Page 1 of 35
Index to Exhibits-Pages 30-31
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 3, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Transition period from to
Commission file number 1-3634
CONE MILLS CORPORATION
(Exact name of registrant as specified in its charter)
North Carolina 56-0367025
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1201 Maple Street, Greensboro, North Carolina 27405
(Address of principal executive offices) (Zip Code)
(919) 379-6220
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
Number of shares of common stock outstanding as of August 1, 1994:
27,747,221 shares.
Page 1
<PAGE>
FORM 10-Q
CONE MILLS CORPORATION
INDEX
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Income
Thirteen weeks ended April 3, 1994
and April 4, 1993 (Unaudited). . . . . . . . . . . . . . . . .3
Consolidated Balance Sheets
April 3, 1994 and April 4, 1993
(Unaudited) and January 2, 1994. . . . . . . . . . . . . .4 & 5
Consolidated Statements of Stockholders' Equity
Thirteen weeks ended April 3, 1994
and April 4, 1993 (Unaudited). . . . . . . . . . . . . . . . .6
Consolidated Statements of Cash Flows
Thirteen weeks ended April 3, 1994
and April 4, 1993 (Unaudited). . . . . . . . . . . . . . . . .7
Notes to Consolidated Financial Statements
(Unaudited). . . . . . . . . . . . . . . . . . . . . . . . . .8
Item 2. Managements's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . . . 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . 26
Item 4. Submission of Matters to a Vote of Security
Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . 28
Page 2
<PAGE>
FORM 10-Q
PART I
Item 1.
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CONE MILLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(amounts in thousands, except per share data)
Thirteen Thirteen Twenty-Six Twenty-Six
Weeks Ended Weeks Ended Weeks Ended Weeks Ended
July 3, 1994 July 4, 1993 July 3, 1994 July 4, 1993
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Net Sales $ 201,662 $ 202,515 $ 397,581 $ 397,550
Operating Costs and Expenses:
Cost of sales 159,629 156,875 313,210 304,833
Selling and administrative 19,327 16,955 38,280 37,201
Depreciation 5,801 5,320 11,603 10,558
184,757 179,150 363,093 352,592
Income from Operations 16,905 23,365 34,488 44,958
Other Income (Expense):
Interest income 49 71 137 235
Interest Expense (1,884) (1,742) (4,089) (3,468)
Other income 222 - 321 -
(1,613) (1,671) (3,631) (3,233)
Income from Continuing Operations before
Income Taxes 15,292 21,694 30,857 41,725
Income Taxes 5,445 8,026 10,985 15,438
Income from Continuing Operations 9,847 13,668 19,872 26,287
Gain on Disposal - Discontinued Operations -
(Net of income tax of $276) - - 439 -
Income before Cumulative Effect of
Accounting Change 9,847 13,668 20,311 26,287
Cumulative Effect of Accounting Change for
Postemployment Benefits - (Net of
income tax benefit of $772) - - (1,228) -
Net Income $ 9,847 $ 13,668 $ 19,083 $ 26,287
Income Available to Common Shareholders:
Income from Continuing Operations $ 9,175 $ 12,996 $ 18,528 $ 24,836
Income before Cumulative Effect of
Accounting Change $ 9,175 $ 12,996 $ 18,967 $ 24,836
Cumulative Effect of Accounting Change - - (1,228) -
Net Income $ 9,175 $ 12,996 $ 17,739 $ 24,836
Earnings Per Share - Fully Diluted:
Income from Continuing Operations $ .33 $ .47 $ .67 $ .89
Income before Cumulative Effect of
Accounting Change $ .33 $ .47 $ .68 $ .89
Cumulative Effect of Accounting Change - - (.04) -
Net Income $ .33 $ .47 $ .64 $ .89
Weighted Average Common Shares and
Common Share Equivalents Outstanding -
Fully Diluted 27,858 27,936 27,861 27,955
</TABLE>
See Notes to Consolidated Financial Statements.
Page 3
<PAGE>
FORM 10-Q
Item 1. (continued)
<TABLE>
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CONE MILLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share and par value data)
July 3, July 4, January 2,
ASSETS 1994 1993 1994
(Unaudited) (Unaudited) (Note)
Current Assets:
Cash $ 3,384 $ 2,048 $ 503
Accounts receivable - trade, less
provision for doubtful accounts $3,000;
$3,738; $3,000 57,141 55,069 44,175
Inventories:
Greige and finished goods 84,294 83,453 84,923
Work in process 15,814 15,942 15,968
Raw materials 17,259 15,324 20,612
Supplies and other 30,124 27,664 30,621
147,491 142,383 152,124
Other current assets 6,117 3,972 5,542
Total Current Assets 214,133 203,472 202,344
Investments in Unconsolidated Affiliates 28,437 22,379 26,420
Other Assets 4,953 1,323 3,171
Property, Plant and Equipment:
Land 20,559 21,097 20,758
Buildings 72,431 69,171 71,942
Machinery and equipment 254,037 228,394 239,846
Other 26,782 22,477 25,799
373,809 341,139 358,345
Less accumulated depreciation 169,335 148,857 158,669
Property, Plant and Equipment-Net 204,474 192,282 199,676
$ 451,997 $ 419,456 $ 431,611
</TABLE>
Note: The balance sheet at January 2, 1994 has been
derived from the audited financial statements at
that date.
See Notes to Consolidated Financial Statements.
Page 4
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FORM 10-Q
Item 1. (continued)
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CONE MILLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share and par value data)
July 3, July 4, January 2,
LIABILITIES AND STOCKHOLDERS' EQUITY 1994 1993 1994
(Unaudited) (Unaudited) (Note)
Current Liabilities:
Notes payable $ 14,603 $ 5,601 $ 5,099
Current maturities of long-term debt 256 1,268 767
Accounts payable - trade 28,842 27,245 26,746
Sundry accounts payable and accrued expenses 36,104 44,349 44,231
Income taxes payable 954 1,568 -
Deferred income taxes 28,299 25,438 27,295
Total Current Liabilities 109,058 105,469 104,138
Long-Term Debt 75,800 87,863 77,172
Deferred Items:
Deferred income taxes 36,187 35,818 36,652
Other deferred items 5,800 2,593 3,615
41,987 38,411 40,267
Contribution to Employee Stock Ownership Plan - 1,078 -
Stockholders' Equity:
Class A Preferred Stock - $100 par value; authorized
1,500,000 shares; issued and outstanding 470,752
shares; 1993, 465,077 shares - Employee Stock
Ownership Plan 47,075 46,508 46,508
Class A Preferred Stock held in escrow ( 86,804 shares;
1993, 81,125 shares) (8,680) (8,113) (8,113)
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 27,747,221 shares;
1993, 27,675,215 shares and 27,744,783 shares 2,775 2,768 2,774
Capital in excess of par 75,351 75,278 75,397
Retained earnings 109,917 70,194 93,468
Currency translation adjustment (1,286) - -
Total Stockholders' Equity 225,152 186,635 210,034
$ 451,997 $ 419,456 $ 431,611
</TABLE>
Note: The balance sheet at January 2, 1994 has been
derived from the audited financial statements at that date.
