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Index to Exhibits - Pages 38 - 54
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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 September 28, 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 November 12, 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 Thirty-Nine weeks ended September 28, 2003 and
September 29, 2002 (Unaudited) .....................................3
Consolidated Condensed Balance Sheets
September 28, 2003 and September 29, 2002 (Unaudited)
and December 29, 2002 ..............................................4
Consolidated Condensed Statements of Cash Flows
Thirty-Nine weeks ended September 28, 2003 and
September 29, 2002 (Unaudited) .....................................5
Notes to Consolidated Condensed Financial Statements
(Unaudited) ........................................................6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operation ......................21
Item 3. Quantitative and Qualitative Disclosures about Market
Risk ..............................................................34
Item 4 Controls and Procedures ...........................................34
PART II. OTHER INFORMATION
Item 1. Legal Proceedings .................................................35
Item 3. Defaults Upon Senior Securities....................................35
Item 4. Submission of Matters to a Vote of Security Holders ...............35
Item 5. Other Information .................................................36
Item 6. Exhibits and Reports on Form 8-K ..................................36
PART I
Item 1.
CONE MILLS CORPORATION AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION AS OF SEPTEMBER 24, 2003)
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
Thirteen Thirteen Thirty-Nine Thirty-Nine
Weeks Ended Weeks Ended Weeks Ended Weeks Ended
September 28, September 29, September 28, September 29,
(in thousands, except per share data) 2003 2002 2003 2002
- -----------------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Net Sales $ 82,829 $ 111,688 $ 281,429 $ 343,345
Cost of Goods Sold 77,087 94,625 251,518 294,710
---------------------------------------------------------------------
Gross Profit 5,742 17,063 29,911 48,635
Selling and Administrative 6,493 8,620 22,944 25,715
Restructuring and Impairment of Assets 123,431 - 124,197 -
---------------------------------------------------------------------
Income (Loss)from Operations ( 124,182 ) 8,443 ( 117,230 ) 22,920
---------------------------------------------------------------------
Other Income (Expense)
Interest income 54 77 184 206
Interest expense (contractual interest of $4,222
for the thirteen weeks ended September 28, 2003
and $11,699 for the thirty-nine weeks ended
September 28, 2003) ( 4,042 ) ( 3,712 ) ( 11,519 ) ( 12,014 )
Other ( 41 ) ( 433 ) ( 726 ) ( 1,439 )
Equity appreciation rights - - ( 4,117 ) -
---------------------------------------------------------------------
( 4,029 ) ( 4,068 ) ( 16,178 ) ( 13,247 )
---------------------------------------------------------------------
Income (Loss) From Operations Before Reorganization
Items, Income Tax Expense (Benefit) and Equity In
Earnings of Unconsolidated Affiliates ( 128,211 ) 4,375 ( 133,408 ) 9,673
Reorganization Items ( 3,519 ) - ( 3,519 ) -
---------------------------------------------------------------------
Income (Loss) from Operations before
Income Tax Expense (Benefit) and Equity in
Earnings of Unconsolidated Affiliates ( 131,730 ) 4,375 ( 136,927 ) 9,673
Income Tax Expense (Benefit) ( 13,877 ) 1,455 ( 15,817 ) 2,902
---------------------------------------------------------------------
Income (Loss) from Operations before
Equity in Earnings of Unconsolidated Affiliates ( 117,853 ) 2,920 ( 121,110 ) 6,771
Equity in Earnings of Unconsolidated Affiliates 548 923 2,035 1,605
---------------------------------------------------------------------
Net Income (Loss) $ ( 117,305 ) $ 3,843 $ ( 119,075 ) $ 8,376
---------------------------------------------------------------------
Income (Loss) Available to Common Stockholders $ ( 118,304 ) $ 2,806 $ ( 122,072 ) $ 5,229
---------------------------------------------------------------------
Earnings (Loss) per Share - Basic and Diluted $ ( 4.56 ) $ 0.11 $ ( 4.72 ) $ 0.20
---------------------------------------------------------------------
Weighted-Average Common Shares Outstanding
Basic 25,941 25,739 25,844 25,704
---------------------------------------------------------------------
Diluted 25,941 26,153 25,844 26,104
---------------------------------------------------------------------
See Notes to Consolidated Condensed Financial Statements.
3
CONE MILLS CORPORATION AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION AS OF SEPTEMBER 24, 2003)
CONSOLIDATED CONDENSED BALANCE SHEETS
September 28, September 29, December 29,
(in thousands, except share and par value data) 2003 2002 2002
- ---------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited) (Note)
ASSETS
Current Assets
Cash $ 7,540 $ 1,573 $ 1,654
Accounts receivable, less allowances:
2003, $3,400; 2002, $5,700 and $3,400 30,608 43,327 33,017
Inventories 58,848 45,578 48,848
Other current assets 2,211 2,656 1,630
---------------------------------------------------------
Total Current Assets 99,207 93,134 85,149
Investments in and Advances to Unconsolidated
Affiliates 49,998 53,010 53,613
Other Assets 1,155 27,496 30,423
Property, Plant and Equipment 17,790 152,198 149,077
---------------------------------------------------------
$ 168,150 $ 325,838 $ 318,262
---------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Liabilities Not Subject to Compromise
Current Liabilities
Current maturities of long-term debt $ - $ 56,262 $ 46,170
Accounts payable 12,412 28,730 25,589
Sundry accounts payable and accrued liabilities 10,402 22,869 25,448
---------------------------------------------------------
Total Current Liabilities 22,814 107,861 97,207
Long-Term Liabilities
Long-term debt - 98,908 99,019
Deferred income taxes - 13,486 14,884
Other liabilities 1,756 13,781 13,699
---------------------------------------------------------
Total Long-Term Liabilities 1,756 126,175 127,602
---------------------------------------------------------
Total Liabilities Not Subject to Compromise 24,570 234,036 224,809
Liabilities Subject to Compromise 229,875 - -
---------------------------------------------------------
Total Liabilities 254,445 234,036 224,809
Stockholders' Equity (Deficit)
Class A preferred stock - $100 par value; authorized
1,500,000 shares; issued and outstanding:
2003, 340,832 shares; 2002, 337,497 shares and
327,283 shares 34,083 33,750 32,728
Class B preferred stock - no par value; authorized
5,000,000 shares - - -
Common stock - $.10 par value; authorized
42,700,000 shares; issued and outstanding:
2003, 25,941,475 shares; 2002, 25,757,344
shares and 25,757,344 shares 2,594 2,576 2,576
Capital in excess of par 58,366 58,098 58,098
Retained earnings (deficit) ( 113,747 ) 6,349 9,279
Deferred compensation - restricted stock - ( 2 ) -
Accumulated other comprehensive loss ( 67,591 ) ( 8,969 ) ( 9,228 )
---------------------------------------------------------
Total Stockholders' Equity (Deficit) ( 86,295 ) 91,802 93,453
---------------------------------------------------------
$ 168,150 $ 325,838 $ 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.
4
CONE MILLS CORPORATION AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION AS OF SEPTEMBER 24, 2003)
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Thirty-Nine Thirty-Nine
Weeks Ended Weeks Ended
September 28, September 29,
(in thousands) 2003 2002
- ---------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
CASH PROVIDED BY (USED IN) OPERATIONS $ ( 13,709 ) $ 30,080
------------------------------------
INVESTING
Proceeds from sale of property, plant and equipment 4,535 1,273
Capital expenditures ( 3,480 ) ( 3,932 )
------------------------------------
Cash provided by (used in) investing 1,055 ( 2,659 )
------------------------------------
FINANCING
Decrease in checks issued in excess of deposits ( 2,548 ) ( 3,982 )
Principal borrowings (payments) on long-term debt 23,668 ( 18,894 )
Proceeds from issuance of common stock 16 236
Dividends paid - Class A Preferred ( 91 ) ( 136 )
Redemption of Class A Preferred stock ( 2,505 ) ( 3,601 )
------------------------------------
Cash provided by (used in) financing 18,540 ( 26,377 )
------------------------------------
Net change in cash 5,886 1,044
Cash at Beginning of Period 1,654 529
Cash at End of Period $ 7,540 $ 1,573
------------------------------------
Supplemental Disclosures of Additional Cash Flow Information:
Cash payments (receipts) for:
Interest $ 9,235 $ 14,019
------------------------------------
Income taxes, net of refunds $ ( 10,882 ) $ 17
------------------------------------
Supplemental Schedule of Noncash Financing Activities:
Stock dividend - Class A Preferred Stock $ 3,860 $ 3,920
------------------------------------
See Notes to Consolidated Condensed Financial Statements.
5
CONE MILLS CORPORATION AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION AS OF SEPTEMBER 24, 2003)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note 1. Petition for Relief under Chapter 11
On September 24, 2003 (the "Petition Date"), Cone Mills Corporation ("Cone") and
certain of its domestic subsidiaries (collectively, the "Debtors") filed
voluntary petitions for relief under Chapter 11 of the United States Bankruptcy
Code (the "Bankruptcy Code") in the United States Bankruptcy Court (the
"Bankruptcy Court") for the District of Delaware (Case Nos. 03-12943 through
03-12946). The Chapter 11 cases for the Debtors (the "Chapter 11 Cases") are
being jointly administered for procedural purposes only. The Debtors' foreign
subsidiaries, foreign joint venture entities and certain of its domestic
subsidiaries were not included in the petitions for relief under Chapter 11.
Cone has entered into a definitive sale agreement with WL Ross & Co., which is
subject to higher or better offers in accordance with Section 363 of Chapter 11
of the Bankruptcy Code. Under the agreement, WL Ross & Co. will purchase
substantially all of Cone's assets for $46 million in cash and will assume
Cone's outstanding Debtor-in-Possession ("DIP") loans and selected other
liabilities, positioning the purchaser as the "stalking horse" - or original
bidder - in accordance with Section 363 of Chapter 11 of the Bankruptcy Code.
Cone and its subsidiaries remain in possession of their assets and properties
and continue to operate their businesses and manage their properties as
debtors-in-possession pursuant to sections 1107(a) and 1108 of the Bankruptcy
Code. Since the Chapter 11 filing, Cone has obtained several orders from the
Bankruptcy Court which included authorization of 1) payment of pre-petition
employee salaries, wages, payroll taxes, certain employee benefits and related
expenses, 2) payment of certain pre-petition freight and customs claims and
amounts due in respect to Cone's offshore operations, 3) payment of a limited
amount of pre-petition claims of critical vendors, 4) the continuation of Cone's
Workers' Compensation Program and Policies and Other Insurance Policies, 5) the
continuation of Cone's centralized cash management system and bank accounts and
6) Cone to enter into securitization documents with and sell accounts receivable
up to $35 million to GE Capital Corporation ("GECC"). On November 6, 2003, the
court entered final orders relating to the above items.
