
Facility and Senior Note by January 15, 2003, which did not occur. The rights
were settled for $2.1 million in cash, $1.8 million in senior notes bearing
interest at 12% and 14.2% maturing on March 15, 2004 and approximately 169,000
shares of Cone common stock.
Excluding equity in earnings of unconsolidated affiliates, upon which no U.S.
tax was provided, the effective tax benefit for the thirteen weeks ended June
29, 2003, was 37%. Excluding equity in earnings of unconsolidated affiliates,
upon which no U.S. tax was provided, the effective tax rate for the thirteen
weeks ended June 30, 2002, was 30%. Tax benefits of export sales significantly
reduced the effective tax rate for the thirteen weeks ended June 30, 2002.
For the second quarter of 2003, Cone had a net loss $3.6 million or $0.18 per
share after preferred dividends. Included in the net loss were before-tax
charges of $4.1 million for the EARS payment and $0.8 million of asset
impairment charges. For the second quarter of 2002, Cone had a net profit of
$3.1 million or $0.08 per share after preferred dividends.
Six Months Ended June 29, 2003 Compared with Six Months Ended June 30, 2002.
For the first six months of 2003, Cone had sales of $198.6 million, a decrease
of 14.3%, as compared with sales of $231.7 million for the first six months of
2002. The decrease in sales was across all business segments.
Gross profit margin decreased to 12.2% of sales for the first half of 2003, as
compared with 13.6% for the first half of 2002. The decline in gross profit
margin was primarily attributable to unfavorable manufacturing variances
associated with curtailed operating schedules partially offset by lower cotton
costs and the benefits of cost reduction programs.
Cone operates in three principal business segments: 1) Denim; 2) Commission
Finishing; and 3) Decorative Fabrics. (See Note 8 of the Notes to Consolidated
Condensed Financial Statements included in Part I, Item 1.)
Denim. Outside sales (total segment sales less intercompany sales) of the
denim segment were $163.1 million for the first half of 2003, as compared
with sales of $183.8 million for the first half of 2002, or a decrease of
11.3%. Sales yards were down in the first half of 2003, as compared with
the first half of 2002 as a result of market weaknesses that became evident
in the second quarter of 2003. Denim sales prices declined slightly, as
compared with the first half of 2002. Operating income for the denim
segment was $13.2 million or 8.1% of sales for the first half of 2003, as
compared with $14.5 million or 7.9% of sales for the first half of 2002.
The decline in operating income was primarily attributable to lower sales
volume partially offset by lower cotton costs. 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 $1.6 million for the first half of 2003, as compared
with $0.9 million for the first half of 2002. Parras Cone results were
favorably impacted by lower raw material costs and the decline in the value
of the Mexican peso versus the U.S. dollar.
Commission Finishing. Outside sales (total segment sales less intercompany
sales) of the commission finishing segment decreased by 22.1%, as compared
with first half 2002. Sales volume declined significantly as a result of
overall weak market conditions in all of Carlisle's market segments. For
the first half of 2003, the segment reported a loss of $0.2 million, as
compared with operating income of $2.1 million for the first half of 2002.
Operating results were negatively impacted by lower sales volume, which
resulted in curtailed operating schedules, and higher energy costs. Plant
operating efficiencies continued to improve in 2003, as compared with 2002.
Decorative Fabrics. Sales revenue in the first half of 2003 was $13.6
million, as compared with $19.8 million for first half of 2002. Sales
volume decreased by 30.8% as market conditions in the bedding and furniture
segments continued to be weak and were exacerbated by increased import
penetration of furniture products and the low level of new product
introductions achieved by Cone Jacquards in 2001 and 2002. Segment
operating loss was $2.0 million for the first half of 2003, as compared
with segment operating income of $0.4 million for the comparable prior year
period. Operating results were affected negatively by lower sales volume,
resulting in poor plant utilization levels and unsatisfactory operating
efficiencies. In addition, in order to improve its new product
introductions in 2003 the business unit increased expenditures on design
and sampling.
Selling and administrative expenses for the first half of 2003 were $16.5
million or 8.3% of sales, as compared to $17.1 million or 7.4% of sales for the
first half of 2002. While selling and administrative expenses were lower on an
aggregate basis they were a higher percentage of sales in the first half of 2003
primarily as a result of lower sales and increased pension costs related to a
negative return on plan assets in 2002.