See Notes to Consolidated Financial Statements.
Page 5
<PAGE>
FORM 10-Q
Item 1. (continued)
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CONE MILLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
TWENTY-SIX WEEKS ENDED JULY 3, 1994 AND JULY 4, 1993
(amounts in thousands, except share data)
(Unaudited)
Class A Preferred Class A Preferred Nonvoting
Stock Stock - Escrow Common Stock
Shares Amount Shares Amount Shares Amount
Balance, January 2, 1994 465,077 $ 46,508 (81,125)$ (8,113) - $ -
Net income - - - - - -
Currency translation adjustment (net of
income tax benefit of $858) - - - - - -
Class A Preferred Stock -
Employee Stock Ownership Plan:
Cash dividends paid - - - - - -
Shares issued (7.0% dividend on shares
held in Cone Mills escrow account) 5,679 567 (5,679) (567) - -
Shares redeemed (4) - - - - -
Common Stock:
Options exercised - - - - - -
Purchase of common shares - - - - - -
Balance, July 3, 1994 470,752 $ 47,075 (86,804)$ (8,680) - $ -
Class A Preferred Class A Preferred Nonvoting
Stock Stock - Escrow Common Stock
Shares Amount Shares Amount Shares Amount
Balance, January 3, 1993 459,282 $ 45,928 (75,330)$ (7,533) 1,231,327 $ 123
Net income - - - - - -
Class A Preferred Stock -
Employee Stock Ownership Plan:
Cash dividends paid - - - - - -
Shares issued (8.0% dividend on shares
held in Cone Mills escrow account) 5,795 580 (5,795) (580) - -
Nonvoting Common Stock - converted
to Voting Common Stock - - - - (1,231,327) (123)
Common Stock:
Options exercised - - - - - -
Balance, July 4, 1993 465,077 $ 46,508 (81,125)$ (8,113) 0 $ 0
</TABLE>
See Notes to Consolidated Financial Statements.
Page 6
<PAGE>
FORM 10-Q
<TABLE>
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Item 1. (continued)
CONE MILLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
TWENTY-SIX WEEKS ENDED JULY 3, 1994 AND JULY 4, 1993
(amounts in thousands, except share data)
(Unaudited)
Capital in Currency
Common Stock Excess Retained Translation
Shares Amount of Par Earnings Adjustment
Balance, January 2, 1994 27,744,783 $ 2,774 $ 75,397 $ 93,468 $ -
Net income - - - 19,083 -
Currency translation adjustment (net of
income tax benefit of $858) - - - - (1,286)
Class A Preferred Stock -
Employee Stock Ownership Plan:
Cash dividends paid - - - (2,634) -
Shares issued (7.0% dividend on shares
held in Cone Mills escrow account) - - - - -
Shares redeemed - - - - -
Common Stock
Options exercised 11,000 1 62 - -
Purchase of common shares (8,562) - (108) - -
Balance, July 3, 1994 27,747,221 $ 2,775 $ 75,351 $ 109,917 $ (1,286)
Capital in
Common Stock Excess Retained
Shares Amount of Par Earnings
Balance, January 3, 1993 26,435,888 $ 2,644 $ 75,227 $ 46,962
Net income - - - 26,287
Class A Preferred Stock -
Employee Stock Ownership Plan:
Cash dividends paid - - - (3,055)
Shares issued (8.0% dividend on shares
held in Cone Mills escrow account) - - - -
Nonvoting Common Stock - converted
to Voting Common Stock 1,231,327 123 - -
Common Stock:
Options exercised 8,000 1 51 -
Balance, July 4, 1993 27,675,215 $ 2,768 $ 75,278 $ 70,194
</TABLE>
See Notes to Consolidated Financial Statements.
Page 6a
<PAGE>
FORM 10-Q
<TABLE>
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Item 1. (continued)
CONE MILLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
Twenty-Six Twenty-Six
Weeks Ended Weeks Ended
July 3, 1994 July 4, 1993
(Unaudited) (Unaudited)
Cash Flows Provided By Operating Activities $ 16,473 $ 26,406
Cash Flows from Investing Activities:
Investments in unconsolidated affiliates (3,523) (22,379)
Proceeds from sale of property, plant and equipment 943 3,447
Capital expenditures (15,954) (20,287)
Net cash used in investing activities (18,534) (39,219)
Cash Flows from Financing Activities:
Net (payments) borrowings - short-term loans 9,504 (1,052)
Principal payments - long-term debt (47,461) (37,662)
Proceeds from long-term debt borrowings 45,578 49,293
Dividends paid - Class A Preferred (2,634) (3,055)
Other (45) 52
Net cash provided by financing activities 4,942 7,576
Net increase (decrease) in cash 2,881 (5,237)
Cash at Beginning of Period 503 7,285
Cash at End of Period $ 3,384 $ 2,048
Supplemental Disclosures of Additional Cash Flow Information:
Cash payments for:
Interest, net of interest capitalized $ 4,171 $ 3,580
Income taxes, net of refunds $ 8,490 $ 9,510
Supplemental Schedule of Noncash Investing and Financing Activities:
Stock dividend paid to ESOP trustee for Cone escrow acco $ 567 $ 580
Class A Preferred Stock issued $ 567 $ 580
Common Stock issued $ - $ 123
Nonvoting Common Stock converted $ - $ 123
</TABLE>
See Notes to Consolidated Financial Statements.
Page 7
<PAGE>
FORM 10-Q
Item 1. (continued)
CONE MILLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 3, 1994
Note 1. Basis of Financial Statement Preparation
The Cone Mills Corporation (the "Company") condensed consolidated
financial statements for July 3, 1994 and July 4, 1993 are
unaudited, but in the opinion of management reflect all adjustments
necessary to present fairly the consolidated balance sheets of Cone
Mills Corporation and Subsidiaries at July 3, 1994, January 2, 1994
and July 4, 1993 and the related consolidated statements of income
for the respective thirteen and twenty-six weeks ended July 3, 1994
and July 4, 1993, and stockholders' equity and cash flows for the
twenty-six weeks then ended. All adjustments are of a normal
recurring nature. The results are not necessarily indicative of the
results to be expected for the full year.
These statements should be read in conjunction with the audited
financial statements and related notes included in the Company's
annual report on Form 10-K for fiscal 1993.
Substantially all components of textile inventories are valued at
the lower of cost or market using the last-in, first-out (LIFO)
method. Nontextile inventories are valued at the lower of average
cost or market. Because amounts for inventories under the LIFO
method are based on an annual determination of quantities as of the
year-end, the inventories at July 3, 1994 and July 4, 1993 and
related consolidated statements of income for the thirteen and
twenty-six weeks then ended are based on certain estimates relating
to quantities and cost as of the end of the fiscal year.