On November 10, 2003, the Bankruptcy Court approved bid procedures agreed upon
by Cone and its creditors that will enable Cone to move forward with its
proposed sale of assets to WL Ross & Co. in accordance with Section 363 of
Chapter 11 of the Bankruptcy Code. The Bankruptcy Court set a January 23, 2004,
deadline for the submission of initial bids with an auction scheduled for
January 29, 2004. The WL Ross & Co. offer sets a floor for other bids to be
submitted during a Section 363 auction process approved by the court and is
subject to higher or better offers. In addition, the agreement calls for WL Ross
& Co. to receive a $1.8 million breakup fee if a higher or better bid for Cone
is accepted. The bidding procedures also allow parties interested in purchasing
only selected assets of Cone to do so as long as Cone will obtain greater
aggregate value from such offers than under the offer submitted by WL Ross & Co.
6
Cone's Receivables Purchase and Servicing Agreement (the "A/R Securitization
Facility"), as amended on September 23, 2003, provides Cone with incremental
liquidity during the initial phase of the bankruptcy process. The A/R
Securitization Facility provides for $35 million in post-petition financing from
GECC and has a maturity date of May 29, 2004. On September 26, 2003, the
Bankruptcy Court approved Cone's entering into and implementing the amended A/R
Securitization Facility as part of the "first day orders." Amounts borrowed
under the A/R Securitization Facility bear interest at the GECC Commercial Paper
Rate plus an applicable margin of 2.75%. In addition, there is a commitment fee
of .0625% on unused capacity under the facility. The A/R Securitization Facility
contains financial covenants requiring Cone to maintain minimum levels of
earnings before interest, taxes, depreciation, amortization, restructuring, and
reorganization items, as defined in the agreement. It also imposes certain
limits on capital expenditures and cash restructuring charges. As of September
28, 2003, Cone was in compliance with the terms under the A/R Securitization
Facility.
On November 10, 2003, Cone filed with the Bankruptcy Court a proposal to enter
into a $45 million DIP financing agreement with Bank of America and GECC. This
facility would provide Cone additional liquidity of approximately $10 - $12
million after paying off and eliminating the A/R Securitization Facility. The
hearing date to consider approval of the $45 million DIP financing is November
25, 2003.
The accompanying consolidated condensed financial statements have been prepared
on a going concern basis in accordance with American Institute of Certified
Public Accountants Statement of Position 90-7, "Financial Reporting by Entities
in Reorganization Under the Bankruptcy Code" ("SOP 90-7"). Cone's recent losses
and the Chapter 11 Cases raise substantial doubt about its ability to continue
as a going concern. Currently, it is not possible to predict the outcome of the
Chapter 11 Cases or their effect on Cone's business. If it is determined that
the liabilities subject to compromise in the Chapter 11 Cases exceed the fair
value of the assets available, most secured and unsecured claims are likely to
be settled at less than 100% of their face value and the equity interests of
Cone's current shareholders will have no value.
Substantially all unsecured liabilities as of the date of the Chapter 11 filings
are subject to compromise or other treatment under the proposed sale of
substantially all of the assets of Cone. In addition, based upon the value of
the "stalking horse" bid, the secured liabilities are also subject to
compromise. For financial reporting purposes, liabilities, the settlement of
which is dependent on the outcome of the Chapter 11 Cases, have been segregated
and classified as liabilities subject to compromise in the accompanying
consolidated condensed balance sheet. These liabilities consist primarily of
amounts outstanding under long-term debt, a minimum pension liability,
pre-petition accounts payable that may be affected by the outcome of the Chapter
11 Cases, accrued interest, other accrued expenses and certain deferred
liabilities. The accrued interest subject to compromise of $4.9 million is
primarily comprised of interest on Cone's 8-1/8% Debentures. As a result of
deteriorating liquidity, Cone failed to make its semi-annual Debenture interest
payment of $4.1 million due on September 15, 2003. In addition, Cone concluded
as a result of the Chapter 11 filing, its revised long-term outlook and the
value of the "stalking horse" bid that the Class A Preferred Stock was likely to
receive no recovery. This being the case, under the floor-offset arrangement of
the pension plan, the accumulated benefit obligation was greater than pension
plan assets, resulting in the recording of a minimum pension liability with a
corresponding charge to accumulated other comprehensive loss (a contra account
to stockholders' equity) in the amount of $56.8 million and a liability subject
to compromise of
7
$24.5 million for the unfunded accumulated benefit obligation as of September
28, 2003 (See Note 4 of the Notes to Consolidated Condensed Financial
Statements). The ultimate amount and settlement terms for liabilities subject to
compromise are subject to negotiation and court approval and are not presently
determinable. The principal categories of claims classified as liabilities
subject to compromise under the Chapter 11 Cases as of September 28, 2003 are
identified below:
(in thousands) 9/28/03
-------------
14.2% Senior Notes $ 21,455
12.0% Senior Notes 26,171
Revolving Credit Agreement 24,000
8-1/8% Debentures 100,000
-------------
Total Debt 171,626
Interest accrued on above debt 4,850
Accounts payable 13,051
Sundry payables and accrued interest 5,035
Minimum pension liability 24,461
Other liabilities 10,852
-------------
Total Liabilities Subject to Compromise $ 229,875
-------------
In accordance with SOP 90-7, professional fees associated with the Chapter 11
Cases are expensed as incurred and reported as reorganization items in the
accompanying consolidated condensed financial statements. Interest expense is
reported only to the extent that it will be paid during the Chapter 11
proceeding or that it is probable that it will be an allowed priority, secured
or unsecured claim. During the third quarter of 2003, Cone recognized a charge
of $3.5 million in reorganization items associated with the Chapter 11 Cases.
Approximately $2.2 million of the reorganization charge related to the non-cash
write-offs of both the unamortized discount on the 8-1/8% Debentures and the
deferred financing fees associated with the debt classified as subject to
compromise. In addition, Cone incurred $1.3 million for professional fees
related to the Chapter 11 Cases.
Condensed combined financial information for the Debtors are not presented
because such financial information would not provide relevant material
additional information to the users of the consolidated condensed financial
statements of Cone.
Note 2. Basis of Financial Statement Preparation
Financial Statement Preparation. Cone's consolidated condensed financial
statements for September 28, 2003 and September 29, 2002 are unaudited, but in
the opinion of management reflect all adjustments necessary to present fairly
the consolidated condensed balance sheets of Cone Mills Corporations and
Subsidiaries at September 28, 2003, September 29, 2002 and December 29, 2002,
and the related consolidated condensed statements of operations for the
respective thirteen and thirty-nine weeks ended September 28, 2003 and September
29, 2002 and cash flows for the thirty-nine weeks then ended. The accompanying
consolidated condensed financial statements have been prepared on a going
concern basis in accordance with SOP 90-7. The results are not necessarily
indicative of the results to be expected for the full year.
8
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 September 28, 2003 and September 29, 2002 and
related consolidated condensed statements of operations for the thirteen and
thirty-nine 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 the Financial Accounting
Standards Board ("FASB") 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 Thirty-Nine Thirty-Nine
Weeks Ended Weeks Ended Weeks Ended Weeks Ended
(in thousands, except per share data) 9/28/03 9/29/02 9/28/03 9/29/02
--------------------------------------------------------------------
Net income (loss), as reported $ ( 117,305 ) $ 3,843 $ ( 119,075 ) $ 8,376
Deduct: Total stock-based employee
compensation expense determined
under fair value based method for
all awards, net of related tax effects ( 125 ) ( 156 ) ( 376 ) ( 467 )
--------------------------------------------------------------------
Pro forma net income (loss) $ ( 117,430 ) $ 3,687 $ ( 119,451 ) $ 7,909
--------------------------------------------------------------------
Earnings (loss) per share - basic and diluted:
Basic and diluted - as reported $ ( 4.56 ) $ 0.11 $ ( 4.72 ) $ 0.20
Basic - pro forma $ ( 4.57 ) $ 0.10 $ ( 4.74 ) $ 0.19
Diluted - pro forma $ ( 4.57 ) $ 0.10 $ ( 4.74 ) $ 0.18
Recent Accounting Pronouncements. In January 2003, the FASB issued
Interpretation No. 46 (FIN 46), "Consolidation of Variable Interest Entities,"
which clarifies the application of Accounting Research Bulletin No. 51,
Consolidated Financial Statements, relating to consolidation of certain
entities. First, FIN 46 will require identification of Cone's participation in
variable interests entities (VIE), which are defined as entities with a level of
invested equity that is not sufficient to fund future activities to permit them
to operate on a standalone basis, or whose equity holders lack certain
characteristics of a controlling financial interest. Then
9
for entities identified as VIE, FIN 46 sets forth a model to evaluate potential
consolidation based on an assessment of which party to the VIE, if any, bears a
majority of the exposure to its expected losses, or stands to gain from a
majority of its expected returns. FIN 46 also sets forth certain disclosures
regarding interests in VIE that are deemed significant, even if consolidation is
not required. FIN 46 will become effective for fourth quarter of 2003. Cone is
currently assessing the application of FIN 46 as it relates to its variable
interests.
Note 3. Securitization of Accounts Receivable
As of September 28, 2003 and September 29, 2002, the total amount of advances of
proceeds from the sale of receivables under the A/R Securitization Facility was
$23.2 million and $28.5 million, respectively. As of September 28, 2003 and
September 29, 2002, included in accounts receivable were deferred purchase price
receivables under the A/R Securitization Facility of $24.2 million and $34.6
million, respectively. Expenses incurred in connection with the sale of accounts
receivable were $0.3 million and $0.4 million for the thirteen weeks ended
September 28, 2003 and September 29, 2002, respectively, and $1.0 million and
$1.4 million for the thirty-nine weeks ended September 28, 2003 and September
29, 2002, respectively, and were included in "Other" in the Consolidated
Condensed Statements of Operations. The table below summarizes certain cash
flows under the securitization for the fiscal quarters ended September 28, 2003
and September 29, 2002:
Thirteen Thirteen Thirty-Nine Thirty-Nine
Weeks Ended Weeks Ended Weeks Ended Weeks Ended
(in thousands) 9/28/03 9/29/02 9/28/03 9/29/02
-----------------------------------------------------------------------
Proceeds from
securitizations $ 19,446 $ 21,991 $ 67,918 $ 89,438
Reductions due to change
in level of receivables sold ( 26,520 ) ( 31,119 ) ( 72,562 ) ( 97,821 )
Daily yield paid ( 315 ) ( 437 ) ( 1,000 ) ( 1,427 )
Servicing fees paid ( 130 ) ( 140 ) ( 395 ) ( 451 )
Servicing fees received 130 140 395 451
Cone's A/R Securitization Facility, as amended on September 23, 2003, provides
Cone with incremental liquidity during the initial phase of the bankruptcy
process. The A/R Securitization Facility provides for $35 million in
post-petition financing from GECC and has a maturity date of May 29, 2004.
Note 4. Defined Benefit Pension Plan
Cone has a noncontributory defined benefit pension plan that covers
substantially all employees. In 2001, as part of Cone's Reinvention Plan,
benefits were frozen for salaried employees in the defined benefit pension plan.
Cone's funding policy has been to make annual contributions of
10
amounts that are deductible for income tax purposes. Cone contributed $4.5
million to the defined benefit pension plan in July 2003, prior to Cone's
Chapter 11 filing.