Interest expense for the first half of 2003 was $7.5 million, as compared with
$8.3 million for the first half of 2002. 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 $0.7 million in the
first half of 2003 include the ongoing expenses of the accounts receivable
securitization program, as compared to other expense of $1.0 million in the
first half of 2002.
Excluding equity in earnings of unconsolidated affiliates, upon which no U.S.
tax was provided, the effective tax benefit for the twenty-six weeks ended June
29, 2003 was 37%. Excluding equity in earnings of unconsolidated affiliates,
upon which no U.S. tax was provided, the effective tax rate for the twenty-six
weeks ended June 30, 2002 was 27%. Tax benefits of export sales significantly
reduced the effective tax rate for the twenty-six weeks ended June 30, 2002.
For the first half of 2003, Cone had a net loss of $1.8 million or $0.15 per
share after preferred dividends. Included in the net loss were before-tax
charges of $4.1 million for the EARS payment and $0.8 million of asset
impairment charges. For the first six months of 2002, Cone had a net profit of
$4.5 million or $0.09 per share after preferred dividends.
LIQUIDITY AND CAPITAL RESOURCES
Cone's principal capital components consists of debt outstanding under its
Revolving Credit Facility, its Senior Notes, its 8-1/8% Debentures and
stockholders' equity. Primary sources of liquidity are internally generated
funds, availability under the Revolving Credit Facility and a $60 million
Receivables Purchase and Servicing Agreement (the "A/R Securitization
Facility").
The following is a summary of primary financing agreements as of June 29, 2003.
Interest/
($ Amounts in Millions) Facility Amount Discount
Financing Agreement Commitment Outstanding Rate Maturity Date
- ---------------------------------------------------------------------------------------------
%
8-1/8% Debentures $ 100.0 $ 100.0 8.125 Mar 15, 2005
14.2% Senior Notes 22.5 22.5 14.200 Mar 15, 2004
12.0% Senior Notes 26.2 26.2 12.000 Mar 15, 2004
Revolving Credit Facility 31.3 10.0 8.328 Mar 15, 2004
A/R Securitization Facility 60.0 30.3 4.710 Sept 1, 2004
On May 27, 2003, Cone amended agreements with its lenders extending the maturity
date of its existing Revolving Credit Facility and its Senior Note obligation
through March 15, 2004. With the amendments, the interest rate on the senior
note remained 14.2%. The revolving credit agreement was split into two
components. The first component is a $25 million, 12% senior note and the second
component is a $31 million revolving credit facility bearing interest at LIBOR
plus 6.75%.
The Revolving Credit Facility and Senior Notes call for monthly amortizations of
$0.8 million, beginning in July 2003. As part of the extension, Cone settled the
EARS, which were contingent rights granted as a part of the November 2001
agreements, for $4.1 million. The rights entitled the lenders, upon giving of
notice within two years following January 15, 2003, to receive a payment of the
greater of $1 million or 10% of the market value of Cone's outstanding common
stock if Cone did not refinance the Revolving Credit Facility and Senior Note by
January 15, 2003, which did not occur. The rights were settled for $2.1 million
in cash, $1.8 million in senior notes bearing interest at 12% and 14.2% maturing
on March 15, 2004 and approximately 169,000 shares of Cone common stock.
At June 29, 2003, Cone had availability under its financing agreements of $18.3
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. During the
first six months of 2003, cash used in operations was $3.7 million as cash
generated was offset by an increase of $11.9 million in inventories. During the
first six months of 2003, Cone invested in capital expenditures of $2.5 million
and received proceeds of $1.1 million from the sale of non-essential equipment.
Subsequent to June 29, 2003, we funded $4.5 million in pension plan
contributions and amortized $1.7 million of long-term debt reducing availability
under our financing agreements to $8.7 million as of August 12, 2003. Cone's
domestic capital budget was $10.0 million for 2003 but is expected to be reduced
to $5.0 - $6.0 million to reflect poor market conditions in the textile and
apparel sectors. Cone's capital budget is based upon project requests to
maintain its manufacturing facilities in good condition and to provide the
flexibility and capability necessary to meet market demands. Cone expects to
finance capital expenditures with internally generated funds and availability
under its Revolving Credit Facility.