Page 8
<PAGE>
FORM 10-Q
Item 1. (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2. Sale of Accounts Receivable
On August 11, 1992, the Company entered into an agreement extendable
to August 1995, with the subsidiary of a major financial
institution, which allowed the sale without recourse of up to $40
million of an undivided interest in eligible trade receivables.
This agreement was amended on June 30, 1994 to allow the sale of up
to $50 million in eligible trade receivables. Accounts receivable
is shown net of $50 million sold at July 3, 1994, net of $40 million
sold at July 4, 1993, and net of $35 million sold at January 2, 1994
under this agreement. Cash flows provided by operating activities
for the twenty-six weeks
ended July 3, 1994 and July 4, 1993 include the sale of accounts
receivable of $15 million and $16 million, respectively.
Note 3. Long-Term Debt
<TABLE>
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(amounts in thousands) July 3, 1994
Current
Total Maturity Long-Term
8% Senior Note $ 75,000 $ - $ 75,000
Revolving Credit Agreement - - -
Industrial Revenue Bonds 869 223 646
Other 187 33 154
$ 76,056 $ 256 $ 75,800
(amounts in thousands) July 4, 1993
Current
Total Maturity Long-Term
8% Senior Note $ 75,000 $ - $ 75,000
Revolving Credit Agreement 11,000 - 11,000
Industrial Revenue Bonds 1,621 752 869
Other 1,510 516 994
$ 89,131 $ 1,268 $ 87,863
</TABLE>
Page 9
<PAGE>
FORM 10-Q
Item 1. (continued)
Note 4. Class A Preferred Stock
The dividend rate for Class A Preferred Stock is 7.00%, which is
payable March 31, 1995.
<TABLE>
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Note 5. Stock Option Plans
1984 Stock Option Plan:
Option price per share $ 5.25 $ 6.50
Outstanding at 1/3/93 190,200 111,800
Canceled (3,000) -
Exercised - (8,000)
Outstanding at 7/4/93 187,200 103,800
Exercised (92,000) -
Outstanding at 1/2/94 95,200 103,800
Exercised (7,000) (4,000)
Outstanding at 7/3/94 88,200 99,800
1992 Stock Option Plan:
Option price per share $15.625
Granted 2/18/93 500,000
Outstanding 1/2/94 500,000
Canceled (4,000)
Outstanding at 7/3/94 496,000
1994 Stock Option Plan:
Option price per share $12.875
Granted 5/17/94 6,000
Outstanding at 7/3/94 6,000
Options exercisable
at 7/3/94 88,200 45,900 99,200 6,000
</TABLE>
The 1994 Stock Option Plan for Non-Employee Directors, approved by
shareholders at the May 10, 1994 annual meeting, grants to each
eligible director an option to purchase 1,000 shares of Common Stock
on the fifth business day following each annual meeting of
shareholders. The option price is the last reported sale price on
the New York Stock Exchange composite tape on the date of grant.
The plan allows the grant of options to purchase an aggregate of
100,000 shares of Common Stock. Options granted under the plan will
be nonqualified stock options with a term of seven years. No
options will be granted under the 1994 Plan after August 18, 2003.
Options may be exercised at grant, however, shares are restricted
from sale until six months after the grant date.
Page 10
<PAGE>
FORM 10-Q
Item 1. (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
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Note 6. Earnings Per Share
Thirteen Thirteen
Weeks Ended Weeks Ended
July 3, 1994 July 4, 1993
Fully Fully
Primary Diluted Primary Diluted
(amounts in thousands, except per share data)
Net income $ 9,847 $ 9,847 $ 13,668 $ 13,668
Less: Class A Preferred
dividends (672) (672) ( 672) ( 672)
Adjusted net income $ 9,175 $ 9,175 $ 12,996 $ 12,996
Weighted average common
shares outstanding 27,751 27,751 27,675 27,675
Common share equivalents
from:
Assumed exercise of
outstanding options,
less shares assumed
repurchased 104 107 256 261
Weighted average common
shares and common share
equivalents outstanding 27,855 27,858 27,931 27,936
Earnings per common
share and common share
equivalent $ .33 $ .33 $ .47 $ .47
</TABLE>
<PAGE> Page 11
FORM 10-Q
Item 1. (continued)
<TABLE>
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6. Earnings Per Share (continued)
Twenty-Six Twenty-Six
Weeks Ended Weeks Ended
July 3, 1994 July 4, 1993
Fully Fully
Primary Diluted Primary Diluted
(amounts in thousands, except per share data)
Income from continuing
operations $ 19,872 $ 19,872 $ 26,287 $ 26,287
Less: Class A Preferred
dividends (1,344) (1,344) (1,451) (1,451)
Adjusted income from continuing
operations 18,528 18,528 24,836 24,836
Gain on disposal-discontinued
operations 439 439 - -
Adjusted income before
cumulative effect of
accounting change 18,967 18,967 24,836 24,836
Cumulative effect of accounting
change (1,228) (1,228) - -
Adjusted net income $ 17,739 $ 17,739 $ 24,836 $ 24,836
Weighted average common shares
outstanding 27,748 27,748 27,676 27,676
Common share equivalents from:
Assumed exercise of outstanding
options, less shares assumed
repurchased 113 113 263 279
Weighted average common shares
and common share equivalents
outstanding 27,861 27,861 27,939 27,955
Earnings per common share and
common share equivalent:
Income from continuing
operations $ .67 $ .67 $ .89 $ .89
Income before cumulative
effect of accounting change $ .68 $ .68 $ - $ -
Cumulative effect of
accounting change $ (.04) $ (.04) $ - $ -
Net income $ .64 $ .64 $ .89 $ .89
</TABLE>
Primary and fully diluted earnings per share have been computed by
dividing the net earnings available to common stockholders by the sum of
the weighted average common shares and common share equivalents
outstanding.
Page 12
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FORM 10-Q
Item 1. (continued
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7. Litigation and Contingencies
In November 1988, William J. Elmore and Wayne Comer (the "Plaintiffs"),
former employees of the Company, instituted a class action suit against
the Company and Wachovia Bank & Trust Company, N.A. ("Wachovia") and
certain current and former employees of the Company and Wachovia. The
suit was brought on behalf of salaried employees of the Company who
were participants in certain Company retirement plans. The Plaintiffs
asserted a variety of claims related to actions taken and statements
made concerning certain employee benefit plans maintained by the
Company.
On March 20, 1992, the United States District Court in Greenville,
South Carolina, entered a judgment finding that the Company had
promised to contribute certain surplus funds (or their equivalent in
Company stock) relating to the overfunding of the Company's pension
plans to the 1983 ESOP by December 23, 1985, that such surplus amounted
to $69 million, that the Company's actual contribution totaled
approximately $55 million, and that the Company and certain of its
executive officers therefore had breached their fiduciary duties under
the Employee Retirement Income Security Act of 1974 ("ERISA") to
certain participants in the 1983 ESOP. The District Court ordered the
Company to pay to the 1983 ESOP for the benefit of plan participants,
both salaried and hourly, the sum of $14.2 million in cash or the
equivalent in Company stock. In addition, the District Court awarded
$3.5 million in attorneys' fees to the Plaintiffs, $2.2 million of
which is to be paid from the sum awarded to the 1983 ESOP. Judgment
was entered in favor of the defendants on all remaining claims except
for claims relating to the ESOP contribution.