Additionally, Cone has the Cone Mills Corporation 1983 Employee Stock Ownership
Plan ("ESOP") to which contributions were discontinued after the 1992 plan year.
The ESOP is subject to a floor-offset arrangement in conjunction with Cone's
defined benefit plan with respect to pension benefits earned for service after
1983. Under the floor-offset arrangement, retirement benefits earned after 1983
under Cone's defined benefit plan are offset by the actuarial equivalent pension
value of a portion of the participants' ESOP accounts.
The ESOP assets consist substantially of Cone Class A Preferred Stock. Class A
Preferred Stock is nonvoting, except as otherwise required by law, and is senior
in dividend preference to all other classes of capital stock. Class A Preferred
Stock has a liquidation preference senior to all other classes of capital stock;
however, given the events of the Chapter 11 filing, the illiquid market for such
stock and the inability of Cone to redeem outstanding shares of the Class A
Preferred Stock, the market value of the Class A Preferred Stock has been deemed
to be $0 per share as of September 28, 2003. Accordingly, the floor-offset
arrangement is considered to have no value.
The reduction of the value of the floor-offset arrangement with the defined
benefit pension plan has resulted in an increase in the accumulated benefit
obligation of the defined benefit pension plan by approximately $25.7 million.
As of September 28, 2003, Cone's accumulated benefit obligation under the
defined benefit pension plan was approximately $100.6 million with the fair
market value of the plan assets being approximately $76.1 million resulting in
an unfunded position of $24.5 million.
SFAS No. 87, "Employers' Accounting for Pensions" ("SFAS 87"), requires a
company with a plan that has an accumulated benefit obligation in excess of the
fair value of plan assets to recognize an additional minimum liability in its
balance sheet in all cases except where the accrued liability for pension cost
on the company's books is equal to or greater than that excess. When an
additional minimum liability is required to be recognized, its amount is to be
equal to the excess referred to above less the company's accrued pension cost or
plus the company's prepaid pension cost. When it is recognized, it may, in some
cases, be partially or fully offset by the recognition of an intangible asset on
the company's balance sheet. If the additional minimum liability exceeds the
allowed intangible asset, the excess is recognized, net of any applicable
deferred tax, as an item of other comprehensive income on the employer's
statement of comprehensive income. In accordance with SFAS 87 and SOP 90-7, the
consolidated condensed balance sheet as of September 28, 2003, includes a
liability subject to compromise of $24.5 million for the unfunded accumulated
benefit obligation and an additional minimum pension liability with a
corresponding charge to accumulated other comprehensive loss (a contra account
to stockholders' equity) in the amount of $56.8 million.
11
Note 5. Inventories
(in thousands) 9/28/03 9/29/02 12/29/02
------------------------------------------
Greige and finished goods $ 34,705 $ 23,183 $ 24,401
Work in process 3,298 4,118 6,237
Raw materials 12,792 9,026 9,188
Supplies and other 8,053 9,251 9,022
------------------------------------------
$ 58,848 $ 45,578 $ 48,848
------------------------------------------
Note 6. Long-Term Debt
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 was a $25 million, 12% senior note and the
second component was a $31 million revolving credit facility bearing interest at
the London Interbank Offering Rate ("LIBOR") plus 6.75%.
As part of the extension, Cone settled the Equity Appreciation Rights Agreement
("EARS"), which were contingent rights granted as a part of agreements in
November 2001, 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 Cone's A/R Securitization Facility, Cone is currently in default of
its senior securities as a result of the Chapter 11 Cases. Cone is making no
payments under its senior securities and the payment of interest accruing under
its senior securities after September 24, 2003, is stayed in connection with the
Chapter 11 Cases.
Note 7. 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; however, based on the default of the credit
agreements in the third quarter of 2003, it is unlikely that the 2004 dividend
will be paid.
12
Note 8. Depreciation and Amortization
The following table presents depreciation and amortization included in
operations in the consolidated condensed statements of operations.
Thirteen Thirteen Thirty-Nine Thirty-Nine
Weeks Ended Weeks Ended Weeks Ended Weeks Ended
(in thousands) 9/28/03 9/29/02 9/28/03 9/29/02
-----------------------------------------------------------------------------
Depreciation $ 4,722 $ 4,666 $ 14,345 $ 14,764
Amortization 149 22 195 68
----------------------------------------------------------------------------
$ 4,871 $ 4,688 $ 14,540 $ 14,832
----------------------------------------------------------------------------
Note 9. 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) 9/28/03 9/29/02
------------------------------------
Net income (loss) $ ( 117,305 ) $ 3,843
Preferred dividends ( 999 ) ( 1,037 )
------------------------------------
Basic EPS - income (loss) available to common
stockholders ( 118,304 ) 2,806
Effect of dilutive securities - -
------------------------------------
Diluted EPS - income (loss) available to common
stockholders after assumed conversions $ ( 118,304 ) $ 2,806
------------------------------------
Determination of shares:
Weighted-average shares 25,941 25,747
Contingently issuable (unvested restricted shares) - ( 8 )
------------------------------------
Basic EPS - weighted-average shares 25,941 25,739
Effect of dilutive securities - 414
------------------------------------
Diluted EPS - adjusted weighted-average shares after
assumed conversions 25,941 26,153
------------------------------------
Earnings (loss) per share - basic and diluted: $ ( 4.56 ) $ 0.11
------------------------------------
The number of potentially dilutive common stock options outstanding using the
treasury stock method for the thirteen weeks ended September 28, 2003, were
approximately 148,000 but were not included in the computation of diluted loss
per share because to do so would have been antidilutive.
13
Note 9. Earnings (Loss) Per Share (continued)
The following table sets forth the computation of basic and diluted income
(loss) per common share ("EPS").
Thirty-Nine Thirty-Nine
Weeks Ended Weeks Ended
(in thousands, except per share data) 9/28/03 9/29/02
------------------------------------
Net income (loss) $ ( 119,075 ) $ 8,376
Preferred dividends ( 2,997 ) ( 3,147 )
------------------------------------
Basic EPS - income (loss) available to common
Stockholders ( 122,072 ) 5,229
Effect of dilutive securities - -
------------------------------------
Diluted EPS - income (loss) available to common
stockholders after assumed conversions $ ( 122,072 ) $ 5,229
------------------------------------
Determination of shares:
Weighted-average shares 25,844 25,712
Contingently issuable (unvested restricted shares) - ( 8 )
------------------------------------
Basic EPS - weighted-average shares 25,844 25,704
Effect of dilutive securities - 400
------------------------------------
Diluted EPS - adjusted weighted-average shares after
assumed conversions 25,844 26,104
------------------------------------
Earnings (loss) per share - basic and diluted: $ ( 4.72 ) $ 0.20
------------------------------------
The number of potentially dilutive common stock options outstanding using the
treasury stock method for the thirty-nine weeks ended September 28, 2003, were
approximately 209,000 but were not included in the computation of diluted loss
per share because to do so would have been antidilutive.
Note 10. 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 both the
denim and commission finishing segments. Equity in earnings (losses) of
unconsolidated affiliates is included in the denim segment. Unallocated
expenses, interest and income tax expense (benefit) are not included in segment
operating income (loss). Unallocated expenses include certain legal expenses,
bank fees and fees and discounts on the sale of accounts receivable.
14
Net sales and income (loss) from operations for Cone's operating segments are as
follows:
Thirteen Thirteen
Weeks Ended Weeks Ended
(in thousands) 9/28/03 9/29/02
----------------------------------
Net Sales
Denim $ 69,151 $ 95,448
Commission Finishing 8,766 11,233
Decorative Fabrics 4,952 5,690
Other 127 93
----------------------------------
82,996 112,464
Less Intersegment Sales 167 776
----------------------------------
$ 82,829 $ 111,688
----------------------------------
Income (Loss) from Operations
Denim $ ( 89 ) $ 11,697
Commission Finishing ( 535 ) 5
Decorative Fabrics ( 1,547 ) ( 1,584 )
Other 2,415 ( 408 )
Unallocated Expenses ( 447 ) ( 344 )
----------------------------------
( 203 ) 9,366
Restructuring and Impairment of Assets ( 123,431 ) -
----------------------------------
( 123,634 ) 9,366
Less Equity in Earnings of Unconsolidated Affiliates 548 923
----------------------------------
( 124,182 ) 8,443
Other Expense, Net ( 4,029 ) ( 4,068 )
Reorganization Items ( 3,519 ) -
----------------------------------
Income (Loss) from Operations before Income Tax Expense
(Benefit) and Equity in Earnings of Unconsolidated
Affiliates $( 131,730 ) $ 4,375
----------------------------------
15
Note 10. Segment Information (continued)
Thirty-Nine Thirty-Nine
Weeks Ended Weeks Ended
(in thousands) 9/28/03 9/29/02
----------------------------------
Net Sales
Denim $ 232,576 $ 279,288
Commission Finishing 31,734 41,757
Decorative Fabrics 18,570 25,500
Other 315 236
-----------------------------------
283,195 346,781
Less Intersegment Sales 1,766 3,436
-----------------------------------
$ 281,429 $ 343,345
-----------------------------------
Income (Loss) from Operations
Denim $ 13,094 $ 26,170
Commission Finishing ( 728 ) 2,134
Decorative Fabrics ( 3,571 ) ( 1,213 )
Other 1,608 ( 1,402 )
Unallocated Expenses ( 1,401 ) ( 1,164 )
-----------------------------------
9,002 24,525
Restructuring and Impairment of Assets ( 124,197 ) -
-----------------------------------
( 115,195 ) 24,525
Less Equity in Earnings of Unconsolidated Affiliates 2,035 1,605
-----------------------------------
( 117,230 ) 22,920
Other Expense, Net ( 12,061 ) ( 13,247 )
Equity Appreciation Rights ( 4,117 ) -
Reorganization Items ( 3,519 ) -
-----------------------------------
Income (Loss) from Operations before Income Tax Expense
(Benefit) and Equity in Earnings of Unconsolidated
Affiliates $ (136,927 ) $ 9,673
-----------------------------------
Note 11. 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 Thirty-Nine Thirty-Nine
Weeks Ended Weeks Ended Weeks Ended Weeks Ended
(in thousands) 9/28/03 9/29/02 9/28/03 9/29/02
---------------------------------------------------------------------------
Net income (loss) $ ( 117,305 ) $ 3,843 $ ( 119,075 ) $ 8,376
Other comprehensive
income (loss):
Minimum pension liability
and SERP liability ( 57,503 ) - ( 57,503 ) -
Derivatives gains (losses) 2 ( 359 ) ( 860 ) 307
---------------------------------------------------------------------------
$ ( 174,806 ) $ 3,484 $ ( 177,438 ) $ 8,683
---------------------------------------------------------------------------
16
Derivatives (primarily cotton) gains (losses) as of September 28, 2003,
reflected above in other comprehensive income (loss) will be recognized in cost
of goods sold over the next twelve months.
Note 12. Financial Instruments
Cone utilizes derivative financial instruments to manage risks associated with
changes in cotton prices, natural gas prices, interest rates and foreign
exchange rates. Cone accounts for derivative instruments in accordance with SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities", SFAS
No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities" and SFAS No. 149, "Amendment of Statement 133 on Derivative
Instruments and Hedging Activities."