Given the current business environment, it is likely that we will need to amend
our Revolving Credit Facility and Senior Notes during the third quarter of 2003.
There can be no assurance that an amendment to the Revolving Credit Facility and
Senior Notes will be obtained. Absent an amendment, we may be out of compliance
with one or more covenants some time during or after September 2003.
The failure to comply with the provisions of the Revolving Credit Facility and
Senior Notes would result in events of default thereunder, and, depending upon
the actions of the lenders thereunder, all amounts owed under the Revolving
Credit Facility and Senior Notes could be declared due and payable. If we were
not able to repay all amounts owed under the Revolving Credit Facility and
Senior Notes, the lenders thereunder would have the right to proceed against the
collateral granted to the lenders to secure such indebtedness. If the
indebtedness outstanding under the Revolving Credit Facility and Senior Notes
were to be accelerated, there can be no assurance that the funds and assets of
the company would be sufficient to repay in full such indebtedness, and there
can be no assurance that there would be sufficient assets remaining after such
repayments to pay amounts due in respect of any or all of the company's other
indebtedness. An acceleration of indebtedness under the Revolving Credit
Facility and Senior Notes would result in a cross-default under Cone's
indebtedness under its 8-1/8% debentures.
By March 2004, or earlier if events of default occur, Cone must either amend,
refinance or replace the Revolving Credit Facility and Senior Notes. Based on
Cone's operating results, its business environment and the negative perception
by lenders regarding the U.S. textile industry, there is no assurance that Cone
will be able to amend as needed, refinance or replace its Revolving Credit
Facility and its Senior Notes or otherwise obtain financing on terms and
conditions acceptable to Cone. Cone has not yet been able to finance its
proposed denim expansion strategy, and its current debt structure will not
permit that financing.
On January 16, 2003, Cone entered into a letter of intent with WLR Recovery Fund
II, L.P. ("WLR"), a fund managed by W.L. Ross and Company, in which WLR would
support a recapitalization of Cone's balance sheet that would provide funds to
allow Cone to execute its Mexican expansion strategy. Based upon present
economic conditions and Cone's near-term operating outlook, the recapitalization
plan as described in Cone's Form 10-K for the year ended December 29, 2002 is
not expected to be consummated. Cone is continuing to explore alternatives
related to financing its business and the expansion of denim capacity in
low-cost countries.
On June 29, 2003, Cone's capital structure consisted of $157.9 million of debt
(including current maturities) and $89.3 million of stockholders' equity. For
comparison, Cone had $161.0 million of debt (including current maturities) and
$89.4 million of stockholders' equity at June 30, 2002.
Accounts receivable on June 29, 2003 were $33.6 million, as compared with $40.0
million at June 30, 2002. Receivables, including those sold pursuant to the A/R
Securitization Facility, represented 63 days of sales outstanding at June 29,
2003 and 57 days at June 30, 2002. Advances outstanding under the A/R
Securitization Facility were $30.3 million at June 29, 2003 and $37.7 million at
June 30, 2002.
Inventories on June 29, 2003 were $60.7 million, as compared with $48.8 million
at December 29, 2002 reflecting an increase in denim finished goods inventories
and raw materials, partially offset by a decrease in work in process inventory.
For comparison purposes, inventories at June 30, 2002 were $49.5 million. The
year-over-year increase in inventories is primarily the result of increased
denim finished goods inventory levels and higher cotton prices.
Financing agreements of Cone prohibit it from paying dividends on its Common
Stock.
FORWARD-LOOKING STATEMENTS AND RISK FACTORS
Except for the historical information presented, the matters disclosed in the
discussion and analysis and other parts of this report, as well as oral
statements made from time to time by representatives of Cone, include
forward-looking statements within the meaning of the Federal Securities laws.
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.