On March 20, 1992, the Company and the individual defendants appealed
the District Court's judgment against them to the United States Court
of Appeals for the Fourth Circuit. On April 2, 1992, the Plaintiffs
appealed the District Court's judgment to the Court of Appeals insofar
as it dismissed certain of their claims. To secure the judgment on
appeal the Company had deposited in escrow with the trustee of the 1983
ESOP an $8 million letter of credit
Page 13
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FORM 10-Q
Item 1 (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
and 75,330 shares of Class A Preferred Stock valued at $7.5 million
which has subsequently earned dividends of an additional 11,474 shares
valued at $1.2 million. To record these escrow transactions, the
Company increased outstanding Class A Preferred Stock by $8.7 million.
The increase in outstanding Class A Preferred Stock was offset by a
contra stockholders' equity account labeled "Class A
Preferred Stock held in escrow." These escrow account transactions did
not have an effect upon net income or stockholders' equity of the
Company.
On May 6, 1994, the Court of Appeals, sitting en banc, affirmed the
prior conclusion of a panel of three of its judges, and unanimously
reversed the $15.5 million judgment and unanimously affirmed all of the
District Court's rulings in favor of the Company. However, the Court
of Appeals affirmed, by an equally divided court, the District Court's
holding that Plaintiffs should be allowed to proceed on an alternative
theory whether, subject to proof of any detrimental reliance,
Plaintiffs could establish that a letter to salaried employees on
December 15, 1983 could allow recovery on a theory of equitable
estoppel. Accordingly, the case was remanded to the District Court for
a determination of whether the Plaintiffs can establish detrimental
reliance creating estoppel of the Company.
The issue of detrimental reliance and other issues related to whether
the Plaintiffs can prevail on remand in the District Court are
factually oriented, and additional proceedings will likely be
necessary. For that reason, and because of the uncertainties inherent
in the litigation process, it is not possible to predict the ultimate
outcome of this lawsuit. However, the Company intends to continue to
defend this matter vigorously, and it is the opinion of the Company's
management that this lawsuit, when finally concluded, will not have a
material adverse effect on the Company's financial condition.
Because judgment of the District Court was reversed, the escrowed stock
and letter of credit were ordered released by order of the District
Court entered July 22, 1994. Subject to the Court's order, the stock
was redeemed, the offsetting contra account eliminated and letter of
credit terminated. None of these escrow transactions had an effect on
net income or stockholders' equity.
Page 14
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FORM 10-Q
Item 1. (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8. Discontinued Operations
(amounts in thousands)
On January 4, 1994 the Company completed the sale of all remaining
assets identified with discontinued operations. Proceeds from this
sale were $3,500. This concluded the Company's December 5, 1991 plan
to discontinue and liquidate its corduroy and other bottomweight
continuous piece-dyed fabrics product line.
Note 9. Accounting Change - Postemployment Benefits
(amounts in thousands)
At January 3, 1994 the Company adopted SFAS No. 112, "Employers'
Accounting for Postemployment Benefits." This statement requires an
accrual method of recognizing postemployment benefits rather than
recording an expense when paid. The cumulative effect of this
accounting change, included in first quarter 1994 earnings, resulted in
a one-time charge to income of $2,000 and a reduction in net income of
$1,228. Additional expenses resulting from the implementation of this
accounting statement were insignificant.
Page 15
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FORM 10-Q
Item 2.
MANAGEMENTS' DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OPERATING RESULTS
Second Quarter Ended July 3, 1994 Compared with Second Quarter Ended July
4, 1993
Following a U.S. cyclical recovery from mid-1991 through the end of 1992,
the rate of growth in the domestic textile and apparel softgoods sector,
in general, began to decline and retailers and softgoods manufacturers
began to report mixed results during 1993 and first half 1994. While
retail sales of denim garments continued to grow, denim inventories in the
softgoods pipeline experienced downward adjustments. In addition, printed
home furnishings fabrics experienced soft demand because of consumer
interest in other types of home furnishings fabrics. As a result of these
trends, the company's sales levels were essentially unchanged from the
second quarter of 1993.
Second quarter 1994 sales were $201.7 million as compared with second
quarter 1993 sales of $202.5 million. For the quarter the company had net
income of $9.8 million or $.33 per share of common stock after preferred
dividends as compared with net income of $13.7 million and $.47 per share
for the second quarter of 1993.
The company's net income of $9.8 million declined by $3.8 million from the
previous year. The decline was caused primarily by lower gross profits in
both the apparel fabrics and home furnishings segments, and higher selling
and administrative costs partially offset by a lower effective tax rate.
The company's gross profit (net sales less cost of sales and depreciation)
as a percentage of net sales was 18.0% compared with 19.9% for the second
quarter of 1993. The decline resulted primarily from the inability to
raise denim prices to cover higher cotton and manufacturing costs, higher
unit costs associated with operating denim facilities at less than
capacity, and to a lesser extent, weaker printed fabrics results.
Page 16
<PAGE>
FORM 10-Q
Item 2. (continued)
The company operates in two principal business segments, apparel fabrics
and home furnishings products. The following table sets forth certain net
sales and operating income information (excluding general corporate
expenses) regarding these segments for the second quarters of 1994 and
1993:
<TABLE>
<S> <C> <C> <C> <C>
Second Quarter
1994 1993
NET SALES
Apparel $ 149.9 74.3% $ 154.9 76.5%
Home Furnishings 51.8 25.7 47.6 23.5
Total $ 201.7 100.0% $ 202.5 100.0%
OPERATING INCOME (1)
Apparel $ 13.3 8.9% $ 18.4 11.9%
Home Furnishings 4.5 8.7 5.6 11.7
</TABLE>
(1) Percentages reflect operating income as a percentage of segment net
sales.
Apparel Fabrics. Sales of apparel fabrics were $149.9 million, down
3.2% as compared with year-ago levels. The overall decrease in segment
sales resulted primarily from lower volume as average prices, adjusted
for mix changes, were essentially unchanged from year-ago levels.
Within the segment, denim sales were lower than the previous year
because of lower volume, less favorable mix and slightly lower prices.
Specialty sportswear fabrics sales increased over second quarter 1993
levels as a result of increased volume and prices and improved mix.
Apparel segment profit margins declined to 8.9%, compared with 11.9%
for the second quarter of 1993 because of lower denim earnings as
previously discussed. (See analysis of gross profits above.) Specialty
sportswear earnings increased sharply as compared with year-ago levels.