Cotton is the primary raw material for Cone's fabric manufacturing operations.
Cone has an established cotton purchasing program, administered in conformance
with policies approved by the Board of Directors, to ensure an uninterrupted
supply of appropriate quality and quantities of cotton, to cover committed and
anticipated fabric sales and to manage margin risks associated with price
fluctuations on anticipated cotton purchases. Cone primarily uses forward
purchase contracts and, to a lesser extent, futures and option contracts. Cone
considers its cotton derivatives to be primarily cash flow hedges of anticipated
future transactions under SFAS No. 133. The effective portion of derivative
gains and losses for these hedges is initially reported as a component of other
comprehensive income (loss) outside results of operations and subsequently
reclassified into results of operations when the forecasted transactions being
hedged affect results of operations. At September 28, 2003, Cone recorded in
accumulated other comprehensive income (loss) derivatives (primarily cotton)
losses of $0.4 million. At September 29, 2002, Cone recorded in accumulated
other comprehensive income (loss) cotton derivative gains of $1.0 million.
Losses of $0.1 million and gains of $0.6 million were charged/credited to cost
of goods sold during the thirteen and thirty-nine weeks ended September 28,
2003, respectively. Gains of $0.2 million and $0.8 million were credited to cost
of goods sold during the thirteen and thirty-nine weeks ended September 29,
2002, respectively. The ineffective portion of derivative gains and losses is
reported in results of operations immediately. Hedge ineffectiveness for the
thirteen and thirty-nine weeks ended September 28, 2003 and September 29, 2002,
was immaterial.
17
Note 13. Restructuring and Impairment of Assets
Restructuring:
A roll-forward of the activity related to Cone's restructuring charges for the
thirty-nine weeks ended September 28, 2003 and September 29, 2002 follows:
Corporate &
Textile Products
(in thousands) Group
--------------------
Balance, December 29, 2002 $ 58
Deductions:
Terminal leave and related benefits ( 37 )
----------------------
Balance, September 28, 2003 $ 21
----------------------
Balance, December 30, 2001 $ 639
Deductions:
Terminal leave and related benefits ( 639 )
----------------------
Balance, September 29, 2002 $ -
----------------------
Impairment of Assets:
Cone accounts for Impairment of Assets in accordance with SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets." Per SFAS No.
144, long-lived assets and certain identifiable intangibles to be held and used
are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. In performing the
review for recoverability, Cone estimates the future cash flows expected to
result from the use of the asset and its eventual disposition. If the sum of the
expected future cash flows, undiscounted and without interest charges, is less
than the carrying amount of the asset, an impairment loss is recognized.
Measurement of an impairment loss for long-lived assets and identifiable
intangibles that Cone expects to hold and use are based on the difference
between the carrying amount and fair value of the asset. Fair value is
determined based on a present valuation technique, which includes multiple cash
flow scenarios that reflect the range of possible outcomes (probability-weighted
approach) and an appropriate risk-free rate. Long-lived assets to be disposed of
are reported at the lower of carrying amount or fair value less cost to sell.
The facts and circumstances leading to the impairment of asset charges in the
third quarter of 2003 was that management's view of the long-term
competitiveness of domestic production began to change during the third quarter
of 2003. Cone's downward revision in outlook was driven by a number of factors
including: 1) the completion of an extensive market research in which Cone's
customers indicated that the North American supply chain needed to continue to
reduce prices and improve efficiency, 2) a meeting with a representative from
the U.S. Department of Commerce where Cone gained a greater understanding that
the present administration was going to continue to press for free trade
agreements, 3) trade data indicating that imports from Vietnam were surging
since the enactment of the spring 2003 trade agreement, 4) information regarding
changing sourcing patterns and pricing expectations for 2004, which was obtained
during meetings with Cone's key customers, and 5) cotton future prices
increasing by over 25% from mid-August to early November 2003.
18
Based upon the factors discussed above, Cone prepared a cash flow analyses of
the value of its long-lived assets as of the end of the third quarter of 2003.
These cash flow scenarios were based upon the forecasts provided to its
creditors in mid-September as modified for changes in the cotton market, Cone's
expected denim configuration and, as well as, key negotiations with certain
suppliers. Multiple forecast scenarios for each business unit were prepared
depending upon different outcomes of the bankruptcy process with a probability
of occurrence assigned to each scenario. Based upon the continued growth of
textile, apparel and furniture imports, expectations of future cash flows
generated by the commission finishing and jacquards businesses were reduced.
Based upon the above analyses, Cone recognized an asset impairment charge of
$123.4 million in its third quarter 2003 statements of operations as follows:
o Non-cash charges for the impairment of property and equipment in
Cone's denim segment totaling $82.8 million.
o Non-cash charges for the impairment of property and equipment in
Cone's commission finishing segment totaling $24.2 million.
o Non-cash charges for the impairment of property and equipment in
Cone's decorative fabrics segment totaling $9.1 million.
Additionally, in the third quarter of 2003, Cone recorded non-cash impairment
losses on certain investments in unconsolidated foreign affiliates totaling $5.7
million and a $1.6 million charge to further write-down certain assets available
for sale.
The impairment charges reflect management's best estimate of the excess of
carrying amounts of long-lived assets over their fair values. It is reasonably
possible that those estimates could change in the near term and that the effect
of those changes could be material.
Note 14. 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 the thirty-nine
weeks ended September 28, 2003, was 10.5% and 11.6%, respectively. The
difference between the effective tax rate and the corporate U.S. tax rate of 35%
is primarily attributable to the fact that the tax benefit recorded was limited
to the extent that Cone had deferred tax liabilities. Excluding equity in
earnings of unconsolidated affiliates, upon which no U.S. tax was provided, the
effective tax rate for the thirteen and thirty-nine weeks ended September 29,
2002, was 33% and 30%, respectively.
Note 15. Subsequent Events
During the fourth quarter of 2003, Cone announced the downsizing of its U.S.
denim manufacturing capacity to reflect its revised business outlook. The
downsizing has several components that will reduce overall manufacturing costs,
require minimal capital expenditures to implement and should be substantially
completed by December 2003. The initiative will downsize denim manufacturing at
19
Cone's Cliffside Weave plant, eliminate certain denim manufacturing processes at
its Haynes and White Oak plants, and close its Cliffside Finishing plant.
Domestic denim weaving capacity will be reduced by 10 - 25% depending upon
market demand. This will result in a reduction of workforce of approximately 800
employees during the fourth quarter of 2003. Expenses related to the relocation
of equipment and run-out costs will be expensed as incurred. In the fourth
quarter of 2003, Cone expects to record a restructuring charge for terminal
leave pay and benefits for salaried employees of approximately $1.5 million.
Cone continues to assess its overall cost structure and manufacturing capacities
across all business segments; however, no additional restructuring charges, if
any, can be reasonably estimated at this time.
20
Item 2.
MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
OVERVIEW
On September 24, 2003, Cone filed for protection under the United States
Bankruptcy Code (the "Bankruptcy Code"). The events leading up to this filing
were primarily market and liquidity driven. In our second quarter 2003 Form
10-Q, we reported that Cone's business outlook for the third quarter was for
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, continuation of retailers' cautiousness and imports. Cone
believed that longer term the monetary and fiscal stimuli being applied to the
U.S. economy, along with the inevitable end to inventory liquidations would
result in some recovery in our markets. Cone expected, however, that in the
short term, the continued pressure on denim prices from retailers and imports,
coupled with higher cotton costs, would reduce denim sales margins and Cone's
operating earnings in the second half of 2003.
However, during the third quarter of 2003, Cone realized that it was operating
in a seriously changed business environment as denim shipments failed to rebound
or even hold to second quarter 2003 levels. Cone shipped less than 75% of
domestic capacity in seasonally its strongest quarter, primarily because of
larger than expected denim jeans imports from Asia. This reduced level of
shipments required Cone to reduce plant operating schedules throughout the
quarter and furlough its smallest U.S. denim weaving facility for August and
September of 2003. This reduced level of sales during the third quarter 2003 and
the curtailment of plant operating schedules resulted in a contraction in Cone's
liquidity primarily because of the resulting reduction of availability under its
Receivables Purchase and Servicing Agreement (the "A/R Securitization
Facility"). Its reduced level of liquidity led Cone to conclude that it could
not make its semi-annual interest payment on its 8-1/8% Debentures due on
September 15, 2003. The change in Cone's outlook regarding the long-term
competitiveness of U.S. denim production, lack of liquidity and the complexity
of Cone's capital structure consisting of multiple secured lenders led Cone to
conclude that a bankruptcy filing was necessary.
On September 24, 2003 (the "Petition Date"), Cone and certain of its domestic
subsidiaries (collectively, the "Debtors") filed voluntary petitions for relief
under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court
(the "Bankruptcy Court") for the District of Delaware (Case Nos. 03-12943
through 03-12946). The Chapter 11 cases for the Debtors (the "Chapter 11 Cases")
are being jointly administered for procedural purposes only. The Debtors'
foreign subsidiaries, foreign joint venture entities and certain of its domestic
subsidiaries were not included in the petitions for relief under Chapter 11.
Cone has entered into a definitive sale agreement with WL Ross & Co., which is
subject to higher or better offers in accordance with Section 363 of Chapter 11
of the Bankruptcy Code. Under the agreement, WL Ross & Co. will purchase
substantially all of Cone's assets for $46 million in cash and will assume
Cone's outstanding Debtor-in-Possession ("DIP") loans and selected other
21
liabilities, positioning the purchaser as the "stalking horse" - or original
bidder - in accordance with Section 363 of Chapter 11 of the Bankruptcy Code.
Cone and its subsidiaries remain in possession of their assets and properties
and continue to operate their businesses and manage their properties as
debtors-in-possession pursuant to sections 1107(a) and 1108 of the Bankruptcy
Code. Since the Chapter 11 filing, Cone has obtained several orders from the
Bankruptcy Court which included authorization of 1) payment of pre-petition
employee salaries, wages, payroll taxes, certain employee benefits and related
expenses, 2) payment of certain pre-petition freight and customs claims and
amounts due in respect to Cone's offshore operations, 3) payment of a limited
amount of pre-petition claims of critical vendors, 4) the continuation of Cone's
Workers' Compensation Program and Policies and Other Insurance Policies, 5) the
continuation of Cone's centralized cash management system and bank accounts and
6) Cone to enter into securitization documents with and sell accounts receivable
up to $35 million to GE Capital Corporation ("GECC"). On November 6, 2003, the
court entered final orders relating to the above items.
On November 10, 2003, the Bankruptcy Court approved bid procedures agreed upon
by Cone and its creditors that will enable Cone to move forward with its
proposed sale of assets to WL Ross & Co. in accordance with Section 363 of
Chapter 11 of the Bankruptcy Code. The Bankruptcy Court set a January 23, 2004,
deadline for the submission of initial bids with an auction scheduled for
January 29, 2004. The WL Ross & Co. offer sets a floor for other bids to be
submitted during a Section 363 auction process approved by the court and is
subject to higher or better offers. In addition, the agreement calls for WL Ross
& Co. to receive a $1.8 million breakup fee if a higher or better bid for Cone
is accepted. The bidding procedures also allow parties interested in purchasing
only selected assets of Cone to do so as long as Cone will obtain greater
aggregate value from such offers than under the offer submitted by WL Ross & Co.