These forward-looking statements include statements relating to our anticipated
financial performance and business prospects. Statements preceded by, followed
by or that include words such as "believe," "anticipate," "estimate," "expect,"
"could," and other similar expressions are to be considered such forward-looking
statements. These forward-looking statements speak only as of the date stated
and we do not undertake any obligation to update or revise publicly any
forward-looking statements, whether as a result of new information, future
events or otherwise, even if experience or future events make it clear that any
expected results expressed or implied by these forward-looking statements will
not be realized. Although we believe that the expectations reflected in these
forward-looking statements are reasonable, these expectations may not prove to
be correct or we may not achieve the financial results, savings or other
benefits anticipated in the forward-looking statements. These forward-looking
statements are necessarily estimates reflecting the best judgment of our senior
management and involve a number of risks and uncertainties, some of which may be
beyond our control, that could cause actual results to differ materially from
those suggested by the forward-looking statements. Such factors include, without
limitation:
o 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,
o 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,
o the unpredictability of the cost and availability of cotton, Cone's
principal raw material, and other manufacturing costs,
o Cone's relationships with Levi Strauss as its major customer including its
sourcing practices,
o Cone's ability to attract and maintain adequate capital to meet its debt
maturities and to fund operations and strategic initiatives,
o Cone's ability to amend or modify its lending agreements as may be needed
from time to time.
o increases in prevailing interest rates,
o Cone's ability to complete an acceptable recapitalization transaction that
will enable it to refinance its existing debt and to expand its denim
manufacturing in low-cost countries, and
o 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 "Item 1. Business -Competition,
- -Raw Materials and -Customers" and "Item 7. Management's Discussion and Analysis
of Results of Operations and Financial Condition -- Overview" contained in
Cone's 2002 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.
OTHER MATTERS
Federal, state and local regulations relating to the workplace and the discharge
of materials into the environment continue to change and, consequently, it is
difficult to gauge the total future impact of such regulations on 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 environmental committee, which fosters protection of the environment and
compliance with laws.
Cone and its subsidiaries are involved in legal proceedings and claims arising
in the ordinary course of business. Although there can be no assurance as to the
ultimate disposition of these matters, management believes that the probable
resolution of such contingencies will not have a material adverse effect on the
results of operations, financial condition and liquidity of Cone. As of June 29,
2003, no significant litigation existed.
NON-GAAP FINANCIAL MEASURES
From time to time management discloses Operating Income (Loss) before
Depreciation and Amortization as well as Earnings Per Share, excluding selected
items. These non-GAAP (general accepted accounting principles in the United
States) financial measure calculations may be presented in earnings releases of
Cone, furnished in Form 8-K to the Securities and Exchange Commission, along
with reconciliations to the most comparable GAAP financial measure for the
period. Operating Income (Loss) before Depreciation and Amortization is
presented based on management's belief that this non-GAAP measure is considered
an important indicator of the operational strength of the business and is used
in Cone's current financing agreements for covenant compliance as well as its
incentive compensation plans. Operating Income (Loss) before Depreciation and
Amortization is not a measure of financial performance under GAAP and should not
be considered as an alternative to cash flows from operating activities, as
defined by GAAP, or as a measure of liquidity, or an alternative to Net Income
(Loss).
Net Income (Loss) excluding selected items and Earnings (Loss) Per Share
excluding selected items is presented based on management's belief that these
non-GAAP measures enable a user of the financial information to understand the
impact of these items on reported results. Additionally, this presentation
provides a beneficial comparison to similarly adjusted measurements of prior
periods. Net Income (Loss) and Earnings (Loss) Per Share excluding selected
items is not a measure of financial performance under GAAP and should not be
considered as an alternative to Net Income (Loss) and Earnings (Loss) Per Share,
as defined by GAAP.
Thirteen Weeks Ended Twenty-Six Weeks Ended
----------------------------------------------------------------------
(in thousands) 6/29/03 6/30/02 6/29/03 6/30/02
----------------------------------------------------------------------
Income from operations $ 1,836 $ 7,801 $ 6,952 $ 14,477
Depreciation and amortization 4,856 5,071 9,669 10,144
Impairment of Assets 766 - 766 -
----------------------------------------------------------------------
Operating Income before Depreciation,
Amortization and Impairment of Assets $ 7,458 $ 12,872 $ 17,387 $ 24,621
----------------------------------------------------------------------
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 29, 2002.