Export sales for the apparel segment, primarily denims, were $33.5
million for second quarter of 1994, essentially the same as second
quarter 1993 export amounts.
Page 17
<PAGE>
FORM 10-Q
Item 2. (continued)
Home Furnishings. Sales of home furnishings were $51.8 million, up 8.7%
as compared with year-ago levels. Sales of the decorative fabrics
product group were down slightly because of continued softness in print
fashion demand. Sales of polyurethane foam and related products by the
Olympic Products division were higher than previous year levels as the
division benefited from stronger sales for both automotive and home
furnishings applications.
Despite higher sales, home furnishings segment earnings as a percent of
sales decreased to 8.7% for the second quarter of 1994 as compared with
11.7% for the second quarter of 1993, primarily because of rising
operating costs, start up costs associated with new product lines in
printed fabrics and Olympic divisions, and a change in segment mix
arising from faster growth in the lower margin Olympic Product
operations.
Export sales of home furnishings products were $1.6 million for both
the second quarters of 1994 and 1993.
Total company selling and administrative expenses increased from $17.0
million, or 8.4% of sales, for the second quarter of 1993 to $19.3
million, 9.6% of sales, for the second quarter of 1994. This increase was
primarily the result of second quarter 1993 expenses being lower than the
1993 quarterly average, and, to a lesser extent, increased benefit costs.
Income taxes as a percent of taxable income were 35.6% in the second
quarter of 1994 compared with 37.0% for the 1993 period. Both periods
reflect tax benefits resulting from operation of the company's foreign
sales corporation.
Six Months Ended July 3, 1994 Compared with Six Months Ended July 4, 1993
Net sales for the first six months of 1994 were $397.6 million, the same
as first half 1993 sales. Income of $.68 per share, before the cumulative
effect of adoption of SFAS No. 112, was down from first half 1993 results
of $.89 per share. Included in the 1994 results was a net gain of $.4
million, or $.01 per share, arising from the final disposal of assets of
the company's discontinued operations. During the first quarter of 1994,
the company adopted SFAS No. 112, "Employers' Accounting for
Postemployment Benefits," which resulted in an
Page 18
<PAGE>
FORM 10-Q
Item 2. (continued)
after-tax, non-cash charge of $1.2 million, or $.04 per share,
and reduced net income to $.64 per share, for the first half of 1994. Net
income for the first half of 1994 was $19.1 million as compared with $26.3
million for the 1993 period.
Gross profit (net sales less cost of sales and depreciation) as a
percentage of net sales was 18.3% as compared with 20.7% for the 1993
period. The decline primarily resulted from the inability to raise denim
prices to cover higher cotton costs, higher unit production costs
associated with operating denim facilities at less than capacity, and a
shift in mix toward lower margin specialty sportswear fabrics and
polyurethane foam products.
Business segment information for the first six months of 1994 and 1993 was
as follows:
<TABLE>
<S> <C> <C> <C> <C>
First Six Months
1994 1993
NET SALES
Apparel $ 295.9 74.4% $ 297.3 74.8%
Home Furnishings 101.7 25.6 100.3 25.2
Total $ 397.6 100.0% $ 397.6 100.0%
OPERATING INCOME (1)(2)
Apparel $ 26.1 8.8% $ 35.5 12.0%
Home Furnishings 10.0 9.8 10.7 10.7
</TABLE>
(1) Percentages reflect operating income as a percentage of segment net
sales.
(2) Excludes general corporate expenses.
Apparel Fabrics. Apparel fabrics net sales were $295.9 million for the
first half of 1994, a decrease of .5% from first half 1993. The lower
sales were due to decreases in denim sales partially offset by
increases in sales of the specialty sportswear product group, primarily
flannel shirtings. Average prices adjusted for product mix changes were
essentially unchanged. Export sales for the first six months of 1994
were down slightly to $65.5 million.
Operating margins in the first half of 1994 for the apparel fabrics
segment were 8.8% of net sales compared with 12.0% for the 1993 period.
Margins were lower in 1994 because of a decline in denim earnings as
discussed above. (See analysis of gross profits above.)
Page 19
<PAGE>
FORM 10-Q
Item 2. (continued)
Home Furnishings. First six months 1994 net sales of $101.7 million for
the home furnishings segment were up 1.4% as compared with year-ago
results. Operating income decreased $.7 million, or 6.9% compared with
the 1993 period. Sales and operating profits for the fabrics product
group were down in 1994 as the company continued to experience weak
print decorative fabric markets. Olympic's product sales and operating
profits were up in the 1994 period as the division experienced stronger
sales in automotive markets.
Export sales of home furnishings products were $3.1 million in the
first half of 1994 as compared with $3.7 million in 1993. Export sales
have been impacted by poor economic conditions in European and Japanese
markets.
Total company selling and administrative expenses were $38.3 million or
9.6% of sales for the first half of 1994 as compared with $37.2 million or
9.4% of sales for the 1993 period. Expenses in 1994 were impacted by
higher benefit costs.
Interest expense for the first half of 1994 increased $.6 million compared
to the first half of 1993, primarily the result of a $.4 million interest
charge on the settlement of 1990 and 1991 income taxes by the Internal
Revenue Service.
Income taxes as a percent of taxable income were 35.6% in the first half
of 1994 compared with 37.0% for the 1993 period. Both periods reflect tax
benefits resulting from operation of the company's foreign sales
corporation.
Liquidity and Capital Resources
The Company's principal long-term capital sources are a $75 million Note
Agreement with The Prudential Insurance Company of America (the "Term
Loan") and stockholders' equity. Primary sources of liquidity are
internally generated funds, a $60 million Credit Agreement with Morgan
Guaranty Trust Company of New York ("Morgan Guaranty") as Agent Bank (the
"Revolving Credit Facility"), and a $50 million Receivables Purchase
Agreement (the "Receivables Purchase Agreement") with Delaware Funding
Corporation, an affiliate of Morgan Guaranty. The Receivables Purchase
Agreement was increased from $40 million in the second quarter of 1994.
Page 20
<PAGE>
FORM 10-Q
Item 2. (continued)
During the first half of 1994, the company generated $16.5 million in
funds from operating activities including $30.7 million from net income
adjusted for non-cash depreciation expenses, partially offset by increased
working capital requirements, primarily increases in trade receivables and
reductions of accounts payable and accrued expenses. Major uses of cash
during this period included $16.0 million for capital expenditures, $2.6
million for preferred stock dividends and $3.5 million for investment in
the Mexican joint venture. Funding came primarily from operating cash flow
and short term borrowings and the additional sale of accounts receivables
to support working capital needs.
During the first half of 1993, the Company generated $26.4 million in
funds from operating activities including $36.8 million from net income
adjusted for depreciation, partially offset by increased working capital
requirements, primarily reductions of accounts payable and accrued
expenses. Major uses of cash during this period included $20.3 million for
capital expenditures and $3.1 million for preferred stock dividends. In
addition, Cone Mills purchased 20% of Compania Industrial de Parras S.A.,
(CIPSA), the largest denim manufacturer in Mexico, for approximately $22
million. Funding for these cash uses came primarily from operating cash
flow, cash available at the beginning of the period, and the Revolving
Credit Facility.