Cone's A/R Securitization Facility as amended on September 23, 2003 provides
Cone with incremental liquidity during the initial phase of the bankruptcy
process. The A/R Securitization Facility provides for $35 million in
post-petition financing from GECC and has a maturity date of May 29, 2004. On
September 26, 2003, the Bankruptcy Court approved Cone's entering into and
implementing the amended A/R Securitization Facility as part of the "first day
orders." Amounts borrowed under the A/R Securitization Facility bear interest at
the GECC Commerical Paper Rate plus an applicable margin of 2.75%. In addition,
there is a commitment fee of .0625% on unused capacity under the facility. The
A/R Securitization Facility contains financial covenants requiring Cone to
maintain minimum levels of earnings before interest, taxes, depreciation,
amortization, restructuring, and reorganization items, as defined in the
agreement. It also imposes certain limits on capital expenditures and cash
restructuring charges. As of September 28, 2003, Cone was in compliance with the
terms under the A/R Securitization Facility.
On November 10, 2003, Cone filed with the Bankruptcy Court a proposal to enter
into a $45 million DIP financing agreement with Bank of America and GECC. This
facility would provide Cone additional liquidity of approximately $10 - $12
million after paying off and eliminating the A/R Securitization Facility. The
hearing date to consider approval of the $45 million DIP financing is November
25, 2003.
22
The accompanying consolidated condensed financial statements have been prepared
on a going concern basis in accordance with American Institute of Certified
Public Accountants Statement of Position 90-7, "Financial Reporting by Entities
in Reorganization Under the Bankruptcy Code" ("SOP 90-7"). Cone's recent losses
and the Chapter 11 Cases raise substantial doubt about its ability to continue
as a going concern. Currently, it is not possible to predict the outcome of the
Chapter 11 Cases or their effect on Cone's business. If it is determined that
the liabilities subject to compromise in the Chapter 11 Cases exceed the fair
value of the assets available, most secured and unsecured claims are likely to
be settled at less than 100% of their face value and the equity interests of
Cone's current shareholders will have no value.
Substantially all unsecured liabilities as of the date of the Chapter 11 filings
are subject to compromise or other treatment under the proposed sale of
substantially all of the assets of Cone. In addition, based upon the value of
the "stalking horse" bid, the secured liabilities are also subject to
compromise. For financial reporting purposes, liabilities, the settlement of
which is dependent on the outcome of the Chapter 11 Cases, have been segregated
and classified as liabilities subject to compromise in the accompanying
consolidated condensed balance sheet. These liabilities consist primarily of
amounts outstanding under long-term debt, a minimum pension liability,
pre-petition accounts payable that may be affected by the outcome of the Chapter
11 Cases, accrued interest, other accrued expenses and certain deferred
liabilities. The ultimate amount and settlement terms for liabilities subject to
compromise are subject to negotiation and court approval and are not presently
determinable.
Long-Term Outlook, Asset Impairment and Subsequent Events
During the third quarter of 2003, management's view of the long-term
competitiveness of domestic production began to change. Cone's downward revision
in outlook was driven by a number of factors including:
o Cone's CEO commented in July (furnished on Form 8-K dated July 30,
2003) "that retailer caution and distraction by non-jeans inventories
have created a difficult market to read because there could very well
be a time when retailers scramble to satisfy consumer demand for fall
goods once their near-term summer inventories are cleared away."
Because of weak end of June and July shipments, that Cone had felt
were initially being driven by cyclical inventory adjustments
throughout the denim jeans pipeline, the Cone Denim marketing team did
extensive market research in late July and August. The market research
was focused on long-term sourcing strategies for denim jeans and what
the customers felt the strengths and weaknesses of the North American
supply chain were. The primary observations from customers were that,
while sourcing from Asia was perhaps not their preference because of
difficulties in securing deliveries and replenishing inventories, the
North American supply chain needed to continue to reduce prices and
improve efficiency. A summary of these findings and the expected
implications upon U.S. denim mills was presented to senior management
in mid-August.
o Also in mid-August, Cone's senior management met with the United
States Department of Commerce Deputy Assistant Secretary of Textiles,
Apparel and Consumer Goods Industries to discuss U.S. trade policy as
it related to the U.S. textile industry, the recently enacted trade
legislation with Vietnam and the outlook for the CAFTA (Central
America Free Trade Act) negotiations. From these discussions a greater
understanding was reached that the present administration was going to
23
continue to press for free trade agreements, even to the detriment of
the U.S. textile industry, and that the retailers coalition was an
aggressive force in pushing for this trade liberalization.
o Imports from Vietnam were surging since the enactment of the spring
2003 trade agreement. Denim apparel imports from Vietnam to the U.S.
were up approximately 700% for May and June and almost 400% for July.
As it takes approximately 45 days after the end of the month to
receive and sort U.S. trade data, Cone only began to fully realize the
impact of the Vietnam trade agreement in mid-third quarter 2003.
Vietnam's rate of growth for the August/September period slowed
significantly as it reached in excess of 90% of its 2003 quota levels
under the new trade agreement.
o Cone's revised market outlook, the likely direction of future trade
policy and sourcing patterns and the decline in Cone's denim shipments
since June 2003, led senior management to schedule meetings with key
customers in late August and early September. During these meetings it
became clear that retailers had been working with Chinese denim mills
well in advance of the Vietnam trade pact to establish Vietnam as a
source of denim jeans to U.S. retail. In addition, our customers
continued to drive home the point that they expected denim prices to
continue to decline even in the face of higher cotton costs as
compared with 2002 and 2003.
o Cotton futures prices increased by over 25% from mid-August to early
November.
o In price negotiations with key customers, Cone, along with their other
denim suppliers, was demanded to reduce or hold the line on prices in
2004 even in the face of escalating cotton prices. This stance has
raised serious doubts regarding recovery of cotton cost increases
through increased pricing.
With the change in business outlook, Cone prepared a cash flow analyses of the
value of its long-lived assets as of the end of the third quarter of 2003. These
cash flow scenarios were based upon the forecasts provided to its creditors in
mid-September as modified for changes in the cotton market, Cone's expected
denim configuration and, as well as, key negotiations with certain suppliers.
Multiple forecast scenarios for each business unit were prepared depending upon
different outcomes of the bankruptcy process with a probability of occurrence
assigned to each scenario. As a result of the downward revisions in long-term
business outlook, the forecast for Cone's denim business profitability from U.S.
facilities was substantially lower than 2002 results and the first half of 2003
results. In addition, based upon the continued growth of textile, apparel and
furniture imports, expectations of future cash flows generated by the commission
finishing and jacquards businesses were reduced.
Based upon these various analyses, prepared in accordance with the Financial
Accounting Standards Board ("FASB") Statement of Financial Accounting Standards
("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets", Cone recognized an asset impairment charge of $123.4 million in its
third quarter 2003 statements of operations to write-down the value of U.S.
property, plant and equipment as well as certain investments in unconsolidated
foreign affiliates engaged in the denim business who are facing the same
competitive issues as Cone. (See Note 13 of the Notes to Consolidated Condensed
Financial Statements included in Part I, Item 1.) In addition, Cone concluded
that, as a result of the bankruptcy filing, our revised long-term outlook and
the value of the "stalking horse" bid, the Class A Preferred Stock was likely to
receive no recovery. This being the case, under the floor-offset arrangement of
the pension plan, the accumulated benefit obligation was greater than pension
plan assets, resulting in the recording of a minimum pension liability with a
24
corresponding charge to accumulated other comprehensive loss (a contra account
to stockholders' equity) in the amount of $56.8 million. (See Note 4 of the
Notes to Consolidated Condensed Financial Statements included in Part I, Item
1.)
During the fourth quarter of 2003, Cone announced the downsizing of its U.S.
denim manufacturing capacity to reflect its revised business outlook. The
downsizing has several components that will reduce overall manufacturing costs,
require minimal capital expenditures to implement and should be substantially
completed by December 2003. The initiative will downsize denim manufacturing at
Cone's Cliffside Weave plant, eliminate certain denim manufacturing processes at
its Haynes and White Oak plants, and close its Cliffside Finishing plant.
Domestic denim weaving capacity will be reduced by 10 - 25% depending upon
market demand. This will result in a reduction of workforce of approximately 800
employees during the fourth quarter of 2003. Expenses related to the relocation
of equipment and run-out costs will be expensed as incurred. In the fourth
quarter of 2003, Cone expects to record a restructuring charge for terminal
leave pay and benefits for salaried employees of approximately $1.5 million.
Cone continues to assess its overall cost structure and manufacturing capacities
across all business segments; however, no additional restructuring charges, if
any, can be reasonably estimated at this time.
For the foreseeable future, Cone continues to see margin pressure in each of its
businesses caused by deflationary pricing pressures at retail, excess worldwide
capacity and rising cotton costs. The January 1, 2005 scheduled elimination of
import quota restrictions under existing WTO agreements is also expected to
result in further pressure on U.S. textiles and will result in changes in global
sourcing patterns. We believe that these extensive pressures on profit margins
will result in continued consolidation and rationalization of the entire U.S.
textile industry.
RESULTS OF OPERATIONS
Third Quarter Ended September 28, 2003 Compared with Third Quarter Ended
September 29, 2002.
For the third quarter of 2003, Cone had sales of $82.8 million, a decrease of
25.8%, as compared with sales of $111.7 million for the third quarter of 2002.
The decrease in sales was primarily driven by denim unit decreases as well as
weaknesses in the commission finishing and decorative fabrics business segments.
Gross profit margin decreased to 6.9% of sales for the third quarter of 2003, as
compared with 15.3% for the third quarter of 2002. The decline in gross profit
margin was primarily attributable to higher raw material costs (cotton) and
unfavorable manufacturing variances associated with curtailed operating
schedules resulting from lower sales.
Cone operates in three principal business segments: Denim, Commission Finishing
and Decorative Fabrics. (See Note 10 of the Notes to Consolidated Condensed
Financial Statements included in Part I, Item 1.)
25
Denim. Outside sales (total segment sales less intercompany sales) of
the denim segment were $69.0 million for the third quarter of 2003, as
compared with sales of $95.4 million for the third quarter of 2002, a
decrease of 27.7%. Denim sales yards decreased 27.8%, as compared with
the prior year's third quarter results, as a result of increased Asian
imports, conservative buying and inventory adjustments by key customers
and the comparison against a strong prior year period. Operating loss
for the denim segment was $0.1 million, or 0.1% of sales for the third
quarter of 2003, as compared with operating income of $11.7 million, or
12.3% of sales for the third quarter of 2002. The decline in operating
income was attributable to lower sales volume, unfavorable
manufacturing variances, and higher raw material costs (cotton).
Operating income for the segment includes the equity in earnings of the
Parras Cone joint venture and the Altamira industrial park joint
venture. Equity in earnings of Parras Cone was $0.3 million for the
third quarter of 2003, as compared with $1.0 million results for the
third quarter of 2002. The decline in Parras Cone's results is
primarily attributable to the same factors that affected Cone's overall
denim performance.