Item 4. Controls and Procedures
Based on their evaluation of Cone's disclosure controls and procedures, which
was completed as of the end of the period covered by the report, the Chairman,
President and Chief Executive Officer ("CEO") and the Chief Financial Officer
("CFO") have concluded that Cone's disclosure controls and procedures are
effective to ensure that information required to be disclosed by Cone in the
reports that it files or submits under the Securities Exchange Act of 1934, as
amended, is recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and forms. In
reaching this conclusion, the CEO and CFO determined that Cone's disclosure
controls and procedures are effective in ensuring that such information is
accumulated and communicated to Cone's management to allow timely decisions
regarding required disclosure.
There were no significant changes in Cone's internal controls or in other
factors that could significantly affect these controls subsequent to the date of
their evaluations.
PART II
Item 1. Legal Proceedings
Cone and its subsidiaries are involved in legal proceedings and claims arising
in the ordinary course of business. Although there can be no assurance as to the
ultimate disposition of these matters, management believes that the probable
resolution of such contingencies will not have a material adverse effect on the
results of operations, financial condition and liquidity of Cone. As of June 29,
2003, no significant litigation existed.
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.
Cone filed the following current reports on form 8-K during the period
December 30, 2002, to the date of the filing of this report:
o Current report on Form 8-K, filed on January 17, 2003, disclosing
Cone's entering into a letter of intent with WLR Recovery Fund II,
L.P., a fund managed by W.L. Ross and Company, to purchase up to $27.0
million of convertible notes to support a recapitalization of Cone's
balance sheet. The Form 8-K contained one exhibit, the press release
issued by Cone on January 17, 2003.
o Current report on Form 8-K, filed on April 24, 2003, disclosing Cone's
first quarter 2003 earnings release and conference call. The Form 8-K
contained one exhibit, the earnings release issued by Cone on April
24, 2003.
o Current report on Form 8-K, filed on May 6, 2003, disclosing John L.
Bakane elected by the Board of Directors to the position of Chairman
of the Board. The Form 8-K contained one exhibit, the press release
issued by Cone on May 6, 2003.
o Current report on Form 8-K, filed on May 28, 2003, disclosing the
amended agreements with Cone's lenders extending its existing credit
facility and senior note obligations through March 15, 2004. The Form
8-K contained one exhibit, the press release issued by Cone on May 28,
2003.
o Current report on Form 8-K, filed on May 29, 2003, disclosing the
amended agreements with Cone's lenders. The Form 8-K contained two
exhibits, the Amendment of 1992 Note Agreement dated as of May 27,
2003 and Amendment No. 12 to Credit Agreement dated as of May 27,
2003.
o Current report on Form 8-K, filed on July 30, 2003, disclosing Cone's
second quarter 2003 earnings release and conference call. The Form 8-K
contained one exhibit, the earnings release issued by Cone on July 30,
2003
o Current report on Form 8-K, filed on July 30, 2003, disclosing
statements made by officials of Cone on July 30, 2003 during the
quarterly conference call. The Form 8-K contained one exhibit, the
statements made by the chief executive officer and chief financial
officer.
o Current report on Form 8-K, filed on August 11, 2003, disclosing
Cone's press release. The Form 8-K contained one exhibit, the press
release issued by Cone on August 11, 2003.
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).
*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).
Exhibit
No. Description
*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.
*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.
Exhibit
No. Description
*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.
*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.
Exhibit
No. Description
*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.
*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.
Exhibit
No. Description
*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.
*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.
Exhibit
No. Description
*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.
*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.
*4.2.23 Amendment of 1992 Note Agreement dated as of December 2, 2002, by and
among the Registrant and The Prudential Insurance Company of America,
filed as Exhibit 4.2.23 to the Registrant's report on Form 8-K dated
December 6, 2002.
*4.2.24 Amendment of 1992 Note Agreement dated as of April 30, 2003, by and
among the Registrant and The Prudential Insurance Company of America,
filed as Exhibit 4.2.24 to the Registrant's report on Form 10-Q for
the quarter ended March 30, 2003.
Exhibit
No. Description
*4.2.25 Amendment of 1992 Note Agreement dated as of May 27, 2003, by and
among the Registrant and The Prudential Insurance Company of America,
filed as Exhibit 4.2.25 to the Registrant's report on Form 8-K dated
May 29, 2003.