On July 3, 1994 the company's long-term capital structure consisted of
$75.8 million of long-term debt and $225.2 million of stockholders'
equity. For comparison, on July 4, 1993 the company had $87.9 million of
long-term debt and $186.6 million of stockholders' equity. Long-term debt
(including current maturities of long-term debt) as a percent of long-term
debt and stockholders' equity was 25% on July 3, 1994, compared with 32%
on July 4, 1993. The company believes it has significant unused debt
capacity as it considers the target leverage for Cone Mills to be
approximately 35 - 40% long-term debt as a percent of total capital. (See
Financial Outlook and Strategy.)
On July 3, 1994 the company had ample liquidity with only $.3 million of
current maturities of long-term debt and $63.4 million of cash and unused
borrowing capacity under its Revolving Credit Facility.
Page 21
<PAGE>
FORM 10-Q
Item 2. (continued)
Accounts receivables on July 3, 1994, were $57.1 million, up slightly from
$55.1 million at July 4, 1993. At the end of the 1994 period, the company
had sold $50 million of accounts receivable, an increase of $10 million
from the amount sold at July 4, 1993. Receivables, including those sold
pursuant to the Receivables Purchase Agreement, represented 50 days of
sales outstanding at July 3, 1994 compared with 44 days at July 4, 1993,
as fewer customers made payments in advance of due date.
Inventories on July 3, 1994, were $147.5 million, up $5.1 million from
July 4, 1993 levels of $142.4 million, primarily from increased
inventories of raw materials and real estate developed lots. Finished
goods inventories were up slightly as increases in denim inventories were
partially offset by decreases in other finished goods.
Capital spending in 1994 is expected to be $36.0 million and includes
expansion and upgrading of yarn preparation facilities, new weaving
machines, and a new fiber production line at Olympic Products. In
addition, the company expects to invest a total of approximately $25
million in the Mexican joint venture denim company through 1995. Capital
spending in the first half of 1994 was $16.0 million and the investment in
the Mexican joint venture was $3.5 million.
Federal, state and local regulations relating to the workplace and the
discharge of materials into the environment are continually changing;
therefore, it is difficult to gauge the total future impact of such
regulations on the company. Existing government regulations are not
expected to cause a material change in the company's competitive position,
operating results or planned capital expenditures. Cone Mills has an
active environmental committee which fosters protection of the environment
and compliance with laws.
In November 1988 certain former employees of the company instituted a
class action suit against the company and certain other defendants in
which the plaintiffs ("Plaintiffs") asserted a variety of claims related
to the 1983 ESOP and certain other employee benefit plans maintained by
the company. In March 1992 a judgment in the amount of $15.5 million
(including an attorneys' fees award) was entered against the company with
respect to an alleged promise to make additional company contributions to
the 1983 ESOP and all claims unrelated to the alleged promise were
dismissed. The company, the individual defendants and the Plaintiffs
appealed.
Page 22
<PAGE>
FORM 10-Q
Item 2. (continued)
On May 6, 1994, the Court of Appeals, sitting en banc, affirmed the prior
conclusion of a panel of three of its judges and unanimously reversed the
$15.5 million judgment and unanimously affirmed all of the District
Court's rulings in favor of the company. However, the Court of Appeals
affirmed, by an equally divided court, the District Court's holding that
Plaintiffs should be allowed to proceed on an alternative theory whether,
subject to proof of any detrimental reliance, Plaintiffs could establish
that a letter to salaried employees on December 15, 1983 could allow
recovery on a theory of equitable estoppel. Accordingly, the case was
remanded to the District Court for a determination of whether the
Plaintiffs can establish detrimental reliance creating estoppel of the
company.
The issue of detrimental reliance and other issues related to whether the
Plaintiffs can prevail on remand in the District Court are factually
oriented, and additional proceedings will likely be necessary. For that
reason, and because of the uncertainties inherent in the litigation
process, it is not possible to predict the ultimate outcome of this
lawsuit. However, the company intends to continue to defend this matter
vigorously, and it is the opinion of the company's management that this
lawsuit, when finally concluded, will not have a material adverse effect
on the company's financial condition.
To secure the judgement on appeal from the District Court to the Court of
Appeals, the company had deposited in escrow with the trustee of the 1983
ESOP an $8 million letter of credit and 75,330 shares of Class A Preferred
Stock valued at $7.5 million which has subsequently earned dividends of an
additional 11,474 shares valued at $1.2 million. The letter of credit was
substituted for an $8 million cash deposit made in April 1992. To record
this escrow transaction, the company increased outstanding Class A
Preferred Stock by $8.7 million and established an offsetting contra
stockholders' equity account.
Because the judgement of the District Court was reversed, the escrowed
stock and letter of credit were ordered released by order of the District
Court entered July 22, 1994. Subsequent to the court's order, the stock
was redeemed, the offsetting contra account eliminated and letter of
credit terminated. None of these escrow transactions have had an effect on
net income or stockholders' equity.
Page 23
<PAGE>
FORM 10-Q
Item 2. (continued)
The company is a party to various other legal claims and actions
incidental to its business. Management believes that none of these claims
or actions, either individually or in the aggregate, will have a material
adverse effect on the financial condition of the company.
Financial Outlook and Strategy
In 1992 and 1993, Cone Mills benefited from favorable apparel fabric
markets characterized by increasing prices and volume in both domestic and
international denim markets and the rapid expansion of sportswear fabrics
markets. The company believes that demographic trends and other market
developments continue to present favorable long-term opportunities for
growth. Even though first half operating results were unfavorable compared
with 1993, the company anticipates improving denim and home furnishings
print demand and some recovery in margins as sales increase, prices
improve and our plants return to normal operating schedules in the second
half of the year.
The company has purchased cotton, its principal raw material, from
suppliers at fixed prices for delivery throughout the remainder of the
year. Although these prices, which are similar to second quarter costs,
compare favorably with those of the present spot market, the price of
cotton has increased significantly since late 1993 and has caused a
reduction in profit margins in 1994. In addition, the company has
implemented a general wage increase in July 1994 of approximately four
percent for hourly employees. While the company was unable to increase
prices in its largest product lines during first half 1994, a moderate
price increase was effected for third quarter 1994. While it is the
company's goal to restore its margins to 1993 levels, the success in
reaching this goal will be affected by the strength of demand for its
products, cotton prices, and productivity improvement programs.