Commission Finishing. Outside sales (total segment sales less
intercompany sales) of the commission finishing segment (Carlisle)
decreased by 16.5%, as compared with third quarter 2002 results. The
decrease in outside sales was the result of overall weak market
conditions in all of Carlisle's product lines. For the third quarter of
2003, Carlisle reported an operating loss of $0.5 million, as compared
with break-even results for the third 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 third quarter of
2003, as compared with the third quarter of 2002. The home fashions
industry continues to experience extremely difficult market conditions.
Decorative Fabrics. Sales revenue in the third quarter of 2003 was $5.0
million, as compared with $5.7 million for third quarter 2002. Sales
volume decreased by 8.7%. 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.
For the third quarter of 2003 the segment had an operating loss of $1.5
million versus an operating loss of $1.6 million for the third quarter
of 2002. Operating results were affected negatively by lower sales
volume, resulting in poor plant utilization levels and unsatisfactory
operating efficiencies. In addition, in an attempt to improve its new
product introductions in 2003 the business unit increased expenditures
on design and sampling.
Selling and administrative expenses for the third quarter of 2003 were 7.8% of
sales, as compared to 7.7% for the third quarter of 2002.
In accordance with SOP 90-7, professional fees associated with the Chapter 11
Cases are expensed as incurred and reported as reorganization items in the
accompanying consolidated condensed financial statements. Interest expense is
reported only to the extent that it will be paid during the Chapter 11
proceeding or that it is probable that it will be an allowed priority, secured
or unsecured claim. Interest expense for the third quarter of 2003 was $4.0
million, substantially all of which is pre-petition, as compared with $3.7
million for the third quarter of 2002.
26
Other expense of $0.04 million in the third quarter of 2003 include the ongoing
expenses of the accounts receivable securitization program offset by a one-time
income of $0.3 million from an insurance policy demutualization, as compared to
other expense of $0.4 million in the third quarter of 2002.
For the thirteen weeks ended September 28, 2003, Cone recognized a charge of
$3.5 million in reorganization items associated with the Chapter 11 Cases.
Approximately $2.2 million of the reorganization charge related to the non-cash
write-offs of both the unamortized discount on the 8-1/8% Debentures and the
deferred financing fees associated with the debt classified as subject to
compromise. In addition, Cone incurred $1.3 million for professional fees
related to the Chapter 11 Cases.
Excluding equity in earnings of unconsolidated affiliates, upon which no U.S.
tax was provided, the effective tax benefit for the thirteen weeks ended
September 28, 2003, was 10.5%. The difference between the effective tax rate and
the corporate U.S. tax rate of 35% is primarily attributable to the fact that
the tax benefit recorded was limited to the extent that Cone had deferred tax
liabilities. Excluding equity in earnings of unconsolidated affiliates, upon
which no U.S. tax was provided, the effective tax rate for the thirteen weeks
ended September 29, 2002, was 33%.
For the third quarter of 2003, Cone sold a portion of its real estate holdings
in Altamira, Tamaulipas, Mexico for gross proceeds of $2.5 million. Cone
recognized an overall gain of $1.8 million, of which $1.5 million is reflected
in income (loss) from operations and $0.3 million in equity in earnings of
unconsolidated affiliates.
For the third quarter of 2003, Cone had a net loss of $117.3 million or $4.56
per share after preferred dividends. Included in the net loss for 2003 were
charges of $123.4 million, or $4.76 per share for restructuring and impairment
of assets (See Note 13 of the Notes to Consolidated Condensed Financial
Statements included in Part I, Item 1). For the third quarter of 2002, Cone had
a net profit of $3.8 million, or $.11 per share after preferred dividends.
Nine Months Ended September 28, 2003 Compared with Nine Months Ended September
29, 2002
For the first nine months of 2003, Cone had sales of $281.4 million, a decrease
of 18.0%, as compared with sales of $343.3 million for the first nine months of
2002. The decrease in sales dollars was across all business segments.
Gross profit margin decreased to 10.6% of sales for the first nine months of
2003, as compared with 14.2% for the first nine months of 2002. The decline in
gross profit margin was primarily attributable to unfavorable manufacturing
variances associated with curtailed operating schedules resulting from lower
sales partially offset by the benefits of cost reduction programs.
Cone operates in three principal business segments: Denim, Commission Finishing
and Decorative Fabrics. (See Note 10 of the Notes to Consolidated Condensed
Financial Statements included in Part I, Item 1.)
27
Denim. Outside sales (total segment sales less intercompany sales) were
$232.1 million for nine months of 2003, as compared with sales of
$279.3 million for the comparable nine months of 2002, or a decrease of
16.9%. Sales yards for 2003 decreased from 2002 levels primarily as a
result of market weaknesses that began to materialize in the latter
part of second quarter 2003 and became more evident throughout the
third quarter. Denim sales prices declined slightly, as compared with
the prior year. Operating income for the denim segment decreased to
$13.1 million or 5.6% of sales for the nine months of 2003, as compared
with $26.2 million or 9.4% of sales for the first nine months of 2002.
The decline in operating income was primarily 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 $1.9 million for nine months of 2003, as
compared with $1.9 million for nine months of 2002.
Commission Finishing. Outside sales (total segment sales less
intercompany sales) decreased by 20.6%, as compared with third quarter
2002 results. Total sales decreased by 24% primarily as a result of
overall weak market conditions in all of Carlisle's product lines. For
the nine months of 2003, Carlisle reported a loss of $0.7 million, as
compared with a profit $2.1 million for the first nine months 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 for the nine months of 2003 was $18.6
million, as compared with $25.5 million for the comparable period of
2002. Sales volume decreased by 26.1%. 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.
The segment operating loss was $3.6 million for nine months of 2003, as
compared with a segment operating loss of $1.2 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 an
attempt to improve its new product introductions in 2003 the business
unit increased expenditures on design and sampling.
Selling and administrative expenses for the first nine months of 2003 were 8.2%
of sales, as compared to 7.5% of sales for the first nine months of 2002.
In accordance with SOP 90-7, professional fees associated with the Chapter 11
Cases are expensed as incurred and reported as reorganization items in the
accompanying consolidated condensed financial statements. Interest expense is
reported only to the extent that it will be paid during the Chapter 11
proceeding or that it is probable that it will be an allowed priority, secured
or unsecured claim. Interest expense for the nine months of 2003 was $11.5
million, substantially all of which is pre-petition, as compared with $12.0
million for the nine months 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.
28
Other expenses of $0.7 million in the first nine months of 2003 include the
ongoing expense of the accounts receivable securitization program offset by a
one-time income of $0.3 million from an insurance policy demutualization, as
compared to other expense of $1.4 million for the nine months of 2002.
For the thirty-nine weeks ended September 28, 2003, Cone recognized a charge of
$3.5 million in reorganization items associated with the Chapter 11 Cases.
Approximately $2.2 million of the reorganization charge related to the non-cash
write-offs of both the unamortized discount on the 8-1/8% Debentures and the
deferred financing fees associated with the debt classified as subject to
compromise. In addition, Cone incurred $1.3 million for professional fees
related to the Chapter 11 Cases.
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 was a $25 million, 12% senior note and the
second component was a $31 million revolving credit facility bearing interest at
the London Interbank Offering Rate ("LIBOR") plus 6.75%.
As part of the extension, Cone settled the Equity Appreciation Rights Agreement
("EARS"), which were contingent rights granted as a part of the agreements in
November 2001, 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 thirty-nine weeks ended
September 28, 2003, was 11.6%. The difference between the effective tax rate and
the corporate U.S. tax rate of 35% is primarily attributable to the fact that
the tax benefit recorded was limited to the extent that Cone had deferred tax
liabilities. Excluding equity in earnings of unconsolidated affiliates, upon
which no U.S. tax was provided, the effective tax rate for the thirty-nine weeks
ended September 29, 2002, was 30%.
For the first nine months of 2003, Cone sold a portion of its real estate
holdings in Altamira, Tamaulipas, Mexico for gross proceeds of $2.5 million.
Cone recognized an overall gain of $1.8 million, of which $1.5 million is
reflected in income (loss) from operations and $0.3 million in equity in
earnings of unconsolidated affiliates.
For the first nine months of 2003, Cone had a net loss of $119.1 million, or
$4.72 per share after preferred dividends. Included in the net loss for 2003
were charges of $124.2 million, or $4.81 per share for restructuring and
impairment of assets (See Note 13 of the Notes to Consolidated Condensed
Financial Statements included in Part I, Item 1). For the nine months of 2002,
Cone had a net profit of $8.4 million, or $.20 per share after preferred
dividends.
29
LIQUIDITY AND CAPITAL RESOURCES
On September 24, 2003, Cone filed for protection under Chapter 11 of the
Bankruptcy Code. This will affect Cone's liquidity and capital resources as
described below.
The following is a summary of primary financing agreements as of the Petition
Date.
Interest/
($ 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 21.4 21.4 14.200 Mar 15, 2004
12.0% Senior Notes 26.2 26.2 12.000 Mar 15, 2004
Revolving Credit Facility 28.9 24.0 8.100 Mar 15, 2004
A/R Securitization Facility 35.0 23.5 3.780 May 29, 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 was a $25 million, 12% senior note and the
second component was a $31 million revolving credit facility bearing interest at
LIBOR plus 6.75%.
As part of the extension, Cone settled the EARS, which were contingent rights
granted as a part of the agreements in November 2001, 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 Cone's A/R Securitization Facility, Cone is currently in default of
its senior securities as a result of the Chapter 11 Cases. Cone is making no
payments under its senior securities and the payment of interest accruing under
its senior securities after September 24, 2003, is stayed in connection with the
Chapter 11 Cases.
Cone's A/R Securitization Facility, as amended on September 23, 2003, provides
Cone with incremental liquidity during the initial phase of the bankruptcy
process. The A/R Securitization Facility provides for $35 million in
post-petition financing from GECC and has a maturity date of May 29, 2004. On
September 26, 2003, the Bankruptcy Court approved Cone's entering into and
implementing the amended A/R Securitization Facility as part of the "first day
orders." Amounts borrowed under the A/R Securitization Facility bear interest at
the GECC Commercial Paper Rate plus an applicable margin of 2.75%. In addition,
there is a commitment fee of .0625% on unused capacity under the facility. The
A/R Securitization Facility contains financial covenants requiring Cone to
maintain minimum levels of earnings before interest, taxes, depreciation,
amortization, restructuring, and reorganization items, as defined in the
30
agreement. It also imposes certain limits on capital expenditures and cash
restructuring charges. As of September 28, 2003, Cone was in compliance with the
terms under the A/R Securitization Facility.
At September 28, 2003, Cone had availability under its A/R Securitization
Facility, as determined by the difference between the borrowing base and
outstanding advances, of $9.8 million. Availability under the A/R Securitization
Facility is based upon the level of domestic receivables within the facility,
subject to certain concentration and eligibility restrictions, and is determined
by a daily borrowing base calculation. As of November 12, 2003, Cone had
availability under the A/R Securitization Facility, as determined by the
difference between the borrowing base and outstanding advances, of $16.8
million. The improvement in availability reflects the continued reduction of
inventories and the receipt of post-petition trade terms from certain key
vendors. Cone operates within the boundaries of a court-approved weekly cash
expenditures budget.