*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.
*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.
Exhibit
No. Description
*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.
*4.3.10 Amendment No. 10 to Credit Agreement dated as of December 2, 2002, by
and among the Registrant, as Borrower, Bank of America, N.A., Each of
the Lenders Signatory Thereto, and Bank of America, N.A., as Agent,
filed as Exhibit 4.3.10 to the Registrant's report on Form 8-K dated
December 6, 2002.
*4.3.11 Amendment No. 11 to Credit Agreement dated as of April 30, 2003, by
and among the Registrant, as Borrower, Each of the Lenders Signatory
Thereto, and Bank of America, N.A., as Agent, filed as Exhibit 4.3.11
to the Registrant's report on Form 10-Q for the quarter ended March
30, 2003.
*4.3.12 Amendment No. 12 to Credit Agreement dates as of May 27, 2003 by and
among the Registrant, as Borrower, Each of the Lenders Signatory
Hereto and Bank of America, N.A., as Agent, filed as Exhibit 4.3.12 to
the Registrant's report on Form 8-K dated May 29, 2003.
*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.
Exhibit
No. Description
*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.
*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).
Exhibit
No. Description
*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).
*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.
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.
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.
*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.
Exhibit
No. Description
*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, 2003.
*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.
*10.24.1 Amendment and Restatement of Yarn Purchase Agreement as amended
December 31, 2001, between the Registrant and Parkdale America, LLC,
Parkdale Mills, Incorporated, and Magnolia Manufacturing Co. Inc.
effective as of February 15, 2002, filed as Exhibit 10.24.1 to
Registrant's report on Form 10-K for the year ended December 29, 2002.
*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.
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.
*10.27.1 Joint Venture Agreement between Isko Dokuma Isletmeleri Sanayi ve
Ticaret A.S. and Cone Mills Corporation and Zekeriye Konukoglu and
Fatih Konukoglu and Oguzhan Gurdogan dated as of June 17, 2002, filed
as Exhibit 10.27.1 to Registrant's report on Form 10-Q for the quarter
ended September 29, 2002.
*10.27.2 Commercial Agreement among Isko Dokuma Isletmeleri Sanayi ve Ticaret
A.S., Cone Mills Corporation and IsKone Denim Pazarlama A.S. dated as
of October 3, 2002, filed as Exhibit 10.27.2 to Registrant's report on
Form 10-Q for the quarter ended September 29, 2002.
*10.27.3 Transfer Price Agreement among Isko Dokuma Isletmeleri Sanayi ve
Ticaret A.S., Cone Mills Corporation and IsKone Denim Pazarlama A.S.
dated as of October 3, 2002, filed as Exhibit 10.27.3 to Registrant's
report on Form 10-Q for the quarter ended September 29, 2002.
*10.27.4 License Agreement among Isko Dokuma Isletmeleri Sanayi ve Ticaret
A.S., Cone Mills Corporation and IsKone Denim Pazarlama A.S. dated as
of October 3, 2002, filed as Exhibit 10.27.4 to Registrant's report on
Form 10-Q for the quarter ended September 29, 2002.
*10.27.5 Administrative Services Agreement between Isko Dokuma Isletmeleri
Sanayi ve Ticaret A.S. and IsKone Denim Pazarlama A.S. dated as of
October 3, 2002, filed as Exhibit 10.27.5 to Registrant's report on
Form 10-Q for the quarter ended September 29, 2002.
*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 29, 2002.
Exhibit
No. Description
*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; 333-37054; 333-60954; and 33-67800;) of their
reports on the financial statements and schedules included in
Registrant's report on Form 10-K/A for the year ended December 29,
2002.
31.1 Certification of the Chairman, President and Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of the Chief Financial Officer Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
32 Certifications of the Chairman, President and Chief Executive Officer
and the Chief Financial Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
*99.1 Financial Statements of Parras Cone de Mexico, S.A. de C.V. as of and
for the year ended December 29, 2002, as filed as Exhibit 99.1 to
Registrant's report on Form 10-K/A for the year ended December 29,
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.
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 13, 2003 /s/Gary L. Smith
-----------------
Gary L. Smith
Executive Vice President and
Chief Financial Officer