The company has set priorities for the use of net cash flow and available
borrowing capacity. The first is international denim manufacturing and
marketing opportunities and in 1993, the company purchased a 20% ownership
in CIPSA, the largest denim manufacturer in Mexico, for approximately $24
million and signed agreements with CIPSA providing for the formation of a
joint venture company to build and operate a world-class denim
manufacturing facility. The partners plan to invest a
Page 24
<PAGE>
FORM 10-Q
Item 2. (continued)
total of approximately $50 million, with each partner providing 50% of
this investment. Capital requirements for the joint venture will primarily
occur in 1994 and 1995. The joint venture has signed a credit agreement
with a Mexican bank for approximately $63 million of debt financing. This
debt is not guaranteed by Cone Mills Corporation or CIPSA.
In order to meet the company's goal of $1 billion in sales and
commensurate growth in earnings by 1996, Cone Mills' second priority for
cash flow and available credit is acquisitions. The company actively seeks
possible acquisitions to which it believes it can add value through
application of its manufacturing and marketing expertise. There can be no
assurance that any actual transaction will ultimately result, but the
consummation of any such transaction could involve a significant financial
commitment.
Other potential uses of cash include the reduction of preferred stock,
cash dividends or common stock repurchases, depending on the expected
benefits to shareholders. On February 17, 1994, the Board of Directors of
Cone Mills Corporation authorized the repurchase, from time to time, of up
to 2.5 million shares of the company's outstanding common stock in open
market transactions. To date 6,800 shares have been repurchased in open
market transactions and future repurchase decisions will be based on the
company's expected capital structure, alternative investment
opportunities, and the market price of the common stock.
The company believes that its internally generated operating funds and
funds available under its credit facilities are sufficient to meet its
working capital, capital spending, possible stock repurchases, and
financing commitments needs for the foreseeable future, including the
investment in the joint venture.
Page 25
<PAGE>
FORM 10-Q
PART II
Item 1. Legal Proceedings
In November 1988, William J. Elmore and Wayne Comer (the "Plaintiffs"),
former employees of the Company, instituted a class action suit against
the Company and Wachovia Bank & Trust Company, N.A. ("Wachovia") and
certain current and former employees of the Company and Wachovia. The
suit was brought on behalf of salaried employees of the Company who were
participants in certain Company retirement plans. The Plaintiffs asserted
a variety of claims related to actions taken and statements made
concerning certain employee benefit plans maintained by the Company.
On March 20, 1992, the United States District Court in Greenville, South
Carolina, entered a judgment finding that the Company had promised to
contribute certain surplus funds (or their equivalent in Company stock)
relating to the overfunding of the Company's pension plans to the 1983
ESOP by December 23, 1985, that such surplus amounted to $69 million, that
the Company's actual contribution totaled approximately $55 million, and
that the Company and certain of its executive officers therefore had
breached their fiduciary duties under the Employee Retirement Income
Security Act of 1974 ("ERISA") to certain participants in the 1983 ESOP.
The District Court ordered the Company to pay to the 1983 ESOP for the
benefit of plan participants, both salaried and hourly, the sum of $14.2
million in cash or the equivalent in Company stock. In addition, the
District Court awarded $3.5 million in attorneys' fees to the Plaintiffs,
$2.2 million of which is to be paid from the sum awarded to the 1983 ESOP.
Judgment was entered in favor of the defendants on all remaining claims
except for claims relating to the ESOP contribution.
On March 20, 1992, the Company and the individual defendants appealed the
District Court's judgment against them to the United States Court of
Appeals for the Fourth Circuit. On April 2, 1992, the Plaintiffs appealed
the District Court's judgment to the Court of Appeals insofar as it
dismissed certain of their claims.
On May 6, 1994, the Court of Appeals, sitting en banc, affirmed the prior
conclusion of a panel of three of its judges and unanimously reversed the
$15.5 million judgment and unanimously affirmed all of the District
Court's rulings in favor of the Company. However, the Court of Appeals
affirmed, by an equally divided court, the District Court's holding that
Plaintiffs should be allowed to proceed on an alternative
Page 26
<PAGE>
FORM 10-Q
Item 1. (continued)
theory whether, subject to proof of any detrimental reliance, Plaintiffs
could establish that a letter to salaried employees on December 15, 1983
could allow recovery on a theory of equitable estoppel. Accordingly, the
case was remanded to the District Court for a determination of whether the
Plaintiffs can establish detrimental reliance creating estoppel of the
Company.
The issue of detrimental reliance and other issues related to whether the
Plaintiffs can prevail on remand in the District Court are factually
oriented, and additional proceedings will likely be necessary. For that
reason, and because of the uncertainties inherent in the litigation
process, it is not possible to predict the ultimate outcome of this
lawsuit. However, the Company intends to continue to defend this matter
vigorously, and it is the opinion of the Company's management that this
lawsuit, when finally concluded, will not have a material adverse effect
on the Company's financial condition.
The Company is a party to various other legal claims and actions
incidental to its business. Management believes that none of these claims
or actions, either individually or in the aggregate, will have a material
adverse effect on the financial condition of the Company.
Page 27
<PAGE>
FORM 10-Q
Item 4. Submission of Matters to a Vote of Security Holders
Cone Mills Corporation Annual Meeting of Shareholders was held May 10,
1994. The proposals voted upon and the results of voting were as follows:
(1) Election of Class II Directors for Three-Year Term
<TABLE>
<S> <C> <C>
Votes Votes
For Withheld
J. Patrick Danahy 22,126,703 278,844
Leslie W. Gaulden 22,125,993 279,554
Jeanette C. Kimmel 22,125,703 279,844
John W. Rosenblum 22,125,303 280,244
</TABLE>
All Class I and Class III Directors continue as previously reported.
(2) Proposal to adopt 1994 Stock Option Plan for Non-Employee Directors:
<TABLE>
<S> <C>
Votes For 21,673,301
Votes Against 657,833
Abstentions 74,413
(3) Proposal to approve ratification of McGladrey & Pullen as
independent auditor for 1994.
<S>
Votes For 22,346,040
Votes Against 35,594
Abstentions 23,913
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a) The exhibits to this Form 10-Q are listed in the accompanying Index
to Exhibits.
(b) Reports on Form 8-K
None
Page 28
<PAGE>
FORM 10-Q
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CONE MILLS CORPORATION
(Registrant)
Date August 13, 1994 JOHN L. BAKANE
John L. Bakane
Vice President and
Chief Financial Officer
Page 29
<PAGE>
FORM 10-Q INDEX TO EXHIBITS
Exhibit Sequential
No. Description Page No.
2.1 Amendment dated as of June 30, 1994 to
Receivables Purchase Agreement dated
as of August 11, 1992, between Cone
Mills Corporation and Delaware Funding
Corporation. 32
* 4.1 Restated Articles of Incorporation of
the Registrant effective August 25, 1993,
filed as Exhibit 4.1 to Registrant's
report on Form 10-Q for the quarter ended
October 3, 1993.
* 4.2 Amended and Restated Bylaws of Registrant,
Effective June 18, 1992, filed as Exhibit
3.5 to the Registrant's Registration
Statement on Form S-1 (File No. 33-46907).