On November 10, 2003, Cone filed with the Bankruptcy Court a proposal to enter
into a $45 million DIP financing agreement with Bank of America and GECC. This
facility would provide Cone additional liquidity of approximately $10 - $12
million and will pay off the A/R Securitization Facility. The hearing date to
consider approval of the $45 million DIP financing is November 25, 2003.
The proposed DIP financing would be a senior secured revolving facility of $45
million with availability subject to a borrowing base formula consisting of
advances against eligible accounts receivables and inventories. The DIP lenders
would have a valid, perfected and first priority security interest and lien upon
all real and personal property of Cone. The security interests and liens would
be priming liens under Section 364(d) of the Bankruptcy Code with respect to the
liens and security interests in favor of the pre-petition senior secured
creditors. Loans outstanding under the DIP facility would bear interest at the
LIBOR plus 2.75%. The DIP facility has customary affirmative covenants for
asset-based transactions. Cone will continue to be bound by the court-approved
cash budget as presented and approved by the Bankruptcy Court from time to time.
Accounts receivable on September 28, 2003 were $30.6 million, as compared with
$43.3 million at September 29, 2002. Receivables, including those sold pursuant
to the A/R Securitization Facility, represented 62 days of sales outstanding at
both September 28, 2003 and at September 29, 2002. Advances outstanding under
the A/R Securitization Facility were $23.2 million at September 28, 2003 and
$28.5 million at September 29, 2002.
Inventories on September 28, 2003 were $58.8 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 September 29, 2002 were $45.6
million. The year-over-year increase in inventories is primarily the result of
increased denim finished goods inventory levels and higher cotton prices.
During the first nine months of 2003, cash used in operations was $13.7 million
as cash generated was offset by an increase of $10 million in inventories.
During the first nine months of 2003, capital expenditures were $3.5 million, as
31
compared to $3.9 million for the first nine months of 2002. Cone's amended A/R
Securitization Facility prohibits 2003 capital expenditures in excess of $6.0
million.
FORWARD-LOOKING STATEMENTS AND RISK FACTORS
Except for the historical information presented, the matters disclosed in the
foregoing 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
continuing 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 fund
operations, and expand its denim manufacturing in low-cost countries,
o increases in prevailing interest rates,
o Cone's ability to exit successfully from the Chapter 11 Cases, and
o the effect on Cone's sales and markets of events such as the events of
September 11, 2001.
32
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
The Securities and Exchange Commission by Order dated October 29, 2003, granted
the application of the New York Stock Exchange, Inc. for removal of the Common
Stock of Cone from listing and registration on the Exchange under the Securities
Exchange Act of 1934. The removal from listing and registration on the Exchange
of the above issue of Cone became effective at the opening of the trading
session on October 30, 2003 pursuant to the Order of the Commission.
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 the Debtors. As a
result of the Chapter 11 Cases, litigation relating to pre-petition claims
against the Debtors is stayed; however, certain pre-petition claims by the
government or governmental agencies seeking equitable or other non-monetary
relief against the Debtors may not be subject to the automatic stay.
Furthermore, litigants may seek to obtain relief from the Bankruptcy Court to
preserve their claims. As of September 28, 2003, no significant litigation
existed.
NON-GAAP FINANCIAL MEASURES
From time to time management discloses Operating Income (Loss) before
Depreciation, Amortization, Restructuring and Impairment of Assets as well as
Earnings Per Share, excluding selected items. These non-GAAP (generally 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, Amortization, Restructuring and Impairment of Assets 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,
Amortization, Restructuring and Impairment of Assets is not a measure of
financial performance under GAAP and should not be considered as an alternative
33
to cash flows from operating activities, as defined by GAAP, or as a measure of
liquidity, or an alternative to Net Income (Loss).
Thirteen Weeks Ended Thirty-Nine Weeks Ended
----------------------------------------------------------------------
(in thousands) 9/28/03 9/29/02 9/28/03 9/29/02
----------------------------------------------------------------------
Income (loss) from operations $ (124,182 ) $ 8,443 $ (117,230 ) $ 22,920
Depreciation and amortization 4,871 4,688 14,540 14,832
Restructuring and Impairment of Assets 123,431 - 124,197 -
----------------------------------------------------------------------
Operating Income before Depreciation,
Amortization, Restructuring and
Impairment of Assets $ 4,120 $ 13,131 $ 21,507 $ 37,752
----------------------------------------------------------------------
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.
34
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 the Debtors. As a
result of the Chapter 11 Cases, litigation relating to pre-petition claims
against the Debtors is stayed; however, certain pre-petition claims by the
government or governmental agencies seeking equitable or other non-monetary
relief against the Debtors may not be subject to the automatic stay.
Furthermore, litigants may seek to obtain relief from the Bankruptcy Court to
preserve their claims. As of September 28, 2003, no significant litigation
existed.
Item 3. Defaults Upon Senior Securities
Excluding Cone's A/R Securitization Facility, Cone is currently in default of
its senior securities as a result of the Chapter 11 Cases. Cone is making no
payments under its senior securities and the payment of interest accruing under
its senior securities after September 24, 2003, is stayed in connection with the
Chapter 11 Cases (See Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation - Liquidity").
Item 4. Submission of Matters to a Vote of Security Holders
Cone Mills Corporation's Annual Meeting of Shareholders was held September 25,
2003. The proposals voted upon and the results of the voting, as certified by
IVS Associates Inc., were as follows:
1. Election of three Class II directors for a three-year term:
In Favor Withheld
----------------------------------
Charles L. Barry 13,405,181 1,754,380
Randall G. Kominsky 13,405,154 1,754,407
Jess M. Ravich 13,405,039 1,754,522
David T. Kollat 4,628,022 26,892
John W. Rosenblum 4,621,210 33,704
Jeanette Cone Kimmel 4,620,871 34,043
Directors whose terms of office as a director continued after the meeting: Doris
R. Bray, Marc H. Kozberg, Dewey L. Trogdon, John L. Bakane, Haynes G. Griffin,
Charles M. Reid and Cyrus C. Wilson.
35
2. Ratification of the appointment of McGladrey & Pullen, LLP, as independent
auditors for the Corporation for the current year:
For Against Abstain
-----------------------------------------
11,528,574 466,815 7,473,086
Item 5. Other Information
Notice of a matter to be presented by a shareholder for consideration at the
2004 annual meeting other than pursuant to Rule 14a-8 of the Securities Exchange
Act of 1934 must be received by Cone prior to February 14, 2004. Failure to give
timely notice will result in the proxy statement relating to the meeting not
including information on the matter or the manner in which management's proxies
will vote on the matter and the proxies received by management will have
discretionary authority to vote on such matter.
Item 6. Exhibits and Reports on Form 8-K
(a) The exhibits to this Form 10-Q are listed in the accompanying Index to
Exhibits.
(b) Reports on Form 8-K.
Cone filed or furnished the following current reports on Form 8-K during
the period June 29, 2003, to the date of the filing of this report.
o Current report on Form 8-K, furnished 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, furnished 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, furnished 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.
o Current report on Form 8-K, furnished on September 16, 2003,
disclosing Cone's press release. The Form 8-K contained one exhibit,
the press release issued by Cone on September 16, 2003.
o Current report on Form 8-K, filed on September 18, 2003, disclosing
Cone's offered employment agreements to twenty-four executives. The
Form 8-K contained 9 exhibits of the executive officers' employment
agreements.
o Current report on Form 8-K, furnished on September 24, 2003,
disclosing Cone's press release. The Form 8-K contained one exhibit,
the press release issued by Cone on September 24, 2003.
36
o Current report on Form 8-K, furnished on September 29, 2003,
disclosing Cone's press release. The Form 8-K contained one exhibit,
the press release issued by Cone on September 29, 2003.
o Current report on Form 8-K, filed on October 3, 2003, disclosing
Chapter 11 filing and the assignment of financing and Bankruptcy Court
approval. The Form 8-K contained two exhibits, press releases issued
by Cone on September 24, 2003 and September 29, 2003.
o Current report on Form 8-K, furnished on October 8, 2003, disclosing
Cone's press release. The Form 8-K contained one exhibit, the press
release issued by Cone on October 8, 2003.
o Current report on Form 8-K, furnished on October 22, 2003, disclosing
Cone's press release. The Form 8-K contained one exhibit, the press
release issued by Cone on October 22, 2003.
o Current report on Form 8-K, filed on November 10, 2003, disclosing
Cone's press release. The Form 8-K contained three exhibits; court
approved Bid Procedures, the Amended and Restated Asset Purchase
Agreement and the press release issued by Cone on November 10, 2003.
37
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).
38
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.
2.3.10 Tenth Amendment to Securitization Agreement dated as of September 5,
2003 by and between Cone Receivables II LLC, the Registrant, Cone
Foreign Trading LLC, and General Electric Capital Corporation.
2.3.11 Eleventh Amendment to Securitization Agreement dated as of September
23, 2003 by and between Cone Receivables II LLC, the Registrant, Cone
Foreign Trading LLC, and General Electric Capital Corporation.
*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).
39
Exhibit
No. Description
*2.6 Guaranty Agreement dated as of June 25, 1993, between the Registrant
and Compania Industrial de Parras, S.A. de C.V., filed as Exhibit
2.2(c) to Registrant's report on Form 10-Q for the quarter ended July
4, 1993.
*2.7 Joint Venture Agreement dated as of June 25, 1993, between Compania
Industrial de Parras, S.A. de C.V., and Cone Mills (Mexico), S.A. de
C.V., filed as Exhibit 2.2(d) to Registrant's report on Form 10-Q for
the quarter ended July 4, 1993.
*2.7.1 First Amendment to Joint Venture Agreement dated as of June 14, 1995,
between Compania Industrial de Parras, S.A. de C.V., and Cone Mills
(Mexico), S.A. de C.V., filed as Exhibit 2.2(e) to Registrant's report
on Form 10-Q for the quarter ended July 2, 1995.
*2.8 Joint Venture Registration Rights Agreement dated as of June 25, 1993,
among Parras Cone de Mexico, S.A., Compania Industrial de Parras, S.A.
de C.V. and Cone Mills (Mexico), S.A. de C.V., filed as Exhibit 2.2(e)
to Registrant's report on Form 10-Q for the quarter ended July 4,
1993.
*2.9 Parras Registration Rights Agreement dated as of June 25, 1993,
between Compania Industrial de Parras, S.A. de C.V. and the
Registrant, filed as Exhibit 2.2(f) to Registrant's report on Form
10-Q for the quarter ended July 4, 1993.
*2.10 Support Agreement dated as of June 25, 1993, among the Registrant, Sr.
Rodolfo L. Garcia, Sr. Rodolfo Garcia Muriel and certain other persons
listed therein ("private stockholders"), filed as Exhibit 2.2(g) to
Registrant's report on Form 10-Q for the quarter ended July 4, 1993.
*3.1 Restated Articles of Incorporation of the Registrant effective August
25, 1993, filed as Exhibit 4.1 to Registrant's report on Form 10-Q for
the quarter ended October 3, 1993.
*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).
40
Exhibit
No. Description
*4.1 Rights Agreement dated as of October 14, 1999, between the Registrant
and First Union National Bank, as Rights Agent, with Form of Articles
of Amendment with respect to the Class B Preferred Stock (Series A),
the Form of Rights Certificate, and Summary of Rights attached, filed
as Exhibit 1 to Registrant's report on Form 8-A dated October 29,
1999.
*4.2 Note Agreement dated as of August 13, 1992, between the Registrant and
The Prudential Insurance Company of America, with form of 8%
promissory note attached, filed as Exhibit 4.01 to Registrant's report
on Form 8-K dated August 13, 1992.
*4.2.1 Letter Agreement dated September 11, 1992, amending the Note Agreement
dated August 13, 1992, between the Registrant and The Prudential
Insurance Company of America, filed as Exhibit 4.2 to Registrant's
report on Form 8-K dated March 1, 1995.
*4.2.2 Letter Agreement dated July 19, 1993, amending the Note Agreement
dated August 13, 1992, between the Registrant and The Prudential
Insurance Company of America, filed as Exhibit 4.3 to Registrant's
report on Form 8-K dated March 1, 1995.
*4.2.3 Letter Agreement dated June 30, 1994, amending the Note Agreement
dated August 13, 1992, between the Registrant and The Prudential
Insurance Company of America, filed as Exhibit 4.4 to Registrant's
report on Form 8-K dated March 1, 1995.
*4.2.4 Letter Agreement dated November 14, 1994, amending the Note Agreement
dated August 13, 1992, between the Registrant and The Prudential
Insurance Company of America, filed as Exhibit 4.5 to Registrant's
report on Form 8-K dated March 1, 1995.
*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.
41
Exhibit
No. Description
*4.2.7 Letter Agreement dated as of March 30, 1996, between the Registrant
and The Prudential Insurance Company of America, filed as Exhibit
4.3(g) to Registrant's report on Form 10-Q for the quarter ended March
31, 1996.
*4.2.8 Letter Agreement dated as of January 31, 1997, between the Registrant
and The Prudential Insurance Company of America, filed as Exhibit
4.3(h) to Registrant's report on Form 10-K for the year ended December
29, 1996.
*4.2.9 Letter Agreement dated as of July 31, 1997, between the Registrant and
The Prudential Insurance Company of America, filed as Exhibit 4.3(i)
to Registrant's report on Form 10-Q for the quarter ended September
28, 1997.
*4.2.10 Modification to Note Agreement dated as of February 14, 1998, between
the Registrant and The Prudential Insurance Company of America, filed
as Exhibit 4.3(j) to Registrant's report on Form 10-Q for the quarter
ended March 29, 1998.
*4.2.11 Letter Agreement dated as of September 1, 1999, amending the Note
Agreement dated August 13, 1992, between the Registrant and The
Prudential Insurance Company of America, filed as Exhibit 4.3(i) to
Registrant's report on Form 10-Q for the quarter ended October 3,
1999.
*4.2.12 Amendment of 1992 Note Agreement dated as of January 28, 2000, by and
among the Registrant and The Prudential Insurance Company of America,
together with all exhibits thereto, filed as Exhibit 9 to Registrant's
report on Form 8-K dated February 11, 2000.
*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).
42
Exhibit
No. Description
*4.2.16 Amendment of 1992 Note Agreement and Waiver dated as of April 23,
2001, by and among the Registrant and The Prudential Insurance Company
of America, filed as Exhibit 4.2.16 to Registrant's report on Form
10-Q for quarter ended July 1, 2001.
*4.2.17 Amendment of 1992 Note Agreement dated as of June 28, 2001, by and
among the Registrant and The Prudential Insurance Company of America,
filed as Exhibit 4.2.17 to Registrant's report on Form 10-Q for the
quarter ended July 1, 2001.
*4.2.18 Waiver Under 1992 Note Agreement dated as of August 10, 2001, by and
among the Registrant and The Prudential Insurance Company of America,
filed as Exhibit 4.2.18 to Registrant's report on Form 10-Q for the
quarter ended September 30, 2001.
*4.2.19 Amendment of 1992 Note Agreement dated as of September 25, 2001, by
and among the Registrant and The Prudential Insurance Company of
America, filed as Exhibit 4.2.19 to Registrant's report on Form 10-Q
for the quarter ended September 30, 2001.
*4.2.20 Amendment of 1992 Note Agreement dated as of October 25, 2001, by and
among the Registrant and The Prudential Insurance Company of America,
filed as Exhibit 4.2.20 to Registrant's report on Form 10-Q for the
quarter ended September 30, 2001.
*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.
43
Exhibit
No. Description
*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.
*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.
44
Exhibit
No. Description
*4.3.6 Amendment No. 6 to Credit Agreement dated as of September 25, 2001, by
and among the Registrant, as Borrower, Bank of America, N.A., as Agent
and Lender, and the Lenders Signatory Thereto, filed as Exhibit 4.3.6
to Registrant's report on Form 10-Q for the quarter ended September
30, 2001.
*4.3.7 Amendment No. 7 to Credit Agreement dated as of October 25, 2001, by
and among the Registrant, as Borrower, Bank of America, N.A., as Agent
and Lender, and the Lenders Signatory Thereto, filed as Exhibit 4.3.7
to Registrant's report on Form 10-Q for the quarter ended September
30, 2001.
*4.3.8 Amendment No. 8 to Credit Agreement dated as of November 9, 2001, by
and among the Registrant, as Borrower, Bank of America, N.A., as Agent
and Lender, and the Lenders Signatory Thereto, filed as Exhibit 4.3.8
to the Registrant's report on Form 10-K for the year ended December
30, 2001.
*4.3.9 Amendment No. 9 to Credit Agreement dated as of February 27, 2002, by
and among the Registrant, as Borrower, Bank of America, N.A., as Agent
and Lender, and the Lenders Signatory Thereto, filed as Exhibit 4.3.9
to the Registrant's report on Form 10-K for the year ended December
30, 2001.
*4.3.10 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.
45
Exhibit
No. Description
*4.4 Guaranty Agreement dated as of January 28, 2000, made by Cone Global
Finance Corporation, CIPCO S.C., Inc. and Cone Foreign Trading LLC in
favor of Bank of America, N.A. as Revolving Credit Agent for the
Lenders, The Prudential Insurance Company of America, SunTrust Bank,
Morgan Guaranty Trust Company of New York, Wilmington Trust Company,
as General Collateral Agent, Bank of America, N.A., as Priority
Collateral Agent, and Atlantic Financial Group, Ltd., together with
all exhibits thereto, filed as Exhibit 2 to Registrant's report on
Form 8-K dated February 11, 2000.
*4.5 Priority Security Agreement dated as of January 28, 2000, by the
Registrant and certain of its subsidiaries, as Grantors, and Bank of
America, N.A., as Priority Collateral Agent, together with all
exhibits thereto, filed as Exhibit 3 to Registrant's report on Form
8-K dated February 11, 2000.
*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.
46
Exhibit
No. Description
*4.11 Termination Agreement dated as of January 28, 2000, between the
Registrant and Morgan Guaranty Trust Company of New York, as Agent for
various banks terminating the Credit Agent dated August 7, 1997, filed
as Exhibit 4.4(h) to Registrant's report on Form 10-K for the fiscal
year ending January 2, 2000.
*4.12 Specimen Class A Preferred Stock Certificate, filed as Exhibit 4.5 to
Registrant's Registration Statement on Form S-1 (File No. 33-46907).
*4.13 Specimen Common Stock Certificate, effective June 18, 1992, filed as
Exhibit 4.7 to Registrant's Registration Statement on Form S-1 (File
No. 33-46907).
*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.
47
Exhibit
No. Description
*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.
*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.
48
Exhibit
No. Description
*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.
*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.
49
Exhibit
No. Description
*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.
*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.
50
Exhibit
No. Description
10.24.2 Amendment of November 12, 2003 of Amendment and Restatement of Yarn
Purchase Agreement as of January 1, 1999 as amended by an Amended and
Restated Yarn Purchase Agreement dated as of February 15, 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.
*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.
51
Exhibit
No. Description
*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.
*10.27.6 Employment Agreement between Cone Mills Corporation and John L.
Bakane, dated as of September 10, 2003, filed as Exhibit 10.27.6 to
Registrant's report on Form 8-K dated September 19, 2003.
*10.27.7 Employment Agreement between Cone Mills Corporation and Gary L. Smith,
dated as of September 10, 2003, filed as Exhibit 10.27.7 to
Registrant's report on Form 8-K dated September 19, 2003.
*10.27.8 Employment Agreement between Cone Mills Corporation and Thomas E.
McKenna, dated as of September 10, 2003, filed as Exhibit 10.27.8 to
Registrant's report on Form 8-K dated September 19, 2003.
*10.27.9 Employment Agreement between Cone Mills Corporation and Michael J.
Whisenant, dated as of September 10, 2003, filed as Exhibit 10.27.9 to
Registrant's report on Form 8-K dated September 19, 2003.
*10.27.10 Employment Agreement between Cone Mills Corporation and Marvin A.
Woolen, Jr. dated as of September 10, 2003, filed as Exhibit 10.27.10
to Registrant's report on Form 8-K dated September 19, 2003.
*10.28.1 Employment Agreement between Cone Mills Corporation and Neil W.
Koonce, dated as of September 10, 2003, filed as Exhibit 10.28.1 to
Registrant's report on Form 8-K dated September 19, 2003.
*10.28.2 Employment Agreement between Cone Mills Corporation and Terry L.
Weatherford, dated as of September 10, 2003, filed as Exhibit 10.28.2
to Registrant's report on Form 8-K dated September 19, 2003.
*10.28.3 Employment Agreement between Cone Mills Corporation and W. Scott
Wenhold, dated as of September 10, 2003, filed as Exhibit 10.28.3 to
Registrant's report on Form 8-K dated September 19, 2003.
52
Exhibit
No. Description
*10.28.4 Employment Agreement between Cone Mills Corporation and Samir M.
Gabriel, dated as of September 10, 2003, filed as Exhibit 10.28.4 to
Registrant's report on Form 8-K dated September 19, 2003.
*10.28.5 Bidding Procedures, filed as Exhibit 2.1 to Registrant's report on
Form 8-K dated November 10, 2003.
*10.28.6 Amended and Restated Asset Purchase Agreement, dated as of November 6,
2003, by and among WLR Recovery Fund II L.P., WLR Cone Mills
Acquisition LLC, Cone Mills Corporation; CIPCO, S.C., Inc. Cone
Foreign Trading, LLC and Cornwallis Development Co., filed as Exhibit
2.2 to Registrant's report on Form 8-K dated November 10, 2003.
*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.
*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.
53
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*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.
54
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: November 17, 2003 /s/ Gary L. Smith
Gary L. Smith
Executive Vice President and
Chief Financial Officer
55