* 4.3 Note Agreement dated as of August 13, 1992,
between Cone Mills Corporation and The
Prudential Insurance Company of America,
with form of 8% promissory note attached,
filed as Exhibit 4.01 to the Registrant's
report on Form 8-K dated August 13, 1992.
* 4.4 Credit Agreement dated as of August 13, 1992,
among Cone Mills Corporation, the banks
listed therein and Morgan Guaranty Trust
Company of New York, as Agent, with form
of note attached, filed as Exhibit 4.02 to
the Registrant's report on Form 8-K dated
August 13, 1992.
* 4.5 Specimen Class A Preferred Stock Certificate,
filed as Exhibit 4.5 to the Registrant's
Registration Statement on Form S-1
(File No. 33-46907).
* 4.6 Specimen Common Stock Certificate,
effective June 18, 1992, filed as
Exhibit 4.7 to the Registrant's
Registration Statement on Form S-1
(File No. 33-46907).
Page 30
<PAGE>
FORM 10-Q INDEX TO EXHIBITS
Exhibit Sequential
No. Description Page No.
* 4.7 Registration Rights Agreement dated
as of March 30, 1992, among the
Registrant and the shareholders listed
therein, filed as Exhibit 4.8 to the
Registrant's Registration Statement on
Form S-1 (File No. 33-46907).
* 4.8 The 401(k) Program (formerly the
Supplemental Retirement Program) of
Registrant, amended and restated
effective January 1, 1994, filed as
Exhibit 4.9 to the Registrant's
Registration Statement on Form S-8
(File Nos.33-51951 and 33-51953).
* 4.9 Cone Mills Corporation 1983 ESOP as
amended and restated effective March 1,
1993, filed as Exhibit 4.9 to Registrant's
report on Form 10-K for the year ended
January 2, 1994.
*10.1 1994 Stock Option Plan for Non-Employee
Directors of Registrant filed as Exhibit
10.9 to Registrant's report on Form 10-K
for the year ended January 2, 1994.
*10.2 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.
* Incorporated by reference to the statement or report indicated.
Page 31
<PAGE>
FORM 10-Q
EXHIBIT 2.1
AMENDMENT TO RECEIVABLES PURCHASE AGREEMENT
AMENDMENT dated as of June 30, 1994 ( this "Amendment") of a
Receivables Purchase Agreement dated as of August 11, 1992, as amended (as
amended, the "Receivables Purchase Agreement") between CONE MILLS
CORPORATION (the "Seller") and DELAWARE FUNDING CORPORATION (the "Buyer").
Terms defined in the Receivables Purchase Agreement and not otherwise
defined herein have the same meaning when used herein.
WITNESSETH:
WHEREAS, the Seller and the Buyer are parties to the Receivables
Purchase Agreement; and
WHEREAS, the Seller and the Buyer desire to amend the Receivables
Purchase Agreement (i) to increase the Maximum Net Investment, (ii) to
extend the Expiration Date and (iii) to increase the maximum permissible
length of the Tranche Periods;
NOW, THEREFORE, the parties hereto, in consideration of their
mutual covenants hereinafter set forth and intending to be legally bound
hereby, agree as follows:
ARTICLE I. Amendment to the Receivables Purchase Agreement.
Subject to the satisfaction of the conditions precedent specified
in Article IV hereof, the Receivables Purchase Agreement and the exhibits
thereto shall be amended as follows:
(a) The definition "Expiration Date" in Section 1.01 of
the Receivables Purchase Agreement is amended by replacing clause
(i) of said definition with "(i) June 28, 1995,";
(b) The definition "Maximum Net Investment" in Section
1.01 of the Receivables Purchase Agreement is amended by
replacing "$40,000,000" therein with "$50,000,000".
Page 32
<PAGE>
FORM 10-Q
EXHIBIT 2.1 (continued)
(c) The definition "Tranche Period" in Section 1.01 of
the Receivables Purchase Agreement is amended by replacing the
phrase "90 days" in the first sentence therein with the phrase
"120 days".
(d) Section 2.15 of the Receivables Purchase Agreement is
amended by deleting the date "August 31, 1994" therein and
replacing such date with the date "June 28, 1995".
ARTICLE II. Representations.
The Seller hereby represents and warrants that, after
giving effect to this Amendment:
(a) the representations and warranties set forth in
Section 5.01 of the Receivables Purchase Agreement are true on
the date hereof as if made on and as of the date hereof except as
such representations and warranties specifically relate to an
earlier date and as if each reference to the "Receivables
Purchase Agreement" in said Section 5.01 was deemed to be a
reference to the Receivables Purchase Agreement as amended by
this Amendment; and
(b) there shall exist no Termination Event or Potential
Termination Event under the Receivables Purchase Agreement.
ARTICLE III. Status of the Receivables Purchase
Agreement.
Except as otherwise expressly provided herein, all terms
and conditions of the Receivables Purchase Agreement are ratified and
shall remain unchanged and continue in full force and effect. Each
reference in the Receivables Purchase Agreement to such Agreement or any
exhibit thereto shall mean and be a reference to the Receivables Purchase
Agreement and the exhibits thereto as amended hereby.
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FORM 10-Q
EXHIBIT 2.1 (continued)
ARTICLE IV. Conditions Precedent.
The amendments to the Receivables Purchase Agreement set
forth in Article I hereof shall become effective upon:
(i) the execution and delivery of this Amendment by each
of the parties hereto;
(ii) the delivery by the Seller to the Buyer of
certification that all necessary corporate action has been taken
by the Seller to approve this Amendment and the sale of
Receivables by the Seller under the Agreement as amended hereby
(including without limitation, a certificate setting forth the
resolutions of the Seller adopted in respect of the transaction
contemplated hereby); and
(iii) the Buyer shall have received a favorable written
opinion of Neil Koonce, General Counsel of the Seller, dated the
date hereof and covering the matters set forth in paragraphs
1,2,3,4 and 5 of the opinion of Schell Bray Aycock Abel &
Livingston delivered pursuant to Section 3.02(j) of the
Receivables Purchase Agreement
ARTICLE V. Governing Law.
This Amendment shall be governed by and construed in
accordance with the laws of the State of New York.
ARTICLE VI. Counterparts.
This Amendment may be executed in any number of counterparts,
all of which taken together shall constitute one agreement, and any of the
parties hereto may execute this Amendment by signing such counterpart.
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FORM 10-Q
EXHIBIT 2.1 (continued)
IN WITNESS WHEREOF, each of the parties hereto have caused a
counterpart of this Amendment to be duly executed as of the date first
above written.
DELAWARE FUNDING CORPORATION
by: J. P. Morgan Delaware,
as attorney-in-fact
for Delaware Funding
Corporation
by: ROBERT J. HENCHEY
ROBERT J. HENCHEY
Vice President
Title
CONE MILLS CORPORATION
by: JOHN L. BAKANE
JOHN L. BAKANE
Vice President and
Chief Financial Officer
Title
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